Rapid Growth Company Earnings - Review
Don't miss a thing with today's hottest, high growth, companies
This seasons earnings was volatile and continues to be. There were several businesses selling off and the reasons “why” always seem to vary from “slowing growth” to any sort of microscopic detail. However, BluSuit believes that great company’s produce market beating returns despite short term price action. We are focused on three things:
Revenue growth
Earnings growth
“Why” the first 2 will continue in the future
In today’s publication we will be providing a birds eye view on the fastest growing company’s in the market and review what is going on in the business. Many of these companies are not talked about by other stock pickers and still present an opportunity to “get in early”. The key questions we look to address:
Is this post earnings price action and over reaction? or,
Is there something actually wrong with the business?”
Obviously, this will predominately be BluSuit’s opinion but we’ve spent hours digging through these calls and reading the financial results to make sure you, the reader, don’t miss a thing from this earnings season.
We will provide a brief description, business update, and top/bottom line metrics. Stocks will be covered in the order of:
Confluent: CFLT
Agrify: AGFY
Lightspeed: LSPD
Nuvei: NVEI
ZoomInfo: ZI
Global-E: GLBE
PubMatic: PUBM
BigCommerce: BIGC
FuboTV: FUBO
Digital Turbine: APPS
Silvergate Capital: SI
Digital Ocean: DOCN
Confluent
Confluent trades at a lofty valuation and I’ve often dismissed it for this reason. However, when you look beneath the surface there’s a broader picture here and one that all investors should know about.
Their service is essentially “data in motion”. What this means is that it acts a lot like how our central nervous system acts. Imagine touching your phone/key board and being able to interact with it real time. Our CNS is quickly able to receive and process information, reacting to our environment real time.
Let’s translate this example to the data and the application layer. Imagine being able to see the actions being taken place by a consumer, or witnessing a truck dropping off their cargo in real time. Then, being able to make decisions immediately without having to wait for it or retrieve the information. This is a big deal. Basically, the data flows continuously rather that being stored in a data base, only to have to run a query later to extract it.
The primary story here is how their revenue is being broken down. Top-line metrics are as follows:
Revenue grew 66.8% YoY to $102.6m beating expectations by $11.88m, revenue has recently been accelerating (this is important)
Non-GAAP EPS beat expectations by $.06 to ($.17)
Cloud revenue increased 245%, growing to 26% of total revenue
However, as I looked deeper, we to get the full picture. At first glance, I originally saw a company growing 50% (on IPO) YoY trading at a lofty valuation. After earnings, I noticed the stock didn’t fall despite only growing 66.8% YoY. The valuation is currently at 40x P/S for next years sales! The important thing to know is that their cloud offering is relatively new and is on pace to become the dominant source of revenue within the next few years. As it becomes the dominant source of revenue, we are likely to see continued revenue expansion.
Cloud based revenue consists of 26% compared to platform revenue of 74%. The cloud offering is different in the sense that the cloud is fully managed where the platform is self managed. Many customers prefer the fully managed offering. One can assume that cloud revenue will be the predominate source of revenue over time.
I began a position and I do think it’s worth further consideration.
Agrify
I’ve owned Agrify for awhile and surprisingly it’s one of my best performing stocks. The catch here is that at first glance, it looks like a dud but it’s far from that. Agrify is an indoor cultivation solution that owns both the hardware and more importantly, the software and services.
Their sales have predominately been hardware driven (they’re growing over 400%+ YoY) but are looking to make money on the back end with high gross margin SaaS and services revenue. Essentially, Agrify helps MSO’s & SSO’s grow MJ better which yields better product efficiency and more crop per sq. inch of growing space. This translates into an improvement on the top and bottom line for their customers.
During their latest ER, they announced new product innovations and provided an update on their latest acquisitions. Their business, long term, is focused on leading the industry in AgTech with their data driven approach and software solution. I could see them becoming a farming/cultivation software company first, later down the road, and a hardware company second.
From a financial standpoint; their backlog (to be completed work) is roughly $117m and their quarterly reported revenue was $15.75m (460.75% YoY). On a full year perspective, they anticipate on doing $60 - $62m in revenue and may begin showing positive EBITDA margins (no guidance here) in the next 2-3 quarters. My only question is how long can they sustain this growth?
