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Earnings Recap – Week of 5/3/2020: Part 1

Earnings Recap – Week of 5/3/2020: Part 1

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This is a crazy week for earnings, with 5 of the top 10 positions in the Freedom Portfolio reporting earnings on the 5th or 6th and another 3 major positions reporting on the 7th. Here are some quick numbers and some thoughts from me about the first batch.

Disney (DIS)

  • Disney+ has reached 54.5M subscribers
  • Shanghai Disneyland will re-open within the week
  • Prior to the closure of domestic parks and resorts, volumes and guest spending were higher compared to the prior-year quarter
  • The summer dividend is being skipped, which will save the company about $1.6 billion
  • View Earnings Report Here
  • My thoughts: I was actually a little disappointed in the Disney+ subscriber numbers considering they had announced over 50 million a month ago. Still, Disney+ has been an unqualified success considering they are hitting their subscriber numbers 4 years early. Every other segment of their business is getting hammered, but Disney has plenty of cash available and should be able to weather this storm assuming theme parks / movie theaters / professional sports starts gearing back up in the not-too-distant future.

MercadoLibre (MELI)

  • Net revenue was up 70.5% year-over-year on an FX neutral basis
  • Total payment volume (TPV) through Mercado Pago was up 82.2% year-over-year on an FX neutral basis
  • Off platform TPV grew 139.5% year-over-year on a FX neutral basis
  • Mobile wallet saw 299.2% year-over-year growth on a FX neutral basis for the full first quarter 2020
  • Their new asset management product, Mercado Fondo, is now available in Argentina, Brazil and Mexico
  • View Earnings Report Here
  • My thoughts: What an amazing earnings report. Look at all of those massive growth numbers. It’s no surprise why the stock jumped around 20% after these earnings. Despite the big run-up, I think MercadoLibre’s growth is just beginning. Latin America as a region should have a long runway of growth ahead of it, and if Venezuela ever gets its act together or foreign currency headwinds turn into tailwinds, that could really help the company soar as well. Many people think of MercadoLibre as the eBay (EBAY) or Amazon (AMZN) of Latin America, but I think that comparison is increasingly inaccurate and selling them short. With their booming digital payments business, they are looking more and more like the Square (SQ) or PayPal (PYPL) of Latin America as well.

Shopify (SHOP)

  • Revenue of $470M beat estimates by $27.08M and was up 46.7% year over year
  • Gross merchandise volume (GMV) of $17.4B beat estimates of $16.83B and was up 46% year over year
  • Non-GAAP EPS of $0.19 beat by $0.36
  • GAAP EPS of -$0.27 beat by $0.50
  • Subscription Solutions revenue grew 34% to $187.6M
  • Merchant Solutions revenue expanded 57% to $282.4M, driven primarily by the growth of GMV.
  • View Earnings Report Here
  • My thoughts: Shopify’s numbers were fairly impressive (especially in how they beat some pretty high expectations), but the numbers don’t seem to tell the whole story here. Shopify seems to be the company for the current Coronavirus / social distancing moment in that they are ideally positioned to help companies adjust to selling things online. This is on top of already being the “rebels” to Amazon’s “empire”. The stock has been on a ridiculous run, and the valuation is getting very pricey, so it’s almost impossible for it to keep growing at this pace for much longer. Still, I considered selling Shopify back in June of last year when it was around $300 a share and can’t imagine how much I would’ve regretted it had I done it then. I don’t like to sell based on valuation concerns alone, so I’m sticking with Shopify to see where this story goes.
Quick takeaways from a big earnings week

Quick takeaways from a big earnings week

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Six companies representing a combined 35% of the Freedom Portfolio released earnings last week. Here is a quick look at their performance since the beginning of last week:

  • Shopify (SHOP) – Up 12.9%
  • Mercado Libre (MELI) – Up 12.9%
  • Redfin (RDFN) – Up 24.3%
  • Roku (ROKU) – Up 1.0%
  • Shockwave Medical (SWAV) – Down 2.4%
  • CRISPR Therapeutics (CRSP) – Up 4.8%

I already briefly touched on the earnings from the two biggest positions: Shopify and Mercado Libre, but I wanted to speak briefly on the others as well:

Redfin – The biggest move belongs to Redfin, and it feels like the market is finally catching on to how well the company has been performing over the past two quarters. The stock is up nearly 50% this year alone. I liked almost everything about their earnings report, but there are two things I want to keep an eye on. The first is that stock based compensation doesn’t get out of hand. The second is that they continue to take market share. I was hoping at some point to see an acceleration of gains in market share at some point but it continues to disappointingly move in fits and starts, although the general trend is upward.

