Review of the Earnings Season so far.

Review of the Earnings Season so far.

The S&P 500 has fallen for nine days straight, which is rather unusual. It hasn’t fallen enormously but consistently, and that downward pull has tended to hide how good our stocks’ earnings results have been. (The S&P is down about 3.1% in the last nine trading days, and the Russell 2000 is down about 4.5% in the same time).

So I’m going to take a look at my stocks that have reported so far and see how they’ve done. I’ll take them alphabetically, and will discuss how they actually did, not how they did compared to some analyst’s expectation.

Amazon (AMZN)
How did they do? Let’s see! Well…
Revenue was up 29%, and
Cloud Revenue (which is where the money is), was up 55%
Earnings per share were up 200%. (They tripled).
TTM Operating Cash Flow was up 49% from a year ago, and up 17% sequentially, and was over $30 per share.
TTM Free Cash Flow was up 59% from a year ago, and up 16% sequentially, and was almost $18 per share.

How has the stock reacted? Amazon’s stock price is down 9.4% in those 9 days we’re talking about.

Arista (ANET)
And how did Arista do?
Revenue was up 33.4% and up 8.0% sequentially.
Adjusted earnings per share up 40.6%,
TTM earnings also up 41%.

How has the stock reacted? Arista is just down about a percent.

Bank of the Internet (BOFI)
Bofi is next:
Earnings per share were only up 12.5%, but
Tangible Book Value was up 24%
Non-Interest Income was up 50%
Efficiency Ratio was still under 40% (meaning Operating Income was over 60%)
An expansion of their H&R Block agreement was announced, by which they will provide additional services, and finally they were awarded Best Online Bank and Best Checking Account by MONEY.

How has the stock reacted? Bofi’s stock price is down 14.5% in the past nine trading days.

Mitek (MITK)
I find some reason for the impatience with Mitek. I know that they announced a year ago that they would be investing in growth this year, but…
Revenue was up 23% for the quarter and 37% for the fiscal year, and on that
Adjusted Earnings were 7 cents down from 9 cents on the quarter and flat at 26 cents for the fiscal year.

They keep announcing new deals signed and new patents granted, but nothing happens earnings-wise, and I guess people are getting impatient. When your revenue is up 37% for the fiscal year, you ought to set some money aside for growing profit. How has the stock reacted? Mitek is down about 17.8% in the past nine trading days.

PayCom (PAYC)
Let’s see…
Total Revenues were up 40%, and 98% were recurring revenue.
Adj Gross Margin was 83% of revenue.
Adj EBITDA was up 68.5% and was 23% of revenue.
Adj Net was up 91%.
Adj earnings - 15 cents up 87.5% from 8 cents.
Cash was $74 million and Total Debt was $30 million. This was solely debt on their corporate headquarters.
Repurchases: Started a repurchase plan in May, and have already repurchased over 525,000 shares.

Do you realize how good all this is? If not, read it again! So how has the stock reacted? PayCom’s stock is down 17.3% in the past nine days.

Signature Bank (SBNY)
They took a large write-off this quarter to put the Chicago medallion loans behind them for good. I decided to consider this as a one-time occurrence for my own record purposes and took the pre-charge-off values of earnings. All the other values are as given. And by the way, Weiss Ratings, a national provider of financial strength ratings, recently ranked them one of the top five highest-rated large banks in the U.S.

Earnings were up 12.2%
Efficiency Ratio was an incredible 31.9% (meaning that operating margins were 68.9%)
Tangible Book Value was up 17.7%
Average Assets were up 19.6% yoy
Loans were up 25% yoy
Deposits were up 18% yoy.

Remember that the are growing assets, loans and deposits about 20% in an economy that is growing GDP at 2-3%, so they are clearly taking market share in a huge way.

How has the stock reacted? I guess people figured out that these were excellent results and the stock actually bucked the market and rose 3.7% in the past nine trading days.

Shopify (SHOP)
How’d they do? Let’s see.
Total Revenue was up 89%. That’s not a misprint! That’s revenue.
Subscription Revenue was up 69%
Monthly Recurring Revenue was up 67%
Merchant Solutions Revenue (based on how much the merchants sell) was up 114%
Gross Merchandise Volume was up 100%.
Etc, (You get the picture…)

How about profit? Well a long time ago they gave guidance that they would become profitable in the fourth quarter of 2017, and until then they would spend all their profits on seizing market share. Thus they spend just over revenue each quarter to have a tiny loss of 1% or 2% so that they can keep grabbing market share. They know that if they ever report a profit, even a penny, everyone will expect them to limit expenses to make more and more profit each quarter, while they want to keep grabbing market share. They say they are comfortable with their profitability target for the fourth quarter of 2017. Of course they are. They can turn on profit whenever they want by just limiting expenses a tiny bit.