I have a position and feel comfortable holding it while the story develops. I don’t plan on adding anymore or adjusting my position with my current cost basis on $13.
Lightspeed
I did sell out of this position. I have a strong reason for this, but first let me describe the business model first just incase you’re not 100% familiar.
Lightspeed offers a total commerce solution for retailers, restaurants and hospitality. They do compete with Shopify but offer a substantially more robust solution. Their offerings include a POS, back office functionality, payment solutions, and supply chain logistics. The POS, back office, and payment functionality is very important but it is a very crowded space with Toast, Shopify and Square all competing for the same market share. What uniquely sets them apart is that they are taking the extra step to become supply chain retailers. This means that, let’s say Nike, can see what Footlockers inventory is real time, what they’re selling it for, how much they’re selling and if they may need to fulfill an order quickly. This is bullish for ‘just-in-time’ ordering which appears to be an industry standard today.
The reason why I sold them is due to 2 primary concerns:
Their contracting gross margin. They mentioned on their ER call that they are focused on generating more revenue from each of their customers. This, in theory, sounds great. But, as investors, we are only entitled to earnings (or, net income). It doesn’t matter if they make $100 per customer or $200 per customer, if the bottom line is still $50 then the stock wont move. Lightspeed’s leadership team doesn’t seem to be concerned or conscious about their bottom line and goes against my philosophy of “growing revenue and growing earnings produce share holder returns”.
Growth through acquisition is very, very, very difficult to get a handle on. They did mention that they organically grew by 50%+ but that did include the many acquisitions they did last year as well. My biggest question becomes after they have gobbled up all their competition, how will they grow? Will they grow 30% YoY with contracting gross margins?
As an investor, I am more than happy watching this story play out long term. The valuation is still very rich from a P/GP perspective and we could see it trade down till its next earnings. Latest quarterly results:
Revenue grew 192.9% YoY to $133.22m, beating by $9m
Non-GAAP EPS of $.08 beat by $.02
It’s at the top of my watch list.
Nuvei
Canada’s international payments and commerce company. This business model has a striking resemblance to DLocal but their organic growth isn’t as fast as DLO. To get a better understanding of their business model, check out this publication I wrote on them.
The primary story here is centered around their future growth. It appeared that when listening to the quarterly call, there was confusion on exactly how we should think about their future growth.
Over the past 2 years, they have executed a similar M&A strategy as Lightspeed. However, the difference is that Nuvei was seeking to acquire businesses to compliment their existing infrastructure compared to Lightspeed, where it looked like it was designed to supplement growth. The reason why it appears this way is that Nuvei is running 40% EBITDA margins with a long term goal of 50%+ EBITDA. They do not have a need to acquire to grow due to how healthy their business is from a profitability perspective. If they chose to, they could substantially invest into R&D or sales and marketing but they’re more focusing on steady, well managed, profitable growth. This is typically what I look for in an investment.
Nuvei provided financial guidance in an unusual manner. The leadership team mentioned that they anticipate on 30%+ “in the medium term” (I am not exactly sure what that means but I assume that’s the next few quarters) and about 90%+ YoY revenue growth for the fourth quarter. Their latest quarterly results were good, but nothing crazy:
Non-GAAP EPS of $.42, a beat of $.03
Revenue of $183.93m which was 96.5% YoY growth and a beat by $4.83m
They have a very large total addressable market being in digital payments and have multiple growth drivers moving forward. The primary business initiatives to focus on should be around their crypto offering and how that develops as well as their international expansion efforts. Long term, I do believe this will play out in favor of the investor.
ZoomInfo
The way I always describe ZoomInfo, “Don’t over think it. Buy it and let it grow.”
There are few businesses that are SaaS based with a large addressable market, growing 50%+ and are very profitable.
ZoomInfo provides services to the sales staff and account management teams of enterprises to sell predominately B2B. They have multiple offerings which include: chat bots & AI functionality, data insights on potential prospects and contact information, as well as a recruiting tool professionals can use. Essentially, the way they described themselves, “we desire to be used with the CRM and compliment the sales function more.” They give sales representatives the data and tools they need to save time, hit quota, and drive the overall business forward. A CRM is focused more on back end reporting. It’s essentially a tool for the representative where a CRM is a tool for the management team.
