In this episode of Motley Fool Money: Earnings-palooza! Chris Hill chats with Motley Fool analysts Jason Moser, Ron Gross, and Andy Cross, about the latest headlines and earnings reports from Wall Street. They discuss the latest unemployment numbers, a market rebound, and the election. Ridesharing stocks rally after passage of important legislation. They’ve got earning reports from companies in healthcare, fintech, semiconductors, and fitness and they share some stocks to put on your watch list.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Nov. 6, 2020.
Chris Hill: As we are recording this, votes are still being counted in several states that will help decide the Presidential Election, but all trends at the moment are indicating that Joe Biden will become the 46 President of the United States of America. Friday morning, guys, we also got the jobs report for October, and it was a big run, 638,000 jobs added, and the unemployment rate fell from 7.9% to 6.9%, and the stock market is on its way to having its best week since April.
Ron Gross: Yeah, concerning the election, you know, blue wave, divided government, take your pick, make your prediction, what’s best for the market, what’s not; I don’t know and I don’t think anybody really does either, to be honest with you. So, I don’t change anything about the way I invest when new administrations take hold. I do The Foolish thing, I buy great companies that I believe in, I hold them for the long term, the ups and downs they’re going to happen, administrations are going to come and go, but great companies will rise over time, and that’s how I think about it. And it helps me sleep at night and it’s much, much easier, Chris.
[laughs] As far as the economic news, this is a strong report, it’s really nice to see the unemployment rate fell to 6.9%, that all-encompassing unemployment rate, the government calls it the U-6, down to 12.1% from 12.8%. So, this is good news. And we saw the labor force participation rate tick up, which is nice as well.
Now, we see spikes going on all over the place; overseas, in the U.S. Some states, some municipalities talking about pulling back, it’s very hard for me to predict what happens now when we go through a second wave in through the Winter. But I’ll take the good news where I can get it and I think this is a very strong report.
Andy Cross: Yeah, I will say, just think about where we were last week, Chris, when there was a lot of fear and the market sold off, and now we’re seeing this rebound, so I think we can continue to expect this volatility, we’ve been saying it now for a while. I think you’ll see it depending on how the election plays out. I think there is some excitement that we may not see as aggressive tax hikes as we may have seen if the election status holds; so, I think there’s some excitement there. I think we’ll still see a stimulus package at some point in some way over the next few months, whether it happens this year or the beginning of next year, we’ll have to see, but clearly, I think there’s some more excitement in the markets than there was last week. And to Ron’s point, you want to continue to own the best and the brightest stocks and that’s what we try to do at The Motley Fool and you want to hold them for the long-term through the thick-or-thin, but things are looking a lot better this week than they were last week.
Gross: Yeah, I know, I said [laughs] I try not to focus too much on the ins-and-outs of the administration, but it’s interesting to watch, if you’re a political observer, that the Senate is still in play, and that perhaps would have an even bigger impact on legislation and things like tax policy and regulations even more so than who is President, so I will be keeping an eye on that.
Hill: All right. Let’s get to some earnings. Shares of Uber (NYSE:UBER) up more than 35% this week. Uber’s third quarter loss was smaller than expected. But along with the earnings report, voters in California approved Proposition 22 which allows Uber and other companies in the gig economy to classify workers as independent contractors rather than employees. Ron, Uber shareholders needed some good news and they certainly got it this week.
Gross: Yeah, Prop 22 is a much bigger deal than whatever they reported for the quarter, and we will touch on that in a second. Without this passing, which it appears it will pass, it’s not over yet, but it appears it will pass, California would have been a real problem for both Uber and Lyft, as well as some other gig economy companies that are focused on gig workers. So, this was a must-get for them, and so the relief rally makes perfect sense to me as shares are up 33% since October 30th, on the heels of Prop 22.
