Weekend Update #76
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.This week we would like to begin the market blink by acknowledging the shootings that occurred in Buffalo, New York and Uvalde, Texas. We offer our deepest condolences to anyone who was affected by the incidents and hold those who were lost in our hearts and minds.
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The S&P 500 finished positive +6.50% at 4,158.24 alongside the Dow Jones Industrial Average, which added 575.77 points, +6.20% to 33,212.96. The two indices had their best 5-day rallies since November of 2020, providing solace to market participants after the eighth straight week of losses borne by the DJIA. The Nasdaq Composite index finished better by +6.80% to 12,131.13.
Markets offered reprieve to investors after quarterly earnings reports generally indicated that the consumer was still resilient despite rising costs and declining real wages. In retail, the common trend was continued inflationary pressures, which had been passed on to the consumer in large part with generally strong top-line sales. The positive comparables were relieving to investors after stimulus payments around this quarter last year skyrocketed year-over-year comp sales. In tech we saw strong quarters from Dell Technologies, Marvell, Zscaler and Datadog, which all saw positive movements in their stock prices after Wednesday.
In addition to companies reporting strong financial positions, stocks got a super-charge from the Federal Reserve after Fed meeting minutes revealed that policymakers would strongly consider front-loading 50 bps rate hikes in their next two meetings, implying that longer-term rate movements could potentially be less pronounced. The 10-year Treasury yield fell below 2.75% after surpassing the 3.0% mark earlier this month.
The Personal Consumption Index (the Federal Reserve’s preferred measure of inflation) indicated that prices rose at a slower pace versus last month. This is a signal that the Fed may not necessarily have to be as aggressive with rates, and also implies that consumer spending could be stronger in the back-half of 2022. Please refer to Omar Guzman’s weekly Economic Updates for a more detailed look at these and additional economic updates.
Thank you Blue Room Analyst IAN CARTER.
“As we shared at our Investor Update in March, we expected our FY23 financial results to be softer than last year as we lap stimulus and other government support, the CE industry cycles the last two years of unusually strong demand, and we continue to invest in our future. In addition, we planned for increased promotional activity and higher supply chain expenses.”
- Corie Barry, Best Buy CEO
BEST BUY CO., INC. FIRST QUARTER 2023 EARNINGS SUMMARY
Quarter Results:
Q1 2023 Earnings Expectations (via Bloomberg)
Revenue: $10.408 billion
GAAP Net Income: $371.167 million
GAAP Diluted EPS: $1.59
Q1 2023 Earnings Expectations (BLUE ROOM)
Revenue: $10.411 billion
GAAP Net Income: $451.000 million
GAAP Diluted EPS: $1.97 [comparably adjusted]
Q1 2023 Actual Performance
Revenue: $10.647 billion ~ beat expectations
GAAP Net Income: $341.000 million ~ missed expectations
GAAP Diluted EPS: $1.49 million ~ missed expectations
FINANCIAL FY23 & FY25 OUTLOOK PER BBY IN 1Q23
FY23:
Revenue of $49.1 at the midpoint versus $50.1 prior [negative revision]
Comparable sales decline of -4.5% at the midpoint versus -2.5% prior [negative revision]
Enterprise non-GAAP operating income rate of 5.3% at the midpoint versus approximately 5.4% [negative revision]
Non-GAAP effective income tax rate of 24.0% vs. 24.5% [positive revision]
Share repurchases of vs. $1.5 billion [unchanged]
Non-GAAP diluted EPS of $8.40 to $9.00 vs. $8.85 to $9.15 [negative revision]
FY25:
Enterprise revenue of $53.5 billion to $56.5 billion
Suggesting 2.04% CAGR from current year rev. to midpoint of FY25)
Enterprise non-GAAP operating income rate of 6.3% to 6.8%
Est. $13 to $14 in EPS for FY25
Enterprise non-GAAP operating income of $3.4 billion to $3.8 billion
The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data:
1) production and income
2) employment, unemployment, and hours
3) personal consumption and housing
3) sales, orders and inventories
A zero value indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.