In their latest quarter, it had a very bullish tone and overall stood out to me compared to others I have listened to. They have a very robust M&A strategy putting emphasis on their more recent acquisition, Chorus, which was growing rapidly already. Chorus is an artificial intelligence engine that provides analytics, creating a more customized sales call and follow up.
ZoomInfo earnings:
Revenue up 60.1% YoY to $197.6m beating by $13.79m
Non-GAAP EPS of $.13 beating by $.01
Adjusted operating income margin of 39%
Cashflow from operations $46.5m
Q4 revenue guidance of $206 - $208m and Non-GAAP EPS of $.12 - $.13
I have a position and will be paying attention to future acquisitions as well as organic growth. Some businesses acquire to grow and this is nearly always a red flag. In this particular instance, their acquisitions have been incredibly smart and I do believe we’ll continue to see an appreciation in the share price. The one red flag to pay attention to is their debt level. For now, this isn’t a problem because they are producing significant cashflow from business operations.
Global-E
Global-E is now my biggest position without it actually appreciating/growing to that spot. This means I have placed my largest initial bet on GLBE. The reason why; this was hands down the best earnings call I listened to this season. The bull case is stronger than many other stocks I see on the market and the premium valuation is justified.
Global-E continues to see gross margin expansion, which is extremely important. I could see it reaching 50% in the near future, it’s roughly 38% now. What’s even more exciting, when I dig into the financials they could easily be profitable but they are currently investing heavily into the business to capture market share. This means profitability will continue to scale and won’t be a problem in the near or long term.
I believe we’re in the first inning when it comes to the synergies realized between the Global-E and Shopify partnership. On their call, they mentioned that a majority of their top 5 or 10 clients just transitioned to Global-E from the Shopify partnership. One of these top clients; Netflix. This means that the revenue acceleration from this transition has not yet been fully realized from their financials.
From a market opportunity perspective, this is a play on international commerce and opening international boarders to all merchants. Their competitive moat has a high barrier to entry due to their existing scale, logistics, knowledge of the industry and Shopify partnership. There are few stocks I follow that have massive multi-bagger potential like Global-E. They are currently a $9B company today and have the ability to reach $100B+ due to the limited competition in their existing market.
Revenue beat by $3.46m to reach $59.12m, which represents 77.4% YoY growth
Non-GAAP EPS of $.01 met expectations
Q4 revenue guidance of $76.4m - $78.4m and adjusted EBITDA of $7.3m - $8.3m. This was raised from previous guidance expectations.
I am paying attention to continued gross margin expansion and think it may reach 40%+ in Q4 and seasonality (Q4 retail season) would suggest GLBE has the opportunity to crush Q4 guidance. I am also paying attention to the Shopify partnership and developments, there could be hidden upside as the synergies begin to really take place in 2022. The reason why I believe there is hidden upside is that they mentioned that they anticipate their GMV (gross merchandise volume) to double in 2022. A double in GMV would imply that Global-E can experience 100% revenue growth next year, which would put their revenue around $500m+ on a full year basis.
PubMatic
Investors are still over looking Pubmatic and their growth. A quick description on their company; they are a leading SSP AdTech firm that focuses on infrastructure. This concentration on infrastructure has led to a deep, fly wheel, competitive moat.
This was their best call yet and I did increase my PubMatic position recently. Their EBITDA margins continue to be 30%+ with 70%+ gross margins. What’s more important is that they are growing substantially faster than the broader market at 50%. There are a few reasons why this is happening:
Their infrastructure first approach allows them to provide transparency, faster innovation and pricing power over their competition while still maintaining profitability
The DSP (demand side platform) industry recently underwent industry consolidation, now the SSP market is going through the same. This means that advertisers are choosing to work with less and less SSP’s. They are choosing PubMatic.
They are an international company and should continue to experience continued international growth
Basically, they are positioned to be a market leader in AdTech (yes, even over MGNI) due to their accelerated organic revenue growth rather than by acquisition.
Revenue beat expectations by $5.65m to hit 53.7% YoY revenue growth
GAAP-EPS beat expectations by $.17, hitting $.23/share
Q4 revenue guidance of $74 - $76m which will be 32% - 35% growth over Q4 last year.
