Bear's Q4 Earnings Preview vol1

Investment Analysis Clubs Saul’s Investing Discussions
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Earnings season is upon us, with Netflix stunning the market yesterday. Most of the companies I own will be reporting 2-3 weeks from now. What happens between now and then will matter, but I’m already making a plan for what to watch.

What I’m watching for

Shopify (SHOP) - I’d love to see them blow the doors off the 5 or 6 cents of adj. EPS expected and turn in something like 15 cents, but they really have no reason to. I’m sure they’ll beat on revenue by several million, and my only real question mark is how the market will react.

Arista (ANET) - It’s hard not to see some kind of slow down in growth eventually. If they only grew 45% instead of 50%+, would the market care? It’s hard to even imagine getting a buying opportunity on this company that seems to go up every day. But it could happen. They report 2/15 after markets close.

Wix (WIX) - I really have no idea how the market will react. I’m expecting them to beat expectations, and to me a rational reaction would be the market bidding up shares into the 80’s again. We’ll just have to see. This all still holds: http://discussion.fool.com/more-thoughts-on-wix-32953207.aspx

Pure Storage (PSTG) - I’m expecting another slight beat and more steady performance from this company. It will be interesting to see if the market yawns or if it can get some traction. I think it’s very undervalued, as I mentioned here: http://discussion.fool.com/marginal-thinking-update-32931491.asp…

Square (SQ) - This company isn’t really trading on fundamentals anymore, but on a vision of what it will one day become. I’ve trimmed a bit, but I have to agree, they will be something special. So I’m not trimming any further. Expect volatility. Though I wouldn’t be surprised to see growth accelerate, don’t expect a rational reaction from the market, which I don’t think is really looking at the numbers.

Alarm .com (ALRM) - After some wisdom from the board in this thread (http://discussion.fool.com/alarmcom-thoughts-32949749.aspx), I’m even more interested to see if Alarm can keep generating such good results. They need to run a tight ship, and allow more of the revenue to flow to the bottom line, as it seems they’ve begun to do. I’ll learn a lot from seeing how this continues in Q4. They report 2/27 after markets close.

Hubspot (HUBS) - Saul made some bold statements after their last report: http://discussion.fool.com/hubs-why-all-those-analysts-are-jumpi…
The market has bid HUBS up, and finally seem to be seeing a glimpse of what Saul saw 2.5 months ago. Way to catch up, Wall Street. I’ll be watching their report to see this playing out. They report 2/13 after markets close.

Please let me know if anyone finds this interesting fodder for conversation. I’d love to hear some of your thoughts on these companies. (I chose my top 7 holdings because my thoughts on them are much more interested than my bottom 7, although I’m happy to discuss those too).

Thanks,
Bear

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I find it interesting, but I do now own 5 of those 7 with the other 2 being on my watch list.

I very well may play the options lotto with Wix. The estimate of when they’ll announce is February 13th or 14th, but it hasn’t been set yet.

Alarm.com similarly hasn’t been widely up over the past 5-6 months the way Arista and others have been…so continuing to show good growth could be a nice catalyst for them too. Accelerating revenue growth could be very nice for them. I did note a recent announcement about them adding in some additional capabilities to help folks avoid bursting pipes and such from extreme weather. As someone who installed a Nest thermostat a few months back, I still want to try to dive a bit deeper and figure out how Alarm.com fits into the whole smart home market before diving into any position.

The present top of my watch list (Pure Storage recently moved down since I have a position, but it was a 3.75).

Present Rank (out of 5 stars)	Symbol	Company Name
4.00	TLND	Talend
3.75	SWKS	Skyworks Solutions
3.75	SBUX	Starbucks
3.75	ALRM	[Alarm.com](http://Alarm.com)
3.75	WIX	[Wix.com](http://Wix.com)
3.75	STMP	[Stamps.com](http://Stamps.com)		
3.75	AYX	Alteryx
3.75	PAYC	Paycom

I need to get on the ball with Talend. They have been staying in a fairly tight range for a while, and they report after market close on 2/13.

Earnings season is going to be action-packed.

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SHOP has beat analysts estimates 4 times in a row, with the beat margin widening last quarter . Same with ANET and NVDA

Biggest possible earnings surprise - NVDA Their top of line most profitable GPU are on back order sold out most places . Especially with earnings I think analysts are underestimating

Next to NVDA I feel most sure about ANET having a good pop.

Source for estimates yahoo finance

Of course the market is probably expecting some of this. Nobody will know how much expectations actually are until the day of earnings

what this consistent under-estimating may mean

  1. it’s better career wise to underestimate
  2. it’s better career wise to stick close to the crowd
  3. they have no idea what is going on . They all have the same education and tool set and it does not work well for real innovation and possible exponential growth.
  4. they will right and I will be wrong
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The high end NVDA GPU being sold out, we are sure its higher than expected sales and not a production problem?

Jimbo

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about WIX…

You said that ‘Wix does constantly serve its users in new and innovative ways’. Can you more specifically talk to that?
Wix seems to be targeting the lower-end market as compared to SHOP which is more expansive in scope. I read on this board about the question of SHOP’s churn rate for that lower end sector, and the max number of viable merchants and the ultimate addressable market size. Wouldn’t you think that one should ask the same of Wix? Wouldn’t Wix be even more vulnerable to this problem if it ever becomes one?

tj

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I read on this board about the question of SHOP’s churn rate for that lower end sector, and the max number of viable merchants and the ultimate addressable market size. …Wouldn’t Wix be even more vulnerable to this problem if it ever becomes one?

Actually quite the opposite. Check out their pricing: https://www.wix.com/upgrade/premium-plans

As you can see, a big fish for Wix is $25/month. Shopify Plus STARTS at $2,000/month.

At $25/month, you don’t need a thriving business to be able to pay your Wix bill. Many Wix sites don’t sell anything at all. Can you do ecommerce on Wix? Yes. Can you do it at the size and scale that you can on Shopify? Not even close.

It’s a different market of users altogether. Shopify has to worry that its merchants are thriving. Wix doesn’t even care if its users are merchants.

Bear
long SHOP and WIX (2 of my top 3 positions)

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Shopify has to worry that its merchants are thriving.
Wix doesn’t even care if its users are merchants.

Bear, I love it! You really have a way of getting to the core of the situation!
Saul

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Yes that’s what I thought about SHOP low-end offering actually. SHOP does also serve this exact same market you describe, doesn’t it? So what do you think SHOP’s competition?

tj

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Getting to the core of the situation is your gift! But thanks…I hope I have some of it too.