For the quarter, the company did beat expectations, but they still reported an increased loss. Overall sales were down 18%, gross bookings were down 10% with rideshare being down 50%. Now, the good news, delivery bookings — Uber Eats and the like — up 135%. Makes sense, we’re all getting food delivered, nobody is eating out or not as much, certainly as we used to, so that works. The company is still confident in that elusive path to profitability; sometimes I make fun of that phrase “path to profitability” because it’s what you say when you’re not profitable, but they still see the path as the recovery takes hold.
Management thinks they’ll achieve its goal of quarterly “adjusted profit” by the end of next year. So, a year from now, we’ll start to talk about whether they were hitting their goals that they put up for themselves. Balance sheet is good, they have a lot of debt, but they also have a lot of cash, so they’re not in any jeopardy in that regard.
Hill: Shares of The Trade Desk (NASDAQ:TTD) up more than 25% on Friday after third quarter results blew away analysts’ expectations. Andy, it’s not like The Trade Desk hasn’t already had a big year in terms of the stock performance, what stood out to you in this report?
Cross: Chris, it was a really nice report. Now, we did have some leading indicators when Facebook and Alphabet talked about their advertising business looking much better than what it was. And as Jeff Green, the Co-Founder and CEO of The Trade Desk, said in the call is, so far, we’ve seen several years of advertising disruption and innovation basically compressed into a few months. So, a really nice quarter at The Trade Desk, and coming off a quarter that maybe wasn’t so good the last quarter. So, sales at $216 million, up 32%; that was versus a drop last quarter, so a reversal there, that was really impressive.
They won significant amount of new business from their competition, talked about how they’re taking market share in the programmatic ad space, which is really important for The Trade Desk, saw lots of continued growth in the connected TV market, Chris, that’s the connected TVs as we’re more and more connected to streaming services rather than tied to our cable box. They talked repeatedly about how the cable companies continue to see folks, the members, subscribers cutting the cord, they expect that to continue; that’s an advantage for The Trade Desk.
Spend in mobile video was up 70%, same in the audio spend, connected TV spend across The Trade Desk market was up more than 100%. Customer retention stayed very strong at 95% for five straight years. So, when you add it all together, you just see this continued emphasis on what is going well with The Trade Desk, that’s in more and more ad spending, moving to online, moving to connected devices.
The Trade Desk solution, their programmatic ads solution, is really winning clients and, both, new clients and existing clients, and now it’s just continuing to build that momentum, and you see it this week and the day after the earnings with the stock price up almost 25%.
Hill: Third quarter profits and revenue for CVS Health (NYSE:CVS) came in higher than expected, but that took a backseat to the news that CEO Larry Merlo is stepping down after a decade in the corner office, Executive Vice President Karen Lynch will become the new CEO on February 1st of next year.
Ron, am I right that she came over from Aetna as part of the CVS Health-Aetna merger?
Gross: Yeah. She’s currently the EVP of CVS Health, but the President of Aetna. And as you said, she’ll replace Larry Merlo, who’s not only been in the executive suite for 10 years but at the company for 40 years, so quite a long career. So, I think that’s the bigger news here. The quarter, you know, they beat expectations and they raised guidance, but it’s still kind of ho-hum to me, it’s nothing to get too excited about. Total revenue is up 3.5% driven by growth in Healthcare Benefits and their Retail Long-Term Care segment. That segment, the Retail was up 5.9% on increased prescription volumes, the Healthcare Benefits 8.8% on membership growth. So, those are certainly fine numbers. The Pharmacy Services business was the weakest, but still up almost 1%; so not too bad there.
Adjusted operating income fell 8.2%, COVID-related expenses taking a chunk out of profitability there, and there’s also reimbursement pressure, as we’ve been saying for the longest time in that Retail Long-Term Care segment. So, net income ended up falling 20% hurt by a one-time charge, I wouldn’t think that would continue, with an early extinguishment of debt. But they did increase their guidance for the fourth quarter, so they’re seeing some firming in their business, some strong pockets there. But again, we’re not talking about a gangbuster growing company at this point.
