Weekly Earnings Review: October 30, 2023- November 2, 2023

    This week is full of earnings from a variety of companies. The market performed extremely well as rates may not be hiked any further and jobs data came in way better than expected. Keep reading to find some insight on some of these companies earnings reports. 

Monday, October 30, 2023

Arista Networks (ANET)-

    Arista Networks is trading higher after reporting earnings. The company had a solid beat on both the top and bottom line. The company saw around a 28% increase in revenue and adjusted earnings per share rose 46%. Arista stated that the customer momentum remained strong in both enterprise and AI/cloud sectors. The CFO stated that the company continues to demonstrate strong discipline and are working to normalize the supply chain metrics and deliver improvements to the 2023 outlook. The revenue growth calls for over a 33% increase for 2023 as a whole. The Cloud and AI Titan sectors of the business are supposed to make up over 40% of their total revenue. This is showing that the company is diversifying a bit. The supply chain is something to credit in the improvement of the business and it looks to continue to be healthy into 2024. Overall, a wonderful quarter for the company as it looks to continue gaining market share.

Wolfspeed (WOLF)-

    Wolfspeed has seen a major downturn in its stock price. However the stock is up big after reporting earnings. The company met expectations on the top line and beat on the bottom line. Wolfspeed operated in a niche market and seems to be the only player as of right now. The company has a new plant in New York that is now on track to meet its 20% utilization goal. The fab facility saw $4M in revenue, which was up from $1M last quarter. The guidance for the fab facility is expected to be $10-15M in the next quarter. The company is very confident in the demand in automotive space, but are facing some challenges in China and Asia in terms of the energy space. It was a huge sigh of relief for investors to see some positives from the investment in the fab facility. The investment still has a long way to go, but if they can keep utilization rates up and continue growing revenues, investors will stay happy. With the company being the only pure-play operator in its space, the upside seems high and a competitive advantage may be forming.

Tuesday, October 31, 2023

Lumen Technologies (LUMN)-

    Lumen continues to disappoint despite beating on the top line. The company missed on the bottom line. The stock was slammed due to the poor operating results and the selling of the EMEA unit that is set to happen at the beginning of this month. In fact, I have decided to liquidate my position and invest elsewhere. This was one of my first investments and I definitely messed up. I was an immature investor and decided to chase high dividend yields without my knowledge that high yields could be a sign of a struggling company. On an impulse buy, I bought the company. I lost about 85% of value on this one and the future doesn't look to promising. I decided to take what was left and throw it elsewhere and a more educated stock pick. I take this as a huge learning opportunity and I'm guessing since I sold that the stock will all of the sudden pop (this would be my odds). I may check into this one and follow it to see how it ends up turning out. 

Paycom Software (PAYC)-

    Paycom stock is seeing a disastrous drop in price, as the company lowered guidance. The stock missed on the top line but beat on the bottom line. The revenue still saw a nice growth rate of 22%. The company is expecting to see a material reduction in growth of revenue next year. Paycom launched a new product Beti that seems to be hurting the business more than helping it. It seems that it is helping users a lot more to the point that they don't have to use the product as much and causes lower revenues for Paycom. A lot of these software companies have these products that they charge based on usage and not a monthly subscription or fee. We can give credit to the company for developing such a great product but they have run themselves into trouble and now will have to grow its customer base exponentially to make up for the lower usage rates. The company also announced that they will launch their products and services in Mexico, which now brings them to serve all three countries in North America. The conference call had a unique vibe as the management was very skeptical when it came to the answers.  

Zebra Technologies (ZBRA)-

    Zebra Technologies did not find any sort of direction after reporting earnings. The company beat on both the top and bottom line, but the revenue fell 30.6%. The company has struggled in recent quarters and is facing a lot of restructuring to get the business back on the right track. The restructuring plan is going well as they are expected to see $100M in annual savings. Despite the declines in revenue, the margins are holding steady and not causing to much of concern. The company is following the same plan that they laid out last quarter. The cash flows saw a steep decline that management is crediting to paying off payables, but they expect the second half of the year to be FCF positive. It seems as if management is just going with the flow and having a detective approach to solving problems instead of a preventive approach. This one is definitely one that I am watching and may liquidate my small position if things do not meet my standards. 

