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(More) Major Cyber Hacks
JBS, which is a Brazilian company and the largest processor of fresh beef and pork in the world, was forced to shut down of all its U.S. beef plants last weekend, which supply almost 25% of American supplies. Link
In related news, radio and TV stations owned by the Cox Media Group, one of the largest media conglomerates in the US, went down this week after a ransomware attack. Link
The FBI says it is currently tracking and investigating about 100 different types of ransomware software, each of which is responsible for multiple attacks in the US and many of which trace back to hackers in Russia. Link
While larger attacks are often targeted, the cybersecurity company FireEye argues that most smaller hacks are crimes of opportunity, where unsophisticated attackers find ‘unlocked doors’. Link
Twitter Blue
Twitter is officially launching its first-ever subscription service, Twitter Blue, by initially testing it in Australia and Canada. The subscription enables premium features, including tools to organize bookmarks, read threads in a clutter-free format and an “Undo Tweet” feature. Link
Driverless Taxi by Google
Waymo One, Google’s ride-hailing service that uses driverless vehicles in the suburbs of Phoenix, can now be accessed and booked through Google Maps. The company has abut 600 vehicles in its US fleet. Link
Biometric Privacy on TikTok
A change to TikTok’s U.S. privacy policy now enables the company to collect biometric data of its users.
We may collect biometric identifiers and biometric information as defined under US laws, such as faceprints and voiceprints, from your User Content. Where required by law, we will seek any required permissions from you prior to any such collection.
The company does not explain why it needs this data and also does not further define the terms “faceprints” or “voiceprints”. Link
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Famous hedge-fund billionaire Bill Ackman’s SPAC is looking to take the Universal Music Group public in a deal that would value the world’s largest music business at roughly $40 billion. The transaction would be the largest SPAC deal on record. Link
Cybersecurity company SentinelOne filed for IPO on the NYSE. Their S-1 filing shows that for the three months ending April 30, revenues increased by 108% YoY to $37.4 million. The company raised $276 million in November 2020, tripling its $1 billion valuation from February 2020 to $3 billion. The IPO could value the company at up to $10 billion, which would represent a 66x multiple over the company’s revenue-run-rate. Link
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The Curse of Beating Earnings
Public cloud companies typically prefer to provide cautious guidance for performance in the next quarter in order to more easily outperform expectations, rather than provide an aggressive guidance and struggle to meet the high bar. It’s simple expectations management.
Underpromise, overdeliver.
So a certain outperformance compared to estimates from market analysts is almost expected from SaaS companies today. Nevertheless, beating or meeting expectations is still a good sign, even if they are set conservatively.
Over the last few weeks, many cloud software companies reported their Q1-2021 financials. As is often the case, most of them outperformed the expectations set by the market. However, for some of these players something unusual could be observed after their earnings release. Four examples:
1) Twilio
Announced on 05-May-21
Revenues of $590m, up 62% YoY → 10.6% above consensus of $533m
EPS of $0.05 → Beating consensus of ($0.10) by $0.15
Outlook: Q2 revenues of $591-601m → Above consensus of $486m
Market reaction:
Post-earnings announcement, Twilio’s share price decreased by 9.4%
As reference, on 06-May, the BVP** was down 2.8%, Nasdaq up 0.4%
2) Fastly
Announced on 05-May-21
Revenues of $84.9m, up 35% YoY → In line with consensus of $84.3m
Loss per share of ($0.12) → In line with consensus of ($0.11)
Outlook: Q2 revenues of $84-87m → 7% below consensus of $92m
Market reaction:
Post-earnings announcement, Fastly’s share price dropped 27.1% (!)
As reference, on 06-May, the BVP** was down 2.8%, Nasdaq up 0.4%
3) Okta
Announced on 26-May-21
Revenues of $251m, up 37% YoY → 5% above consensus of $239m
EPS of ($0.10) → Beating consensus of ($0.20) by $0.10
Outlook: Q2 revenues of $295-297m → Above consensus of $292m
Market reaction:
Post-earnings announcement, Okta’s share price decreased by 11%
As reference, on 27-May, the BVP** was up 0.9%, Nasdaq up 0.5%
4) Pagerduty
Announced on 03-June-21
Revenues of $63.6m, up 28% YoY → Above consensus of $62m
EPS of ($0.08) → In line with consensus of ($0.09)
Outlook: Q2 revenues of $64.5-66.5m → Above consensus of $63.7m
Market reaction:
Post-earnings announcement, PD’s share price decreased by 13%
As reference, on 04-June, the BVP** was up 1.3%, Nasdaq up 1.5%
In summary
Several large tech names met or outperformed expectations, yet their share price dropped significantly after the earnings announcement. These decreases were company-specific and could not be correlated to similar moves of the overall market.
What’s in it for you?
I don’t know what caused the price drops after the positive earnings releases, but they are too recurring to ignore. I am not a fan of trading random patterns that I can’t explain, but those of you who feel lucky could look for a cloud company which is soon going to release earnings and which appears overvalued already (to minimise the risk of an upwards price jump) and then short the stock or buy put options ahead of the release. (just informing, not recommending anything here)
Coupa (COUP)
would be such a candidate. The company will provide its quarterly earnings on 07-June (tomorrow), after markets close.
Coupa provides software around cost control, compliance and spend management.
Based only on fundamentals, Coupa looks overvalued. The company is trading at an enterprise vs NTM revenue multiple of 27x and expects to grow 25% in 2021. In comparison, the median valuation multiple for cloud companies in this growth category is only around 14x.
On one hand, the fundamentals cannot explain its high valuation, but on the other hand several ‘soft factors’ including the company’s strong market position and good product offering do justify a certain price premium.
So from an investment perspective, I will continue to stay away from this stock.
From a gambling perspective, Coupa is a candidate to watch tomorrow / Tuesday 🍿.
**The Bessemer Venture Partners (BVP) Cloud Index is the closest market benchmark for cloud software companies
Active
Pexip (PEXIP) - Target price: $15 (+80% to current PPS). Analysis
Docebo (DCBO) - Target price: $60 (+33% to current PPS). Analysis
Wix.com (WIX) - Target price: $337 (+37% to current PPS). Analysis
ECOMI (OMI) - Analysis
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📉 Tesla vehicle orders in China fell by nearly 50% in May vs April
💸 Billionaires are racing to sidestep President Biden’s plan to raise their taxes
💲 Dogecoin is going to list on Coinbase
🎵 Spotify doubles down on personalised playlists
⛏️ The world’s first EV that mines cryptocurrency
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There will never be a perfect time to do something that stretches you.
That’s true whether you are starting a business, having a child, changing careers, or wrestling with any number of challenges. At some point you have to embrace the uncertainty because it is the only path forward.
If you were ready for it, it wouldn't be growth.
— James Clear
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Disclosure: I am long DCBO, PEXIP, WIX, OMI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from paid subscribers of my newsletter. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: I am not a registered investment, legal or tax advisor or a broker / dealer. All investment / financial opinions expressed by me are from personal research and experience and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.