A Tale of Earnings Reports
A Tale of Earnings Reports
Breaking down earnings calls of a few popular names that bombed on earnings.
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Swaggy's Top Stonks
Together with... Defiance ETFs and the $NFTZ ETF
December 7, 2021
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Today's edition will be a breakdown of a few of social media's sweetheart stocks that happened to completely tank after their recent earnings report. We'll go through a very brief "the good, the bad, and the summary" stories from the Docusign (DOCU) and ContextLogic (WISH) earnings reports.
Special shout-out to today's sponsor, the Defiance ETFs team and their recent launch of the $NFTZ ETF which is now publicly traded.
Today's Letter
A Tale of Earnings Reports
The Docusign earnings call
The WISH earnings call
Hot Meme Stocks
Trending Tickers
A Tale of Earnings Reports
Those of you that read the Swaggy letter from a couple editions ago you'll remember we launched the SwaggyStocks earnings sentiment page that was created through a process of machine learnings and AI.
For the earnings call nerds (like myself) who like reading up on a company's earnings transcripts or listening to the call, our AI is able to reduce read times by nearly 50% by emphasizing only the important sentences.
You can also check out a "quick-view" of the most bullish or bearish earnings calls from the last several weeks or months.
Today we'll be breaking down what happened on some of social media's sweetheart stocks and go through the good, the bad, and what key points we are able to take away from the call.
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The Docusign (DOCU) Earnings Call
Each snippet was pulled from the earnings call and I've classified them into their own categories.
The Good
"If the last year has shown us anything, it’s just how early in the opportunity we really are. In the coming weeks and months, you will see us focus our efforts and investments to drive growth at scale. While disappointed with my execution on billings this quarter, I’m highly optimistic about our long-term growth, and we remain one of the fastest-growing enterprise cloud companies in history. We will continue to innovate across our platform as we lay the foundation for our future expansion across the entire Agreement Cloud."
Dan Springer (CEO): "Yes. I mean, we are still underpenetrated in every geography and every vertical. When we look at the kind of the construct that we’re doing about $2 billion of revenue this year and the bulk of that is still signature-centric. And we think about the TAM as being $25 billion. It’s just lightly penetrated."
The Bad
"With the boost from COVID-19 over the past 1.5-year, we experienced exceptionally high growth rates at scale as we captured customer demand at an unprecedented pace. As we moved through Q3 and into the second half of the year, we saw demand slow and the urgency of customers’ buying patterns temper. While we had expected an eventual step-down from the peak levels of growth achieved during the height of the pandemic, the environment shifted more quickly than we anticipated, and these were the primary contributors to our billing results in Q3 and our outlook for Q4. Despite this, it’s clear that we are still in the early days of the $50 billion Agreement Cloud opportunity as digital transformation remains a high priority for organizations worldwide. DocuSign is uniquely positioned to lead and capture eSignature and the broader Agreement Cloud market opportunity, given our strong brand leading market position and product differentiation."
"After six quarters of accelerated demand, we saw customers shift their buying patterns in the third quarter. Revenue, profitability and cash flow remain strong, while billings and dollar net retention came off their highs, especially in light of the tougher year-over-year comparables."
Analyst Question: "I guess maybe it’d be great if you can give some color if there were specific verticals where you might have seen some of this delay or slowdown in purchasing behavior? I guess, just trying to understand given which industries are first on in the transition were those the ones where they might have been a delay or the ones that had a benefit from COVID, financial services, whatever."
Management Response: "So, we saw that in financial services, we saw that in healthcare, life sciences, we saw that in some of our technology -- telecom technology areas. So that was by far the biggest drivers last year. And that is where, in Q3, when we started to see that change in demand where we saw the most notable impact in the other direction."
The Summary
This is an obvious take, but as the world re-opened Docusign saw a negative impact with demand. However, management has been speaking with conviction that the company and the e-signing business model is still in the early innings of growth within the industry. The CEO believes they still have a huge total addressable market (TAM) to penetrate and continue growing revenues.
The numbers behind the DOCU earnings report weren't all that bad. User growth in terms of YoY growth was down from the massive covid tailwinds they experienced, but generally speaking were still quite high and growth was strong. The market views this slowdown as a big uncertainty and risk and may just be the reason for the huge sell-off the stock saw.
The WISH Earnings Call
Each snippet was pulled from the earnings call and I've classified them into their own categories.
