Weekend Update #162

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Despite the shortened trading week due to the Martin Luther King Jr. holiday, financial markets did not cease to surprise. After a tepid start to the year, the S&P 500 managed to reach an all-time high of 4,839.81 this Friday—surpassing the record high of 4,778.73 set on December 29, 2021. The index was led by tech companies, including Advanced Micro Devices, PayPal, Lam Research and Nvidia following a “Fed-friendly” consumer sentiment report indicating consumption and outlook is healthy while inflation expectations are dampening, leading investors to believe Fed rate cuts are on the horizon.

Other economic data points this week that have fueled this sentiment include December retail sales which exceeded expectations. On the housing front, annualized December housing starts of 1,460,000 exceeded economists’ consensus estimate of 1,425,000, while building permits of 1,495,000 similarly beat the 1,477,000 estimate. Consumer sentiment—seemingly the star of the week—registered a reading of 78.8, its highest since July 2021, while initial unemployment claims decreased 187,000 in the week ended January 13 from a revised estimate of 203,000 the prior week, lending credence to the notion the Fed will inevitably cut rates since the consumer and labor market remain strong while prices continue to ease.

On the earnings front, TSMC reported better-than-expected revenue and earnings and guidance of 20% revenue growth in 2024, propelling shares approximately 10%. Charles Schwab reported a 47% decline in profit resulting from interest paid on client deposits and debt while Discover Financial shares fell 10% after reporting a similar decline in Q4 profit resulting from an increase in loan-loss provisions. Goldman Sachs reported higher-than-expected asset and wealth management revenue while Morgan Stanley showed strength in investment banking revenues but disclosed one-time regulatory charges that hurt its Q4 profit. This “mixed bag” dynamic is likely to characterize the rest of the earnings season, which will go into full swing next week.

In other news, the EU antitrust regulator informed Amazon its proposed acquisition of iRobot would be blocked, sending shares of the latter plummeting 27% on Friday. Similarly, shares of Spirit Airlines tanked 60% on Tuesday following a judge’s order blocking deal citing similar antitrust concerns.

Thank you Blue Room Team Leader OMAR GUZMAN

OVERVIEW

On the financial outlook for CY2024, Ambarella is forecasting positive Y/Y comps driven by IoT and automotive, which is contrary to competitor’s forecast. This is incrementally positive for Ambarella and highlights resiliency in this market, likely due to geography and price point. CV5 revenue will funnel into results this year, and the overall CV2 family is the leading product portfolio on the AI side for 2024 as well.

Guiding to flat OPEX for the year.
Guiding to flat COGS for the year.

Updates to the CV3 family including ASPs.:

CV3-AD685 → $400
CV3-AD655 → $200+
CV3-AD635 → $100
CV72 → $40 (China specific CV for auto and IOT) 2025 production date with a 2026 production ramp target

Updates to the software opportunity:

Most important takeaway is that software will be additive to their CVflow hardware, and that the opportunity is not currently included in the $2.4 billion pipeline.
Software ASP is going to be calculated relative to Mobileye’s SuperVision and higher portfolio, which is about $1,000 at the highest range. We spoke to Louis before (a year and a half ago) and he indicated this could be $700 as a base case.
They may have an undisclosed agreement to work with a VW spinoff on software, however this was not indicated to be true on this call, but was mentioned.

Indicated that they are “ready to take [the N1 edge-inference chip] into production”, which will primarily target live video for security and IoT applications.

Gave an example of CCTV traffic monitoring for data on congestion and stolen cars.
Gave another example of leveraging LLMs to be able to categorize certain events that are captured on camera. That allows security personnel to quickly search notable events, rather than sift through hours of video.

Ambarella may eventually grow the Cooper Developer platform to something similar to CUDA, which would act as a software optimizer for their CVflow hardware.

IN

Source: Surveys of Consumer Attitudes — University of Michigan / Conference Board Consumer Confidence

Consumer sentiment soared 13% in January to 78.8 — reaching its highest level since July 2021, showing that the sharp increase in December was no fluke.

Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations.

Over the last two months, sentiment has climbed a cumulative 29% — the largest 2-month increase since 1991 as a recession ended.

For the second straight month, all five index components rose, with a 27% surge in the short-run outlook for business conditions and a 14% gain in current personal finances.

Like December, there was a broad consensus of improved sentiment across age, income, education, and geography. Democrats and Republicans alike showed their most favorable readings since the summer of 2021.

Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy. Sentiment is now just 7% shy of the historical average since 1978.

IN

Joshua Reilly — Needham

Well good afternoon, everybody and welcome back to the Needham Growth Conference. My name is Josh Reilly and I'm an Analyst on the Enterprise Software team here at Needham. Excited to have Zuora this afternoon, and CFO Todd McElhatton.

Todd McElhatton — Chief Financial Officer

Thanks, Josh. Good to be here. I hope it'll be good.

Joshua Reilly — Needham

Yes. All right. So maybe we can just start off with an overview of Zuora for those who are less familiar with the story.

Todd McElhatton — Chief Financial Officer

I bet everybody in here is using a service that Zuora supports. You're using Microsoft, you're using Zoom on the enterprise side. We support those companies. We enable their business models. If you want B2C, think about New York Times streaming with the zone.

Those are customers of ours. On automotive-connected cars, you're seeing more and more other companies look at the services they want to bring. All of those are running the Zuora platform. What Zuora does is it is purpose-built to help companies that want to have business models that have recurring revenue, consumption. Once you start having those business models, it's very different than what ERP and CRM can handle.

