Weekend Update #113
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
Equity markets showed the poorest performance this year after markets digested a plethora of macro and micro-level variables including economic data, fed speak and earnings. The S&P 500 closed this week down half a percent to 4,090 and the Nasdaq Composite closed down 142 basis points to 11,718, both indices finishing lower week-over-week for the first time since the beginning of 2023. The Dow Jones Industrial Average finished down 64 basis points to 33,869.
Negative momentum from the Change in Nonfarm Payrolls report last week unnerved investors who have been relying on the assumption of a less hawkish Federal Reserve after Jerome Powell said that the U.S. economy may be in a period of “disinflation” last week. Extremely rigid labor markets are one of the issues that the Central Bank is looking to address, in addition to price inflation. According to the Fed chair on Tuesday, “if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in”. That lends to the hawkish Fed argument and adds to concerns that the markets may be at the peak of a bear market rally.
Company specific updates:
Disney surged on Wednesday on better than expected results and a $5 billion cost savings plan that includes letting 7,000 employees go.
Also on Wednesday, Uber Technologies, Inc. reported a revenue and EPS beat and issued strong first quarter guidance. The company’s ridesharing business reported a record gross bookings figure and came in higher than its delivery gross bookings for the first time since the beginning of the pandemic.
On Friday, Lyft sank over 36% after reporting an adjusted EBITDA loss of $248 million versus market expectations of $48 million. The company cited a $375 million insurance reserve adjustment charge to remain compliant with reporting standards.
Other notable earnings reports this week included Pinterest, TakeTwo, Chegg, and Vertex, which we have detailed reviews of in this week’s newsletter addition.
Friday’s Close (Weekly Performance)
S&P 500 4,090.46 -0.50%
Dow Jones 33,869.27 -0.64%
Nasdaq 11,718 -1.42%
Thank you Blue Room Analyst IAN CARTER
VISION
— BLUE ROOM Vision Meeting —
The Oxford Hotel / Denver, Colorado
February 9, 2023
3 PM — 5 PM
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Chairman Powell in Fireside Chat with David Rubenstein
Economic Club of Washington, D.C.
Tuesday, February 7, 2023
Approx. 12 PM EST
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Id Est Hospitality Group
Boulder, Colorado
Congratulations to Kelly Whitaker, Nominee for Restaurateur of the Year
Congratulations to Michael de Leon, BRUTØ, Semi-Finalist for Best Chef, Mountain Region
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2.06
HEY KIDDO!
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2.09
BRUTØ
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LOVE
President Joe Biden
47th President of the United States
The State of the Union Address to a Joint Session of the 118th Congress
The Capitol Building
Washington, D.C.
February 7, 2023
9 PM EST
Mr. Speaker. Madam Vice President. Our First Lady and Second Gentleman.
Members of Congress and the Cabinet. Leaders of our military.
Mr. Chief Justice, Associate Justices, and retired Justices of the Supreme Court.
And you, my fellow Americans.
I start tonight by congratulating the members of the 118th Congress and the new Speaker of the
House, Kevin McCarthy.
(I hope this doesn’t ruin your reputation) Mr. Speaker, I look forward to working together.
I also want to congratulate the new leader of the House Democrats and the first Black House
Minority Leader in history, Hakeem Jeffries.
Congratulations to the longest serving Senate Leader in history, Mitch McConnell.
And congratulations to Chuck Schumer for another term as Senate Majority Leader, this time
with an even bigger majority.
And I want to give special recognition to someone who I think will be considered the greatest
Speaker in the history of this country, Nancy Pelosi.
The story of America is a story of progress and resilience. Of always moving forward. Of never
giving up. A story that is unique among all nations. We are the only country that has emerged
from every crisis stronger than when we entered it. That is what we are doing again.
Two years ago, our economy was reeling. As I stand here tonight, we have created a record 12
million new jobs, more jobs created in two years than any president has ever created in four
years.
Two years ago, COVID had shut down our businesses, closed our schools, and robbed us of so
much. Today, COVID no longer controls our lives.
Summary
Yelp grew revenues 15% year-over-year with a total of $1.2 billion and maintained very healthy gross profit margins of 91.1% as compared to 92.4% in 2021 in spite of inflation and other economic headwinds. The company managed operating expense well, reducing it from 89.4% of revenue to 86.3% of revenue, enabling it to generate $58.3 million of operating income which represents a 4.9% operating margin—an improvement from $31.5 million in 2022 which represents an operating margin of 3.1%.
Yelp attributes its continued success to its broad-based local ad platform fueled by first-party data and a high-intent audience which lead to a record number of paying advertising locations—545,000—and average revenue per location of $539.42 for the fourth quarter and $2,081.47 for 2022.
Further, Yelp has seen continued growth in its Restaurant, Retail & Other segment of advertising revenues, which were $115.7 million in the fourth quarter—an 11% year-over-year increase—and are now at a point where they’re returning to—and may surpass—the pre-pandemic high-water mark of $121 million set in 4Q 2019.