 

Wednesday, November 1, 2023

Airbnb (ABNB)-

    Airbnb beat on both the top and bottom line and saw decent growth on the top line. My biggest surprise was to see how big of a beat the company had on the bottom line and the 38% growth they had in net income. I think this can be credited to the one time tax benefit that the company received of $2.8 billion. The company said that they are making significant progress across all of their strategic priorities. Airbnb continues to be a cash cow with $1.3 billion in Free Cash Flow, that was up 37% from last year. The $11 billion in cash and short-term investments and $6 billion in customer funds shows the strength of the balance sheet. The gross booking value saw a 17% increase since last year and the nights and experiences bookings were up 14%. The company was surprised by the results this quarter and are expecting the demand in travel to slow. This is the main proponent as to why the guidance was weaker and the stock decreasing a little bit on the earnings report. Overall, I love the balance sheet in this one and I think it is pretty risky, especially with all of the noise about regulations and the transitions back to hotels. Airbnb is in a good situation financially and can weather a storm if one arises. 

Kraft Heinz (KHC)-

    Kraft Heinz saw a steady increase in share price, as the company beat expectations on the bottom line but missed on the bottom line. Sales grew at just a tad over 1%, but each of the three core businesses saw broad growth. The company seems to be following and achieving some of the goals that they set out to strengthen the balance sheet. The company reached its target net leverage ratio of 3 times. The CEO says that this will allow them to get further conviction behind their strategy. The guidance was adjusted to show sales expected to be lower but earnings guidance were increased. This one is a staple and its growth days are likely done. I'm purely in this one for the income purposes and the longevity of the business.

PayPal (PYPL)-

    PayPal reported a solid quarter, beating estimates on both the top and bottom line. This was the new  CEO's first quarter reporting earnings, and I already like the direction the company is headed under his control. PayPal sees an opportunity to drive a greater impact for their customers and sees growth in its profitability. The only negative sign that the company had was the fact that the active user base saw a decline by about 4 million users. However, they are focusing on optimizing performance for users which is evidenced by its 15% growth in total payment volume. The company is buying back stock like a machine, with PayPal expecting to purchase around $5 billion in stock for 2023. This is a wonderful sign for investors, as management thinks the stock is wonderfully valued and sees upside in their business for the future. The cash outweighs the debt and the company is in a good position that the could potentially pick up an acquisition, if need be. The stock has been hammered over the past year, and this quarter finally shows a turnaround. PayPal is fairly valued in my opinion and is extremely attractive right now. This is definitely one of my top stocks that I am buying and I am stoked by the enthusiasm the management is carrying right now. 

Roku (ROKU)-

    Roku had a solid quarter. The company beat on both the top and bottom line and saw nice growth. The top line saw an almost 20% growth and the losses shrunk by 170%. Roku has been shunned by many investors, but this quarter may attract investors back to this one. The balance sheet is really solid, with the company holding about $2 billion in cash and having no long-term debt as of now. The operating part of the business was the most impressive, the streaming hours saw a 22% increase. Roku was also able to grow active accounts by 16%. There were some impressive wins for the company and the bright spot is that the more users and activity by the users, the more the company can generate off those ad revenues. I am still extremely down on this position, but this gave me a sense of revitalization and I hope the company can continue to perform on this level for the future. As the switch from cable to streaming continues, I think Roku is in a strong position to keep picking up market share. 