Roku – Roku also had a pretty good quarter, but I think this was a case where a lot of the good news was already priced in (the stock has quintupled over the past 2 and a half years). So while it was disappointing to not see a bigger move, it’s understandable. I want to try to do some more research into the connected TV space over the coming months, as I have a lot of exposure to companies like The Trade Desk (TTD), Telaria (TLRA), and Roku and I don’t feel like I understand that space as well as I should.

Shockwave Medical and CRISPR Therapeutics – The main thing to say about these two companies is that there’s honestly not much to say about them in terms of their earnings reports. Both are such early stage companies that it’s fairly meaningless to look at things like revenue and earnings. I’m less concerned if they met some analyst estimates and far more interested in learning more about how clinical trials and adoption rates are coming. In both cases, I remain cautiously optimistic (with the huge caveat that I am not a doctor by any stretch) and so am happy holding both as small positions for now.

Shopify exemplifies the power of long term investing

Shopify exemplifies the power of long term investing

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Shopify (SHOP) has been on an incredible run lately, having nearly tripled in the past year before today. Expectations were undoubtedly high going into their earnings release this morning and I was prepared for even the slightest negative news to cause a big drop in the stock.

Instead, they released results which appear to have blow past even the most optimistic estimates with a beat on revenue and an even bigger beat on earnings. The stock is up big today and if the results hold will have more than tripled over the past year.

I don’t want to overly focus on Shopify’s earnings right now, though, and instead want to take this opportunity to show the power of buying quality companies and holding them for the long run.

Shopify is currently the best performer in the Freedom Portfolio with an return of over 1100%. Jumia (JMIA) is currently one of my two worst performers having lost 62% of its value. By sheer coincidence my initial position size for both were very similar, yet their impacts on my portfolio couldn’t be more dissimilar.

Shopify’s gains are currently 20 times Jumia’s losses. In fact, even if Jumia went to zero tomorrow, Shopify’s gains would still be 13 times the complete loss I would suffer from Jumia. That’s one of the incredible and under-appreciated things about investing: A bad call can only ever lose you 100% of the money put in, but a good call can earn you 1,000% or more and can more than make up for many losers. That’s something that I learned from David Gardner at the Motley Fool.

One other thing I learned from him? What a spiffy pop is. The short description is that it’s a term that describes when a stock goes up more in a single day than what you paid for it. I bought my shares of Shopify in 2017 for $44.55 a share. As of this writing, Shopify is up close to $60 a share today. If that doesn’t illustrate the power of buying quality companies and holding them for the long term, I don’t know what does.

Mercado Libre 2019 Q4 results show it’s still growing like crazy

Mercado Libre 2019 Q4 results show it’s still growing like crazy

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Mercado Libre (MELI) announced their fourth quarter earnings yesterday after market close and put up some pretty incredible growth numbers. As a reminder, Mercado Libre is an eCommerce and digital payments company based in Latin America with most of their business happening in Mexico, Brazil, and Argentina. You could think of them as a combination of Amazon (AMZN), eBay (EBAY), PayPal (PYPL), and maybe even Square (SQ) of Latin America.

Here are the highlights. Since the company does business in numerous countries with different currencies, all numbers are in local currency unless otherwise specified.

  • Net revenue grew 84% year over year
  • For digital payments: Total payment volume grew 99% year over year, which was an acceleration from the previous quarter
    • This includes a huge 176% increase in off-platform payments
  • Gross Merchandise Volume (GMV) was up 40%
    • 109% growth in Argentina

Additionally, the company continues to make steady progress expanding their fulfillment network and growing their credit service, mobile point of sale (mPOS) and wallet initiatives. There are a lot of different ways for this company to grow.