Hill: If The Trade Desk was the stock of the day on Friday, then the stock of the week was Upwork (NASDAQ:UPWK). Shares of the freelance work platform up more than 50% after a strong third quarter report.
Andy, what is going on at Upwork?
Cross: Well, it’s really, kind of, the lowered expectations through the most of the year, it just wasn’t really getting it done. I think investors now see the quarterly report and say, hey, wow! Maybe there’s something more to the Upwork story. Revenue is at $97 million, up 24%, that was up versus growth of 19% last quarter, and much higher than the company’s estimates at $89 million to about $91 million.
Gross service volume, so that’s like all the traffic across the Upwork platform, which presents an online platform for freelancers and hirers to get together. Macro service volumes were up 23%, more and more clients adapting the Upwork services in record numbers now. Core clients up 24%, so that matches the volume success that they saw. A lot of good success in their marketing and their search engine optimization channel. Add it all up, Chris, you have a net loss of 0.2% to 0.3%. And that was much better than the negative estimates that they had the last quarter.
So, I think for the stock’s performance that was just so dramatic this week, it was really these expectations were not so high and now investors see that Upwork is actually a little bit more of a growth story and their guidance was still for more and more growth of 24% on the sales next quarter. So, continued success from Upwork and that’s a little bit different than what investors were seeing earlier this year.
Hill: Shares of MercadoLibre (NASDAQ:MELI) hitting an all-time high this week, second quarter revenue for the Latin American e-commerce and fintech company grew nearly 150% year-over-year. And Jason, MercadoLibre’s digital payment system is really [laughs] starting to rack up some big wins for shareholders.
Jason Moser: It really, really is. You know, this MercadoLibre story, it’s really all about the boom in Latin America’s middle class. I think it demonstrates the importance of having that middle class and the wherewithal of management to continue to invest in this business to provide, ultimately, a total solution.
Speaking of the middle class, if you look between 2008 and 2018, Latin America’s middle class expanded from 33 million households to 46 million households, and it’s becoming a greater proportion of the overall economy. You mentioned the revenue growth there up almost 150% for the first time ever, certainly not the last, surpassing $1 billion for the quarter. Gross merchandise volume, which is a very important metric, we talk about that with these networks, up 117%, currency neutral. Unique active users grew 92.2%, reaching 76.1 million.
So, just a lot of money flowing through that network, a lot of people using that network. And to your point on MercadoPago, reached almost 60 million unique payors during the quarter, added 7.5 million payors, a lot of that is attributable to Brazil. You know, I think that one of the things we talk about with MercadoPago is its power on the platform, but it’s even more impressive when you look off platform, people using that solution for buying things that aren’t affiliated with MercadoLibre’s market. That off-platform total payment volume grew almost 115% in U.S. dollars, and it reached $8.4 billion in transactions, just phenomenal growth, in really what is, again, a total solution from shipping and fulfillment, to payments, to marketplace. So, there’s a reason why the market is [laughs] embracing this company the way it is, because it’s, as Ron would like to say, firing on all cylinders. [laughs]
Hill: Online payroll systems may not be sexy, but shares of Paycom (NYSE:PAYC) hit an all-time high this week after Paycom third quarter profits and revenue both came in higher than expected. This is as rock solid as it gets, Andy.
Cross: It is, Chris, and it hasn’t been a great year for Paycom overall. I mean, the revenues for this quarter up 12%, and their guidance for the next quarter is up at 10%. Now, this is a company that historically has grown revenues north of 30%/year, and profits north of 50%/year. So, this has been a very great growth company over time, but they do provide those services to a lot of the small-, medium-sized businesses, many of which have been hurt, so that’s been a drag on their business.
But I think this quarter, you know, they continue to have higher and higher recurring revenue, 98% of their revenue is recurring. I mentioned the revenue growth of 12%, that’s back to the pre-pandemic levels now. So, they kind of had this return; I think investors were finally expecting that. They have less than 5% of the market overall, so it’s a very large market, they continue to innovate, it’s very profitable business, they’re getting a lot of scale, they continue to add more and more small businesses, even though the small business market, in general, has been hurt.
