by Todd Shaver | May 9, 2024 | Instant News Flash
Shopify (SHOP: $63, down $15 yesterday) reported mixed results for Q1 2024 Tuesday evening. Revenue grew 23% year-over-year, exceeding analyst expectations. However, the company posted a net loss due to increased expenses, a shift from the previous year's profit.
Highlights:
- Revenue: $1.86 billion (up from $1.51 billion)
- Gross merchandise volume (GMV): $61 billion (up 23%)
- Monthly recurring revenue: $151 million (up 32%)
- Gross margin: 51.4% (up from 47.5%)
- Strong cash flow position: $5.2 billion cash, $1.1 billion debt
Concerns:
- Net loss: $270 million (vs. $60 million profit in Q1 2023)
- Management transparency: We have concerns about the company's communication during the earnings call.
- Increased competition: The e-commerce landscape is competitive, and Shopify faces pressure to maintain its market share.
BMR Take:
Shopify's core business remains healthy, with strong growth in revenue, GMV, and recurring revenue. The company's focus on AI solutions holds promise for the future. However, the net loss and questions about management transparency are causes for concern. We are removing Shopify from our portfolio, but the long-term potential remains. We are generally displeased with the company. We loved this company and they have let us down. The comments from management are in many cases hyperbole and we don’t believe many of them. Once you start to disbelieve a company’s management, you lose trust in the company. It is hard to get trust back.
We thought we had a company for the ages, like Microsoft or Google. But they have let us down. We added the stock at $73 in 2017 and it rose to $1,763 in 2021, a 24-bagger, but the stock has faded to its current level of $620. Of course, after the 10-1 split in 2022, you can divide all these numbers by 10. We still have an 8-bagger, which is not bad in the whole scheme of things. But the company has let us down, so we are removing the stock today.
Where will the stock be in a year or two? Perhaps right where it is now; perhaps higher, as the platform they have built is second to none. But competition is heating up and if management can screw up like they have in the past year, then the whole franchise could be in trouble. We’d rather have our money in Amazon.
by Todd Shaver | May 8, 2024 | Instant News Flash
Stocks for Success Portfolio
Diversified conglomerate, Berkshire Hathaway, (BRK.B, $407, BRK.A, $611,000 per share!!) released its first quarter results last week, reporting $90 billion in revenue, up 5% YoY, compared to $85 billion a year ago. It posted a profit of $12.7 billion, or $5.20 per share, compared to $8.8 billion, or $3.69, with a beat on consensus estimates on the top and bottom lines, driven by a strong performance across its insurance underwriting and energy divisions.
Note that this isn’t the net profit, which would include the company’s investment gains and losses, which Warren Buffett has asked investors time and time again to ignore, given that these gains or losses are unrealized. When it comes to the pure operating performance of its subsidiaries, Berkshire’s insurance underwriting earnings swelled to $2.6 billion, up almost triple YoY, compared to $910 million.
The energy division similarly saw earnings double during the quarter to $720 million, up from $410 million a year ago. The company’s railroad business witnessed a slight decline in revenue, at $5.6 billion, down from $6.0 billion a year ago, owing to strikes and staffing issues that have plagued the industry for over a year. Other segments, however, point towards resilience and a resurgence in the broader US economy.
The spotlight during the quarter was Berkshire’s ever-rising cash hoard, which hit a fresh high of $190 billion, up from $168 billion the prior quarter. What an amazing number. This was the result of the company dumping $20 billion worth of stocks, and redeploying just $3 billion in fresh investments. Much of the disposal comprised of Apple stock, which has long been the conglomerate’s prized holding. The company trimmed its Apple holdings up to 13% during the quarter, and while the consumer tech giant is still its largest stock holding, this marks a major shift in strategy. This comes as Apple itself unveiled a record $110 billion stock buyback program.