F2023 Q1 Earnings Results: May 25, 2022
Actual Q1 2023 Results
Subscription Revenue: $78.5 million (beat, 21% Y/Y increase vs Q1 ‘22)
Total Revenue: $93.2 million (beat, 16% Y/Y increase)
Adj. Net Loss: ($4.0) million (miss)
Adjusted EPS: ($0.03) per share (miss)
Free Cash Flow: $3.7 million (beat)
ARR Growth: 20%
Dollar-based Retention: 110%
Financial Outlook Second Quarter Fiscal 2023
Subscription Revenue: $82.0M - $83.0M $339.0M - $341.0M
Total Revenue: $96.5M - $98.5M $402.0M - $406.0M
Non-GAAP loss from operations: ($2.0M) - ($1.0M) ($2.0M) - $0.0M
Non-GAAP EPS: ($0.06) - ($0.05) ($0.19) - ($0.15)
Free Cash Flow: — $6.0 - 9.0 M
ARR Growth: — 21%+
Dollar-based Retention: — 112%+
Key Metrics and Business Highlights
Customers with ACV equal to or greater than $100,000 were 746, up from 677 as of April 30, 2021.
Dollar-based retention rate was 110%, compared to 103% as of April 30, 2021.
Our ARR was $326.3 million compared to $271.8 million as of April 30, 2021, representing ARR Growth of 20% compared to 14% as of April 30, 2021.
Customer usage of Zuora solutions grew, with $20.6 billion in transaction volume through Zuora’s billing platform during our first quarter, an increase of 21% year-over-year.
Zuora launched its inaugural Environmental, Social and Governance (ESG) Impact Report and announced that the company was carbon neutral for fiscal year 2022.
New customer logos included BMC Software and The New York Times.
Recent go-lives included ABB, Elastic and Yotpo.
In March 2022, Zuora issued $250.0 million of convertible notes to Silver Lake, one of the leading technology private equity investors, and will issue an additional $150.0 million of convertible notes to Silver Lake within 18 months of the initial issuance date. Zuora also issued warrants to Silver Lake in connection with its financing.
Summary and Outlook
May 26, 2022 -
Costco: Q3 & Year-to-Date 2022 Earnings Call
Summary
Fiscal Quarter (twelve weeks) and the first 36 weeks of fiscal 2022, ended May 08, 2022
Net sales for the quarter increased 16.3% to $51.61, from $44.38 billion last year. Net sales for the first 36 weeks increased 16.4% to $151.97 billion, from $130.61 billion last year.
Comparable sales for the third quarter of fiscal 2022 were:
Net income for the quarter was $1,353 million, $3.04 per diluted share, which included a one-time $77 million pretax charge, $0.13 per diluted share, for incremental benefits awarded under the new employee agreement effective March 14. Last year’s third quarter net income was $1,220 million, $2.75 per diluted share, which included $57 million pretax, $0.09 per diluted share, in COVID-19 related costs, primarily from $2.00 per hour premium pay. Net income for the first 36 weeks of fiscal 2022 was $3.98 billion, $8.94 per diluted share, compared to $3.34 billion, $7.51 per diluted share, last year.
Costco currently operates 830 warehouses [versus 828 last quarter], including 574 in the United States and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the United Kingdom, 16 in Korea, 14 in Taiwan, 13 in Australia, 4 in Spain, 2 in France & China, and one in Iceland. Costco also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.
Snap Inc. at 2022 J.P. Morgan Global Technology, Media, and Communications Conference
May 23, 2022 at 2:10 PM PT
Moderator: Doug Anmuth — J.P. Morgan
Speaker: Evan Spiegel — Chief Executive Officer
Question & Answer Session
Snap has evolved a lot as a company. Many think about it for messaging and communication. You believe Snap is a camera company and at the cutting edge of AR. What do you think is most differentiated about the platform?
Snapchat has evolved so much in the last 10 years
Snapchat began with the camera and evolved into Stories
Then, they created a map to see what your friends are up to
Most recently with Spotlight and AR platform
The camera represents a huge opportunity for changing the way people live
People thought of the camera as a way to document when they started 10 years ago
That’s how the camera had been used for 150 years
In the past 10 years, the use case has shifted to communicating
In the future, it will be used for augmented reality
Snap threads that through every platform
Summary and Outlook
Intellia Therapeutics
Ticker: OTLY
Market Capitalization: 2.479 billion
Shares Outstanding: 591,777,000
NTLA Share Price History
May 16, 2022 $ 3.63
May 17, 2022 $ 3.69
May 18, 2022 $ 3.58
May 19, 2022 $ 3.56
May 20, 2022 $ 3.66
May 23, 2022 $ 3.70
May 24, 2022 $ 3.44
May 25, 2022 $ 3.72
May 26, 2022 $ 3.85
May 27, 2022 $ 4.19
Oatly is in the Process of Shaking Up its Leadership Team
On Tuesday, May 24, The Wall Street Journal exclusively reported that Oatly is lining up a successor to Toni Peterson, the longtime Chief Executive Officer who propelled the company onto the global stage.