The company generated adjusted EBITDA of $269.8 million, a 9.5% year-over-year increase. Yelp has an enterprise value of $1,945.0 million, consisting of $400.6 million in cash, $126.3 million in debt and a market capitalization of $2,219.3 million. Its EV/TTM Adjusted EBITDA multiple is 7.2x while its EV to 2023 and 2024 Adjusted EBITDA multiples are 7.4x and 6.2x, respectively.
According to Yelp, future growth will be derived from “continuing to invest in growing quality leads and monetization and services, driving sales through the most efficient channels”—self-serve and multi-location—which in turn delivers more value to advertisers and and enhances the consumer experience.
EARNINGS CALL TAKEAWAYS
Pinterest fell as low as 11% in after-hours as the company reported lower-than-expected revenue and profit trends. User growth in North America continues to be our key variable for the stock, and this quarter showed flat sequential and annual momentum with 95 million (0% y/y) MAUs versus 95.1 expected in our model. Despite lackluster user growth in the company’s most valuable geographic region, we were encouraged by Pinterest’s strong uptick in overall engagement. The company posted quarterly MAUs of 450 million, a return to modest global growth and saw double-digit growth in mobile app users (we believe this could be a function of increased activity outside of the home post-COVID). Pinterest also saw its ratio of weekly active users to monthly active users increase to an all-time high (61% in 2022, 58% in 2021, and 56% in 2020).
Key Takeaways
Vertex performed well in the quarter, beating consensus estimates across all key metrics. The company finished 2022 growing revenues 18% year-over-year to $8.9 billion and EPS 42% to $12.82 per share, driven by its leading cystic fibrosis product TRIKAFTA. Looking to 2023, Vertex plans to continue expanding its patient population in cystic fibrosis as it ramps up for potential product launches in various disease areas, each representing multi-billion revenue opportunities. Executives provided revenue guidance of 7-9% year-over-year growth, including expectations of a 1.5% FX headwind, which were in-line with analysts expectations. The stock currently trades at a 21.7x PE ratio, which is expected to drop to 19.0x with $15.62 EPS in 2024 as new products launch.
Consumer sentiment was essentially unchanged at 66.4 — 1.5 index points above January.
Recent developments in the economy, both positive and negative, have led to mixed attitudes among consumers with little net change in February. After three consecutive months of increases, sentiment is now 6% above a year ago but still 14% two years ago, prior to the current inflationary episode.
Overall, high prices continue to weigh on consumers despite the recent moderation in inflation — and sentiment remains more than 22% below its historical average since 1978. Combined with concerns over rising unemployment on the horizon, consumers are poised to exercise greater caution with their spending in the months ahead.
The beginning of the year usually serves as a time for reflection. The trading out of calendars allows for individuals to think back about the year: their actions, the events that moved the world, and what they would have done differently. Indeed, in addition to reflections on the past, the new year also serves as a time to ponder the future. In the same way that we use the month of January as a time apt for rumination, the oil and gas industry does the same. Oil and gas giants provided their full-year 2022 earnings reports, forcing analysts to recall the events that led to energy having its breakout year. To this end, countless international institutions released their expectations for the energy industry for the coming year and beyond. While these presentations, papers and reports are robust, I will hope to provide you with a quick overview of the market’s mindset heading into 2023.
Dan Rosensweig
Thank you, Tracey, and welcome, everyone, to our 2022 Q4 earnings call. Chegg ended the quarter and the year on a strong note, beating the high end of our guidance with services revenue growing 10%, finishing the year with over 8 million subscribers and generating over $150 million in free cash flow.
The last few years, we saw significant headwinds in higher education, including the loss of nearly 1.5 million students during COVID. Through it all, the Chegg team executed very well, positioning us for a much bigger future. In the second half of the year, we saw significant improvements in new subscriber growth, increased take rates for Chegg Study Pack, which is now 40%, and retention for CSP is now nearly equal to that of Chegg Study. In addition, we also saw increased demand over the year for Chegg Skills in our partnership with the Guild. We believe that this positive momentum will continue and lead to accelerating revenue growth in the second half of 2023. After the initial wave of the COVID pandemic, as students returned to campus, we saw fewer of them enrolled and those that did took fewer classes.
Strauss Zelnick — Chairman and Chief Executive Officer
Thanks, Nicole. Good afternoon and thank you for joining us today. During the third quarter, we continued to execute on our ambition to create the highest-quality, most engaging interactive entertainment franchises in the industry to deliver them across an array of platforms and to captivate our global audiences.
All of our new game releases and post-launch content have received significant critical acclaim and we're pleased to have the highest catalog sales based on units sold in the Americas. The strength of our portfolio reflects the passion, vision, artistic acumen and hard work of our world-renowned development teams and studios and we are immensely proud of our long-standing commitment to quality.
Notwithstanding our creative achievements, our third-quarter net bookings of $1.38 billion were slightly below our prior guidance. We believe that as a result of macroeconomic conditions, consumers shifted holiday spending toward established blockbuster franchises and titles that were offered with pricing promotions.
