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Reddit Looks Promising 

Reddit – (RDDT) $57 Hold, till post lock up expires on 8/9, we might get it around $50  

Last week I had written on Reddit when the stock was in the mid 60’s suggesting a Hold till it dropped 20-25% to around $50-54. Their lock up period post IPO expires on 8/9 and there could be a lot of shares for sale. With the recent turmoil I want to wait longer. 

Here’s the link. 

https://seekingalpha.com/article/4706184-reddit-waiting-for-a-better-price

Summary 

Reddit has an excellent business model of unique Subreddits. 

Its user base is enthusiastic, passionate and sticky. 

Reddit’s data licensing revenue stream is an excellent opportunity to grow – currently contracted for $203Mn for 2-3 years and a very profitable business.  
Reddit turned cash flow positive for the first time last quarter with a margin of 12%. 

The stock is expensive at 10X sales and could fall once the lock-up period post its 2024 IPO expires in August. 

Its biggest weakness is a low Average Revenue Per User (ARPU) $4.77, even Pinterest and Snapchat earn almost double – around $8, and Facebook is in a different league at $68, but this should only grow from such a low base. 

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Media

Meta Platforms Earnings: A 20% Drop After Hitting the High Bar

Source:Meta

Meta Platforms (META)

The bar was too high for Meta to clear.

Post earnings the markets punished it 20% for a marginally weaker guidance and higher than expected CAPEX. Pre-earnings the stock had been up 130% for the past year, so this 20% drop was perhaps, overdue.

Rev beat of 36.46Bn v 36.12Bn 27% YoY – but too little a beat.

Rev guidance 36.5Bn to 39Bn or a midpoint of 37.75 V 38.24,  still 18.5% YoY growth but too much of a miss.

Capex is higher at 37.5Bn midpoint now V 33.5Bn – bad for Meta but good for Nvidia/AI  most of the Capex is for AI.

META has a GAAP operating profit margin of 49% in the family of apps business – that’s a phenomenal margin, but it drops substantially because of losses in the Reality Labs business. Still, its company-wide margin was 38% – a 52% increase YoY.

Will parse through the earnings call/analysts’ upgrades tomorrow morning, the selloff may be overdone.

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Media

Buying Netflix (NFLX): A Bet on Operating Margins and Revenue Growth

There are some fears of the lack of transparency for the next quarters till analysts and investors get used to not seeing subscriber numbers, but operating margins are improving further, revenues are guided to 14% mid-point growth and earnings should increase 25% per year in the next 3. The stock is down 13% from its all-time high.

Netflix Q1-2024

Beats all around, and has better guidance as well.

GAAP EPS of $5.28 beats by $0.76.

Revenue of $9.37B (+14.8% Y/Y) beats by $90M.

Global streaming paid memberships: +9.33M to 269.6M. UP 165 YoY, Q1 is seasonally low, and in Q1-23, the YoY growth was inly 4.9% so this is quite impressive.

Q2 Guidance: Revenue of $9.49B vs. $9.28B consensus, 16% growth, 21% F/X neutral growth.

EPS of $4.68 vs. $4.54 consensus.

For the full year 2024, we expect healthy revenue growth of 13% to 15%, based on F/X rates at the end of Q1’24. 

We now expect an FY24 operating margin of 25%, based on F/X rates as of January 1, 2024, up from our prior forecast of 24%. 

It’s dropped 3% after hours, (of course,)

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Media

Bumble (BMBL) Q4-2023 Earnings Call Analysis: Challenges and Opportunities Ahead

sourcebumble

Bumble (BMBL) earnings call, Q4-2023

The Bad  

The US online dating market is likely approaching maturity with a lot of headwinds. Also their younger cohort does not have much spending capability – there has to be a ceiling there.

Product execution was not smooth – too many tiers,  friction due to confusion, and not enough differentiation between tiers. The relaunch should take a couple of quarters.

The Good

Focus on profitability, expecting up to 300 basis point operating margin improvement in 2024.

Product relaunch is under way under a seasoned product leader, with a focus on simplification and value differentiation.

The stock should remain sideways for a while. 

I had recommended buying Bumble (BMBL) at $13 as a 3-5 year long-term investment, targeting 13-15% annual gains.

This was an investment where I lost quite a bit, I bought at $22, and sold 75% at $16.

What went wrong? I overestimated growth prospects of 23-24% revenue growth in 2023-2025, instead, growth slowed down to 17-19%,  and the final nail was in Q3, when Bumble forecasted low teens growth for 2024, amidst an overall slowdown in online dating – still a lot higher than Match’s forecast of 7-8% growth, but no longer the growth story. 

Why buy now? – The stock is not too far from it’s all-time low of $12.29, post disappointing Q3 results and guidance. With a market cap of just $2.4Bn or 1.5X 2024 sales of $1.2Bn its a decent GARP (Growth At a Reasonable Price). Revenue should grow at 12-14% in the next 3-5 years, mostly abroad. I think the worst is priced in the stock and we’re getting a subscription based, sticky business (the flagship Bumble app is a ladies first, unique model, with about 2.8Mn paying users paying over $25 per month). GAAP profitability is still a few years away, though but margins are improving 100-150 basis points each year.

Founder Whitney Herd, resigned in Nov as CEO and moved to Chair, appointing former Slack CEO – Lidaine Jones as CEO, who has already expanded the team with key appointees since she started a month ago. There was some consternation about the founder relinquishing charge, but Jones should fill in her shoes well, I suspect execution is likely to get better given her tech/product background.

Bumble reports after the market today, there might be some volatility, it’s a small cap after all.

Buying some during the day, and then will take another call after earnings.