Toni Petersson has manned the helm of Oatly since 2012 and has been an integral part of Oatly’s growth from a small Swedish milk maker to an international plant-based powerhouse. Prior to joining Oatly, Mr. Petersson founded several businesses, including companies in the hospitality industry and a real estate company, but most recently served as the CEO of Bolbee, a backpack company. A food-industry outsider, Mr. Petersson was selected to provide a fresh perspective on the company.
When he first joined Oatly, annual sales were less than $30 million. In 2021, Oatly boasted an annual revenue of $643 million. For fiscal year 2022, Oatly expects revenue between $880 and $920 million. However, despite impressive growth over the course of ten years, there are clear and pertinent issues that are damaging the company. Oatly board members have been concerned with the company’s stock performance – as its share price has fallen nearly 90% from its all-time high last June – along with the company’s manufacturing troubles, as Oatly has been and continues to be severely supply-constrained.
NVIDIA CORPORATION
FIRST QUARTER EARNINGS SUMMARY
Q1 2023 Earnings Expectations (via Bloomberg)
Revenue: $8.100 billion
GAAP Net Income: $1.869 billion
GAAP Diluted EPS: $0.61 billion
Q1 2023 Earnings Expectations (BLUE ROOM)
Revenue: $8.270 billion
GAAP Net Income: $1.580 billion
GAAP Diluted EPS: $0.62
Q1 2023 Actual Performance
Revenue: $8.288 billion ~ beat expectations
GAAP Net Income: $1.618 billion ~ missed expectations
GAAP Diluted EPS: $0.64 ~ beat expectations
Nvidia’s Guidance for 2QFY23 Outlook:
Revenue: $8.10 billion, plus or minus 2 percent, below $8.44 billion in investor expectations. [Includes an estimated reduction of approximately $500 million related to Russia and COVID lockdowns in China].
GAAP and non GAAP GM: 65.1% and 67.1%, plus or minus 50 bps.
GAAP and non GAAP Opex: $2.46 billion and $1.75 billion, respectively.
GAAP and non GAAP other income and expense: $40 million, excluding gains and losses from non-affiliated investments.
GAAP and non GAAP tax rate: 12.5%, plus or minus 1%, excluding any discrete items.
Analyst Takeaways:
Russia’s impact on Nvidia sales represents an absence of about 2% of the total business revenue that Nvidia would have seen otherwise. Earlier this quarter, the Company announced that all sales to Russia would be halted, so this is not a surprise. The largest, most surprising impact to sales came in the form of $400 million in missed sales due to the COVID-19 lockdowns in China, highlighting the continued impact of zero-tolerance policies to companies operating throughout the industry.
Given macro-economic factors, it is likely that the company will face demand headwinds in the consumer facing segments of the business, primarily Gaming.
Enterprise customer demand should remain strong based on the increased investment in AI, NLP, DL models used for recommender systems. This means that Data Center is expected to remain strong, and post positive sequential comps in upcoming quarters.
Automotive segments are also targeting 3-year forward sales and demand cycles, which means that investments by automotive OEMs and tier 1s should remain strong. The company’s current pipeline is estimated to be worth $11 billion over the next 6 years [no change in expectations since last quarter’s update].
Peloton Interactive at 2022 J.P. Morgan Global Technology, Media, and Communications Conference
May 24, 2022 at 10:50 AM EDT
Moderator: Doug Anmuth — J.P. Morgan
Speakers: Barry McCarthy — Chief Executive Officer
Question & Answer Session
You’ve had a successful career in the online subscription space for nearly 20 years at Netflix and Spotify. What did you find most compelling about Peloton to make you get back into the game?
He wanted to get back in independent of Peloton
But he found the user experience most compelling at Peloton
In his career, Barry found the hardest thing to find is product-market fit
Peloton had that in spades with the net promoter score for Bike and Tread
Once you have that, it’s hard to lose
The challenge the business faced was primarily on the spending side
So, he saw opportunities to right-size that while leaning into the customer love and reinvigorate growth out of Covid, once they normalize on post-Covid numbers
It’s a reasonable expectation to imagine that revenue numbers will grow, on a normalized basis, north of 20%
The company can get back to positive cash flow in FY23 — that’s Barry McCarthy’s goal for the business
If they accomplish both of those objectives, they will have largely fixed what’s broken
Then, it’s about capitalizing on customer love, the product portfolio, channels to market, and international growth to drive future success
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