Weekend Update #78
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.
Digesting risks to growth, a hawkish Federal Reserve, and the threat of persistent inflation, markets declined broadly this week. The S&P 500 closed the week at 3,900.86 (-5.05%) — for its biggest weekly loss since January, the Dow Jones Industrial Average closed at 31,392.79 (-4.58%), and the Nasdaq Composite closed at 11,340.02 (-5.60%).
The World Bank reduced its global growth outlook for 2022 to 2.9% on Tuesday, warning that stagflation could persist for several years. Target Corporation cut its guidance for profits for the second time in three weeks as the company continues to struggle with its inventory — yet another warning for retail stocks. DocuSign fell 24.5% on Friday as well on decreasing customer usage and weak billings guidance.
In economic news for the week, the change in the headline consumer price index (CPI) came in above all estimates at 1.0% month-over-month and 8.6% year-over-year in May — setting another record high since the 1980s. Excluding food and energy, CPI increased 0.6% month-over-month and 6.0% year-over-year. University of Michigan’s consumer sentiment index fell to a record low in May — lower than even the great financial crisis and the 1980s inflationary period — as respondents cited worsening impacts of inflation and worsening financial outlooks. Initial jobless claims also continued an upward trend, surpassing estimates at 229,000 for the week. In a sign that bodes well for GDP, data on Monday showed the U.S. trade deficit shrank by the most on record to -$87.1 billion in April amid China’s COVID-19 lockdowns.
See more below from Team Leader Omar Guzman.
Including food and energy, some of the more notable year-over-year changes were seen in the following categories:
Meats, poultry, fish and eggs — 14.2%
Eggs — 32.2%
Flour and prepared flour mixes — 13.7%
Fruits and vegetables — 8.2%
Carbonated drinks — 13.2%
Roasted coffee — 15.6%
Butter and margarine — 20.2%
Fuel oil — 106.7%
Motor fuel — 49.1%
Window coverings — 18.9%
Men’s suits, sport coats and outwear — 22.3%
Infants and toddlers apparel — 10.2%
New vehicles — 12.6%
Used cars and trucks — 16.1%
Televisions — (9.5)%
Smartphones — (19.9)%
Alcoholic beverages away from home — 5.9%
Cigarettes — 8.2%
Stationery, stationery supplies, gift wrap — 14.3%
Other lodging away from home including hotels — 22.2%
Shelter — 5.5%
Garbage and trash collection — 5.4%
Health insurance — 13.8%
Motor vehicle body work — 13.7%
Public transportation — 26.3%
Airline fare — 37.8%
Pet services, including veterinary — 7.8%
Admission to sporting events — (10.8)%
Delivery services — 16.4%
Laundry and dry cleaning services — 10.1%
Piper Sandler Global Exchange & FinTech Conference
Lotte New York Palace, New York
June 8, 2022
Participants
Alesia Haas — Chief Financial Officer
Richard Repetto — Piper Sandler
Richard Repetto — Piper Sandler
Hi, Alesia.
Alesia Haas — Chief Financial Officer
Hi, Rich, good to see you.
Richard Repetto — Piper Sandler
Our next speaker is the CFO of Coinbase. She's been the CFO since April of 2018. Alesia Haas. Thank you very much. Alesia has agreed to do this from her vacation overseas as well. Coinbase went public in April of 2021. And first, Alesia is just going to read a safe harbor statement really to start off.
Alesia Haas — Chief Financial Officer
Thank you for accommodating this session. My lawyers are maybe pleased with me. So before we get started, I'd like to remind you all that during this call today, I may make forward-looking statements (technical difficulty) helps me very materially from statements I make, information (technical difficulty),certainties, and other factors that could cause these results to differ (technical difficulty) filing. Our presentation today may include references to certain non-gaap financial measures. And these reconcile a most recent shareholder letter non-gap and gap measures. Thank you. Let's get started.
Richard Repetto — Piper Sandler
Thanks, Alesia. So I think most of us in the room that follow crypto where the correction that's occurred since the highs in November. So you've been experienced -- certainly Coinbase has experience with crypto cycles. Is there anything in this cycle that you see as unique or different? Or is this the typical volatility that investor should expect in this new asset class?
Alesia Haas — Chief Financial Officer
That's a great question. So you're right, that we have experienced crypto cycles before. There's been roughly four of them since crypto was introduced with the Satoshi whitepaper.
And most recently in the 2017 to 2018 cycle, Bitcoin declined roughly 80% peak-to-trough. In 2019, we saw roughly a 50% decline from peak-to-trough in the year. And during Q2 of 2021, we also saw a 50% decline in over a two-month period. So we are no -- we have definitely seen this type of volatility before and these types of significant declines.
What we're seeing right now is Bitcoin is down roughly 50% since the November 2021 peak. And the one key difference that we have not seen before is the broader macro environment. So this is the first broader macro changes since crypto was adopted. And we now have high interest rates, higher inflation.
And we don’t know exactly how those will impact crypto. And so while those may be headwinds, at the same time, we see lots of tailwinds, which were there are millions more
crypto users. We've seen broad institutional adoption since the last crypto price cycle. We have broader utility and crypto broader product suites and many, many more companies offering crypto.
