Updates on NET, BILL, ABNB, SNOW
Cloudflare (NET) reported Q4 results yesterday that surpassed expectations. Revenue was up 54% to $193.6 million while adjusted EPS came in at $0.01. As compared to some other software stocks that have beat expectations, Cloudflare reinvested the surplus cash in growth initiatives, so it didn’t flow to the bottom line. It may be that increasingly picky investors might prefer margin expansion over growth in this environment (especially with high multiple stocks like NET), according to notes on the quarter from J.P. Morgan.
That said, revenue growth picked up from 51% last quarter to 54% this quarter. There’s no doubt this company is growing very quickly and executing very well. It all just comes back to valuation in the current environment.
Looking into 2022, current consensus is for 36% revenue growth, followed by 33% growth in 2023 (when NET is seen generating $1.18 billion in sales).
Given everything, let’s go ahead and sell another quarter position. We’ll make around 215% on the sale and will have one quarter of our original position left. We’ll let that ride for a while and see how it goes. SELL A QUARTER, HOLD A QUARTER
Bill.com (BILL) also reported this week and shares exploded higher. Revenue was up 190% to $156.5 million (acquisitions of Divvy and Invoice2Go helped as organic revenue was up 121%). Adjusted EPS was -$0.01. Looking into 2022, analysts see revenue up 152% to $600 million and adjusted EPS of -$0.52.
Recall that Bill.com provides automation software for the payments and payables market. It covers things like accounts payable, accounts receivable, payments processing (ACH, check, cross-border, virtual credit cards, etc.). It works with thousands of accounting firm partners, large FIs (like Bank of America), and over 90,000 customers.
All signs suggest the company is growing with its installed base and expanding into larger clients. Acquired businesses appear to be outperforming as well. It is doing extremely well.
BILL remains a very well-liked stock among the analyst community and shares have been solid even following a big move higher and a bit of a shaky market for growth stocks over the last couple of days. We’re holding a half position with a current gain of 217% and we’ll stick with that for now. HOLD
Snowflake (SNOW) and Airbnb (ABNB)
A quick note on both Snowflake (SNOW) and Airbnb (ABNB), which we added in January. Both of these stocks are up 8% - 10%. So far, the decision to pursue some larger growthy names is working (our “boring” position in IBM (IBM) is up almost 10% as well).
We’ll keep these stocks at buy for now, though my best guess is the “easy” money has been made in them for the time being.
Earnings reports will determine the next step. Airbnb is set to report next week (Tuesday, February 15) and Snowflake is expected to report near the beginning of March (no date announced yet). Notably, Expedia Group (EXPE) reported yesterday, and the market has had a generally positive reaction to the report today given improving travel trends. I believe the future for Airbnb is very attractive, though obviously earnings reactions in the current environment are impossible to predict.