- We discuss key points in the earnings report from a leading e-commerce software company.
- We also discuss Roku and why CEO Anthony Wood does not believe his industry has seen a pull forward from COVID.
- We review Fiverr's company’s growth potential as a gig economy leader with the recent launch of its subscription service.
- Lastly, we talk about Palantir.
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Tech stocks have been selling off recently despite some healthy earnings reports. Below, we discuss key points in the earnings reports from leading e-commerce software company Shopify (SHOP), a company that's not sitting stagnant by any means. We review Shopify’s product road map and how the company continually innovates to maintain its lead.
We also discuss Roku (ROKU) and why CEO Anthony Wood does not believe his industry has seen a pull forward from COVID-19 but rather a structural shift that benefits AVOD and programmatic CTV ads long-term. In my previous analysis on Forbes, I had pointed out that Roku’s true market is pay-TV advertisers (rather than cord cutters). This was echoed on the recent call (nearly verbatim). Management also explained why Peacock and HBO are not truly competitors but rather increase the pool of customers for Roku.
Fiverr (FVRR) is a stock that has seen phenomenal gains of more than 800%. We review this company’s growth potential as a gig economy leader with the recent launch of its subscription service.
Lastly, we talk about Palantir (PLTR). The company is guiding for 30% growth over the next five years which didn’t match its valuation going into earnings. Under the hood, the commercial accounts growth was a paltry 4% although perhaps the recent partnership with IBM (IBM) will help strengthen the commercial customer base.
Shopify had another outstanding quarter as the company took full advantage of secular industry trends to deliver a record holiday quarter. The company beat analyst expectations for revenue, earnings, and gross merchandise volume (GMV) when it announced Q4 results Feb. 17.
The company continues to invest in fulfillment and international growth for increased TAM. Below, we discuss additional ways that management plans to expand including with Shop App and Shop Pay.
Shopify grew revenue 94% YoY to $978M, topping consensus estimates by $64M (7%). Adjusted EPS of $1.58 beat estimates by $0.37.
Subscription revenue advanced 53% YoY to $279M while merchant solutions revenue grew 117% YoY to $698M. Monthly recurring revenue of $83M improved from the $74M mark the company announced in Q3.
Gross merchandise volume grew 99% YoY to $41.1B, while gross payments volume increased to $19.1B, accounting for 46% of GMV processed in the quarter. The company recorded a gross margin rate of 52.2% vs. expectations for 51.6% and an operating margin rate of 20.5% vs. expectations for 15.6%. Free cash flow margin also accelerated to 24%.
Shopify did not give guidance, but management expects growth rates to slow in 2021 as the vaccine rollout continues and people are able to move more freely.
“Some consumer spending will likely rotate back to offline retail and services, and the ongoing shift to e-commerce, which accelerated in 2020, will likely resume a more normalized pace of growth,” CFO Amy Shapero said during the call. “As a result, we expect that we will continue to grow revenue rapidly in 2021, albeit at a slower rate than in 2020.”
Shopify Continues to Expand
Shopify President Harley Finkelstein discussed four key trends driving Shopify’s growth.
First, consumer behavior is showing that consumers want to buy directly from brands they like. Second, retailers are prioritizing buyer retention and Shopify allows merchants to build lasting relationships with customers.
Third, Shopify Capital provides small businesses with modern financial solutions they would not otherwise be able to access. Finally, Shopify has continued to strengthen its omnichannel value proposition by exposing merchants to new buyers including Facebook Shops, Walmart, Pinterest and TikTok, as well as making it faster and easier to checkout in other channels.
Looking ahead to 2021, Shopify is focusing on 5 key areas of investment:
1. Fulfillment. The Shopify Fulfillment Network is a five-year build process that's still achieving product market fit. It will ensure timely deliveries, lower shipping costs, and provide a better customer experience for merchants and customers. Management will continue investing into the software and prioritizing the network’s buildout in 2021.
2. Shop App. Management will continue investing in the Shop App to build features that “reduce friction for buyers at more points along their shopping journey, from discovery to delivery, creating value for both our merchants and their buyers.”
3. International Expansion. Shopify plans to invest in enhancing and adding new features that make Shopify more attractive to prospective merchants internationally.