By being a net seller of stock for 6 consecutive quarters and hoarding an ever-increasing pile of cash, the Oracle of Omaha has quietly hinted at his disapproval of present equity valuations. Hence, Berkshire is focused on delivering value to investors via its repurchase program, with $2.6 billion in buybacks during the quarter, made possible by its $190 billion in cash, $120 billion in debt, and $51 billion in cash flow. We expect these buybacks to increase dramatically this year.”
We believe Warren Buffett will announce a big purchase in the coming quarters. He has a legacy that will stand for all time, but one more big deal would be the way to go, as he leaves this world. Almost $200 billion in cash is burning a hole in his pocket, of that there is no doubt. Hold tight and watch. We added the stock at $208 in 2019; we have almost a double. The all-time high is listed at $430, but we can’t verify that in our research. We see it as $424 on April 4th. We aren’t going to quibble over $6. Our Target is $450 and our Sell Price is “We would not sell Berkshire Hathaway.”
by Todd Shaver | Feb 7, 2024 | Instant News Flash
Pharmaceuticals giant Eli Lilly (LLY: $730) blew past estimates during its fourth quarter results Monday night after the close, posting $9.4 billion in revenues, up 28% YoY, compared to $7.3 billion a year ago. Profit was $2.2 billion, or $2.49 per share, against $1.9 billion, or $2.09, driven by the strong response to its new anti-obesity drug, Zepbound, coupled with price increases for its blockbuster diabetes treatment, Mounjaro.
For the full year, the company produced $34.1 billion in revenues, up 20% YoY, from $28.5 billion during the same period last year. Profits for the year, however, took a dip, dropping from $7.2 billion, or $7.94 per share, to $5.7 billion, or $6.32. This was largely the result of various in-process research and development charges, most of which were acquired by the company over the past few quarters.
During the quarter, the company’s incretins, or drugs that work by mimicking hormones led the way in terms of growth, with Mounjaro posting sales of $2.2 billion during the quarter, up 700% YoY, followed by its GLP-1 candidate, Zepbound, at $176 million which was just introduced in the quarter. Other key growth drivers include Verzenio, Jardiance, and Tyvyt*, up 42%, 30%, and 98%, respectively. Please re-read the first sentence of this paragraph.
* a medication used to treat Hodgkin's disease
A few detractors included the likes of Trulicity, Humalog, and Alimta, down 14%, 33%, and 81% YoY, respectively. This was largely owing to lower realized prices, coupled with persistent supply constraints in recent months. The lower prices weren’t that surprising, with the company announcing last year that it would be cutting the prices of Humalog, and its other insulin products by as much as 70% going forward
The big story about the company, however, is its new obesity play, Zepbound, which has gained strong momentum within just a few months after its launch, and is already threatening Novo Nordisk’s dominance in this space. Lilly expects demand for this drug to far outstrip supply for 2024, as it grapples to build capacity with a fresh $3 billion commitment to expand manufacturing.
Given the pace at which incretins are expanding within the US and internationally, with the entire market expected to hit $50 billion in 2030, the drug now has 90% insurance coverage and Medicare Part D. Sales are only going to heat up from here, with Morgan Stanley projecting sales for Zepbound for 2024 to be $2.2 billion. As noted above, Zepbound did just $176 million last quarter. Barclays forecasts $7.3 billion in 2024 sales for Wegovy, which as you know is made by Novo Nordisk (NVO).
In addition, Eli Lilly is working to unveil its oral weight loss drug, Orforglipron. This could be very important as all of the weight-loss drugs on the market are injectables. When you can just take a pill, this market will explode.*
* https://www.nejm.org/doi/full/10.1056/NEJMoa2302392 Read this report from September 2023. If this doesn’t get you excited about owning Eli Lilly, there is nothing we can ever say that will do so.
Following a 60% rally in 2023, the stock is already up 20% so far this year, starting at $592 on January 2nd, and is showing no signs of cooling down. The new all-time highs hit by the stock this week and all of this year, are perfectly justified. How can I buy this stock at such a high price, you are asking yourself? Very easy. Think 2025, 2028, 2030. Then sit down at your computer and buy the stock!