So, overall, I think a really nice quarter for Paycom. The stock, when you look at selling 85X operating profits and 26X sales for a business that isn’t quite growing as fast as is, looks a little full value, but overall, it’s a very solid business, very profitable and run by a person who owns a lot of stock in the company.
Hill: Qualcomm (NASDAQ:QCOM) wrapped up its fiscal year with a bang, fourth quarter profits and revenue higher than expected for the wireless tech giant, and shares of Qualcomm up 15%. Jason, this is the second quarter in a row we’ve seen a big move up in Qualcomm stock.
Moser: Yeah, I mean, it’s been I think very easy to overlook this business over the last several years, as tech has been in a bit of a holding pattern with phone saturation and then questions regarding where this next wave of growth would come from. But we’re certainly seeing now that there are a number of avenues that should continue to drive this business forward in the coming decade, really. 5G is absolutely a big part of the story, but you know there’s a lot more to it as well.
Looking at the numbers for the quarter, revenue of $6.5 billion, earnings per share of $1.45. Now, that’s non-GAAP, it excludes some settlement and royalties from Huawei situation there, but when you look at the way the business is performing, the Tech segment revenue, $5 billion; their Licensing segment which is smaller but higher margin, $1.5 billion, operating income in that Licensing segment was $1.1 billion, that was up 40% from a year ago, so very encouraging there.
It’s interesting to note too that management going forward is going to be breaking down revenue a bit more granularly going by segment. So, they’re going to give us the Handsets, the Radio Frequency segments, the Auto segments, the Internet of Things segments, because those are really the drivers of the business, it’s not just a handset company anymore.
Now, to that, still handsets are making up the majority of sales. And to that, they have now 110 5G agreements there with handset providers, and are forecasting 450 million to 550 million 5G handsets shipping in calendar 2021. So, a lot of tailwinds for this business in the coming year.
Hill: Peloton (NASDAQ:PTON) kicking into high gear to start its fiscal year. Paid digital subscribers grew more than 300% in the first quarter, and shares of Peloton also up 15% this week, Andy.
Cross: Chris, these numbers are just pretty [laughs] astounding. You mentioned 382% on the paid digital subs, that was versus 210% in the fourth quarter, which itself is just incredible. The revenues, at $758 million, up 232%. Again, versus 172% last quarter. So, they’re seeing this acceleration. Number of workouts across the platform up 306% to 78 million, that’s almost 21 monthly workouts per subscriber, up versus 12 a year ago.
So, as we all are sitting at home and we’re looking for ways to exercise and get out of our seats and out in front of Zoom, obviously Peloton is benefiting from this. They are, however, seeing some pain from that growth, Chris, as the Co-Founder, John Foley, said on the call, and he owns almost $800 million worth of stock — it pains us that we’ve been underperforming recently versus the high standards we strive for. Wait times for our products have been unacceptably long. So, a lot of, I think, growth pains that Peloton is going, considering the past year during the pandemic, has been so extensive. But overall, the business continues to hum. Their Bike+ new offering has just seen really high growth and a lot of interest, and a lot of demand in the growth for the next quarter. And for the 2021 guidance, they raised that. So, they continue to see high expectations from Peloton, from their members, from their workouts and the kind of demand that we are all looking to fulfill as we sit on our butts at our house, and now we can maybe more sit on-site a Peloton bike.
Hill: It’s a good problem to have, but it’s still a problem. Interesting to see how they deal with it in 2021.
PayPal‘s (NASDAQ:PYPL) third quarter report came with some tempered guidance for the fourth quarter. Shares of PayPal up this week. And I don’t know, Jason, I feel like the combination of the guidance and the fact that shares of PayPal have doubled in the past [laughs] 12 months is why we saw the reaction that we saw.
Moser: Yeah, probably so. I mean, PayPal could certainly be a victim of its own success in 2021, with tougher comps and as they continue to wean themselves off of eBay completely here. But to my mind, that would really only present opportunities to buy what’s just clearly becoming one of the most important financial platforms in the world.