4. Shop Pay and Point of Sale (POS). Shop Pay is an accelerated checkout that lets customers save email addresses, credit card and billing information to complete a faster transaction. According to management, Shop Pay “has now facilitated nearly 20 billion in GMV. By the end of 2020, relative to when we launched in 2017, it also is four times faster than normal checkout and it converts close to two times higher than a regular checkout.” The company also plans to invest in increasing adoption of its Retail POS system and expanding its POS products to more countries.
5. Shopify Plus. The enterprise e-commerce platform allows Shopify to bring the capabilities of Shopify Plus to more brands in North America and internationally. In this past quarter, “approximately, 3,000 merchants joined Shopify Plus, our subscription plan for larger and more complex merchants, bringing the total number of Plus merchants to more than 10,000 at year-end.” Brands such as Dermalogica, Herman Miller, ALDI, Hallmark, Yamaha and Purina Dog Food are among Shopify Plus customers.
The other growth driver for Shopify will be global growth. “In 2021, we are focusing heavily beyond our core geographies to bring our omnichannel capabilities to more merchants,” Shapero said. “We expect to continue to localize our solutions and countries where we have established a foothold and increase investments in sales and marketing to bring Shopify to more merchants around the globe.”
Driven by strong advertiser demand, Roku beat on revenue and earnings when it announced Q4 results Feb. 18 with 58% growth year-over-year and guided for 51% growth for Q1 2021. The company expects to face tougher comps in the second half of the year yet strong margins and EBITDA growth helped the stock defend its rally from the previous months.
In Q4, Roku added more than 50 linear channels and in January acquired Quibi global content distribution rights to strengthen the Roku Channel with Emmy-nominated content.
Last year, 38% of all smart TVs sold in the U.S. were Roku TV models and the company continued to make progress internationally. Roku’s operating system continues to be the top OS in smart TVs in the United States.
Roku grew revenue 58% YoY to $649.9M, topping consensus estimates by $33.4M (5%). Non-GAAP EPS of $0.49 beat estimates by $0.54, as Roku posted a surprise profit. Monetized video ad impressions grew 100%, rebounding to pre-COVID levels.
Driven by strong advertiser demand, platform revenue increased 81% YoY to $471.2M and player revenue increased 18% YoY to $178.7M. Gross margin increased 89% YoY to $305.5M. The company recorded a gross margin rate of 47%, compared to 39.3% in Q4 2019. Adjusted EBITDA increased 650% YoY to $113.5M.
In the first half of 2021, management expects strong financial comparisons against the first half of 2020, which includes impacts from COVID-19 and the economic lockdown. Guidance for Q1:
· Revenue of $485M at the midpoint, representing 51% growth YoY
· Gross margin rate of approximately 49%
· Gross profit of $234M to $241M
· Net loss of $23M to $16M
· Adjusted EBITDA of $27M to $34M
Management anticipates tougher comps in the second half of 2021 due to exceptional performance in the second half of 2020. For the full year, YoY revenue growth will fall below the levels management expects to see in the first half of 2021.
CEO: “Consumers are cutting the cord”
In 2020, 38% of all smart TVs sold in the U.S. were Roku TV models. Users streamed 17 billion hours, representing growth of 55% YoY. The company added 14 million active accounts, ending the year with 51.2 million active accounts, growth of 39% YoY.
Average revenue per user (ARPU) increased 24% YoY to $28.76 (trailing 12-month basis). There’s potential that the more Roku grows internationally, that ARPU could be diluted as the United States geographic region has a very high ARPU but this clearly hasn’t happened yet.
“Across the industry the impact of streaming is increasingly evident,” CEO Anthony Wood said during the earnings call. “Consumers are cutting the cord. Fully one-third of all American homes are now non-pay TV households. Leading media companies are reorienting around streaming and launching new streaming services. The traditional TV upfronts are beginning to crumble as advertisers demand more flexibility, better measurement and a broader audience.”
In addition to rapid growth in the US, Roku is continuing to expand internationally. In 2020, Roku TV was the top-selling smart TV OS in Canada, where Roku had 31% market share. In Brazil, Roku launched its second TV OEM partner, and in Mexico it more than doubled the number of Roku TV brands. Roku also launched The Roku Channel in the UK.