In addition to investing in R&D and expanding its productive capacity, Eli Lilly is increasingly generous in returning capital, with its sixth consecutive yearly dividend increase, doubling it since 2018. It ended the quarter with $2.6 billion in cash and $20 billion in debt. Our Target is $665 and we would not sell Eli Lilly. Whoops. We have to raise our Target again. It hit $742 during the day yesterday, and closed at $705, up $37 for the day. If the stock market continues its bull market run this month and on into the spring and summer, we wouldn’t be surprised to see the stock with a 9 in front of it. Our new Target is $825.
by Todd Shaver | Feb 2, 2024 | Instant News Flash
Consumer tech giant Apple (AAPL: $182) released its first quarter results last night, posting $120 billion in revenue, up 2% YoY, compared to $117 billion a year ago. The company posted a profit of $34 billion, or $2.18 per share, against $30 billion, or $1.88, beating consensus estimates on the top and bottom lines. The YoY growth during the quarter marks an end to four consecutive quarters of declining sales for the company, and it produced a beat on sales estimates across most of its product lines.
Apple’s strong showing during the quarter was driven by its flagship iPhone, with $70 billion in sales, up 6% YoY, compared to $66 billion a year ago. This was followed by the Services segment at $23 billion, up 11% YoY, compared to $21 billion, and iPad, Mac, and other product revenues at $7.0 billion, $7.8 billion, and $12.0 billion, down by 25%, 1%, and 11%, on a YoY-basis, respectively. This is largely the result of the company not having launched any new products across these categories in recent months, further aggravated by the fact that it had just 13 weeks of business during this quarter, compared to 14 last year. Apart from this, products such as the Apple Watch were removed from store shelves for a few days owing to a patent dispute with medical devices company, Masimo.
It was bound to get tough extracting more growth, and continually innovating with its long-running range of products. Fortunately, Apple has found another winner in its Vision Pro headset, with the $3,500 spatial computing device already hitting 200,000 units in presales, weeks before it was set to arrive in stores, giving rise to another major product line with a multi-billion dollar sales potential. We are a little bit skeptical about how successful this product will be. One of our favorite podcasters, Scott Galloway, a brilliant mind, believes it will never sell.
Apple’s eye-popping $2.9 trillion valuation might seem excessive to some, but the company still trades at just 7 times sales and 28 times earnings. While it seeks newer avenues to monetize its brand and drive growth, investors are well taken care of with $24 billion being returned in the form of buybacks and dividends, made possible by its massive $62 billion in cash reserves, $124 billion in debt, and $110 billion in cash flow. The debt is quite high in our opinion, but most of it is at sub-5% interest rate levels.
Our Target is $225 and our Sell Price is that we would not sell Apple. We’re a little concerned about the stock, though. Not the company, but the stock. It is SO BIG, that for it to get back to 10-15% growth levels, is not easy. To add 10% to revenues it would have to produce $28 billion in new business, an astounding number. The company could conceivably do it with major acquisitions, which it is not prone to do, or by moving into new areas, like the Apple Car. But these things are a long way off and meanwhile, revenues stagnate. Wall Street doesn’t like stagnation. The stock hasn’t participated in the strong market this year, peaking on December 14th at $200, and is off 10% in the last six weeks – losing $300 billion in market cap. It’s lost its leadership as Microsoft has passed it by in the market cap race.
