Bear's Q3 earnings wrap-up

[PaulWBryant]

I’ve updated the board on my thoughts on earnings 3 times already
http://discussion.fool.com/bear39s-q3-earnings-thoughts-vol1-328…
http://discussion.fool.com/bear39s-q3-earnings-thoughts-vol2-328…
http://discussion.fool.com/bear39s-q3-earnings-thoughts-vol3-328…

But I thought now that all the companies I own have reported, it might be worth taking another look at each – how they fared, how the market reacted, and how I reacted. Some we’ve already discussed and I’ll just summarize. Others, I have been processing.

SHOPIFY (SHOP)

Still #1. I haven’t trimmed (or added) since Oct 31, when I added after they reported. We’ve already discussed this one a lot, so I won’t rehash, but you can read my thoughts here if you missed them: http://discussion.fool.com/bear39s-shopify-sepq-review-32880587…

HUBSPOT (HUBS)

As Saul noted here (http://discussion.fool.com/hubs-why-all-those-analysts-are-jumpi…), Hubspot managed to eke out positive earnings despite a conference that costs millions, so without the conference they would have had double-digit EPS. Pretty swift acceleration of operating leverage. I expect the next couple of quarters to really highlight it for those who can’t already see it like Saul can.

I was happy with Hubspot as one of my very largest positions, but when shares fell after earnings (I assume there’s a lot of sell on the news going on with many companies after they report) I couldn’t resist, and added about 12% more Hubspot shares. It’s oversized now at 11.5% of my port.

Arista Networks (ANET)

It’s hard to really communicate how well this company is doing. If I had to boil it down to one sentence, I’d say they made 21M more than last Q in gross profit while spending 3M LESS in OpEx. Damn.

I added 18% more shares in October and have already stepped my position up 10% more in November. Wish I would have done this a year ago. Btw, shares are up 10.6% MTD…on goes the seemingly inevitable march of this category crusher. My position is up to an oversized 11%.

Square (SQ)

I said in a recent post on this board (http://discussion.fool.com/modified-buy-and-hold-pt-2-32875928.a… This may come back to make me look stupid, but I’m going to way out on a limb and say that for the September quarter I expect them to grow revenue at 45%. I would hereby like to thank Square for not making me look stupid. Revenue growth did in fact accelerate to 45% growth YoY.

This one reported just a few days ago, and I didn’t see a ton of discussion on the board, but thanks to Matt (as always) for this great summary: http://discussion.fool.com/sq-reports-2017-q3-earnings-32888864… As you can see, their entire report was fairly perfect. Just another company defining their own category and crushing it. Lots of exciting optionality on the horizon too.

Exhibiting typical sell-to-soon behavior, I couldn’t help but trim a little as SQ crested $38/share. Luckily I didn’t trim much. It’s still my 4th largest position.

Wix (WIX)

Wix also reported a few days ago, and as I noted here (http://discussion.fool.com/overall-i-liked-the-quarter-no-slow-d…), the market kind of missed the point on Wix. The positive EPS was well within the “step in the right direction” category, but missed expectations that I think were so unreasonable as to be silly. Revenue grew 47% and Average Collections per New Annual Subscription ticked up sequentially from $156 to $158.

I mentioned that I had added 21% more shares at $57. I didn’t expect to see a lower price, but when I did yesterday I added another large chunk, and I now own 49% more Wix than I did Monday.

INSTRUCTURE (INST)

I did a review for INST, and judging by the recs, no one was as interested as they were in, say, my SHOP review. Understandable, but I think this little company is worth checking out. Their wins are ridiculous – really crushing the competition. Here’s the review: http://discussion.fool.com/bear39s-instructure-sepq-review-32880…

Summary: Revenue up 42%, still in land/expand mode, but steadily improving operating leverage, and still developing new products when they see opportunity.

I didn’t add, but it’s a 7.2% already, and the market didn’t react very strongly anyway – no huge buying opp. Valuation remains very reasonable, though, so the getting is still good if you’re looking to establish a position.

