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Early Opportunities
Get in Before the Crowd

August 10, 2021

**NOTE: Due to time constraints from the Cabot Wealth Summit, the Cabot Early Opportunities issue scheduled for Wednesday, August 18, 2021 will instead be published on Thursday August 19.**
It’s been a busy earnings season and we have a lot to cover. I don’t have reports on every company that has released results just yet, but I have most of them.

NOTE: Due to time constraints from the Cabot Wealth Summit, the Cabot Early Opportunities issue scheduled for Wednesday, August 18, 2021 will instead be published on Thursday August 19.

It’s been a busy earnings season and we have a lot to cover. I don’t have reports on every company that has released results just yet, but I have most of them. More to come later. For now, here are the high-level details, some thoughts, and a few rating changes (including sell orders) for stocks in our portfolio. Note that MTN and SMLR move to SELL, and TXG moves to SELL A QUARTER.

10x Genomics (TXG) Q2 revenue growth of $115.8 million was up 170% and beat by $2.95 million. Full-year guidance remains unchanged at $480 - $500 million, which straddles consensus at $497 million. A promotional price cut on Chromium instruments helped move more units ($17 million versus roughly $11 million estimated) while Consumable revenue of $97 million continues to look strong. Management is moderately concerned about lab disruptions due to the Delta variant (one large customer has already shut down as a result) and investors are wise to factor in that there will likely be a headwind resulting in Q3 and Q4. How big of an impact remains to be seen. For now, let’s book a roughly 150% profit on one quarter of the position, and hold the remaining three-quarters. SELL A QUARTER, HOLD REST

Altair Engineering (ALTR) reported Q2 revenue of $120 million, up 21.7% and $7.3 million ahead of expectations. Adjusted EPS of $0.07 beat by $0.06. Sales of software were ahead of expectations (up over 20%) and billings growth accelerated to 19.1% from 14% last quarter (a good sign). Momentum seems to be building here. BUY

Cloudflare (NET) reported Q2 revenue of $152.4 million (up 52.8% and $6.3 ahead of expectations) and adjusted EPS of -$0.02, which beat by $0.02. Full-year revenue guidance of $629 - $633 million is well ahead of $614.8 million consensus, while adjusted EPS guidance of around -$0.11 is roughly in line. The results are fantastic, as is the valuation (EV-to-Forward Revenue multiple of 57x). We’re up 240% and still holding. HOLD

Fox Factory Holding (FOXF) reported Q2 results that surpassed expectations as demand remains strong in most end-markets. Revenue grew 79.2% to $328.2 million (beating by $35.8 million) while adjusted EPS of $1.20 grew from $0.50 in the year-ago quarter and beat by $0.18. BUY

HubSpot (HUBS) reported Q2 results that beat on the top and bottom lines. Revenue grew 52.6% to $310.8 million (beating by $14.8 million) while adjusted EPS of $0.43 beat by $0.11. Full-year guidance range of $1.27 billion is modestly ahead of $1.24 billion consensus. The stock popped and still looks good. BUY

iHeart Media (IHRT) delivered Q2 revenue of $862 million, up 77% and ahead of management’s guidance for 65% growth. The company paid down $250 million in its term loan. Most of the metrics were ahead of expectations, save some softness in the Networks segment. Management guided for Q3 revenue growth of 20%, which is probably conservative. The gorilla in the room is, as with many things, Covid-19. There is some concern that there will be live event cancellations and a pullback in advertising. The stock has sold off sharply and – assuming Delta cases don’t totally explode and shut down the economy – it looks like a good value here. Keeping at buy for now but willing to step aside if the infection trends turn for the worse. BUY

Lyft (LYFT) reported that Q2 revenue rose by 125.4% to $765 million (beating by $64.5 million) while adjusted EPS of -$0.05 improved from a loss of -$0.86 a year ago and beat by $0.18. It sounds like demand is good and cost-cutting measures taken during the pandemic have helped drive higher profits. The challenge remains driver availability. Even with management investing heavily in driver incentives and a 50% increase in driver activations over Q1 driver supply issues could persist. The end of unemployment benefits might help on this front, though rising Delta cases could curb rider demand. In short, some noise here but still looking for 35% revenue growth this year then accelerating to over 40% in 2022. Given the immediate crosscurrents, I see LYFT as a hold now so moving to that rating. HOLD