The stock is currently down slightly, although it’s hard to see why. Margins dropped a bit due to the company spending a lot on growth, which is exactly what you would hope a company like this would be doing. I loved pretty much everything about this earnings report, as it shows that Mercado Libre is executing really well and has a lot of avenues for growth ahead of it. Digital Payments and eCommerce should continue to grow, as should the overall wealth of Latin America in general. Mercado Libre is already a Babylon 5 level position which is up 77% over the past year, otherwise I would consider adding to my position here. I love the potential of this company over the next 10+ years.

Disney crushes on all fronts and the market shrugs

Disney crushes on all fronts and the market shrugs

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Disney (DIS) announced earnings after market close on February 4th and the results were impressive across the board.

The good stuff (there’s a lot):

  • Revenue of $20.86 billion was up 36% year over year and beat consensus estimates of $20.81 billion
  • As of February 3rd, Disney+ had 28.6 million subscribers, which blew away early estimates and means after a mere three months they have nearly half the number of domestic subscribers that Netflix has. It’s also already halfway to the lower end of their 60 – 90 million estimate for 2024.
  • The bundling of Disney+/Hulu/ESPN+ seems to be working too, as ESPN+ went from 3.5 million subscribers to 7.6 million in those same three months
  • Disney also announced they would be launching Disney+ in India via Hotstar in March, which is earlier than previously expected
  • Revenue by segment was strong across the board:
    • Media Networks – Up 24% year-over-year
    • Parks, Experiences, and Products – Up 8% year-over-year
    • Studio Entertainment – Up >100% year-over-year
    • Direct-to-Consumer and International – Up >100% year-over-year

Obviously some of those comparisons are skewed due to the Fox acquisition and the fact that Disney+ didn’t even exist a year ago, but those are still some impressive results (and will make for some tough comps next time around). Still, if you’re a Disney shareholder (as I am), then you should be pretty pleased with those results. So why is Disney down a few percentage points?

I’m honestly not sure. There appeared to be some concern that they weren’t raising guidance around Disney+ despite the fast head start the service has had, but the explanation that it was too early made sense to me (Disney+ still isn’t available in many countries around the world). There could also be some concern over how the Coronavirus will affect future earnings after Disney shut down their parks in Shanghai and Hong Kong.

Neither of those dampen my enthusiasm for the stock at all. Disney had a magical year at the box office last year which it is unlikely to replicate in 2020, but the stars seem to be aligning for incredible growth in their streaming services as new original content comes online and the service becomes available in other countries. I’m as excited as ever to be a shareholder and look forward to holding for many years to come.

Netflix, Tesla, and Amazon crush earnings season

Netflix, Tesla, and Amazon crush earnings season

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Over the past two weeks, three companies that make up a combined 23% of the freedom portfolio reported earnings. Here are some quick hits for each:

Netflix (NFLX)

Netflix reported earnings on January 21st and as of the time of this writing is up 5% since then. It has been the laggard of this group.

The Good: One of the most closely watched numbers when it comes to Netflix’s earnings report is their subscriber growth. In this area, they didn’t disappoint, adding 8.76 million paid subscribers, easily beating their forecast of 7.6 million. They also beat on earnings estimates. And for all the hype around the new Disney+ original The Mandalorian, Netflix was able to present some impressive numbers showing how popular their new show The Witcher was as well. Perhaps most importantly? It looks like 2019 might have represented peak cash burn for Netflix, as they are forecasting a smaller loss in 2020. The path to profitability is beginning to come into focus.

The Bad: While overall subscriber growth was great, domestic subscriber growth actually fell short of expectations. We now have a few data points indicating that, whether due to the market being saturated or the increasing presence of competition, US subscriber growth has come to a grinding halt. International subscribers more than made up for it, but the margins on international subscribers are worse (due in small part to lower cost mobile only plans in India) and there’s an open question on how much pricing power Netflix has overseas (as well as how much they have in the US now that there is increased competition).

The Future: There are two big questions facing Netflix going forward. First, can they take their foot off the gas in terms of burning through cash to produce new content while still putting up strong growth in subscribers? Secondly, how will the introduction of lower-cost competition both domestically and abroad (Disney+ is expected to launch in many additional markets in 2020) affect churn and depress Netflix’s pricing power? I think Netflix is in a pretty strong position with a huge slate of original content and a first mover advantage worldwide, but only time will tell.

