Weekend Update #86
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.
Companies continued reporting financial results this week as earnings season remained in full swing. Activision Blizzard reported better-than-feared revenues while Yelp gave investors something to rave about by posting their own revenue beat of $299 million versus consensus expectations of $285 million. These results were emblematic of the trend seen thus far regarding companies performing better than expected, which has helped fuel the current rally being seen in markets.
On the economic front, several data points were released this week that could be described as a “mixed bag,” further fueling the debate as to whether we are currently in a recession. Construction spending for June fell 1.1% month-over-month, while JOLTS job openings registered a weaker-than-expected 10.7 million versus consensus 11.0 million, with the largest decreases being seen in retail trade (-343,000), wholesale trade (-82,000) and in-state and local government education (-62,000).
What got investors’ attention the most this week, however, was Friday’s employment data, with the unemployment rate clocking in at 3.5%—an improvement from the prior reading of 3.6%, at a time when many speculated the economy has been worsening. Nonfarm payrolls increased by 528,000, over double the expected 250,000, and private payrolls followed suit with their own increase of 471,000 versus an expected 230,000. These numbers indicated the labor market remains robust, and will likely be used by the Federal Reserve as rationale for continuing on with tighter monetary policy, as it will be said that the economy is strong enough to endure additional rate hikes in attempt to curb inflation in order to achieve the second of their dual mandate—price stability. Markets were down following the news, and now are looking ahead to next Tuesday as they anticipate the latest CPI print and assess where it will come in relative to the June 9.1% year-over-year reading.
MAJOR INDICES - PERFORMANCE THIS WEEK
S&P 500 - Finished up, +0.64%
Nasdaq - Finished up, +2.04%
DJIA - Finished up, +0.02%
Thank you Blue Room Team Leader OMAR GUZMAN
Overview
Consumer robot-maker iRobot has been busy implementing its strategy and long-term financial plan it described during its December 2021 Investor Day, which included four key non-GAAP goals it hoped to achieve by 2024:
Revenue $2.4 to $2.6 billion (16%–18% CAGR)
Gross Profit Margin ~43%
Operating Profit Margin ~12% to ~13%
EPS $7.50 to $9.25
To achieve this, they aimed to grow their DTC channel by leveraging their existing connected-user base, grow internationally, improve their supply chain through dual sourcing and consolidation of fulfillment operations, and move into adjacent markets (air purification being the latest).
After their Q1 earnings release, the company reduced their 2022 revenue guidance in Q1 from the $1.75 billion – $1.85 billion to $1.64 billion – $1.74 billion, citing inflationary pressures and weakening consumer confidence stemming from the the Russia-Ukraine conflict. However, they did raise their year-end operating income range from $1.3 million–$17.3 million to $5.3 million–$21.3 million after anticipating DTC revenue growth that would contribute to increased profitability.
Summary
Vertex closed out a strong second quarter, beating estimates across the board and raising its full year guidance for 2022. Despite 35% of revenue coming from outside the U.S, the company was able to effectively hedge against foreign exchange headwinds, while also seeing rapid uptake for TRIKAFTA/KAFTRIO in the quarter which led to the beat.
Management believes the company is at an inflection point in the business with multiple pipeline products reaching late stage development, each of which have multi-billion dollar revenue potential.
Vertex has concluded discussions with the EHA in Europe and the HMRA in the UK regarding the approval package for Exa-cel (CTX001) and the company is confident that it will submit its filing in Q4 of this year. Conversations with the FDA are expected to be complete in the next few weeks, with some key points still being discussed particularly around number of patients and duration of follow-up. The company refrained from giving guidance on the timeline of filing in the U.S. until conversations with the FDA complete, but executives assured that discussions have been productive and similar in nature to those with EHA and HMRA.
Corporate Profile:
Guardant Health is a leading precision oncology company dedicated to helping conquer cancer through our proprietary blood tests, vast data sets, and advanced analytics.
Cancer is data starved. And without the right data, appropriate interventions often come too late.
To select the best treatment, doctors and patients must have access to detailed genomic information about the disease. But this information is not easy to get. Traditional tissue biopsies require physical access to tumor tissue and come with serious risks for some patients. And for many patients, they aren’t even an option. In addition, they do little to help detect cancer early, when patients have the best chance at successful treatment.
Summary
There has been some decline in production from their principal producing properties. Notable declines have been noted below, but sentiment and production guidance remains unchanged from Royal Gold looking into H2 of 2022. They are still guiding 315,000-340,000 GEOs for fiscal year 2022. Notably, silver deliveries continue to be deferred at Pueblo Viejo, to which they attribute a problem with their slurry cooling system. The failure to properly cool the silver resulted in a lower recovery rate, which, when below 52.5%, results in deferred payments to Royal Gold. Royal Gold does not expect silver deliveries to drastically improve until the expansion project and proper maintenance projects are complete at the mine site. They were unable to provide guidance as to when that is, but view it as a temporary problem. Overall, the majority of the disruptions at their principal properties were short-term issues, as mine operators across the board have been struggling with production cost, labor, and COVID-related issues. The lower production from some of their principal properties was offset by $9.4 million of new revenue from the NX Gold and Khoemacau streams, which both continue to ramp up into the back half of 2022. Additionally, their new $525 million acquisition at Cortez is expected to begin providing revenue in Q4, which should also work to offset any short-term decline in production. Additionally, Royal Gold has a number of emerging development projects that are set to begin production within the next year, or have demonstrated significant exploration or reserve upside. This includes their King of the Hills interest, NX Gold Mine, Red Chris mine, as well as their recent acquisitions of Great Bear Royalties and Cortez.