Semler Scientific (SMLR) reported that Q2 revenue grew 124.5% to $14.3 million and that EPS of $0.83 improved from just $0.13 in the year-ago quarter. Management says business has largely recovered from the pandemic and is now exceeding pre-Covid levels. The stock enjoyed an initial bump after reporting but that strength has faded leaving us with a roughly 10% gain from our entry point in March. We’ve held Semler through a couple of earnings reports now, and over that time frame I’ve hoped to hear more about new product introductions that can diversify Semler from its singular solution (QuantaFlo for PAD) and from having just over 50% of revenue tied to two clients. No material progress just yet. I had also hoped for the stock to uplist to the Nasdaq. Not yet. The stock has been stable, but with a bounce back in 2021 revenue (expected to be up around 55%) trailing off into 2022 (17% growth expected) I think we’ll need more concrete “growthiness” to get the stock to perform up to expectations. Let’s step aside here with a modest gain and put Semler back on the watch list. SELL

Shift4 Payments (FOUR) reported Q2 revenue of $351 million (up 148% and beating by $37 million) and adjusted EPS of $0.22 (up from a loss of -$0.18 a year ago), which beat by $0.05. The stock initially popped higher as management raised full-year guidance more than the quarterly beat. However, along with a lot of other recovering stocks shares of FOUR have been a little weak over the last few days on concerns the Delta variant could curb going out activities. Notably, Shift4 processes payments for a number of NFL teams and if (a big if) stadiums restrict capacity that could be a blow. Management is also releasing a new restaurant POS platform in early 2022. I think the stock could have a hard time rising materially until we know a little more about the Covid situation, so moving to hold. HOLD

Sprout Social (SPT) beat Q2 expectations, delivering revenue growth of 42.4% to $44.7 million (beating by $1.9 million) and adjusted EPS of $0.00, beating by $0.10. This was the company’s first quarter not losing money. Customer count grew to 29,612 from 24,356 a year ago and up from 28,122 in the previous quarter, while those contributing over $10,000 in ARR grew by 55% to 3,936. Billings growth accelerated from 38% in Q1 to 47% in Q2. Those are great numbers and show this business is starting to grow faster. Updated full-year guidance implies growth of 37%, to $182 - $182.6 million, above consensus estimates for $180 million. Stock and trends look great. Upgrading to buy, preferably on a pullback to below 100. BUY

Telus International (TIXT) delivered Q2 results ahead of expectations. Revenue of $533 million was up 36.3% and beat by $6.9 million while adjusted EPS of $0.24 beat by $0.03. Full-year guidance was raised modestly with management now looking for revenue growth of 37% - 40% to roughly $2.2 billion. Adjusted EPS outlook goes up a couple pennies too ($0.92 - $0.97). Telus continues to look like a leader in the customer experience (CX) space and lockup expiration (August 2) is now in the rear-view mirror. BUY

Upwork (UPWK) reported a solid Q2 with revenue up 42% to $124.2 million (beating by 3.96 million) and adjusted EPS of $0.03 (missed by $0.04). Full-year 2021 revenue guidance of $490 - $494 million surpassed consensus of $487.8 million. Shares dipped after the report, then took another leg down after Fiverr (FVRR) reduced forward guidance. I think it’s interesting that these companies are not benefiting form the uptick in Covid-19 cases. We’re up around 120% on Upwork and with the stock trading near support around 45 we’ll hang in there. HOLD

Vail Resorts (MTN) won’t report until late next month but we’re going to step aside today. I think near-term upside is limited as concerns over Covid-19 will likely limit some travel to resorts in the coming months. The stock needs good news to keep climbing and I just don’t see that on the immediate horizon. I like the company and think it’ll be fine, so I’ll keep an eye on it for potential future purchase once concerns over Covid-19 variants ease. SELL