Tesla (TSLA)

Tesla reported earnings on January 29th and the stock immediately popped more than 10% the next trading day. It has continued to climb and with today’s big rise is now around 30% higher than it was a few days ago.

The Good: The company beat expectations on both revenue and earnings per share while also reporting some strong numbers in terms of deliveries. To top it all off, they company also moved forward the expected launch date for the Model Y. It was a little surprising to see such a big jump after the stock had already more than tripled over the past 8 months, but I guess that’s what happens when a stock is so heavily shorted and the company starts to release positive information.

The Bad: But it’s not all sunshine and rainbows. While the company was profitable, they still have a massive debt load which they will have to deal with at some point. The Chinese Gigafactory is online but now they will need to spend big to get the German Gigafactory assembled. Model 3 sales are doing great, but they appear to be cannibalizing the more expensive Model S and Model X sales, which is pressuring margins.

The Future: Tesla seems to have answered the question of if they can scale up production while also being profitable. The next big question for me is if demand keeps up over the coming quarters and years. Has Tesla unlocked some hidden desire for electric vehicles among the population? Or have they mostly been dealing with pent up demand from their passionate fan base? The other big question is just how close Tesla is to full self driving capability. Also, the Model 3 seems to have been a big hit. Can the Model Y and Cybertruck and Tesla Semi continue that streak? Will Tesla take advantage of their high stock price and have a stock offering to raise money to pay down debt? One thing is for sure, Tesla will certainly continue to be an exciting stock for the next few years.

Amazon (AMZN)

Amazon reported earnings after market close on January 30th. The stock initially popped over 10% after hours before getting dragged down by the overall market concerns over coronavirus. As of the time of this writing, it is up around 8%. That may not sound impressive, but it’s an incredible move for such a large company and represents tends of billions of dollars of added market cap (even more than Tesla added).

The Good: Everything? It was a blowout earnings report by almost every measure. Revenue was up 21% year-over-year to $87.4 billion, beating wall street estimates of $86 billion. Operating income was $3.88B compared to the $2.7B consensus. Amazon also reported an earnings per share (EPS) of $6.47, which crushed the consensus estimate of $3.98. Amazon Web Services (AWS) revenue was up 34% and “other” revenue (which is largely made up of their ad business) was up 41%.

Lastly, they reported that they now had over 150 million prime users, which is a nice base of recurring subscription revenue to rely on.

The Bad: As alluded to before, there wasn’t much to criticize in the earnings report. Amazon continues to spend a lot of money to invest in their cloud infrastructure, one day shipping, and international expansion, but given their history these seem like good bets to pay off over the long term.

The Future: It’s going to be interesting to continue to watch the competition in the cloud computing space. Can AWS maintain its lead over Azure and others? Will Amazon’s advertising business continue its incredible growth, or will concerns over harming the customer experience and hurting relationships with clients cause them to take their foot off the gas? The biggest thing I will be keeping my eye on, though, is how their efforts to expand into India are going. It’s a potentially massive opportunity that Amazon has spent a lot of money on but they appear to be getting some push back. If they can become a major player in India, then the next decade could be incredibly positive for Amazon.

Earnings Roundup – Nov 6, 2019

Earnings Roundup – Nov 6, 2019

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Four companies in the Freedom Portfolio reported earnings yesterday after market close. How did they do? Here’s a quick earnings roundup:

iQiyi (IQ)

  • Subscribing members rose 31%, from 80.7 million to 105.8 million.
  • 99.2% of subscribers are paying members.
  • Total revenues increased 7% year-over-year.
  • Stock up 16% at the time of this writing.
  • Honestly not a great quarter, with a very cautious tone warning about a “challenging environment”. Wall street seems happy, though. Maybe due to low expectations after the stock has under performed over the past few months?

Invitae (NVTA)

  • Revenue up 51.2% year-over-year.
  • Signed contract with Cigna, effective December 1, 2019.
  • Stock up 2% at the time of this writing.
  • Pretty good report. They had a miss on earnings but a beat on revenue, which I’m comfortable with for a company still in growth mode.

