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Consumer Staples Stocks

ZAPP (ZAPP): A Tiny Electric Bike Maker Faces Stiff Competition

ZAPP (ZAPP) $15.25 Speculative – Avoid. 

This is an electric bike maker from Thailand, with a tiny market cap of $37Mn. The company’s debut product, the i300, is a high-performance electric “perfect city bike” with widespread acclaim, including winning the prestigious Red Dot Product Design Award, the German Design Award, the Australian Good Design Award, and other E-Mobility awards. 

The value proposition – Price around only $10,000 lightweight motor, rechargeable and removable battery pack.

Weaknesses and challenges 

Pre revenue, development stage company with a limited operating history as a public company, Product development in new category in this cyclical and volatile sector is notoriously costly, and their planned entrance to the U.S. market will require considerable capital, effort, and time. 

In addition, the sobering fact is that the i300 has been in development for almost six years (admittedly the COVID-19 crisis was a legitimate factor in this delay) and can only be ordered online at the company website at Zapp i300 Urban Electric Scooter/Motorbike | Zapp EV. 

Two competitors at an advanced stage:

Livewire (LWR) – Market cap of $1.7Bn

LVWR has a strong strategic relationship with Harley-Davidson (HOG) which spun off its electric motorcycle division on 9/20/22 as a separate, publicly traded company in a SPAC deal.  LVWR has retail partners in more than a dozen states in the U.S, and sales of only $38Mn, 18% lower than 2022, but is expected to grow 30-40% in the next 3 years.

Niu Technologies (NIU),  with over 400 retail stores in the U.S. through retail partners is another strong competitor with a market cap of $165Mn and revenues of $479Mn with 20% growth prospects.

ZAPP’s lack of experience to produce at scale and shareholder dilution are two other weaknesses.

I suspect that the 15% rise was due to short covering, this was quite heavily shorted. I want to take a close look at the Niu.

Categories
Enterprise Software Stocks

Snowflake (SNOW) Q1 Earnings Review: Strong Revenue Growth Amidst Mixed EPS Results

Source: Snowflake

Snowflake (SNOW) $171 Up 7% post earnings.

  • Snowflake press release (NYSE: SNOW): Q1 Non-GAAP EPS of $0.14 misses by $0.03.
  • Revenue of $828.71M (+32.9% Y/Y) beats by $42.82M.
  • Product revenue of $789.6 million in the first quarter, representing 34% year-over-year growth
  • Net revenue retention rate of 128% – This is great.
  • 485 customers with trailing 12-month product revenue greater than $1 million
  • 709 Forbes Global 2000 customers
  • Remaining performance obligations of $5.0 billion, representing 46% year-over-year growth. – This is another good sign. Growing faster than revenue growth.
  • Q2 Outlook: Product revenue $805m – $810M; Operating income margin 3%.
  • 2025 Outlook: Product revenue $3,300M; Operating income margin 3%; Adjusted free cash flow margin 26% – Good cash flow margin.
Categories
Fintech

Toast Inc (TOST): A Potential Pullback Opportunity for Investors

Toast (TOST) $23

Positives

Focused on restaurants – therefore scale in that segment helps in a commodity market, where they can compete on price.

One Stop Shop for restaurants, provides several financial/accounting/CRM/Marketing tools besides payment processing, reducing the need to go to several vendors. These have a strong attach rate and will be a key growth catalyst.

Non-GAAP profits with operating margins improving, hope to be GAAP profitable by 2025.

Good growth prospects – 23-25% revenue growth, priced at 2.5x sales, reasonable.

Negatives

Commodity, crowded business with a large number of competitors, little product differentiation, many compete on price alone.

Will find it difficult to perform outside its niche.

The stock is already up more than 60% from its low of $14, so expect some pullback.

This should be worth looking at $18-$20, I think the appreciation from here may be limited

Categories
Enterprise Software

Rubrik’s IPO: Evaluating the Potential of a Microsoft-Backed SaaS Player in Data Security

Rubrik’s IPO is priced at $32 per share. Microsoft is backing this company.

SaaS business – data and data-centric security – this is a growing business with overall industry growth in the low twenties, from migration of on-prem to cloud.

Co-founder is Ex Nutanix

Company-wide revenue growth was only 5%, and the company is still in an early growth stage to have decent profitability but has shown a lot of promise with declining losses last year. Sales and marketing expenses take away a lot of revenue – they’ll need to keep this high to convert pure license customers to SaaS customers, at least 2-3 years.