They chalked up just another really, really strong quarter. Total payment volume of $247 billion, up 36%. They’re operating now on a run-rate of essentially $1 trillion [laughs] in that total payment volume. So, I mean, that just is phenomenal to think about, particularly when compared to something like MercadoPago, that we talked about earlier. They added 15.2 million new active accounts for the quarter, they now have 361 million active accounts. And we talk a lot about companies that have “benefited,” for lack of a better word, from this pandemic, PayPal is no exception there.
And to that point, in regard to the user growth, if you look back to just the month of January of this year, during the fourth quarter earnings call management said for 2020 that they expected to add approximately 35 million new accounts. In this release here, they now expect to add 70 million. So, they’ve essentially just doubled that user expectation. And so, yeah, you would have thought the market might have perceived that a little bit more optimistically. But I think to your point, eBay continues to become less a part of the business, which in the near-term, can be a little bit of a headwind on revenue, but in the longer term it’s absolutely the right thing to do.
And then finally, in regard to Venmo, because we talk about that a lot here, Venmo now has 65 million users. It drove almost $45 billion in total payment volume; they’re forecasting $900 million in Venmo revenue in 2021. And get this, Chris, in 2021, it will contribute positively to transaction margin dollars. So, there is your profitable Venmo.
Gross: [laughs] Get this, Chris.
Hill: I love Venmo, but yes, as a shareholder of PayPal, I have been wondering, hey, when is that going to start making some money? So, nice to see [laughs] that we’re getting some guidance around that.
Shares of Roku (NASDAQ:ROKU) hitting an all-time high on Friday after a strong third quarter report. Profits, revenue, active accounts, all up for Roku. And they’re in the business of video streaming, Ron, so maybe we shouldn’t [laughs] be surprised by this.
Gross: Exactly. Pretty big beat, as we all seem to be streaming more than ever, because there’s nothing else to do. [laughs] A reported 17% year-over-year drop in linear TV viewing among adults 18-to-49 is what’s really driving this. And the numbers just, you know, really are impressive. Total revenue, up 73%. Their Platform revenue increased 78%. Now, Advertising, which is part of their Platform segment, has really become the fastest growing part of this business. And they saw monetized video ad impressions grow almost 90%. These are really strong numbers.
They added 2.9 million incremental active accounts. They are now up to 46 million. Average Revenue Per User, I only say it, because I like to say ARPU, grew 20%, up to [laughs] $27. Gross profit was up 81%. So, this is pretty big. Now, they don’t bring that much money to the bottom-line yet. Expenses are still pretty high. So, for example, they are only about $12 million in operating profit for the quarter, but that includes $35 million of stock-based compensation, which is an expense, some people kind of think it’s not, but it is, but that does take a whack out of their profitability and it’s just something important to realize.
They introduced some new products during the third quarter, their Roku Ultra 4K HD player, they have some high hopes on. They expect fourth quarter year-over-year growth will likely be in the mid-40% range. So, some strong growth continues. Shares are up 87% this year, you know, just killing it.
Hill: Let’s get back to the War on Cash. Shares of Square (NYSE:SQ) rose more than 10% on Friday after third quarter profits came in much higher than expected. And Jason, payment volumes for Square are on the rise once again.
Moser: Yeah, not surprising to see another strong quarter from Square; particularly after we saw PayPal’s results earlier in the week. The bottom-line is that technology is just changing the face of commerce and finance, and Square is one of those companies right in the middle of that intersection there. So, looking at the numbers, total net revenue crossed the $3 billion mark. It’s up 148%, if you exclude Caviar, which they sold off a little while back. Transaction-based revenue was $925 million. Subscription and Services-based revenue was $448 million; that was up 60% from a year ago, very encouraging.
