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Alphabet's numbers were better than we expected, making room for a more aggressive investment cycle ahead.  

Alphabet (GOOG: $1,133, up 2% yesterday but down 3% overnight) did everything right in the last quarter. Revenue came in at $39.3 billion, a healthy $400 million better than anticipated and a little stronger than our models predicted back in July when this was a $1,270 stock. You read that right. Alphabet is raking in cash faster than we thought likely.
And 22% of that cash translated into $8.9 billion in profit, giving us a 1% richer margin than expected and blowing our $7.6 billion target away. On a per-share basis, Alphabet earned $12.77. We would have been content with $9.70.
However, while the company is growing fast, the stock dropped overnight. Look to Microsoft (MSFT: $106, up 3%) last week for a parallel. Like Microsoft, Alphabet hit all its marks and went down anyway. But Microsoft has already recovered all but 1% of its post-earnings decline, so if history repeats itself there's nothing in these numbers to keep Alphabet on the defensive.
Sure, CFO Ruth Porat warned that the company is spending "large" amounts to roll Machine Learning systems out to the Google advertising platform, so margins look likely to tighten in the near future. We aren't worried. It takes money to make money and Alphabet hasn't been spending a lot lately. It could easily invest $1 billion in this venture before straining its profit metrics to any real degree.
And even if Alphabet slows in 2019, we fully expect it to come roaring back with an even stronger platform. One data point to keep in mind: There are 2 billion active YouTube users, dwarfing just about every other Web property around. Run ads on those videos and let the money roll in.

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Earnings Preview: Paycom Software (PAYC: $156, up 3% yesterday)

Earnings Date: Tuesday, 5:00 PM ET

Expectations: 4Q18
Revenue: $144 million
Net Profit: $32 million
EPS: $0.55

Year Ago Quarter Results
Revenue: $114 million
Net Profit: $17 million
EPS: $0.29

Implied Revenue Growth: 26%
Implied EPS Growth: 88%

Target: $170
Sell Price: $140
Date Added: April 11, 2018
BMR Performance: 41%

Key Things To Watch For in the Quarter

We reviewed our investment thesis on Paycom a few weeks ago. It hasn't changed, but these numbers should anchor the argument once and for all. This company is in the sweet spot of its evolution where even "small" revenue wins translate into exponential improvements in efficiency and profit. As far as we can see, every $1 gained on the top line currently turns into at least $0.50 on the bottom as margins expand. That's a good thing in itself.

And with revenue tracking at 27% above last year's levels, the wins are big. Paycom can easily boost its earnings 90% . . . or even hit triple digits on the right upside surprise. Remember, we're dealing with a company that's beaten our target by an average of 2% every quarter for the last two years. While we never count on better than perfection, it's worth staying open to the possibility here.

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Earnings Preview: Spotify (SPOT: $139, up 1%)

Earnings Date: Wednesday, 8:00 AM ET

Expectations: 4Q18
Revenue: $1.5 billion
Net Loss: $35 million
EPS: (-$0.19)

Year Ago Quarter Results
Revenue: $1.1 billion
Net Loss: $600 million
EPS: (-$3.87)

Implied Revenue Growth: 30%
Implied EPS Growth: much smaller loss, but still a loss

Target: $198
Sell Price: $160
Date Added: April 12, 2018
BMR Performance: -7%

Key Things To Watch For in the Quarter

Spotify has come back a long way (28%) since Christmas but there's an even longer path back before the stock is testing $200 again like it did in August. This report will be key when it comes to reminding Wall Street what this company is all about.

It isn't about profit at this stage. We fully expect Spotify to keep pouring its cash into product development and new deals with music labels to remain relevant to listeners around the planet. At best, we're looking for a $35 million loss compared to a $600 million burn a year ago. While they're almost at breakeven levels now, we'd prefer a little more investment in a little more market share before management reaches for profit.

The real story here is market share as expressed in audience size and revenue gains. The last number we saw was 87 million paid accounts and 109 million "free" accounts that make Spotify money from streaming commercials. Think of the free accounts as radio listeners. We consider them more important in the long run. If the total audience breaks 200 million, we'll be happy.

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Earnings Preview: Carlyle Group (CG: $19.72, up 2%)

Earnings Date: Wednesday, 8:00 AM ET

Expectations: 4Q18
Revenue: $2.2 billion
Net Loss: $124 million
EPS: (-$0.29)

Year Ago Quarter Results
Revenue: $3.3 billion
Net Profit: $350 million
EPS: $1.01

Implied Revenue Decline: 35%
Implied EPS Growth: flip from profit to loss

Target: $28
Sell Price: $20
Date Added: March 6, 2017
BMR Performance: 32%

Key Things To Watch For in the Quarter

All Asset Management firms had a challenging quarter, with many forgoing performance fees because the investments simply didn't deliver for clients. Carlyle is no exception. No matter how we shuffle the numbers, we're looking at a loss similar to what the company reported in late 2015 and then again in 4Q16. The dividends weren't interrupted and the yield never dropped below 6%. That's why we're here.

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Earnings Preview: MetLife (MET: $45, down 1%)

Earnings Date: Wednesday, 5:00 PM ET

Expectations: 4Q18
Revenue: $15.9 billion
Net Profit: $1.3 billion
EPS: $1.28

Year Ago Quarter Results
Revenue: $15.4 billion
Net Profit: $700 million
EPS: $0.64

Implied Revenue Growth: 3%
Implied EPS Growth: 100%

Target: $56
Sell Price: $39
Date Added: October 30, 2018
BMR Performance: 13%

Key Things To Watch For in the Quarter

Speaking of dividends, we're looking for MetLife to raise its quarterly payout by at least 2 cents per share from its current $0.42. After all, the business has bounced back strong from a wobbly 2017 and the Fed has given the company (like many big Insurance groups) a windfall with every 0.25% rate hike. Add it all up and it only takes a 3% uptick in revenue to double the earnings shareholders see.