So we have positives and we have negatives. And it's a little unpredictable to say the least. So while this is unpredictable and cyclical in nature, we are very much focused on the growth over a very long time horizon. And we historically have seen higher peaks from cycle to cycle, as well as higher trough cycle to cycle. And so that is our belief that we will continue to see that pattern over the next few months, quarters or years, whatever the case may be.
And so while it is down 50% as I noted, it is still up three times since the middle of 2020 where it was about $10,000 per Bitcoin. And likewise, our MTs are up. So again, there's things that are similar. There's things that are different. But we remain long-term focused, remain very optimistic about the future of crypto.
Two weeks ago, I wrapped up my penultimate year of college and returned home – flying from St. Louis to San Francisco. The two cities are more dissimilar than alike, as the climate, culture and sheer size of the metropolises are vastly different. However, even though the culture shock from transitioning from one city to another always hits me, this past homecoming what I was most surprised of was the difference in gas prices. California boasts a nation-wide high of $6.34/gallon – more than 15% greater than the runner-up, Nevada, coming in at $5.49. At my local gas station in St. Louis, gas comes in at a mere $4.59/gallon – a nearly 40% difference. Missouri is in the bottom quintile in terms of gas prices by state. However, even $4.59 seems outrageous given the monthly average for national gas prices hovered around $2.40 at the beginning of 2021. Frankly, given the recent spike, I would not be surprised if I saw someone take inspiration from Fred Flintstone and break out the Flintmobile.
However, putting aside the specifics of gas prices, and its various economic and political bases, the underlying commodity behind gas prices is directly contributing to this meteoric rise in prices at the pump. Focusing on crude through the lens of West Texas Intermediate, the price of crude has increased more than 55% year-to-date.
BLUE ROOM Analysis
DocuSign Q1 2023 Earnings Summary
Q1 2023 Earnings Expectations (via Bloomberg)
Revenue Estimate: $581.8 million (+24.0% year-over-year, compared to $469.1 million in Q1 2022)
GAAP Net Income: $(8.0) million (+3.7% year-over-year, compared to $(8.35) million in Q1 2022)
GAAP EPS: $(0.095) (-121.0% year-over-year, compared to $(0.04) in Q1 2022)
Q4 2022 Earnings Expectations — BR Estimate
Revenue Estimate: $581.25 million (+23.9% year-over-year, compared to $469.1 million in Q1 2022)
GAAP Net Income: $(5.7) million (+31.6% year-over-year, compared to $(8.35) million in Q1 2022)
GAAP EPS: $(0.03) (+33.8% year-over-year, compared to $(0.04) in Q1 2022)
Q4 2022 Actual Performance
Revenue Estimate: $588.7 million (beat; +25.5% year-over-year, compared to $469.1 million in Q1 2022)
GAAP Net Income: $(27.4) million (miss; -228% year-over-year, compared to $(8.35) million in Q1 2022)
GAAP EPS: $(0.14) (miss; -219% year-over-year, compared to $(0.04) in Q1 2022)
Hello Blue Room Community!
My name is Ryan Johnson,
… an intern for Blue Room for the summer of 2022, from Scotch Plains, New Jersey. I am a rising senior at Muhlenberg College, where I’m double majoring in Political Science and Finance. In an increasingly polarized political landscape, I felt that Political Science was a practical major that could amplify my ability to understand complex monetary and international issues. On the other hand, Finance and math have always been key interests of mine, and during the past semester I was reintroduced to a plethora of financial topics that sparked my interest once again. Given that my father has always been involved in the stock markets and the business world, I had some prior exposure to financial statements and concepts such as hedging stocks, and hopefully here at Blue Room I can expand my knowledge and continue to learn!
On campus, I am a member of the prestigious Muhlenberg scholars program designed to facilitate the free exchange of ideas and interdisciplinary learning in order to provide students a more expansive understanding of the world. Within this program, students from a variety of majors are selected in order to encourage students' outlooks on different social concepts. Additionally, I am a member of the Muhlenberg men's lacrosse team, where we compete with some of the best teams across Division III. In my free time I enjoy a variety of physical activities, and spend a lot of time at the gym or assisting local or club lacrosse teams in my area.
I am extremely excited and thankful to be interning for Blue Room this summer and can’t wait to have the opportunity to fully delve into the financial models of different companies. Although I’ve only spent a week as an intern thus far, the diligence of the analysts and fellows as they comb through financial statements to make better investment decisions has impressed me, and I’m grateful to be working in the company of such smart and well-rounded individuals. Prior to the start of my internship, one of the most interesting aspects of Blue Room was the notion of tithing and the creation of Togetherism, as giving back to the community is an important facet of life in my eyes. I’m intrigued as to how I can contribute to this branch of Blue Room, but look forward to the opportunity to do so. As I start my research on Visa I hope to become an asset to Blue Room, and am approaching the internship with open arms, hoping to absorb as much information from the full time analysts during my short time working with them. I’m looking forward to the next few weeks working with the team!
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