Redfin (RDFN)

  • Revenue up 70% year-over-year.
  • Market share of U.S. existing home sales by value increased by 0.02 percentage points from the second quarter of 2019 and 0.11 percentage points year-over-year.
  • Visitors to their website and mobile application increased by 22% year-over-year.
  • Real estate services gross margin increased to 35% from 34% a year ago.
  • Stock has been all over the place, but is currently down 3% as of the time of this writing.
  • A really great earnings report for the second consecutive quarter, and yet the stock continues to languish or even go down afterwards for some reason. I can’t quite figure it out, but am still optimistic on the long term prospects. At some point the market needs to recognize the growth with this company.

Square (SQ)

  • Total net revenue up 44% year-over-year.
  • Excluding bitcoin, Cash App revenue up 115% year-over-year.
  • Non-GAAP earnings per share (EPS) up 92%.
  • Stock up 7% as of this writing.
  • A really solid earnings report that shows that the growth story is still very much intact for Square. The stock has been strangely flat-to-down this year while similar companies like Shopify (SHOP) have soared. The growth with the cash app is especially exciting, and I’m very interested in seeing where the new stock buying functionality takes them.
Netflix Stops the Bleeding

Netflix Stops the Bleeding

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Around three months ago, right after Netflix (NFLX) announced some disappointing 2nd quarter earnings, I wrote about my concerns over their slowing growth and that I was considering selling some of my shares (which I did end up doing). Since then, the stock has been very volatile and sentiment on the company definitely appears to have changed. Many article were written about Netflix’s amazing growth is finally over now that serious competition is entering the space and the high amounts of spending on original content is about to catch up to them. I mostly didn’t buy those bear cases, and believed that as the world increasingly moves to streaming video, there was still significant growth left for Netflix and room for them to be a major player.

Which isn’t to say I don’t have concerns about Netflix going forward. While there is still plenty of growth left internationally, it does seem like the domestic market is pretty saturated. The entry of cheaper competition and the loss of content like The Office and Friends seems likely to reduce their ability to raise prices in the future. Can the margin on international subs, including places like India where they offer mobile-only plans? Will they ever be able to take their foot off the pedal in terms of creating new content without losing subscribers?

So I was very interested in seeing Netflix’s third quarter earnings, which they announced yesterday. It was the last earnings report before Disney+ and Apple TV+ are launched in November and if they showed another quarter of disappointing subscriber growth, then that would certainly be a big warning sign.

So what did earnings look like? Honestly, they were a bit mixed. Perhaps the most watched number was subscriber additions. Netflix reported 6.8 new subscribers, which barely missed their forecast of 7 million. Still, it was an incredible rebound from the 2.7 million additions they reported in the second quarter. Once again, the majority of the growth came from overseas. Revenue came in right around forecast, although they did beat their earnings per share forecast by a fair amount.

The market seemed torn on how to digest the news. Immediately after the earnings report was released, the stock dropped, before it recovered and started today up around 10%. Since then, it has steadily declined and is now closer to 3-4% up.

I can sympathize with the market a bit. In many ways, it was an impressive report. Netflix continues to grow subscribers at an impressive clip, especially overseas. They continue to be the clear leader in a market that only figures to continue growing by leaps and bounds. At the same time, their growth seems to be decelerating (especially in the US) right before some impressive competitors are entering the space and there’s legitimate questions on how profitable the company can end up being once they’re no longer in growth mode.

My history with Netflix has shown that I always regret underestimating Netflix and Reed Hastings. I trimmed my position a few months ago, but I’m planning on holding onto the rest of my shares for the foreseeable future. I’m well aware of the challenges facing the company, but I also think their growth story isn’t quite over yet. We’ll see if I’m right or not.

SARS Earnings: Or why I need to stop forcing acronyms

SARS Earnings: Or why I need to stop forcing acronyms

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The past week or so saw a lot of large positions in the Freedom Portfolio report earnings. I didn’t get a chance to write anything up individually for those earnings reports, so I thought I would combine them all and do a quick overview of what happened and my thoughts. And because I’m always looking for a good reason to come up with an acronym, I dub this overview S.A.R.S.

Shopify (SHOP)

What happened: Shopify announced earnings on August 1st, and the stock jumped in response. As of today it has given up most of those gains, although I suspect that has more to do with the overall market being down over concerns with what is going on in China.