The most important line from Roku’s earnings call was this:
“I was just going to add that if I think about bigger picture, these changes that we - the progress that was made in 2020, more and more viewers shifting to streaming for their TV. More advertisers following their viewers to streaming. More content companies launching major new streaming services. I mean, these are enduring structural changes that we don't think are just being pulled forward. Some business being full forward, we think that the pandemic has accelerated and permanently changed the curve on the shift to streaming.” -Anthony Wood
The quote above indicates that Roku management does not see a slowdown for their business post-COVID despite facing tougher comps. The company also feels strongly that any streaming services, such as Peacock or HBO, will only strengthen their positioning as it helps to convert more viewers to the Roku platform.
In addition, the company discussed returning to pre-COVID levels for operating expenses as the company has made cuts to get through any turbulence from the economic downturn. Clearly, the company’s EBITDA was exceptional this quarter and gross margins also saw an uplift.
Roku is incredibly diversified for the shift toward Connected TV ads and linear OTT, whether it’s through omnichannel programmatic with OneView, B2C strategy for brand advertisers, ad-video on demand (AVOD) with the Roku Channel, original content to build its base, OS/hardware to also build its base, or its prospects for expanding internationally.
Online freelance marketplace Fiverr beat on revenue and earnings as it closed out a breakthrough quarter in the company’s history.
Management issued better-than-expected guidance for 2021 at the Q4 earnings call Feb. 18, and noted record levels of traffic and buyer registration in January as the strong momentum of 2020 continued into the new year - evidence, they said, that the shift in consumer behavior during the pandemic is permanent.
Q4 Results and Guidance
The company grew revenue 89% YoY to $55.9M, topping consensus expectations calling for $54.1M. Non-GAAP EPS of $0.12 beat by $0.02 as the company achieved its most profitable quarter on record. Active buyers came in at 3.4M for the quarter, an increase of 45% YoY. Spend per buyer advanced 20% YoY to $205 while take rate improved 40 basis points YoY to 27.1%. Gross margin came in at 83.9% for the quarter.
For Q1, Fiverr is expecting $64M in revenue at the midpoint (+87% YoY), a nearly 12% raise above consensus expectations. For the full year 2021, Fiverr is guiding for revenue to grow 48% YoY to $281M at the midpoint. The company’s full year guidance exceeded expectations by $21M, or nearly 8% on the top line.
Fiverr believes its growth will slow in the second half of 2021 compared to Q1 as it faces more difficult comps. However, it's important to note that Fiverr’s FY 2021 guidance for 48% YoY growth is still above the 42% and 45% YoY growth rates the company recorded in 2019 and 2018.
Management believes the shift in consumer behavior they observed during the pandemic is permanent and will continue to evolve in the future to the benefit of Fiverr.
CFO: “Amazing growth ahead”
Fiverr closed out a breakthrough year, delivering seven straight quarters of accelerating revenue growth since the company went public in 2019.
Management discussed some of the trends that drove the company’s outstanding year in its shareholder letter: “We are witnessing the dawn of a massive shift towards a more modern, flexible and resilient workforce infrastructure that is sweeping every company and every industry around the globe. Fiverr is powering these shifts with the world’s largest freelancer network and most comprehensive digital service catalog.”
Management believes the company has captured only a small percentage of the evolving market opportunity and sees decades of growth ahead as the future of work transforms, and freelancing becomes a bigger part of the economy.
In its Q4 earnings call, the company announced its intentions to continue to expand internationally as well as invest in Fiverr Business.
Fiverr Business is the company’s new subscription-based model for large businesses to work and collaborate with freelancers through Fiverr. The application was launched in October of 2020 and remains a key growth priority for Fiverr in 2021.
Palantir beat on revenue in its first full quarter as a public company. The earnings announced Feb. 16 included a slight miss in EPS, which did not help the stock price the next day when it traded nearly 21% lower. The stock is now trading about 12% lower than its pre-earnings price at a forward P/S of 35. Consequently, this is the valuation I had stated Palantir would likely trade at when the stock opened at about a forward P/S of 20.
The company made progress on expanding its customer base although this was primarily driven by government contracts with 85% growth YoY compared to 4% growth YoY in commercial contracts. The growth in commercial contracts is something the company has struggled with in the past, including an attempt to launch a financial product that was later shut down (I covered this in my previous Forbes write-up here).
Management expects Q1 2021 growth of 45% YoY but is guiding lower for annual growth rate of 30% each year for the next five years. The forward guidance is a tad low for a highly valued growth stock and this likely contributed to the dip in Palantir’s stock price. The IPO lock-up also partially expired with 80% of shares available to trade as of Thursday, Feb. 18.