You know, to compare it to PayPal, which I always like to do, just to get an idea of the size of these networks, Square, you know, gross payment volumes were up $30 billion, $31 billion. So, you can see, compared to something like a PayPal, it’s much smaller, but that means there’s also plenty of opportunity there, particularly when you look at that two-sided network.
And speaking of that two-sided network, Cash App, which is really a driver of this business, is proving its case. Users continue to grow. Gross profit for Cash App was up 212% for the quarter. And it was an interesting snippet here from the letter that since its launch less than a year ago, more than 2.5 million customers have bought stocks using the Cash App, billions of dollars have been traded on the platform. So, you know, I was always curious to see how that was going to play out, if it was something that was going to gain some traction, it sounds like it is.
Speaking of opportunities, maybe, to buy the stock down the road, it’s worth noting that they are going to be ramping up investments in the business next year approximately 40% from the previous year. So, that is going to play out on the bottom-line to an extent, it depends a little bit on how that topline performs. So, just something to keep in mind. There may be some windows of opportunity opening up to buy shares or add to a position in the coming year. I think, again, when we talk about important financial platforms out there, Square is always in the conversation.
Hill: Do you get the sense that Jack Dorsey and his team at Square are looking at additional — not revenue streams, but just add additional ways to deploy what they’re doing in other parts of finance?
Moser: Yeah, I mean, they’re definitely trying to build out complementary offerings. And you see them building more crypto functionality, you see them considering bringing in some tax service as well with an acquisition there. So, yeah, it does seem like they’re trying to add more drivers in that regard. The risk there is, sort of, a diversification factor there, you want to make sure they’re, kind of, keeping their eye on the ball. For now, it seems like they are, but you know, Dorsey is running two companies as CEO. And I mean, he has a hands-off leadership style for sure, but yeah, it would be very easy to sort of take your eye off the ball in a very competitive space.
Hill: First quarter profits for Clorox (NYSE:CLX) doubled year-over-year. They raised guidance for the fiscal year. And revenue growth for Clorox was the strongest they’ve seen in more than 20 years. Ron, you were in your 40s the last quarter time that Clorox had a quarter like this.
Gross: [laughs] How dare you? Yeah, really strong numbers, but perhaps we really shouldn’t be surprised, we’re all clamoring every time we go to the store for Clorox wipes, or at least we were. But a really strong quarter, up 27% in revenue. Double-digit growth in all segments driven by demand for hygiene, disinfectant products. But it’s not just the namesake Clorox product, it’s Glad trash bags, it’s water filtration devices, it’s vitamins, and it’s even charcoal, because we’re all grilling outside. So, lots of different categories here getting it done.
28% increase in the Health and Wellness segment, 39% increase in the Household segment; just to throw out a couple of metrics out there. The gross margins widened, making this even better on the strong volume growth, some cost savings, favorable product mix. Eighth consecutive quarter of year-over-year gross margin expansion; that’s really, really impressive for a company that’s been around for a while like Clorox.
Supply chain has been under pressure because the demand is so strong, so they’re doing their best to get stuff to the consumer as best they can. Earnings per share up 66%, if you exclude a one-time gain for a Saudi joint venture that they have. But 66%, really, really impressive. Raised their full-year revenue forecast. Shares trading at 28% for, like, a consumer products company, it’s interesting to see. But if they continue to put up these kinds of numbers, that’s warranted they likely won’t continue to put up these numbers, you know, two, three, four years down the road.
Hill: Well, it’s interesting, because you think about, well, what is the value of any company’s brand? Brand is one of those things that is hard to quantify, it doesn’t show up on the balance sheet, but you look over the past few months, the number of other businesses in the airline industry, in the hospitality industry who are in their effort to reach out to their customers and say, we’re going to make our environment as safe as possible, they are name-checking Clorox. They’re saying, no, here’s how clean it is, we’re using Clorox. Again, it doesn’t show up on the balance sheet, but that is absolutely something that goes in the plus column.