Don't rule out a buyback announcement, either. Over the past year MetLife bought and retired 6% of its shares, spending up to $3 billion in the process. That's how big a friend the Fed has been here. That said, we'd love a little more dynamism on the top line, so if management would talk about new sales initiatives, we'd be thrilled.

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Earnings Preview: Twitter (TWTR: $34, up 2%)

Earnings Date: Thursday, 8:00 AM ET

Expectations: 4Q18
Revenue: $865 million
Net Profit: $190 million
EPS: $0.25

Year Ago Quarter Results
Revenue: $730 million
Net Profit: $140 million
EPS: $0.19

Implied Revenue Growth: 18%
Implied EPS Growth: 30%

Target: $36
Sell Price: $25
Date Added: September 28, 2018
BMR Performance: 21%

Key Things To Watch For in the Quarter

We recommended Twitter right before the Technology meltdown at the end of September and it handily defied the negativity we saw elsewhere in the sector. After all, its big dip came in July, when the rest of the market was still racing toward its peaks. With that in mind, all we really want is confirmation that management remains engaged in the programs they described last quarter: no erosion in the audience (326 million active users), pushback against malicious and fake accounts, continued progress toward monetizing all those pithy little statements.

Beyond that, our expectations aren't extremely high. Twitter boosted revenue nearly 30% last quarter. This time around, we'll be happy to see a little better than half that growth rate.

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Earnings Preview: Synaptics (SYNA: $41, up 2%)

Earnings Date: Thursday, 5:00 PM ET

Expectations: 4Q18
Revenue: $422 million
Net Profit: $48 million
EPS: $1.33

Year Ago Quarter Results
Revenue: $430 million
Net Profit: $38 million
EPS: $1.10

Implied Revenue Decline: 2%
Implied EPS Growth: 26%

Target: $55
Sell Price: $47
Date Added: December 18, 2017
BMR Performance: -1%

Key Things To Watch For in the Quarter

This is the quarter of truth. After close to a year of declining sales, we're looking for evidence that Synaptics has pivoted its product mix away from smartphones toward more vibrant markets like Voice Computing and the Internet of Things. In that scenario, the company might squeak by with less than 2% revenue deterioration and hints of better things ahead. 

Guidance is critical here. We need that top line to start growing again. Otherwise, cutting costs can boost profit in the short term. But it's starting to look like Synaptics is at the point of diminishing returns. And needless to say, we'd love to hear that management is seriously considering strategic combinations. They've fielded multiple offers in the past and turned them all down. Unless they've turned the corner on sales, it may be time to accept a merger bid . . . and if they don't, it may be time for us to move on.

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Earnings Preview: Expedia (EXPE: $124, up 1%)

Earnings Date: Thursday, 5:00 PM ET

Expectations: 4Q18
Revenue: $2.5 billion
Net Profit: $164 million
EPS: $1.07

Year Ago Quarter Results
Revenue: $2.3 billion
Net Profit: $130 million
EPS: $0.84

Implied Revenue Growth: 9%
Implied EPS Growth: 27%

Target: $138
Sell Price: $112
Date Added: February 23, 2018
BMR Performance: 17%

Key Things To Watch For in the Quarter

Expedia remains a strong example of a successful turnaround. We came here almost a year ago, shortly after the company flipped to a loss as competition in the Online Travel industry turned savage. But we trusted management to focus on the right niches to reinflate the margins even if it meant sacrificing a little revenue along the way. It worked even better than we hoped.

Now we're simply looking for more of the same. As long as revenue comes in roughly 10% above last year's level and profits swell around 30%, Expedia remains on track . . . and ahead of its rivals, as far as we're concerned. The stock is up 17% in its first year on our radar. Compare that to the broad market's negative performance, and it's clear that we made the the right choice.

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Earnings Preview: Ventas (VTR: $64, flat)

Earnings Date: Friday, 8:00 AM ET

Expectations: 4Q18
Revenue: $918 million
Net Profit: $124 million
EPS: $0.35
Funds From Operations: $0.95

Year Ago Quarter Results
Revenue: $895 million
Net Profit: $392 million
EPS: $1.09
Funds From Operations: $1.03

Implied Revenue Growth: 2%
Implied EPS Decline: 70%
Implied FFO Decline: 8%

Target: $72
Sell Price: $43
Date Added: November 18, 2016
BMR Performance: 18%

Key Things To Watch For in the Quarter

Our expectations here aren't high. It was a challenging year for Real Estate, and Healthcare REITs like Ventas faced especially tough operating conditions. With that in mind, we'll accept a big cut in earnings per share -- never the key metric in this sector -- as long as Funds From Operations stays above the $0.79 it will take to cover the dividend.

That's all it takes. We suspect that the business generated enough cash to blow through that rock-bottom target. Based on industry rents, the odds are good that Ventas got through the quarter with only an 8% haircut on the FFO side. After all, we saw a tiny dividend raise last quarter, so management is fairly confident. It wasn't much -- an extra $0.003 per share on a $0.79 base -- but that's not a move a company on the ropes makes.