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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Results: Week 5 "New Tech" / WFH Companies

The four “new tech” / high flyers I wrote about earlier this week (see “New Tech”/WFH Companies: Week 5”), have now released their earnings. The results and some metrics for each company are in the table below.

Before providing some brief commentary on each company’s results, it is important to put the stock price movements of these companies in context. I am writing this after the close on Thursday, a week in which stocks have been under intense pressure with the culprit being higher US Treasury yields. For the week as of Thursday’s close, the tech-heavy NASDAQ Composite is down 3.6%, although this hardly describes the pain in the high flying new tech sector, which is down considerably more. Perhaps as an admittedly imperfect but better proxy for the high flyers, the ARK Innovation (ARKK) ETF is down over 9% the first four days of this week. In a nutshell, there has been no place to hide (aside from perhaps the beaten-down energy sector). Let’s look at earnings.

Both ZM and LMND reported after the close Monday. ZM had excellent results, handily beating EPS and revenue expectations for its 4Q2021. ZM is solid, consistently generating positive bottom-line numbers, and has a solid balance sheet. Perhaps the issue for ZM is that the company acknowledged that growth might moderate, not unexpected as the pandemic winds down. ZM could also face growing competition, although the reality is that it is an early mover (as far as quality of its offering), a leading disrupter, offers an excellent service, and is global. The stock gapped up $30/share post-earnings on Tuesday morning, going as high as $440/share before getting caught in the market downdraft and closing the day lower at $372.79. The shares remained under pressure the rest of the week, like all other high flyers. The issue with ZM is straight-forward – relative to many of its high flying peers, it is a more mature company and growth will indeed probably moderate in the coming quarters. It has been a WFH beneficiary, and as economies reopen, slower growth is inevitable. The company is solid, but with growth slowing, the question is whether EV to forward revenues is justified at 29x. Personally, I think ZM has a much better case than most of its high flying peers for its valuation. You might conclude the same if you follow technical patterns – the stock is nearly 42% off its 52-week high. This one is worth owning once you feel a floor has been reached.

LMND, the smallest of the companies I discussed this week by far with less than $100 million of annual revenues and only $829 million in total assets, beat EPS and revenue consensus expectations for 4Q2020. However, the beats were not significant enough. To justify the hype around LMND and its incredible run since the company went public around nine months ago at $29/share, the results were going to have to be stellar. The stock has traded as high as $188/share since its IPO but has fallen rather significantly since reaching this level, and particularly in the last three weeks. With its nose-bleed valuation, the stock was vulnerable to both solid but not spectacular results and a market that was in the mood to punish high-valued, expensive stocks like LMND. And this is exactly what happened, with the shares down nearly 24% on the week and nearly 50% from their all-time high. Not my favourite, but I suppose it’s a matter of personal taste.

SE missed it earnings and apparently beat its revenue target although I was not clear on the latter, because it was based on some sort of adjustment. Of its three businesses, gaming is the only profitable segment although very dependent on one game. The e-commerce and payment businesses lost so much money that the company overall served up an adjusted 4Q loss of $431 million and a full year loss of $1.3 billion. The full-year loss of $1.3 billion was on FY revenues of $4.4 billion, a considerable loss in light of the company’s revenues to say the least. The 4Q20 loss continues a run of quarter after quarter of growing losses since the company went public in October 2017. Those are far from impressive numbers for me, although the stock is reasonably valued as a multiple of revenues compared to most other high flyers. Also, as poor as I thought the results were, it took a couple of days for gravity to pound the stock after it showed resiliency even as the broader tech market melted down. I like the end (consumer) market SE focuses on, and I like their portfolio of businesses, but until they can demonstrate a glide path towards profitability, this would not be one for me.

SNOW was the last of this week’s high flyers to report results, and the company beat its revenue target but missed its earnings target badly. By the time SNOW reported, the market was in no mood to tolerate these type of results from a company trading at more than 100 times trailing revenues, and the stock was punished although not horribly so, down a mere 4% on the week. In my opinion, it could have been considerably worse because SNOW is and remains vulnerable for bad news of any type. The stock is simply too expensive for my taste no matter how I look at it, and I think there remains much more downside risk than upside given the market context. The company did an IPO less than six months ago, and looking back, I think it was so fully priced that the company – unlike many others in its peer group – left absolutely nothing on the table for investors. This might have left a bad taste in investors’ mouths, and as a result, the stock remains vulnerable. Having said this, I like SNOW’s business a lot, and I would consider it at some point although I think the stock is more likely to hit $200/share before it hits $300/share.


DISCLAIMER: These are my opinions on four stocks that reported earnings the week of March 1st 2021:ZM, LMND, SE and SNOW. I am not a research analyst or a registered investment advisor, and the information in this article is not a recommendation to buy or sell shares.It is just my two cents.I do not currently own shares of any of these companies.

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