TALEND (TLND)

I would describe Talend’s quarter as a solid continuation of good progress all around. Revenue grew 40%. Operating leverage improved – oper loss narrowed quite a bit, they added 44 enterprise customers (vs 31 last Q), and enterprise customer count was up a massive 59% YoY. Nothing to complain about here.

I added 30% more shares, but I think I did that before they reported. No strong market reaction to earnings, though – that seems to be the norm with this one. Another steady march (like ANET and SQ) as they kill it operationally.

THE TRADE DESK (TTD)

Revenue grew 50% YoY, although OpEx was up somewhat, but I get it – they are still growing into a very large opportunity. They didn’t raise their Q4 guidance, but it’s already 100M bucks…what do you want people? I wasn’t immediately blown away or anything, but I see a company that’s still doing a lot of winning, and a market overreacting as shares fell 14% yesterday.

I added 46% more shares to this small position, which isn’t as small now – about 5%.

HORTONWORKS (HDP)

This one really shocked me this quarter as revenue growth accelerated to 45%, and OpEx was actually down both sequentially AND YoY. Wow.

It’s up more than 10% since earnings. I added immediately, but sold and banked the quick 10% gain. Just keeping this one relatively small (4.5%) since it’s such a weird (extreme) business model, financially speaking.

FACEBOOK (FB)

Just a tremendous quarter from FB. Revenues now over 10B. Operating margin is roughly 50%. What? Wow. But they’re going to hire 10,000 people or something to try to keep Russians from advertising on their site. Something like that. Anyway, this company prints money, and their ~40B annual revenues are chump change compared to the Apple’s, Amazon’s, and Google’s of the world. Plenty of room to run.

I am not worried at all, but I did sell some just to raise money to add elsewhere.

ALARM.COM (ALRM)

This little company is so solid and undervalued as they just start to flex their operating leverage muscles. Don’t let tax fluctuations fool you, they made incredible progress this quarter. Operating Income was up 267% (not a typo). Revenue was up 33% but SaaS revenue is growing a lot faster. I love this under the radar grower and think they’ll surprise a lot of people in 2018.

They fell around 15% as accounting decisions made non-GAAP EPS estimates for 2017 seem lower, but that seems like a dumb reason to sell shares. I increased my very small position by 50% and it’s now a 3.7% position.

---

Yeah, that’s only 11 positions.

I sold out of my little 2.7% Mercadolibre (MELI) position before earnings – missed out on a 10% or more gain, but would have sold anyway because I think they’ve bitten off a lot with this shipping initiative. Growth is impressive, though.

I also sold Twilio (TWLO) for a similar reason – I’m worried about margins and whether they’ll ever be able to make money. Lot of pressures. I also saw a new competitor yesterday – Bandwidth – I think maybe they just IPO’d? Anyway, here’s my explanation of why I sold: http://discussion.fool.com/why-i-sold-twlo-32889534.aspx Ant’s reply and my response to it might help if you’re interested in how their quarter went.

Hope everyone is having a great earnings season. I’m not surprised to see a lot of these hot stocks cooling a bit, just like the weather is where I live. But I note that there were no operational disasters – and some buying opportunities, in my Fool opinion.

Bear

[SaulR80683]

But I thought now that all the companies I own have reported, it might be worth taking another look at each – how they fared, how the market reacted, and how I reacted.

Hi Bear, It’s amazing how much overlap we have, especially among our largest positions, so I thought I’d comment on your comments (smile) if you don’t mind. I also have 11 positions and we overlap on 6 of them

SHOPIFY (SHOP)

Still #1. I haven’t trimmed (or added) since Oct 31, when I added after they reported. We’ve already discussed this one a lot, so I won’t rehash…

You don’t get much better quarters anywhere:
Adj Earnings of 5 cents (beats by 6 cents)
Revenue up 72% (beats by $6 million)
Gross Profit up 83%
Another record number of Merchant Adds,
A record number of customer launches on Shopify Plus
Raising guidance for the quarter and year.