Not only is there a difference in how those business processes work and how you end up connecting to other legacy systems, but it causes challenges with your revenue recognition. So the Zuora revenue product allows companies to flawlessly and automatically recognize revenue in the way that it needs to so these new business models are challenging CFOs on how they recognize revenue.

Then we have our payments and Zephyr product. So across the board we want to think about Zuora's a company that's enabling all these new business models. We're a mission critical, enterprise-grade tech stack, that really supplements ERP and CRM systems.

IN

So, we founded the Guardant Health 11 years ago with the bold mission of giving us, our families, friends and loved ones all more time free from cancer, a disease that we believe could be ultimately conquered using vast amounts of data as our weapon.

In those 11 years, we have delivered on that promise.

We now have a robust suite of precision oncology products addressing both late- and early-stage cancers as well as recurrence monitoring for cancer survivors. And now with our new screening assay Shield, Guardant is the first company that has liquid biopsy product offerings spanning the entire continuum of cancer care.

At Guardant, we have always been trailblazers, and this year, we will continue to blaze a trail in a groundbreaking cancer screening category as we eagerly await the planned launch of Shield IVD in 2024 for colon cancer screening, pending FDA approval.

With that, I would like to start our presentation with a patient story for our newest product category, Shield.

IN

Executive Summary

U.S. Bancorp exceeded Q4 2023 adjusted EPS and Net Interest Margin expectations while guiding to NII of $4.0-$4.1 billion in Q1 2024, compared to consensus expectations of $4.067 billion. Overall, management painted the picture of well-diversified revenue streams and loan book, skewing toward high-quality customers, in addition to its interest rate neutral positioning leading to a positive business inflection for H2 2024. The plan is also for flat core expense growth to adjust the business for a weaker macro environment. Without a doubt, the high interest rate and inflationary environment continue to pressure business, but with a soft landing and rate cuts in the back half of 2024, management believes the focus will turn toward stability and earnings growth for the future. Without any additional banking stress scenarios occurring since the last earnings call, the outlook seems to be improving — in line with consensus expectations — and U.S. Bank is even leaning into the weakening consumer as an opportunity to grow its credit card revenue stream in a prudent manner. Barring black swan banking events or a deep recession in the near future, USB management believes the year-ahead outlook if for increasing stability throughout the business.

IN

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Longmont is No. 1
on USDA National Organic Tour

Story by DANA CADEY | dcadey@prairiemountainmedia.com | Longmont Times-Call

Dry Land Distillers in downtown Longmont hosted U.S. Department of Agriculture representatives and local grain growers Wednesday to celebrate a federal grant for $269,270 to help expand the local organic grain industry.

Longmont, Colorado, was the first stop on a national USDA tour to visit organic market development grant recipients. The statewide nonprofit, the Colorado Grain Chain, is one of 10 national recipients of the grant. Dry Land Distillers, at 519 Main St., is a member of the Colorado Grain Chain. The distiller makes wheat whiskey with local and ancient grains.

“We’re really excited about this announcement and about the future of the Grain Chain,” said Lisa Boldt, project manager of the Colorado Grain Chain. “I think we’re going to do really, really fantastic things.”

In all, the U.S. Department of Agriculture will hand out $9.75 million to the 10 grant winners around the country to work on supporting domestic organic agriculture.

“Thank you for all of your work that you will be doing in the future to support organic produce,” Jenny Lester Moffitt, USDA undersecretary for marketing and regulatory programs, told the guests at Dry Land. “As an organic farmer myself, I know how valuable that is.”

Founded in 2019, the Colorado Grain Chain is a network of farmers, bakers, distillers, chefs and others who grow and use grain. Other local members of the nonprofit include the Boulder County businesses Moxie Bread Co. and Dry Storage.

The nonprofit’s grant is for three years and will be used for three main projects. Boldt said the primary project is to award six $5,000 grants each year to Colorado Grain Chain producers, which they can use to expand storage and transportation, among other things.

“It really has infinite possibilities,” Boldt said.

The second project is to expand a marketing program that helps consumers identify products made with Colorado grains; the third is a series of travel events that the nonprofit group members can use to network with people around the state.

The grants are part of the USDA’s Organic Transition Initiative, which began in 2022 to help farmers move toward organic production methods. Moffitt stressed the importance of not only helping farmers make that transition, but of giving them opportunities to sell their organic products within their local and regional communities.

“And that is what the Colorado Grain Chain is all about, is really bringing together and fostering the community of connectivity,” Moffitt said. “We’re seeing rural communities coming back and thriving again, and it’s all due to the work of folks like you all.”

The other recipients of this first round of grants are in California, Connecticut, Maine, Montana, Oregon, Pennsylvania, Texas, Vermont and Washington.

Dry Land owner Nels Wroe serves as co-chair of the Colorado Grain Chain. Wroe said the nonprofit has been a valuable resource to him as a distiller, especially because its members also educate the public about the benefits of organic agriculture.

“When you choose what you drink as well as what you eat, it can make a huge difference in the big picture around the health of our communities, the health of our ecosystems, the health of our economies,” Wroe said. “The more we can get organic or regenerative grains planted in Colorado, the healthier we’re all going to be.”

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Weekend Update #162

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Longmont is No. 1 on USDA National Organic Tour

Weekend Update #163

Weekend Update #161

Longmont is No. 1
on USDA National Organic Tour