Net Retention Rate at 133% is good for SaaS customers but this number drops over total revenue because of the large license revenue base.

A lot of big competitors in this industry, including Dell EMC and IBM.

Overall, given the slowing revenue growth, I would prefer to wait. I suspect the valuation is coming in too hot at an estimated 8x sales without the growth. Let’s keep an eye out, it has promise but I think we’ll need a better price.

U.S. GDP Growth Slows to 1.6% in Q1 2024, Missing Expectations

GDP Q1- 2024

Q1 U.S. gross domestic product increased at an annual rate of 1.6%, falling short of the +2.3 % consensus and slowing from the robust +3.4% in Q4 2023.

Q1 personal consumption expenditures growth also cooled some, rising 2.5% vs. +2.8% consensus and +3.3% prior.

Categories
Insurance

Globe Life (GL): A Speculative Play on Short Covering and Market Reactions

source

This is a speculative trade article from an analyst on Seeking Alpha, looking for a short covering bounce, so keep that in mind, when you make your decision.

Globe Life did get a positive report this morning from an analyst, Edward Vranic on Seeking Alpha, suggesting that there would be enough short covering and likely winding up of the speculator’s positions, since they have achieved their short target of $64.

Like most professional short sellers Fuzzy Panda, has used all the alleged corrupt practices at Globe Life to paint a negative picture. As the analyst writes, they didn’t compare it to Primerica, which has a similar problem, and this could be an industry problem.

  • Policies Written for Dead and Fictitious People. 
  • Forged Signatures. 
  • Funds Withdrawn from Consumers’ Bank Accounts without Approval
  • Fictitious Bank Accounts are used to Fund Numerous Fake Policies, so Agents hit their bonuses.

Quoting from the report

  • Fuzzy Panda held a $64.35 price target. GL has dropped below that mark.
  • GL now has valuation metrics well below the industry average and significantly below PRI, it’s most directly comparable as a life insurance company with an MLM sales structure.
  • I believe that the stock price will bounce back to $80 or higher due to short sellers covering their positions and bullish investor speculation.
  • What Fuzzy Panda managed to do was paint GL as a dysfunctional organization filled with frat boys and “crypto bro” types that undertake aggressive sales tactics, show off online, and engage in perverse and questionable behaviors. What it didn’t do is assess how much of this is outside of an industry standard. It wouldn’t be the first time that 25-year-old men out of college bragged about their $100,000 cars, and the company leveraged that as a recruitment tactic. Isn’t the whole point of a growing company to make itself appealing? Should GL be punished for being more honest and upfront about the type of people it believes will do well in selling insurance at its company? If there is something wrong with it, then where are the regulators? Not just over the past five years, for when Fuzzy Panda believes this behavior at GL has accelerated. But over the last 100 years, when a rich lifestyle and fast cars as a financial products sales guru was portrayed as an American dream.
  • The behaviors undertaken by certain employees and management teams of life insurance companies have been unfortunate. However, up until today – and even in the case of GL up until April 11th – few people on Wall Street cared. For whatever reason, the market reaction was quite pronounced on Fuzzy Panda’s report. Even though it was essentially an aggregation of previously disclosed and/or publicly accessible information along with the opinion of a handful of self-proclaimed experts and investigators. I think that reaction went too far, leading to a speculative buying opportunity on GL.
  • Fuzzy Panda and associates will cover their shorts. Short interest was 2.75 million as of March 28th and short-marked volume was over 2.2 million between that date and April 10th. It was over 5 million on April 11th, the day of the report. Some shorts are likely already covered on April 12th. One report shows that a significant put option position was opened, and then closed on the 11th. I believe that momentum will continue into this week as the remaining shorts who shorted high will take their profits, while those who are late to the game and entered in at a low price will be squeezed. I remind readers that Fuzzy Panda’s “generous” target was $64.35. Unlike other short reports I have seen, it did not quantify an impact of any potential restatements of financials nor come up with a target of $0 or close to it. Given the relative softness in terms of price targets compared to other reports I have seen, I believe that this firm will be more likely to take profits than to push the narrative for more gains at a lower price.
  • Therefore, $80 is a reasonable near-term speculative price target on GL and I have positioned myself accordingly.

Here is the link if you want to read the full article.

https://seekingalpha.com/article/4683754-globe-life-betting-on-a-bounce-to-80

Categories
Fintech

MoneyLion: A Fintech with Roaring Potential but Credit Risks to Watch

source

MoneyLion (ML) $76, Fintech

Positives

Diverse base of revenue (subscription fees, interchange, interest, etc.).