The Good
"While we evaluate merchants across performance metrics such as product quality, shipping and fulfillment, and user review and ratings. We will provide the highest performing merchants with priority placement across our buying experiences, as well as with commission discounts. The early results are encouraging, as we've seen, improved transaction NPS, reduced defect rate and improved retention as we ramp up the share of voice for higher-quality merchants. We've also increased our efforts to proactively prevent, detect, and remove misleading, fraudulent, or poorly reviewed and low quality product listings from the platform."
"Wish ended Q3 with a solid cash position of $1.2 billion in cash, cash equivalents and marketable securities. Free cash flow was negative $344 million primarily driven by our net loss, which was primarily driven by lower order volumes and unfavorable net working capital changes due to the timing of cash outflows to merchants and vendors."
Bill Bird: "Hi. This is this is Bill on for John. I have 2 questions if I could. You guys were able to tighten the belt on sales and marketing expenses more than we expected in third quarter. Do you think you can just frame for us your expectations for that spend for 4Q '21 just a little bit more? And then when do you anticipate turning that marketing spend back on? Is that ahead of that second-half turnaround? Just any color there would be helpful. You guys have a solid cash position and given your expectations for break-even free cash flow going forward, do you think you could give us an update on just capital allocation strategy and the potential for share buybacks? Thanks."
Jacqueline Reses (Executive Chair): "Sir, thank you so much for the question. So on the marketing side of things, our ad efficiency exiting Q3 was actually the highest we've seen since 2017. We continue to take a disciplined approach to our ad spend, and we're going to continue to do so."
The Bad
"During our third quarter, we made progress on our turnaround strategy, while exceeding the Q3 financial outlook we provided on our last earnings call. We achieved adjusted EBITDA above the high-end of our guidance, in part due to our more efficient digital advertising spend. Beginning in mid-July, we began to significantly cut back our digital ad spendwhile we focused on improving user retention, and key core marketplace fundamentals."
"During Q3, total revenue was $368 million. That represents a decline of 39% year-over-year and 44% over Q2. As Jackie mentioned, the decline in revenue was driven primarily by our decision to significantly pull back on digital ad spend while we addressed the operating challenges we outlined on our last call. In fact, sales and marketing spend was only 40% of revenue compared with 64% in Q3 of last year. On a dollar basis, sales and marketing spend was 62% lower year-over-year."
"Total monthly active users declined 40% year-over-year to 60 million and last 12-month active buyers decreased 32% year-over-year to 46 million. As anticipated, each of our 3 main revenue streams saw declines during the quarter."
"Product gross revenue decreased 24% year-over-year to $37 million, due to an overall lower volume of impressions that Wish was able to deliver as traffic to the Wish App flower, driven by the pullback in ad spend. Logistics revenue in the third quarter was a $148 million or 3% year-over-year decrease, driven by overall lower parcel volume."
"While we are not providing Q4 revenue guidance, we expect Q4 revenue to be below Q3 despite the holidays."
The Summary
The bad news is that WISH is heavily reliant on marketing and ad spend. You can't see this from the earnings call, but if you look back at financials and their marketing spend it has decreased greatly from the prior quarters. Turning off marketing-spend means less sales, but their operating margins have expanded (marginally). WISH management have also noted that they are paying attention to quality of the products getting listed on the site, this is a good sign that hopefully they can turn around. Not sure if you've ever browsed a WISH catalog, but the products are somewhat sketch.
Lastly, one of WISH's strengths is the absolute size of the user-base they've been able to amass over the years. It truly is a potential e-commerce giant if they can find a way to turn around the business by selling products people actually desire at affordable prices. MAU's last month were 60 million which was even down 40% YoY. As noted by management, the company is sitting on a good amount of cash and they are in a solid financial position to continue running operations.
Hot Meme Stocks
It's been a difficult time for hyper-growth and meme stocks lately and so today's ripper to the upside surely put a smile on some bull's faces. What was hot? Nearly everything, but here were a few of the top trending lists.
Meme-Stocks:
Tesla (TSLA)
Apple (AAPL)
Nvidia (NVDA)
Gamestop (GME)
Advanced Micro Devices (AMD)
Short-Squeeze Stocks:
Progenity (PROG)
Longview Acquisition Corp (LGVN)
CF Acquisition Corp (CFVI)
Ardelyx (ARDX)
Vinco Ventures (BBIG)
*Hint: SwaggyStocks will soon have a section dedicated to short-squeeze names.
Crypto:
Bitcoin (BTC)
Ethereum (ETH)
Loopring (LRC)
Chainlink (LINK)
Polygon (MATIC)
WallStreetBets - Most Mentioned Equities
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