Weekend Update #180

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As we neared the end of May and moved into the Memorial Day weekend, market elevation persisted with indices sustaining near all-time highs. With the current earnings season cycle winding down, investors saw the Nasdaq and S&P 500 close above the 16,920 and 5300 mark, respectively. Notably, commentary from Federal Reserve governors dominated economic headlines this week while Nvidia earnings remained firmly at the top of the stock market's newsfeed as participants looked to properly discern their market expectations while faced with challenging policy and momentum environments.

Serving as the defining event of the week, Nvidia's earnings release on May 22 proved as a pivotal litmus test for both the market's generative artificial intelligence infatuation and its current, lofty price level. With Nvidia having traded up over 200% since its transformative May 2023 earnings call, investors entered Wednesday's event maintaining cautious optimism around the company's ability to continue their unprecedented dominance and growth. Not only did Nvidia exceed all of the Street's expectations for the current quarter, but they also resoundingly surpassed future guidance projections. With total revenue pushing above $26 billion, Data Center revenue growing over 400% year-over-year, and 2Q 2025 guidance exceeding analysts' estimates by over one billion, the results and corresponding company commentary set the stage for NVDA shares to continue their run, rising an additional 12% in the following two trading periods.

Additionally, Federal Reserve officials provided clarifying commentary throughout the week that seemed to influence and update investors' mindsets surrounding the FOMC's interest rate trajectory. On Tuesday, Federal Reserve Governor Christopher Waller stressed a need to "see several more months of good inflation data before [he] would feel comfortable supporting an easing in the stance of monetary policy." Similarly, Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, stressed continued patience with regards to the Federal Reserve's fight against persistently high inflation, stating, "the sensitivity to our policy rate - the constraint and the degree of constraint that we're going to put on is going to be a lot less … I would expect this to last a lot longer than you might expect." At each instance of public commentary, markets experienced turbulence, with investors digesting the potential reality of higher-for-longer rates, particularly in the context of the market's current, record levels.

Lastly, cryptocurrency also held a piece of the week's spotlight, with the Security and Exchange Commission approving ETFs for Ether on Thursday. ETH had traded up over 20% in the preceding days as anticipation of and optimism for the SEC's decision grew, with gains extending in the wake of the announcement.

Closed this upcoming Monday in observance of the Memorial Day holiday, markets will continue to be defined during the shortened trading week by the closing waves of earnings reports and the releases of poignant economic data. Investors will remain particularly tuned to next Thursday's annualized Gross Domestic Product report as well as Friday's Personal Spending readout in an effort to gauge national economic health and its implications on restrictive rate policies.

Weekly Performance

S&P 500 5,304.72 -0.32%
Nasdaq 16,920.80 +0.70%
Dow Jones 39,069.59 -2.33%

Thank you Blue Room Analyst AIDAN FETTERLY

This was a big week for Fund One as our largest holding, Nvidia, reported earnings. Just as we projected, the world leader in Artificial Intelligence computing beat expectations and provided a bullish outlook to investors. Despite nearly doubling in share price year-to-date prior to the earnings release, CEO Jensen Huang’s characterization of the latest surge in AI as being a technology shift like no other, sent Nvidia’s shares to record highs. This move helped fuel the nearly 2% gain for the Fund over the week. MRNA pioneer Moderna also drove weekly performance with a 25% move. We remain bullish on both.

The gain in weekly performance outpaced the flat S&P 500 result. As bottom-up fundamental stock-pickers, it is always comforting to outperform the index during earnings season. Hopefully that trend will continue as one of our detractors for the week, Lululemon reports on June 5. The stock was pressured by the departure of its chief product officer and that news comes on the back of concern about slowing US sales and the increasing costs needed to keep the brand relevant. While we recognize some of the sluggishness, we believe that US sales weakness has been moderating and that overseas sales, including in the important China market, will remain strong. We successfully shorted Lulu, but now we feel that at the current valuation, the sell-off has been overdone and that we have attractive upside to our intrinsic value price target.