CEO, Alex Karp, was eccentric as usual with an introduction to the earnings call showing him walking through trees in the snow while explaining to investors the basics around lagging earnings results (i.e., the company’s results are a lagging indicator of what they got right) and stating that “We hope those of you on this call who are current investors stay with us and those of you who prefer a more short-term focus, that you choose companies that are more appropriate for you.”
The issue with this statement is the company is guiding for 30% growth over the next five years, which anything over one year is considered long term for most investors and most certainly anything over three years.
As covered pre-IPO, the revenue estimates for Palantir were about $1.5 billion in 2021. It appears the company will hit this number but it could mean growth slows sequentially. Palantir also filed its S-1 showing the company was profitable in the first six months of the year – and therefore the negative EPS of ($0.08) may have turned off more value-minded investors.
Palantir’s management is likely aware the pressure will be commercial contract growth. They highlighted a few wins this past quarter including a partnership with IBM that will help deploy AI applications and provide data processing in hybrid cloud environments. The “no code/low-code platform” will be targeted towards retail, financial, manufacturing, healthcare, and telecommunications platform.
On the earnings call, the company also discussed its Foundry software being used by BP, Rio Tinto and PG&E in California to prevent wildfires.
Palantir announced Q4 results Feb. 16. Revenue grew 40% YoY to $322M, beating consensus estimates by $21.02M. Net loss of ($0.08) per share missed estimates of ($0.02), according to Bloomberg, despite the net loss improving from ($0.29) per share for the same period last year.
Adjusted income from operations was $104.1M, compared to a loss from operations of $70.1M in the same period last year.
Government revenue grew 85% YoY to $190M and the commercial segment revenue grew 4% YoY to $132M. New contracts in Q4 2020 include BP, National Health Service (NHS), Pacific Gas and Electric (PG&E), Rio Tinto, U.S. Air Force, U.S. Army, and U.S. Food and Drug Administration (FDA).
Average revenue per customer (ARPU) was $7.9 million, up 41% YoY. The number of customers generating more than $1 million in annual revenue grew 32% YoY. Customers generating more than $5M in annual revenue grew by 54% year-on-year and customers generating more than $10M in annual revenue grew 50% YoY.
CFO: “Elevated growth rates for the next five years”
Palantir is guiding for sustained growth for the next five years and beyond.
The company closed 2020 with $1.1B in revenue. Management expects more than $4B in revenue in 2025. As mentioned, starting in 2021, management expects more than 30% annual revenue growth each year for the next five years.
For Q1 2021, management expects revenue growth of 45% or $332M at the midpoint and an adjusted operating margin of 23%.
Palantir expects positive cash flow from operations in 2021. The company has historically collected multiple years of upfront payments but is moving away from this practice, which led to lower cash collections in 2020.
Management expects cash flow to begin to normalize in 2021, with collections and revenue moving more in parallel over time. Palantir ended 2020 with a total deal value of $2.8B and a dollar-weighted average contract duration of 3.6 years. The remaining performance obligation was $597M, up 124% YoY. The dollar-weighted annualized contract value increased by 49% YoY.
For the full year, Palantir grew revenue 47% YoY and reported a net loss of $1.20 per share. In 2019, the company reported growth of 25% and a net loss of $1.02 per share. Government revenue grew by 77% YoY to $610M and the commercial segment grew by 22% YoY to $482M.
The company had cash of $2.01B (excludes the current restricted cash of $37.3M and non-current restricted cash of $79.5M) and debt of $198M, as of Dec. 31, 2020.
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Beth Kindig is the CEO and lead technology analyst for the I/O fund and has ten years of experience as a professional in the tech industry. She is a regular speaker at tech conferences and on financial news programs such as: Fox Business, TDAmeritrade, CoinDesk, NPR, Bloomberg TV Asia, Motley Fool podcast, This Week in Startups and more discussing her stock analysis. She is known for making bold calls on tech stocks.Beth is the leader of the investing group Tech Insider Network where she utilizes her team’s nearly two decades of Silicon Valley experience to combine fundamental and technical analysis to consistently beat Wall Street funds such as ARKK and QQQ (he performance is fully audited). Features of Tech Insider Network include: A fully transparent portfolio, institutional-level research reports, real-time trade notifications and market signals, automated hedging signals, weekly webinars, and chat. Learn more.
Analyst’s Disclosure: I am/we are long ROKU, SHOP, FVRR.
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