Corporate Profile:
We are a leading manufacturer and distributor of agricultural equipment and related replacement parts throughout the world. Our purpose is to provide farmer-focused solutions to sustainably feed our world. We sell a full range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems. Our products are widely recognized in the agricultural equipment industry and are marketed under a number of well-known brands, including: Challenger, Fendt, GSI, Massey Ferguson, and Valtra, supported by our Fuse precision agriculture solutions. We distribute most of our products through approximately 3,200 independent dealers and distributors in approximately 140 countries. We also provide retail and wholesale financing through our finance joint ventures with Coöperatieve Rabobank U.A.
Sundar Pichai
Thank you, Jim, and good afternoon, everyone. It's clear that after a period of significant acceleration in digital spending during the pandemic, the macroeconomic climate has become more challenging. We continue to have an extraordinary business and provide immensely valuable services for people and our partners.
For example, during the World Cup Final on December 18, Google Search saw its highest query per second volume of all time. And beyond our advertising business, we have strong momentum in Cloud, YouTube subscriptions, and hardware.
However, our revenues this quarter were impacted by pullbacks in advertiser spend and the impact of foreign exchange. I'll focus on two major things today in a bit more detail, and then I'll give a shorter-than-usual quarterly snapshot from across our business.
First, how we unlock the incredible opportunities AI enables for consumers, our partners and for our business; and second, how we focus our investments and make necessary decisions as a company to get there.
Governor Jared Polis
Colorado State of the State Address
January 17, 2023
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Attorney General Weiser,
Secretary of State Griswold,
Our dedicated First Gentleman Reis,
Members of the State Board of Education,
Justices of the Colorado Supreme Court,
Members of the Cabinet,
And members of the Colorado Delegation to the 118th Congress of the United States
Welcome.
Today our administration is standing on the threshold between four years past and four years to come. We are middle–aged! But God willing our mid–life crisis is in the past! I have a bit less hair than four years ago, but more wisdom and experience.
We’ve gone through a lot these last four years, Colorado. COVID-19. Shootings. Devastating wildfires. Record inflation. Spiraling hate speech.
But Coloradans should know that no matter what comes our way, I’ll continue to fight everyday to protect our state.
Colorado is unique, we always have been. We are a state that just this year voted to cut the income tax again while legalizing mushrooms.
Key Takeaways
Bob Iger wasted no time in his first earnings call since returning from a three year hiatus as Disney’s CEO, outlying new restructuring and cost-saving plans. Disney will be restructuring its business segments into Disney Entertainment, ESPN, DPEP and return certain decision-making responsibilities back to creators. The company also announced a $5.5 billion cost-savings plan which includes layoffs of 7,000 employees as well as a significant reduction in marketing. Disney plans to reinstate its dividend by the end of the calendar year, pending board approval.
Direct-to-Consumer
Despite launching its ad-tier in the quarter, Disney+ subscribers saw its first ever decline since its launch in 2019, due to losses in its Hotstar segment with the loss of streaming rights for the Indian Premier League which were partially offset by mild gains in its core Disney+ segment. Hulu and ESPN continued to grow subscribers which benefitted segment operating income. With over 234 million total subscribers across its streaming platforms, the company will stop providing forward subscriber guidance as it shifts its focus from subscriber growth to platform profitability. The company saw a $400M sequential improvement in operating loss, and expects that to improve $200M in Q2 as it aims to reach profitability by the end of the fiscal year. The company has stated strong demand for its ad-tier, although it does not expect to have a material impact until later in the year.
BLUE ROOM
+WEEKLY+
GLOBAL ZOOM
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Thursday
February 9, 2023
12 PM
BLUE ROOM
GLOBAL MEETING #107
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Updates from Kelly Whitaker and Alfonso Medina
Hello Team,
Huge day for us with the Vision Offsite later this afternoon. I am so excited to experience this with you and thank you Emily for leading us!
The meeting will be followed by dinner at BRUTO, where we can celebrate the team and Chef de Cuisine Michael de Leon's nomination for Best Chef Mountain Region by James Beard.
Agenda
I. BLUE ROOM Updates
- Emily
- Magicoley
- Eli
II. BLUE ROOM Housing
- Jim
- Nina
III. BLUE ROOM Grain and Commodities
- Min
- Naia and Jim
Questions:
Super Bowl Traditions: First, who are you rooting for, and what are you doing for the big game? Second, if you could wish a 2024 Super Bowl Victory for any team, which would it be?
Valentine's Day is next Tuesday: First, any big plans? Second, if you could set up any two people, who would they be and why?
Ryan Fiedler — Director of Investor Relations
Today, we reported profit per share of $2.79 in the fourth quarter of 2022 compared with $3.91 of profit per share in the fourth quarter of 2021. We're including adjusted profit per share in addition to our U.S. GAAP results. Our adjusted profit per share was $3.86 for the fourth quarter of 2022, compared with adjusted profit per share of $2.69 for the fourth quarter of 2021.
Adjusted profit per share for both quarters excluded mark-to-market gains for remeasurement of pension and other post-employment benefit plans as well as restructuring items. Adjusted profit per share for the fourth quarter of 2022 also excluded a goodwill impairment. Now, let's turn to Slide 3 and turn the call over to our Chairman and CEO, Jim Umpleby.
ECONOMIC
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