It’s my biggest also. I did sell a tiny bit for cash because I had such an oversized position. By the way, the COO just gave a talk at an investor conference, and here’s a link to notes from what he said: https://seekingalpha.com/article/4123197-shopify-coo-talks-r…

HUBSPOT (HUBS)

As Saul noted…Hubspot managed to eke out positive earnings despite a conference that costs millions, so without the conference they would have had double-digit EPS. Pretty swift acceleration of operating leverage. I expect the next couple of quarters to really highlight it for those who can’t already see it …. I was happy with Hubspot as one of my very largest positions, but when shares fell after earnings (I assume there’s a lot of sell on the news going on with many companies after they report) I couldn’t resist, and added about 12% more Hubspot shares. It’s oversized now at 11.5% of my port.

I wrote about Hubs (see the link in Bear’s post), so I won’t repeat, but I followed my own advice and added quite a bit when the stock unexpectedly fell after positively great results. This is Bear’s second largest, and my third largest position, at an almost identical percentage of 11.55%. (Square is ahead of it in second place in my portfolio).

Arista Networks (ANET)

It’s hard to really communicate how well this company is doing. If I had to boil it down to one sentence, I’d say they made 21M more than last Q in gross profit while spending 3M LESS in OpEx. Damn. I added 18% more shares in October and have already stepped my position up 10% more in November. Wish I would have done this a year ago. Btw, shares are up 10.6% MTD…on goes the seemingly inevitable march of this category crusher. My position is up to an oversized 11%.

I agree with what Bear said, and I added a bunch this week at $200. Another one where you can’t ask for much better:

Revenue up 8% sequentially, and up 51% yoy.
Gross margin of 64%.
Adj net income up over 100%.
Earnings per share up 95%.
The highest number of customer acquisitions in one quarter, “signaling the main stream arrival of million dollar customers in the enterprise vertical…”

This is Bear’s third largest and my fourth, also at about 11%.

Square (SQ)

I said in a recent post on this board This may come back to make me look stupid, but I’m going to way out on a limb and say that for the September quarter I expect them to grow revenue at 45%. I would hereby like to thank Square for not making me look stupid. Revenue growth did in fact accelerate to 45% growth YoY. This one reported just a few days ago, and … their entire report was fairly perfect. Just another company defining their own category and crushing it. Lots of exciting optionality on the horizon too. Exhibiting typical sell-to-soon behavior, I couldn’t help but trim a little as SQ crested $38/share. Luckily I didn’t trim much. It’s still my 4th largest position.

And it has grown to be my second largest. I didn’t add or sell any this month. Here are my personal notes:

Very impressive! Revenue growth is re-accelerating: 39%, 41%, 45%, the last three quarters. Adjusted EBITDA is booming ($34 million this quarter, up from $12 million). Subscription and Service revenue (the special stuff), was up 86%. It still is only a quarter of total revenue, and as it gets bigger, total revenue growth will continue to rise. The conference call was confident and enthusiastic. Looks great.

Wix (WIX)

Wix also reported a few days ago, and … the market kind of missed the point on Wix. The positive EPS was well within the “step in the right direction” category, but missed expectations that I think were so unreasonable as to be silly. Revenue grew 47% and Average Collections per New Annual Subscription ticked up sequentially from $156 to $158. I mentioned that I had added 21% more shares at $57. I didn’t expect to see a lower price, but when I did yesterday I added another large chunk, and I now own 49% more Wix than I did Monday.

I’m not as brave as Bear to have Wix as my 5th largest position. It’s actually my 10th, at 4.4%, although I also added some when it fell. Apparently the stock was killed mostly because R&D spend increased from 33% to 36% of (greater) revenue. What the public missed is that their R&D expenses are in Israel, and the sheckel appreciated 6% in the quarter against the dollar (now reversing). And they also acquired a company that was all R&D but no revenue yet.

INSTRUCTURE (INST)

… I think this little company is worth checking out. Their wins are ridiculous – really crushing the competition. Summary: Revenue up 42%, still in land/expand mode, but steadily improving operating leverage, and still developing new products when they see opportunity. I didn’t add, but it’s a 7.2% already, and the market didn’t react very strongly anyway – no huge buying opp. Valuation remains very reasonable, though, so the getting is still good if you’re looking to establish a position.