Thank you Blue Room Investing President JOHN FENLEY

Executive Summary

Under Armour shares are poised to languish through 2024 and may positively inflect in 2025 if they begin seeing green shoots resulting from the efforts they announced in their earnings call. The company reported FY 2024 revenue of $5.7 billion, a 3.4% year-over-year decline driven by weakness in North America, whose revenues declined 8.3% year-over-year, offset by strength in EMEA and Asia-Pacific, which grew 9% and 6% year-over-year, respectively. The earnings call was led by Kevin Plank, founder of Under Armour who stepped down in 2020 and re-assumed the role following the departure of Stephanie Linnartz. He acknowledged UA has been doing “too much”, which has led to its underperformance, and laid out steps meant to turn things around, including reducing SKUs by 25%, reducing promotional activity and the depth of it when it does happen, and narrowing and simplifying strategy and returning to UA’s core focus and energy. Mr. Plank noted it will likely take 18 months for these initiatives to achieve critical mass.

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Ken Worthington — JPMorgan

Hi, good afternoon, everybody. My name is Ken Worthington, I'm the analyst following Coinbase from J.P. Morgan. I'd like to thank you so much for joining the TMT Conference this year and the fireside chat with Coinbase. I'm excited to host Emilie Choi, President and Chief Operating Officer; and Alesia Haas, Chief Financial Officer at Coinbase. Coinbase is a $50 billion crypto platform that facilitates trading, staking and the custody of crypto tokens as well as instances of broader engagement with the crypto ecosystem. So thank you both for joining. I've divided questions into four parts. We'll talk about the crypto ecosystem. We'll dig into some Coinbase specific questions. We'll get to financials and then we'll wrap up.

So starting with the crypto ecosystem, Emilie, we'll begin with you. As we think about the crypto cycle, where are we today in the crypto cycle? And with ETFs now live, how is 2024 and the rally we're seeing in crypto markets today similar or dissimilar to what we've seen in past cycles, including the more recent one in 2021?

Emilie Choi — President and Chief Operating Officer

So I am smart enough not to prognosticate about where we are in the cycle because I'm sure I'll always be wrong. But I think that what we've seen in this cycle that is markedly different from the last cycle or cycles before it definitely is the institutional adoption and the maturity of the L2 ecosystem. The introduction of the Bitcoin ETFs in Q1 was, I think, a huge, huge new development for Coinbase and for the crypto ecosystem.

It untapped a large swath of investors who previously didn't have access to crypto. And I think, in many ways, legitimized crypto even further in the minds of those who might have more traditional mindsets. On the L2 front, we have seen a lot more maturity of the rails of the blockchains that we are building for developers. This in turn creates a much more robust ecosystem for them to develop on and then to benefit users.

And so I think Alesia and I've been talking about this a lot. I think it's just -- it feels more mature, it feels better than it did during potentially the hype cycle of some of the NFT momentum in 2021. That doesn't mean that we don't believe deeply in NFTs over the longer term, but I think this felt like something different and a new customer base was coming in. Anything to add?

Alesia Haas — Chief Financial Officer

The only thing I would add is that we've always said that volatility and market cap are what have been the drivers of speculative trading volume on our platform. And while we've definitely seen an increase in market cap, we have not seen an increase in volatility. Volatility looks much more mature in this cycle than it did in 2021. Volatility of Bitcoin, volatility of Ethereum start to come, what I call, on the grid as other high beta stocks and equities that we see where previously crypto had high highs that we don't assimilate with other asset classes. And so that has led to differing investor behavior as well.

But I agree with Emilie, you've seen just a maturation of the space. You've seen diversification of revenue at Coinbase. And so while our revenue in Q1 looked more similar to 2021 than it has in previous years, the composition of that revenue has really shifted over the last three years.