Full year revenue expected to be $225 - $227m, up from $205 - $209m, to represent 51% - 53% YoY growth
2022 revenue guidance now expected to be $281m with adjusted EBITDA margins of 30%+
Their Q4 revenue guidance and full year 2022 revenue guidance are both conservative in my opinion. In addition, Q4 last year was a record breaking quarter and has a steep YoY comp (due to election campaign ad spend). If they beat guidance again, I can’t see how institutions can ignore PubMatic any longer.
BigCommerce
The recent quarters release with BigCommerce earnings was a big one and a pivotal change in the long term thesis. The narrative shift here is centered around accelerated revenue growth and continued accelerated revenue growth for years to come. Nearly every metric was a grand slam hit and a beat. I went into more detail in this publication:
There is a lot more detail in that write up, so I’ll keep this brief.
Essentially, BigCommerce has a few major initiatives that are really paying off which include international expansion and new innovations on their enterprise first platform. What is more interesting is that despite Amazon and Shopify posting relatively down quarters, BigCommerce continued to see accelerated revenue growth.
I added this position with a weight of approximately 3% of my total portfolio to track and see how this thesis develops over time. My thought process is that it is a major play on enterprise commerce, due to their focus on this space.
Revenue beat by $4.46m, +49.2% YoY, which was $59.3m
Non-GAAP EPS beat by $.08, representing a loss of -$.06 per share
Full year guidance was raised to $216m, up from $211m consensus
If next quarter continues to do well, I will most likely add to the position.
FuboTV
Fubo’s price action does not accurately depict how bullish this quarter was. They are performing extremely well and I’m not exactly sure what institutions and investors were thinking when running the price up to the low $30’s mark, only to sell out. The first thing that comes to mind is how much money they are losing with a cash burn of nearly $50m per quarter. This absolutely is not sustainable, but there is a strong case this will be quickly turned around in 2022.
Fubo’s recent acquisitions, in my opinion, also created a lot of investor fear due to putting more precious capital to growing their company more rapidly. Basically, ensuring that investors will continue to see near/medium term dilution as they are on hyper growth mode. Long term, this could be one of the biggest, highest upside, bets I’m placing in my portfolio. If I had to give odds of success, it would be roughly 65% it wins and 35% it flops. However, the downside is defined and the upside would likely see Fubo reach a $30B market-cap in the next few years. They are roughly a $3B market cap today.
Next quarter I expect them to finally hit positive gross margins due to advertising ARPU and subscription price raise. In addition, this quarter, I will be paying attention to their Sportsbook launch in new/upcoming states. The launch of their Sportsbook should increase revenue and ARPU even more. There is so much going on with this company, I will probably have to do a whole SubStack on it.
Fubo revenue beat expectations by $13.35m, hitting $156.69m and growing 156% YoY
Non-GAAP EPS missed by -$.04, reaching -$.59 per share
Subscribers grew 108% YoY
Advertising revenue grew 147% YoY
Subscription revenue increase 158% YoY
Full year revenue guidance of $612m - $617m, or 135% YoY growth
This is a risky stock, I think it’s smart to watch it if you are growth investor though. I do have a position and don’t plan on selling or adding to it.
Digital Turbine
I cannot seem to understand why this stock as been so back and fourth all year. It is extremely unusual to see the business case continue to improve but continued to be beaten down. However, I have a thesis that Wall Street really dislikes the contracting gross margin. I believe they want to see it expand NOW and they want their earnings NOW (short term thinking). Long term, the company is expecting gross margin and operating margin continue to expand and reach profitability. In their investor presentation, they are guiding for 25% EBITDA growth long term.
Digital Turbine has recently acquired three companies: Appreciate, Fyber, and Ad-Colony. All three of those companies are mobile AdTech platforms. Digital Turbine’s organic business has the patented “single tap” technology, which allows app platforms to install onto android devices. When you combine all businesses, you have a super AdTech company that specializes in mobile devices. They stand to benefit drastically from the privacy controls that are rolling out due to their unique relationship with the customer.
They are worth watching, paying attention to, and potentially owning due to a strong earnings floor that they have.