Key Takeaways:

  • Revenue was up 48% year over year, from $245 million to $362 million
  • Margins increased to 56.6%, up from 55.9% a year ago
  • Full year revenue projections were increased to $1.51 billion to $1.53 billion, up from the previous range of $1.48 billion to $1.50 billion

One sentence summary: Shopify’s main business is firing on all cylinders and they continue to invest in even more growth opportunities for the future like their fulfillment network.

Amazon (AMZN)

What happened: Amazon announced earnings on July 26th, and the market didn’t seem too impressed. The stock dropped a fair bit immediately afterwards and has continued to drop since (although as alluded to before, it’s hard to disentangle how much is related to larger market concerns).

Key Takeaways:

  • Revenue increased 20% year over year, which is an acceleration of the previous two quarter’s growth rates
  • Spending to upgrade from two day shipping to one day shipping was $800 million, with more spending planned next quarter
  • Amazon Web Services (AWS) revenue grew 37% year over year, which was a deceleration from the previous quarter

One sentence summary: The long term investor in me is glad to see that Amazon continues to place long term growth over short term considerations with the investment to upgrade their shipping capabilities.

Redfin (RDFN)

What happened: Redfin reported earnings on August 1st, and the stock jumped the next day on the largely positive numbers. Some of those gains have been given back since, but it remains in the green.

Key Takeaways:

  • Revenue grew 39% to $197.8 million from $142.6 million
  • Revenue from Redfin Now, where they buy and sell homes directly, grew from $9 million to $39.9 million year over year
  • The company accounted for 0.94% of U.S. existing home sales by value, which might not seem like much, but it’s up from 0.83% a year ago
  • Monthly average visitors to the website increased 27% year over year

One sentence summary: Really impressive quarter where all the metrics appear to be moving in the right direction.

Square (SQ)

What happened: Square reported earnings on August 1st, and the market was not pleased with what it saw. The stock dropped sharply the next day and has continued to drop today.

Key Takeaways:

  • Revenue grew 46% year over year, beating analysts’ forecasts
  • Adjusted EBITDA grew 54% year over year
  • Cash App revenue has grown from $0 to $135 million in three years
  • Announced they were selling their Caviar business to Door Dash
  • Maintained guidance for full year revenue

One sentence summary: The market seemed disappointed by the lack of a bump up in guidance, but I just see an incredibly fast growing company with a powerful foothold in the growing digital payments space.

NovoCure Up, Tesla Down

NovoCure Up, Tesla Down

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Tesla (TSLA) and NovoCure (NVCR) are making big moves this morning after having recently announced earnings. Tesla announced after market close yesterday and NovoCure announced before market open this morning. As the headline spoiled, the results (and market reaction) were polar opposites. Here are my main takeaways:

Tesla

In a vacuum, Tesla had a pretty bad quarter where they missed expectations pretty badly.

  • Loss per share of $1.12 vs. $0.40 expected
  • Revenue of $6.35 billion versus $6.41 billion expected

But if you’re less concerned about the short term, quarter-to-quarter viewpoint and more interested in the long term story, there’s some good news too.

  • Vehicle deliveries increased 134% year-over-year
  • Revenue increased 59% year-over-year

So the company is still growing rapidly, although it continues to struggle to actually make money while selling record amounts of vehicles (for the company at least). Tesla did say they planned to be profitable in the third quarter, but they’ve been overly optimistic in the past.

All-in-all, it’s not a good quarter, which is why the stock is down big today, but nothing in this report significantly changes my long-term investment thesis. If anything, I’m encouraged that demand still seems to be there and operations in China seem to be ramping up. There’s still a lot of uncertainty, and there could easily be big speed-bumps ahead, but I’m holding onto my position for now and might even add a bit if the stock keeps dropping.

NovoCure

NovoCure, on the other hand, had nothing but good news to report:

  • Beat expectations on both revenue and earnings
  • 41% revenue growth year-over-year
  • 26% increase in active patients
  • Progress on their pipeline for expanding treatment to other cancers

All good signs with very few concerns. The stock has already more than doubled year-to-date and as of this writing is up another 10% today. And with the possibility of more types of cancers that their Optune system can get approval to treat, there’s still a lot of upside as well. I’m definitely holding onto my position and might even consider adding on any dips.