Ken Worthington — JPMorgan

And to some extent, we've seen volatility and I'd even say fragility is sort of the rally that we're seeing now, you mentioned sort of maturation. Does that make it any more durable or any less fragile, do you think, than we've seen in the past?

Alesia Haas — Chief Financial Officer

Oh, Ken, we are so young as a company in the asset class. In some ways, yes. In some ways, yes, because what you saw in our monthly transacting users in Q1 was we saw many of our users that were then active in staking just trade a little bit more in Q1. We saw the average dollar amount per trade increase. But it didn't mean we saw huge growth in the number of new traders. And so what that means then is people are continuing to stay activated, people are staying engaged with crypto. They still have their wallets, but they're just increasing their dollars in different environments. So I do think that leads to more durability and less fragility because we are building the engaged user base.

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Question & Answer Session

Michael Morton — MoffettNathanson

Let's dive right in. And I thought today we could start high-level. And then we'll zoom down as we go through the conversation. And I think a great way to frame this conversation and you're uniquely positioned to answer based off your background.

But a very common question we get from investors and you see it who covers the stock on the buy side and the sell side. It's covered by internet analysts covered by payment analysts, it's covered by software analysts. It's not a question, I would ask every CFO, but your background as an investment banker, I think you understand the desire for investors to companies and buckets.

So having been at Shopify now for roughly a year and a half, what's circuit for Shopify?

Jeff Hoffmeister — Chief Financial Officer

Yes. I wish I could give you one bucket, there really isn't one. As you know, you spent a lot of time, understanding and studying our business. We've got elements of a lot of things in there. And certainly, when you think about our subscription business. That feels like a software business when you think about a lot of our products and merchant solutions like installments, tax, markets, markets pro et cetera. Those feel like very traditional kind of SaaS type software businesses in terms of just kind of the models, the margins and everything that you would think about it.

Obviously payments, which is a majority of our revenue is completely different beast in terms of kind of the dynamics as well as the margins. But I also think you really need to understand direct-to-consumer slash internet. Because obviously, those are the customers of our merchants. And as you know, Shopify is always merchant obsessed. And so, it's how we think about what we build and our product roadmap, we're trying to think of the things which are help our merchants be more successful with their customers. So from a simple majority of revenues perspective, it's obviously payments, but I think like a lot of it's just a complex business.

So I think with a lot of, generally as businesses get larger, they get a little bit more complex. And so we just have a lot of revenue streams and things you need to understand. So, yes, it's not an easy one to bucket.

Michael Morton — MoffettNathanson

What took me some time to appreciate about the Shopify business models? You're in the register with the payments business, but it's unique in the aspect of where — when you make the product better for your merchants, you participate in the upside, right? And you capture the GMV growth that flows through the pipelines from your continued additions and new product releases. That's a really fascinating part of the business.

Another fascinating aspect is your ability to grow GMV over 20% at the scale you're at today. It's a question that everyone kind of scratches their head. This is primarily a merchant-based selling discretionary goods. And the other companies we cover selling discretionary goods are having trouble growing at all — And you're growing over 20% and 2x the industry growth rate. But when the team sits around and thinks about what's behind our ability to do this — And grow at this rate, at this size, what are some of those drivers?

Jeff Hoffmeister — Chief Financial Officer

Well, a couple of things, including going back to your prior comment. I think, it depends a little bit on the region. But for the last several quarters, we've been talking about our strength being pretty evenly split between new merchant acquisition and same-store sales growth of our existing merchants.

We try really hard to make sure we're giving our merchants the tools to be more successful. Like that's as we think about, and it goes to your comments about how we align our business models. We think very, very hard about what is it that we're going to do which is going to make the entrepreneurship world less complex and more intuitive for our merchants. And how can we build things which will help them do that?

And I think that, therefore, translates into our merchants having tools which allows them to be more successful. It allows them to be more successful in terms of how they're building their website, in terms of how they're marketing their products, in terms of how they're attracting new customers. So we work really, really hard to do that. And I think that translates into the GMV growth.

