A lot of interesting earnings last week. Even though I didn’t own any of them, I’d like to share my thoughts on 4 companies I’ve been interested in for a long time: Netflix, Skechers, Atlassian, and Paypal.
Netflix (NFLX): Netflix reported a great quarter on October 16th, to which the market mostly yawned, because the stock is up more than 50% YTD. They beat on revenue and missed on EPS, but I (like most) was more interested in subscriber growth. While they are still adding customers at a great pace, I have to worry about this one. They’re over 100M subs, but the stock seems to be trading as if they’ve already hit 300M, or will inevitably hit 500M. I think there’s a lot of danger here, especially opportunity cost. International is strong, but they have to compete with Amazon, HBO, HULU, soon Disney, and I’m sure more will come. I’m not saying it will be winner take all, but Netflix used to be the default, and now it’s not so simple. If they nearly double to 200M subs, that’s roughly 30B a year in revenue. If they can get to a 10% net margin, at a PE of just 20 that would support a valuation of 60B. They’re at 85B now. Sure, you can argue that a PE of 20 is low, but remember, that’s if they can double subscribers! This thing is so expensive right now.
Skechers (SKX): Skechers regained the market’s affection when they reported on 10/19. Absolutely Skechers was due for a little margin expansion. A PE of 13 or whatever was very worry-driven. But they’re not going to start growing at 30% consistently once again, I don’t think. PE is now 21.5, and I can’t imagine it stretching too much over 25. So again, I think it totally deserved the ~40% pop, but I’d say this one is now back to fair value.
Atlassian (TEAM): Atlassian also reported a great quarter on 10/19. This is one SaaS play that I believe in, but it’s just plain expensive (Veeva is another). The company grew revenue 42% this quarter, but it trades at an almost SHOP-like PS ratio of 16.5, and a PE of 128 based on adjusted earnings. To make matters worse, their OpEx grew at 48% for the quarter – spending is growing faster than revenue! The market loved it, and shares rose ~25% Friday, but are giving back a bit of ground today. I just can’t get interested at this valuation.
Paypal (PYPL): Paypal beat on both EPS and Revenue in impressive fashion. The 20%+ revenue growth (an acceleration from high teens growth) is an impressive level for a company this mature. They seem to have a lot of tailwinds working for them, and at a PE of just under 40, I can’t find a lot of fault with this one. Seems fairly valued at worst.
For stocks I own, Mulesoft (MULE) reports Thursday after markets close. I was considering adding when it was around a PS of 11, but it’s risen 17.5% in October and now sports a PS of 13. I’ll check out the customer growth they report on Thursday and then see what’s what.
For the rest of my companies, I’ll have to wait until at least next week.