Revenue beat by $3.68m, which represented 337.6% YoY growth, reaching $310.21m
Non-GAAP EPS of $.44, beating by $.05
Guidance was raised to $350 - $355m, up from consensus of $340m, and adjusted EPS of $.41 and $.44 vs consensus of $.43. On a pro-forma basis this represents 30%-ish revenue growth YoY
I have a position and I am more than comfortable adding when the Forward P/E reaches 35x - 40x. It is currently 44x at $65/share, my cost basis is $60.
Silvergate Capital
I was pounding the table on this one when it was under $100!! They are now over $200/share. The reason why I was so bullish on this company had to do with their business model and long term outlook.
They operate primarily as a bank but have a second portion to their business model called the SEN. Essentially the SEN has three capabilities when it comes to crypto currency:
Payments - Foreign exchange and stablecoin infrastructure
Lending - SEN leverage, essentially clients can take out loans against their crypto
Funding - Thinking of secure banking for crypto
Remember, they are a bank. When you think of Silvergate, think of the bank that can handle crypto currency (providing the infrastructure) and couple that with legacy capabilities such as home lending, business loans, and personal loans.
The uniqueness of their business model allows them to command a higher valuation due to both the stability of a traditional bank but the upside of a crypto currency stock. They are a very strong play on stable coins, specifically the Fed coin, and already have a partnership with Facebook’s (now Meta) stablecoin Diem. They are a cross between a bank and a FinTech.
Q3 results crushed expectations, as usual, and they don’t provide guidance but could continue to see 100% growth YoY until crypto’s maturity. The exciting thing, we are in probably the 2nd inning when it comes to crypto and its full scale capabilities.
Revenue grew 125.8% (organically) YoY to $51.7m, beating expectations by $6.51m
GAAP EPS beat by $.19, representing approximately $.88/share
Digital currency income did decline QoQ, but so did all crypto stocks which include $COIN and $VYGVF, and is dependent on volume
Digital currency customers continued to see an increase and so did total deposits, which represent the actual growth
It’s important to know that Silvergate predominately represents institutional clients. I have a position and don’t have any plans to add, trim, or change my position. If it falls to the low $100’s I will evaluate my current portfolio allocation and will add.
Digital Ocean
I released a SubStack on DOCN and presented a case for accelerated revenue growth. This quarter confirmed my expectations and I do believe we have further quarters of accelerated growth. Digital Ocean is a market leader when it comes to SMB cloud, think AWS and Shopify.
There was a lot on this call that further strengthened my bull thesis of continued accelerating revenue growth but I think I can sum it up in a few bullet points:
Digital Ocean’s focus on the SMB cloud allows customers to continue to grow within their infrastructure. The bigger the customer gets, the more they use. This means that a customer who starts small can become big, increasing ARPU, NRR and revenue
They’re focused on product innovation. Unlike a lot of the larger cloud’s, Digital Ocean is happy with capturing the low hanging fruit in the SMB market. Although Google, Microsoft, and AWS have SMB offerings, DigitalOcean finds themselves competitively niched to address this market. They continue to maintain focus here.
Digital Ocean’s addressability of the total market and accelerated revenue growth is only just beginning. Their CEO Yancey Spruill is a major part of this accelerated growth and he just entered the CEO role in 2019. This is not a founder led company but the founder is still apart of the Board and company decisions.
The SMB market alone is expected to grow at 27%, which creates stand-alone tailwind opportunities. Management just needs to execute because the wind is at their back.
Their financial results are exceptional when it comes to growth with profitability. Their adjusted EBITDA margin is 30% - 31% and their top/bottom line metrics were:
Revenue of$111.4m, beat by $2.56m, growing 37.3%
Non-GAAP EPS of $.12 beat by $.05
ARR growth of 36%
APRU of $61.97
NRR of 116%
Digital Ocean has became a top 5 position for me and I would be happy to continue to add on any sort of major market weakness.
Summary
BluSuit tries to find and deliver some of the most exciting, early stage, growth stocks that have the ability to grow 10x. The long term thesis does change over time because the business world rapidly changes. We do have a core philosophy and a frame work of stock picking and hope you consider following along closer.
I do plan on continuing to do complimentary writing but a membership comes with expanded content and a discounted access to our upcoming Discord community. We are in our very early stages of what BluSuit will eventually become and we are excited to share it with all of you as we grow.
I’ve got a lot of content planned for you guys! Stay tuned, stay classy.
Dillon