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ZM Q1 FY2025 Earnings Call Content Summary

Zoom reported fiscal year 2025 first quarter with total revenue coming in at $1.141 billion, up 3% year over year. In which, enterprise revenue grew 5% year over year and represented 58% of total revenue, online revenue grew 1% year-over-year to $479 million. Americas and EMEA grew 4.3% and 2.2% respectively, while APAC declined 2.4% due to the FX headwinds in Japan and Australia.
The number of Enterprise customers declined 11.5% due to the transition of 26,800 Enterprise customers with lower MRR to Online customers. This led to a $4 million revenue moved from Enterprise to Online.
The emerging products including Zoom Phone, Zoom Contact Center, Zoom Workplace, Zoom Events and Workvivo are becoming the drivers for revenue growth as the core Meeting product may continue to decline. Zoom is focusing on higher ASP emerging products to achieve better gross margins.
Zoom Contact Center as we reached 90 customers with over $100,000 in ARR, representing 246% year-over-year growth. Zoom now has five customers with 100,000 or more Zoom Phone seats. Zoom AI Companion has grown significantly in just eight months with over 700,000 customer accounts enabled.
In March, the company announced Zoom Workplace, an AI-powered collaboration platform designed to help customers streamline communications, improve productivity, increase employee engagement, and optimize in-person time. Zoom Workplace is also designed to increase employee engagement through the integration of Workvivo into our platform.

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Consumer sentiment fell back about 10% to 69.1 this May following three consecutive months of very little change. This 8.1 index-point decrease is statistically significant and brings sentiment to its lowest reading in about five months.

The year-ahead outlook for business conditions saw a particularly notable decline, while views about personal finances were little changed.

Consumers expressed particular concern over labor markets — They expect unemployment rates to rise and income growth to slow. The prospect of continued high interest rates also weighed down consumer views.

These deteriorating expectations suggest that multiple factors pose downside risk for consumer spending.

Still, sentiment remains almost 20% above a year ago and about 40% above the all-time historic low in June 2022, reflecting how much consumer views have improved as inflation eased. All of these patterns (and the patterns discussed hereafter) are visible when looking at trends within phone interviews alone or web interviews alone, and thus they are not artifacts of the survey’s methodological transition.

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Executive Summary

Zuora grew subscription revenue 10.4% year-over-year to $99.0 million, above consensus estimates of $98.5 million. The company also generated $18.6 million in adjusted operating income, ahead of consensus’ $15.0 million estimate, producing a margin of 16.9%. Adjusted EPS was $0.11, exceeding estimates of $0.07. Despite beating estimates, the company reiterated its revenue guidance, due to continued macro-related headwinds, while slightly increasing its full-year adjusted operating profit as the company continues to improve operational efficiency. With the Togai acquisition, Zuora is shifting its focus to become a full monetization solution for companies, and leadership is confident in a rebound in growth towards the second half of 2024. ZUO shares are likely to appreciate throughout 2024 as the company’s margin expansion helps it reach its near-term goal of “Rule of 30,” while targeting a “Rule of 40” over the long-term.

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WDAY Q1 FY2025 Earnings Call Content Summary

Workday reported a solid financial performance for fiscal year 2024 first quarter, including 19% subscription revenue growth, 18% 12-month backlog growth, and non-GAAP operating margin of 26%.
However, the company closed fewer large deals than last Q1, notably in EMEA and it is seeing customers committing to lower headcount levels on renewals than expected. These dynamics are expected to persist in the near term, leading to the reduction of the outlook for fiscal year 2025 revenue by $35 million at the midpoint.
Full year FY '25 subscription revenue guidance is from $7.7 billion to $7.725 billion, representing growth of approximately 17%, compared to their previous guided range of 17% to 18%.
Speaking of momentum, Workday continues to take share in financials. In Q1, new financial management customers and full platform customers both increased more than 20% year-over-year. Global expansion continues to be a key growth driver.
New partnership with the Defense Intelligence Agency not only is a significant new win, but more importantly, it unlocks an incredible market opportunity for Workday in the federal government, and increases the pipeline over the coming quarter.
The company expanded its relationship with AWS to include co-innovation across industries and enhanced go-to-market investments, and formed a new partnership with Google Cloud, providing GCP customers access to purchase Workday products through the Google Cloud Marketplace.