So what to do? As always, it’s a tough call. We are big believers in letting the market tell us what to do. It’s down $6 (3%) after earnings early Friday morning as we write this, and the market looks strong starting out today. We would suggest setting a stop and if the market goes there, taking your cash and looking for other places for it. There are certainly a lot of great choices out there. We are going to lower our Target to $200 and are setting a Sell Price of $174. We added the stock at $24 in $2016, so we are happy for all of you who did the same. Perhaps the growth game is over now for Apple for a while. Will the company go away? Of course not. But it may stagnate here in the $170-$200 range for the next year or so…. and "stagnation" is a word Wall Street doesn’t like.
by Todd Shaver | Nov 10, 2023 | Instant News Flash
Twilio (TWLO: $56) released its third-quarter results on Wednesday, reporting $1.03 billion in revenues, up barely 5% compared to $980 million a year ago. The company posted a profit of $110 million, against a loss of $50 million, or $0.29, with a beat on estimates at the top and bottom lines, coupled with a raise in the full-year guidance leading the stock to rally following the results.
The company has continued its streak of steady customer acquisitions, now serving 306,000 active accounts, up from 280,000 a year ago. Twilio, however, experienced a significant trough in its net dollar-based expansion rate at 101%, down from 122% last year. This can mostly be attributed to higher contraction and churn in its customer data platform, Segment, which it acquired a few years ago, coupled with slower growth across its other products.
Twilio is a cloud communications platform that enables businesses to build and deliver customer engagement experiences across multiple channels, including voice, text, chat, and video. Its platform is highly flexible and scalable, making it easy for businesses of all sizes to get started and grow. Its business model is based on a subscription fee for access to its platform and APIs. Twilio charges businesses based on the number of messages, calls, and other communications they send and receive through its platform.
Twilio's platform is easy to use, even for businesses with no prior experience with cloud communications, and it provides a variety of resources and support to help businesses get started and use its platform effectively.
Twilio integrates deeply with other popular cloud platforms, such as Salesforce, Shopify, and Amazon Web Services. This makes it easy for businesses to build end-to-end customer engagement solutions that leverage the best-of-breed technologies. The company offers several AI-powered features that help businesses automate and personalize their communication experiences. For example, its Predictive Dialer can automatically dial leads based on their likelihood of converting, and Twilio's Voice Intelligence can transcribe and analyze phone calls for insights. The platform is available in over 180 countries, giving businesses the ability to reach their customers wherever they are.
Twilio had a number of sizable new customer acquisitions during the quarter, which included a leading Latin American eCommerce platform, one of the largest North American financial services companies, and more. The company further signed a landmark agreement with Softbank, which will now be offering Twilio’s services through its channels for the Japanese market, helping its foray into Southeast Asia.
Investors appreciate the remarkable synergies that the company’s products, platforms, and copious amounts of user data are helping create. This makes Twilio’s efforts in generative AI and machine learning all the more meaningful, creating substantial moats against competitive forces going forward, all the while helping enterprise customers drive efficiencies and cost savings.
The stock is up 14% YTD but is still down dramatically since its peak in 2021, and as such it now trades at a little over 2 times sales. In addition to this, Twilio has over 30% net cash, meaning that its cash reserves at $3.9 billion, make up a significant portion of its market cap of $10 billion. The company is using this to repurchase stock with $1 billion in authorizations, having just $1.2 billion in debt, and $130 million in cash flow.
We would like to see revenue growth move higher in this coming year, as the company has a history of strong revenue growth. The last four years were $1.1 billion, $1.8 billion, $2.8 billion, and $3.8 billion. But 2023 is looking to hit just $4.1 billion. The company is now profitable, after years of waiting, which we are quite pleased about. And that bottom line trend is what Wall Street cares about now and it's ramping up fast. Consensus is looking for 30% earnings growth next year. Admittedly, we're here for the historical hypergrowth revenue narrative, so if sales don’t pick up, we will have to consider moving on to something more exciting. It could happen. Quite a few people think sales will hit $4.6 billion next year, which gets the engine humming again.
For now, our Target remains $135 and the stock is below our Sell Price of $65. In light of the revenue slowdown, we have to lower our Target to $80 and we are going to set a hard stop at $53 where it was last week. If it moves back down, we will have to let this wonderful company go. We added it at $52 in 2016 and watched it shoot higher to $400 two summers ago. It will hit that level again some day . . . but the slower sales growth gets, the longer that scenario will need to play out.