Corporate Profile:
Since Yelp's founding 17 years ago, the company's mission has remained the same — to connect consumers with great local businesses. Over that time, Yelp has built one of the best-known internet brands in the United States. Consumers trust Yelp for their more than 220 million ratings and reviews of businesses across a broad range of categories. This consumer trust is the foundation of their business, from which Yelp is able to empower other businesses to succeed. Yelp's advertising products help businesses of all sizes reach a large audience, advertise their products and drive conversion of their services. The company believes their ability to provide value to both consumers and businesses positions it well in the local, digital advertising market in the United States.
Company Profile: The largest direct descendant of John D. Rockefeller’s Standard Oil, Exxonmobil Corporation is the largest United States-based oil and gas producing company. ExxonMobil’s primary business is involved in the exploration for, and production of, crude oil and natural gas; along with the manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a wide variety of specialty products. What’s more, ExxonMobil is making continued investments in lower-emission technologies so as to position itself for a future that is less reliant on fossil fuels. ExxonMobil trades on the New York Stock Exchange under the ticker symbol “XOM.”
Summary
Despite a good quarter and beating consensus estimates, Vimeo provided Q3 and full year guidance below analyst expectations. The company’s sales-assisted segment continues to have strong acceleration, posting 45% year-over-year growth, but self-serve, which contributes 65% of total revenue, continues to be a drag on the company’s near term growth potential.
On the sales-assisted side, bookings grew nearly 20% despite macro concerns and the reorientation of the company’s salesforce, with Vimeo’s flagship Enterprise product growing bookings twice as fast as the total sales-assisted segment. Logo retention and ARPU continues to rise within Vimeo Enterprise (now over $20k per year), although total ARPU is seeing some pressure due to the OTT product which has higher overall volumes. Executives reported the new monetization strategy is working well so far with new and renewing customers switching over to a per seat model, with the number of seats rising “triple digits” year-over-year. Conversion rates are also slightly up from last year, with Vimeo Enterprise pipeline up double digit percent. The company also reported its largest customers, as well as its APAC and EMEA regions, are experiencing the fastest growth for them, a positive sign their new initiatives are working.
Corporate Profile:
Our mission: To improve human health and quality of life by transforming the way therapeutics and materials are discovered.
Our physics-based computational platform leverages a deep understanding of physics, chemistry, and predictive modeling to accelerate innovation.
Our platform enables our collaborators to discover high-quality, novel molecules more rapidly, at lower cost, and we believe with a higher likelihood of success compared to traditional methods. We’re also harnessing this platform for our internal drug discovery programs.
We are proud to be leading this digital revolution.
Company Profile: Electronic Arts is a global leader in digital interactive entertainment. They develop, market, publish and deliver games, content and services that can be experienced on game consoles, PCs, mobile phones and tablets. At EA's core is a portfolio of intellectual property from which the company creates innovative games and content that enable them to build on-going and meaningful relationships with communities of players, creators and viewers. Electronic Arts' portfolio includes brands that they either wholly own (such as Apex Legends, Battlefield and The Sims) or license from others (such as Madden NFL, Star Wars, and the 300+ licenses within their global football ecosystem). To grow their core business, EA is focused on innovation and new experiences for their franchises; building ongoing profitable and predictable revenue streams through live services, including their mobile business; and reaching more players whenever and wherever they want to play.
Corporate Profile:
Airbnb, Inc. operates a platform for stays and experiences to guests worldwide. The company’s marketplace model connects hosts and guests online or through mobile devices to book spaces and experiences. It primarily offers private rooms and luxury villas. The company was formerly known as AirBed & Breakfast, Inc. and changed its name to Airbnb, Inc. in November 2010. Airbnb, Inc. was founded in 2007 and is headquartered in San Francisco, California.
Corporate Profile:
CHANGING LIVES, TOGETHER
Getting ahead of cancer is crucial no matter where people are in their cancer journey. From earlier cancer detection to treatment guidance and monitoring, we are helping people get the answers they need to make more informed decisions across the cancer continuum.
With a leading portfolio of products for earlier detection and treatment guidance, we help people face the most challenging decisions with confidence.
Our dedication to taking on the impossible fuels everything we do. We are continuously innovating, combining scientific rigor with an open-minded approach to deliver the next big thing.
OUR PURPOSE: We strive to change lives through earlier, smarter answers across the cancer journey.
OUR PROMISE: We relentlessly pursue life-changing answers in cancer that give people the clarity they need to take action, earlier.
Company Profile: Activision Blizzard, Inc. develops, publishes, and markets interactive entertainment content and services around the world. The company operates through three segments: Activision Publishing, Inc. which develops and publishes software products and entertainment content for console platforms; Blizzard Entertainment, Inc. which focuses on personal computer (PC) platforms; and King Digital Entertainment which is geared toward mobile platforms. The company’s key product franchises include Call of Duty (Activision), World of Warcraft (Blizzard), Diablo (Blizzard), Hearthstone (Blizzard), Overwatch (Blizzard), and Candy Crush (King). Activision Blizzard distributes content and services on video game consoles, personal computers, and mobile devices. Furthermore, the company operates eSports leagues (Call of Duty League, Overwatch League) and offers digital advertising.
THANK YOU
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FAREWELL — FOR NOW — AIDAN AND ALEX.
It has been an absolute pleasure having Fellow Aidan Fetterly and Intern Alex Kechriotis working in our offices this summer. Their presence and contribution will be greatly missed as they each head back to school. Of course we will look forward to seeing you on zoom when you have the chance to pop in.
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10% OF ALL BLUE ROOM REVENUES GO DIRECTLY TO FUND OUR NON PROFIT TOGETHERISM.
WE CAN ACCOMPLISH ANYTHING TOGETHER.
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