How did the stock react? It’s down 10% in the past nine days, believe it or not!

Skechers (SKX)
We’ve discussed a lot about Skechers on the board so I won’t repeat it. Basically revenue was up 10% but earnings were down 14%. How did the stock react? It dropped 17% after earnings, but it’s actually up a few cents in the past nine days, and it actually up 5% from the closing the day after earnings.

Silver Spring (SSNI)
I think that they have begun to run into some of the same impatience that Mitek is experiencing. Silver Spring is winning huge contract after huge contract, their margins are rising, even their adjusted earnings are rising (from a loss of 50 cents in 2014, to 9 cents in 2015, to 17 cents so far this year), but the way they recognize revenue makes their revenue look stationary. This quarter their earnings per share was up 30% but revenue looked flat. That makes people nervous and the stock has fallen 10% in the last nine days.

Ubiquiti (UBNT)
How did they do? Super-great!
Revenue was up 36%, and up 10% sequentially
Earnings were up 55%, and up 14% sequentially
And they’ve introduced a bunch of new products that are just hitting the market.

How did the stock react? It’s up all of 2% in the past nine days.

Hope you found this helpful.


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
on the right side of every page on this board


Thanks for this, Saul. Your time and effort in putting together this post is very much appreciated.

I am wondering whether you are feeling the same impatience with SSNI and MITK that you mentioned in your post (ie- that others are feeling)…to the point of possibly reducing or eliminating your positions in each in the near future?

I am wondering whether you are feeling the same impatience with SSNI and MITK that you mentioned in your post (ie- that others are feeling)…to the point of possibly reducing or eliminating your positions in each in the near future?

Hi Speedy,
A little with MITK. It was already my smallest position and smaller now with the drop in price, and I reduced the position too before this last big drop. At the present price it’s at a PE of just 21.5, and I’m not willing to sell any more, especially at $5.80 after all. There hasn’t been any real BAD news, I’m just impatient with it.

SSNI is a medium-size position, is winning big contracts from Con Ed in NYC, to Stockholm and Singapore, etc etc, and I have more confidence in it, and it’s not one that I’m considering selling out of.




Thank you Saul. I appreciate the response.


Sorry I missed HubSpot somehow. You can add it in if you are keeping track.

HubSpot (HUBS)
Lets see how they did.
Revenue was up 48%
Earnings were greatly improved at a loss of 5 cents, up from a loss of 27 cents the year before and from losses of 11 cents and 7 cents sequentially.
Customer Count was up 29%
Subscription Revenue per Customer was up 16%
Operating Cash Flow was $5.3 million up from a loss of $3.8 million the year before.

Sounds good. How did the Stock react? It’s down 3.6% in the last 9 days.


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and will discuss how they actually did, not how they did compared to some analyst’s expectation.

Saul, what a great lesson in that how a stock price reacts is never solely a function of well how the company did or didn’t do the previous quarter. A stock’s price changes based on how well the market believes the stock will do in the upcoming quarters.

Horse race betting is probably a pretty good analogy. One of the greatest horses of all time, Secretariat, won the Belmost Stakes in 1971. No horse has ever been faster on dirt - he set the World Record there, beating the second place horse by 31 lengths (a track record as well).

And what did betting on this horse pay out? Ten cents on the dollar - such a puny payout that over 5,000 winning tickets were never cashed, presumably to be kept as souvenirs. We’re talking arguably the best thoroughbred EVER and it had the puniest payout. Crazy, right?

Stocks are the same way. As Saul rightly points out, Amazon revenue was up 29% and earnings tripled and yet the stock price declined. Why? Because everyone knows Amazon is a great company and is going to do well. So, like bettors piling on Secretariat, investors have piled on Amazon with the same net effect.

Let’s look at another popular company, although not a “Saul Stock” - FB. Facebook had a great quarter with revenues up 56% and EPS up 161%. But the price fell because management said that growth will slow in the future and that costs will rise as they need to invest in attracting and keeping top software development talent in the expensive Bay Area market. Mr. Market may not believe management when they’re optimistic about the future, but they always believe them when they’re pessimistic.

Look, finding great companies that will do well in the future is actually pretty easy (look at Amazon). But, that’s not good enough in terms of making money buying and selling stock and options. The real trick is picking companies that are going to do better than the market believes they will. You have to be better as an individual than everyone else is in aggregate. And so for me every stock and option trade is based on whether I think the market has it wrong enough that I’ll make money as what I think proves out in the long run.

It’s a scary game. There are a lot of smart people with decades of experience, direct contact with company and competitor’s management, deep market understand, and access to sophisticated computer models. So as an amateur, beating them isn’t easy. The experts aren’t always right, but everytime I trade I ask myself why I believe I know better than them. It’s humbling.