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Question & Answer Session

Michael Ryskin — Bank of America

Maybe just to kick things off, Kevin, I don't know if you want to make any opening remarks to get us rolling?

Kevin Conroy — Chief Executive Officer, President & Chairman of the Board

I want to congratulate Derek on retirement. Congratulations. And Mike, congrats on your new role. Thanks, Derek, for the years and years, just great coverage.

You're a gem of a person to work with. This is, I think our 14th year at the conference. It's really been incredible to watch the growth of BAML during this time period. You could tell me 5% to 7% growth every year, and it's going on in perpetuity.

We think you can do more, Mike. We can talk about the drivers of that growth. It's really been wonderful to be part of this.

We started out as a small company trying to solve the problem of colon cancer with a long-term vision to apply our technology platform to many cancers. We're happy to be where we are today.

Our mission is to help eradicate cancer by preventing it, not just colon cancer, cancer by preventing it, detecting it earlier and guiding treatment.

So hopefully, we can talk a little bit about this and the open-ended growth story that exists because we're at the — in the early, early innings of how genomics and the understanding of cancer genomics is going to change how cancer is diagnosed, how it's treated.

And when you look at Exact Sciences, it's built on the foundations of Cologuard and Oncotype DX, two of the top brands ever in cancer diagnostics and the power of those two brands is helping us build a platform company through which other innovative cancer diagnostics will help patients. That's — you have this growth story we've guided to 15% growth through 2027.

We believe that growth will continue for a long period of time and over 20% EBITDA margins by 2027.

So we're really excited about what we can deliver in terms of patient impact and also what we can deliver in terms of shareholder value creation.

The near-term drivers that we look at are Cologuard growth and also Oncotype growth outside the U.S. to kind of open-ended growth stories and then a pipeline in screening with multiple tests and precision oncology, Brian Baranick, our GM here, we'll talk about that. So it's an exciting time at Exact Sciences, and we look forward to the conversation today Mike.

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PANW Q3 FY2024 Earnings Call Content Summary

Palo Alto Networks reported fiscal year 2024 third quarter with total revenue coming in at $1.98 billion, up 15% year-over-year, in which, product revenue grew 1%, while total service revenue grew 20%. Americas grew 15%, EMEA grew 20%, and JAPAC grew 8%, lower than expected due to lower product bookings.
The next-generation security ARR grew 47% in Q3 to $4 billion, and their goal is to achieve $15 billion NGS ARR by fiscal year 2030. The company expects to see more platformization deals in Q4, and with AI investment, Palo Alto expects to build a competitive advantage.
For the fourth quarter of 2024, the company expects billings to be in the range of $3.43 billion to $3.48 billion, an increase of 9% to 10%, revenue to be in the range of $2.15 billion to $2.17 billion, an increase of 10% to 11%.
For the fiscal year '24, Palo Alto expects billings to be in the range of $10.13 billion to $1.18 billion, an increase of 10% to 11%, revenue to be in the range of $7.99 billion to $8.01 billion, an increase of 16%, operating margins to be in the range of 26.8% to 27%, an increase of 270 to 290 basis points year over year, adjusted free cash flow margin to be 38.5% to 39%.
In terms of customer demand, the CEO said “cyberattacks continue unabated” and they are seeing a consistent stream of nation-state activity that is systematically looking for software supply chain and hardware zero-day vulnerabilities and attempting to exploit them at scale.

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Weekend Update #180

Weekend Update #181

Weekend Update #179