I exited this one before earnings. It sounds like a great product, and everybody loves it, but for the last five quarters their TTM losses per share have gone (in cents) 163, 155, 146, 134, 127. I figured that at that rate it would take them exactly three and a half years to just reach breakeven, and after four and a half years, they’d have a PE of 100 at todays price, without any stock price rise… And rate of growth is falling rather markedly.

TALEND (TLND)

I would describe Talend’s quarter as a solid continuation of good progress all around. Revenue grew 40%. Operating leverage improved – oper loss narrowed quite a bit, they added 44 enterprise customers (vs 31 last Q), and enterprise customer count was up a massive 59% YoY. Nothing to complain about here. I added 30% more shares, but I think I did that before they reported. No strong market reaction to earnings, though – that seems to be the norm with this one. Another steady march (like ANET and SQ) as they kill it operationally.

This is Bear’s 7th and my 8th largest at 7.8%. I didn’t buy or sell any. For a few facts, revenues were up 40%, while their adjusted operating margin went from minus 19% to minus 6%. And the number of Large global enterprises, defined as companies with $100,000 or more of annualized subscription revenue, grew by 59%.

The next four of Bear’s companies I’m not in, although I have been in all four in the past. Here are my thoughts:

THE TRADE DESK (TTD)

Revenue grew 50% YoY, although OpEx was up somewhat, but I get it – they are still growing into a very large opportunity. They didn’t raise their Q4 guidance, but it’s already 100M bucks…what do you want people? I wasn’t immediately blown away or anything, but I see a company that’s still doing a lot of winning, and a market overreacting as shares fell 14% yesterday. I added 46% more shares to this small position, which isn’t as small now – about 5%.

Not my thing. Online advertising changes so rapidly, and is so under the ultimate control of the Facebooks, Googles, and Amazons, that this year’s winner can be next year’s loser. Just the way I see it.

HORTONWORKS (HDP)

This one really shocked me this quarter as revenue growth accelerated to 45%, and OpEx was actually down both sequentially AND YoY. Wow. It’s up more than 10% since earnings. I added immediately, but sold and banked the quick 10% gain. Just keeping this one relatively small (4.5%) since it’s such a weird (extreme) business model, financially speaking.

I exited some time ago for reasons I explained at the time, and haven’t followed it since.

FACEBOOK (FB)

Just a tremendous quarter from FB. Revenues now over 10B. Operating margin is roughly 50%. What? Wow. But they’re going to hire 10,000 people or something to try to keep Russians from advertising on their site. Something like that. Anyway, this company prints money, and their ~40B annual revenues are chump change compared to the Apple’s, Amazon’s, and Google’s of the world. Plenty of room to run. I am not worried at all, but I did sell some just to raise money to add elsewhere.

I probably should have stayed with this one, but I made the decision that seemed right at the time. Haven’t looked back.

ALARM.COM (ALRM)

This little company is so solid and undervalued as they just start to flex their operating leverage muscles. Don’t let tax fluctuations fool you, they made incredible progress this quarter. Operating Income was up 267% (not a typo). Revenue was up 33% but SaaS revenue is growing a lot faster. I love this under the radar grower and think they’ll surprise a lot of people in 2018.

They fell around 15% as accounting decisions made non-GAAP EPS estimates for 2017 seem lower, but that seems like a dumb reason to sell shares. I increased my very small position by 50% and it’s now a 3.7% position.

I sold out before earnings for cash to put elsewhere. An alarm software company just didn’t fit the mold for me, but Alarm may do just fine.

Hope this was helpful.

Saul

For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
that is on the right side of every page on this board

[SaulR80683]

With regard to Wix, I forgot to mention that their newly released product, Code, seems destined to be a very big deal for them.
Saul

[branmin]

Saul, you still have LGHI? I added a few weeks ago along with BABA, NVDA and ANET.

[SaulR80683]

Saul, you still have LGHI?

Yep, I sure do. It’s still a 10.9% position. I’ve trimmed it a little for cash (at the end of October it was 11.9%). I have no current plans to trim further, but I can’t speak for the future. It always depends on what happens.

Best,

Saul