Thursday, November 2, 2023

Apple (AAPL)-

    Apple beat estimates on both the top and bottom line, but the stock saw a little lag after earnings. The ecosystem seems to be really strong and the company continues providing all-time highs across all products. The iPhone sales surprised with a 2.7% growth factor. This was a very controversial figure for Apple, as headwinds in China worried a lot of investors on how the new iPhone was going to perform. The revenue declined 1%, but that was due to a circumstance in which the company unloaded a lot of inventory 4 quarters ago. This means that the comparables are not an accurate figure to reflect company performance on. I think the main focus for a lot of investors is the services side of the business. Apple recently announced that they were hiking up the prices on some of the services they offer. I will be interested to dive into the performance of these categories in next earnings report. The services revenues were up 16% this quarter, which is a solid growth rate and why apple continues to dominate. We can't forget about the rewarding of shareholders. Apple returned around $25 billion to shareholders in this quarter alone. This company is a cash cow and will continue to operate this way for as long as I exist. I love this company and the way they operate.

DigitalOcean (DOCN)-

    DigitalOcean had a strong quarter beating expectations on the top and bottom line. The company saw top line growth of 16% and raised guidance for Q4 revenue. DigitalOcean sees revenue starting to stabilize and that is the reason for the upward revisions in both Q4 and FY outlooks. I think one thing that stood out to be the most was the FCF margin doubled from 16% to 32%. I like when companies start growing cash, especially at the size of this one. This allows the company to make strategic acquisitions to continue growing the business. The ARR came in at $713 million, which was an 11% increase. The net dollar retention rate fell to 96%, but this was only one of the downsides to this report. The ARPU jumped 6%, but this was credited to the acquisition the company made to help with AI. Overall, the company seems to be headed in the right direction. They still need to fix a lot of things to right this ship and cling on to its niche market. 

Starbucks (SBUX)-

    Starbucks had a solid earnings report, beating on both the top and bottom line. The company saw impressive growth with an 11% increase on the top line. Starbucks is working on reinventing the partner and customer experience. The quarter showed that this is starting off on the right note, and I see it every morning with lines wrapped around the building and customers using the lobbies to work. The Comparable store sales were up 8%, with a 4% increase in average ticket price and 3% increase in transactions. It seems like the global headwinds that the company was undergoing are starting to subside and business is returning to normal operating levels. The company saw a 14% increase in active rewards members as consumers look to save some pennies on expensive drinks. The operating margins improved wonderfully, going from 14.2% to 18.2%. I think this was one of the best quarters that Starbucks has had since I have owned the stock. I hope they continue to produce these results. 

Shopify (SHOP)-

    Shopify beat on both the top and bottom line and the stock soared. The company recently announced integrations with TikTok, Snap, and Criteo. The company is expecting for high teens growth and low to mid twenties if the logistics business is taken out. Gross Merchandise Volume increase by 22% and Monthly Recurring Revenue grew by 32%. The Gross Margins saw significant growth, growing by around 300-400 basis points. This was lower than Q3 because of the company exiting its position in the logistics business. The Shop Pay feature generated $12B in Gross Merchandise Volume, which was an increase of 50%. The Shop Pay feature has a partnership with Amazon Fulfillment that is turning out to be very beneficial for both companies. This was a wonderful quarter for Shopify as they continue to dominate the e-commerce space. I am looking forward to see what they can continue to do and hopefully keep up the growth.

Atlassian (TEAM)-

    Atlassian beat on both the top and bottom line, and kept guidance steady. The company raised guidance for the operating margin. The R&D engine is continually delivering innovation and value to the customers. The Revenue increased by 21%, and the earnings saw an increase of 811%. Atlassian saw free cash flow jump by 115% to $163 million. The gross margin for the company is a whopping 81%, this absurd and if they sustain this, is extremely attractive. The company saw a 7% increase in customers. Atlassian launched a new portal for customers called Compass and it is to help companies develop. They are making substantial acquisitions including Loom and AirTrack. This is a positive sign for the longevity of the business and hopefully they are able to utilize these to their benefit. The main problem that makes me a little weary of this company is the stock-based compensation. The company pays out around 25% of its revenue in stock-based compensation. This is very dilutive and not a great sign. I'm sure this will clean up over time and hopefully they can get profitable on a GAAP basis and keep growing the free cash flow. 

Thank you for reading!

Disclaimer: This is not advice to buy or sell stocks based on my recommendations, this advice is very opinionated and interpretive of facts presented in earnings.