Both consumer and fast-growing enterprise segments, with more than 1.1K channel partners, enterprise now accounts for about one-third of its overall revenue.

The online marketplace for third party vendors is a great idea to increase its offering options in areas like insurance, credit cards, and mortgages. At the end of Q4, about 48% of the products used by its customers were from third parties, up from 26% at the end of last year, showing its expanding marketplace.

ML management striving for GAAP profitability should be a positive catalyst.

Ernst & Young, EY partnership is also positive.

Customer acquisition costs are low at $15, they can expand without hurting profits.

Negatives and Risks

The biggest risk is credit – so far it has been under control, but as we’ve seen with Fintech, things start spiraling out of control very fast, without proper guardrails in place.

Credit quality remained steady. Its provision expense as a percentage of total originations was 3.4% for the full year – THIS MUST BE WATCHED FOR DETERIORATION. Management usually warns and expects over 4% of losses so they’re not downplaying the credit risk.

Valuation

112x adjusted earnings per share, with the hope of 300% growth in 2025. Much lower on adjusted earnings. Still high, but if earnings materialize the P/E drops to 26. Clearly the lion needs to roar.

If you have the capacity for some credit risk, this is potentially good and can return in excess of 20% per year.

Categories
Industrials

In-Depth Analysis of Archer Aviation (ACHR): A Speculative Play in eVTOL with R&D Challenges and Competitive Landscape

source

Archer Aviation (ACHR)

Pre-Revenue, majority spend in R&D.

Lot of dilution (likely to continue at double digits each year if not more) due to equity funding for R&D, still has about $325 Mn in net cash a year worth of expenses.

Positives include a $140Mn DoD contract, plus scope to expand in India and the middle east. United Airlines even though it is a large strategic partnership, it is non-binding – so difficult to predict what might transpire.

Also, an ongoing effort to reduce expenses to stretch cash a couple of years.

Biggest negative/challenge is getting certification and there is a milestone for 2024 testing so let’s see how that goes.

Interestingly, if eVTOL (Vertical take-off of aircraft) gets a mandate it would be a massive market.

Closest competitor among many is Joby is at a similar position developmentally and operationally, their ongoing testing program has a likely 6 to 12-month lead over Archer Aviation with successful flights in NYC, but Archer should be able to close that.

JOBY’s key supplier relationship with Toyota is a big plus.

ACHR’s primary focus is on manufacturing and selling eVTOL aircraft, while JOBY’s business model is more full stack, creation and operational management, thus Joby’s valuation is stronger. 

Bottom line – speculative volatile play for sure + definite dilution, but if successful could be huge. I’m sure your position would be small relative to the portfolio, and as long as you can deal with the volatility nothing wrong in accumulating but do keep an eye out on JOBY, the Toyota angle looks interesting.

Categories
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.

Categories
Semiconductors

Nvidia (NVDA) Update: Exceeding Expectations but Facing Margin Challenges

source:nvdia

Nvidia’s results exceeded expectations as usual, kind of becoming a habit! The previous quarter’s (Jan 2024) revenue beat by $1.6Bn and it guided Q1-FY25 (April 2024) revenue 10% or 2Bn higher to $22Bn.

Shares took off from $675 to $725. Everybody’s happy. 

Now comes the tough part.

Nvidia had a net profit margin of 55% = $12.2Bn in profits on $22Bn in sales. That is drug lord margin territory! Simply, they can charge whatever they want for the H100s, the new Grace Hopper, and the H200s that are coming down the pike. I’m confident that these margins will continue for at least a year untill competitors get their act together.

However, to assume that these margins will continue beyond that is difficult to swallow, and most of the street estimates for earnings are based on at least 52% in NPM, which if not achieved can be a huge disappointment.

So I modeled earnings at a 40% Net Profit Margin, which is similar to a big pharma company’s patented drug margin that also charges as much as the market can pay for it.

With that NPM, Earnings come down naturally; three years down the road in the 40% model, EPS is  $26 compared to the street estimate of $33. Assigning a P/E of 40, that gets us to $1,030 from today’s price of $725 or an annualized gain of 12%. And if the street is correct, we’re looking at 40*33 =$1,320 or an annualized gain of 22%.

The counter argument to the lower margin thesis is – Nvidia can lower prices and sell more, and at some point this is likely to happen – the overall growth doesn’t reduce – especially if you’re changing the whole paradigm of accelerated computing replacing the way data centers are built now.

At the moment, I’m not planning to add any more, my exposure to Nvidia is already very high, and the long-term thesis doesn’t change.