Gross: Yeah, the brand name becomes the product, the way Band-Aid becomes an adhesive strip or Jell-O becomes gelatin, and that’s really powerful. And you can play some games and look at, like, what advertising spend has been over a 10- or 20-year period, kind of, add that all together, capitalize it, and get a sense of what a brand like Clorox might be worth. We do that sometimes with companies like Coca-Cola. But, yeah, don’t underestimate the power of a brand.
Hill: Up next, proof that a pandemic cannot stop true love or at least the desire for short-term companionship.
Match Group (NASDAQ:MTCH) is the parent company of Match.com, Tinder, OkCupid and countless other dating apps. And Match Group’s third quarter report proved the pandemic cannot stop the need for human interaction, because Ron, shares hit an all-time high this week.
Gross: My favorite is Plenty of Fish, that’s my favorite brand of theirs. Shares up 88%, reflecting [laughs] just really, really strong results. Better than expected subscriber growth and operating results. Revenue up 18%. Average subscribers up 12%. ARPU, there I’m going to say it again, increase of 4%; Average Revenue Per User, for those that weren’t listening to the first half of the show, how dare you?
Tinder, one of their most important segments, direct revenue grew 15%. That was driven by 16% average subscriber growth to now 6.6 million subscribers to Tinder. Their non-Tinder brands collectively grew by 23%. Really strong. It all, kind of, fed down to operating income being up 14%. Now, this is interesting, net income was actually down versus this period last year, but that was because they had a very artificially low tax rate in 2019, the same quarter of 2019; that’s not going to repeat. So, I would think it would be much more important to focus on that operating income increase of 14%.
The company trades at 60X, OK. So, [laughs] the stock being up 88% this year took its toll on that valuation there. And they’re not putting up numbers, I don’t think, to really justify 60X, but they are putting up impressive numbers.
Hill: I get that the stock is expensive, but I also can’t think of who their competition is. I mean, Match Group has done such a good job of building out their portfolio of brands that they own this space.
Gross: Right. Every time you mention a name, Hinge, for example, they own it; Plenty of Fish, they own it; Match, Tinder, Ourtime even — I think that’s the one I see on the commercials for older folks — they own it and they’ve done a really great job, kind of, segmenting the market and going after each segment.
Hill: Shares of Wayfair (NYSE:W) are up 20% this week after the online home furnishings company’s third quarter report. Jason, did Wayfair actually turn a profit?
Moser: [laughs] Yes, they did, Chris. And we’ll get to that. Just another really, really impressive quarter. I mean, the stock has had a phenomenal year. It’s up +200%. But you know, it really kind of deserves it. We’ve gotten a nice glimpse at the potential of this business model, it’s no longer a question of will it work, it works.
If you look at the numbers, revenue of $3.8 billion, it was up 67% from a year ago. Active customers of 28.8 million, up 51%. Net income of $173.2 million. And yes, GAAP earnings per share of $1.67. Just phenomenal. I mean, we talk about businesses that are flourishing in this time, and certainly Wayfair is one, as commerce has just accelerated this move to online. So, the investments they make are starting to make a lot more sense now.
A very important metric we pay attention to, repeat customers as a percentage of total orders. The repeat customers placed 71.9% of total orders in the quarter, that was up 67.3% from a year ago. And there was another interesting statistic here from the release that I thought was noteworthy, customers placed 60% of total orders via mobile versus 53.8% a year ago. So, I mean, that’s really impressive to think about that in my eyes. But it is a tremendous market opportunity, they see it ultimately as an $800 billion total addressable market between North America and Europe.
Speaking of Europe, that is operating now at a $1 billion run-rate. Gross margin, very strong, came in at 30%; that was up 6.5% from a year ago. And it’s important to remember too that gross margin — that that reflects the shipping and fulfillment cost that Wayfair has to handle. So, that margin expansion is strong. They expect quarter four to see a little bit of a drop there, 26% to 28%, just because they see volumes shrinking a little bit. But to that point, they do see supply picking back up, so we shouldn’t see, really, any supply related issues for the holiday season. All in all, just very encouraging.
Hill: Really quick before we get to the stocks on our radar. News from Panera this week, the once and potentially future public company Panera Bread. Panera is going to be testing sales of beer, wine, and hard seltzer at several locations in the Kansas City area. I’ll just say, our email address is [email protected], so if any of the dozens of listeners that we have in the Kansas City area want to test this out and let us know how it goes, please do.
But, Ron, I don’t know, we saw Panera succeed and then sort of level off as a public company, it got taken private by JAB Holding, we’ve always, sort of, thought it might be rolled out into the public markets again. It’s going to be interesting to see how this test goes.
Gross: Yeah. First pizza and now booze. This is the effort to bring customers in later in the day, the dinner hour. I actually don’t see that happening to any great extent; I could be shortsighted, I’ll be watching the test as well. But I don’t think that Panera ultimately becomes a place where a large number of people go for dinner.
Hill: All right. Let’s get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Jason Moser, you’re up first. What are you looking at this week?
Moser: Yeah. One that doesn’t get a lot of attention these days, but it’s one that I pay a lot of attention to, Alarm.com (NASDAQ:ALRM), ticker is ALRM. This is really a play on 5G and more specifically IoT, or the Internet of Things. As Alarm.com is responsible for all of these devices and the software that go into homes and buildings for security and whatnot; you’re talking about things from thermostats and sensors to even facial recognition programs. But all of these devices connect, they send data ultimately to Alarm.com’s cloud.
They have 9,000 service providers from ADT to Brink’s that sell, install, and support Alarm.com’s devices and software. They reported earnings this week, a very strong quarter with total revenue up just over 24%, nice diversified revenue stream there, they see 2021 shaking out nicely. Again, I like the tailwinds there in 5G and Internet of Things. Neat business, Founders are still involved, nice inside ownership. In a world where small caps aren’t staying small for very long, at a $3 billion market cap, this looks like one that still has a lot of room to grow.
Hill: Steve, question about Alarm.com?
Steve Broido: So, if I understand this business correctly, if I buy an Alarm.com product, it’s connected to its own 5G network and I don’t need a data plan, I don’t need to pay for anything, it just comes along with it or is not work that way?
Moser: No, you’re right. Ultimately, you’re paying Alarm.com for that service, and Alarm.com is connecting all of those devices and managing that through their cloud platform and providing that data to help all of those devices connect and speak and run as efficiently as possible.
Hill: Ron Gross, what are you looking at?
Gross: How about Scotts Miracle-Gro (NYSE:SMG), SMG, manufacturer of lawn care products, fertilizers, weed control. We talked about this company earlier in the week on our podcast, it seems really interesting to me. Shares are up 60% this year, just reported a really strong quarter, companywide sales up 79%. Now, operating expenses were up 47% due to some incentive comp bonuses to hourly workers; which I’m a fan of.
Interestingly, Q4 is typically a seasonal loss for them, this is the first profitable fourth quarter since 2006. So, that’s impressive. Trading at 21X, which isn’t that bad, but I need to get a better handle on what kind of growth this is going to — you know, what we’re going to see over the next two or three years before I decide if this is one I want to jump into, but it’s an interesting company.
Broido: Have they changed that formula in, like, 40 years? I think that it’s the same formula. What’s going on here, this makes no sense?
Gross: Are you talking about their Roundup product, [laughs] they’ve got lots of products and there are lots of different uses and I honestly don’t know if they’ve changed that formula or not, but its sales are pretty darn well.
Hill: Two very different businesses, Steve, you got one you want to add to your watchlist?
Broido: I’m going Alarm.com, this Scotts Miracle-Gro is nuts, it doesn’t make any sense.
Hill: [laughs] All right. Jason Moser, Ron Gross, guys, thanks for being here.
Gross: Thanks, Chris.
Moser: Thank you.
Hill: That’s going to do it for this week’s edition of Motley Fool Money. The show is mixed by Steve Broido, our Producer is Mac Greer. I’m Chris Hill, thanks for listening, we’ll see you next week.