Earnings Updates: APP, MRVI
AppLovin (APP) reported Q3 2021 results that surpassed expectations on the top line and missed on the bottom line. The results helped shares bounce back after hours following a brutal Wednesday session (APP -7.6%) that saw growth stocks mostly in the red. Revenue of $727 million was up 90% and surpassed expectations of $698 million. Software revenue was $193 million (+33% over Q2 2021) while Apps revenue was $534 million. Software growth was crucial as there may have been lingering concerns following competitor reports that APP’s Software line would be uninspiring. The beat there should help the stock today, as should the reported 225% net-dollar retention rate, which illustrates that clients continue to increase spend with APP. Management believes Software has a roadmap to grow by 30% annually for “years.”
While the company didn’t give 2022 guidance consensus estimates are likely to settle somewhere around the $3.65 billion mark, which would imply roughly 30% growth over 2021 (Q4 2021 consensus expectations will go up modestly). That said, management said it expects the MoPub acquisition (app-monetization solutions to be acquired for $1 million in early 2022), which is not currently factored into consensus figures, will add $250 million to $260 million in 2022 revenue. Combined with the recently closed $1 billion acquisition of Adjust (mobile-app measurement and marketing solutions) the all-in revenue growth rate in 2022 should be in the high 30% to low 40% range. Moreover, we should expect AppLovin to keep its foot on the acquisition gas pedal, with a greater focus on software acquisitions, which should please the market.
Big picture, in the world after IDFA AppLovin ad network is showing its value. On the flip side, this is a very competitive market and we should expect the competitor landscape (think broadly, i.e. FB, SNAP, U, ZNGA, PLTK and more) to evolve quickly as companies adjust their solutions to work better with IDFA. Still bullish, but recognizing that APP will need to spend on R&D and M&A to stay one step ahead of the game so will be keeping a close eye on the stock. BUY
Maravai (MRVI) reported Q3 results yesterday that surpassed expectations. Recall this company’s CleanCap technology is a key part of the PFE/BNTX Covid-19 vaccine manufacturing chain and with the market increasingly looking past Covid there has been speculation that MRVI is “dead meat.” I have argued that perspective doesn’t make a lot of sense given the realities of the day. Maravai’s report supports my thesis. That said, one can be “right” on a business but “wrong” on the direction of the stock so I’ve certainly been keeping an open mind here.
On to the results. Maravai’s Q3 2021 revenue rose 133% to $204.8 million, slightly above consensus estimates of $202 million. Sales in the Nucleic Acid Production segment (responsible for Covid-19 mRNA vaccine production) rose 170% to $183 million (90.6% of revenue), modestly ahead of expectations for $180 million. Of that, $131 million was directly related to Covid-19 vaccine. Adjusted EPS of $0.44 was $0.10 ahead of consensus.
Management raised full-year 2021 guidance by $17.5 million (to $770 - $780 million, or +173%) and issued 2022 guidance that implies strong demand for CleanCap through next year and significant potential for actual results to surpass the raised guidance. Keep in mind that guidance reflects the sale of the Protein Detection business which contributed $5 million in Q3. Initial 2022 guidance of $840 - $880 million (vs. $790 million consensus) implies 9% to 13.5% growth (vs. +4% consensus). Management said CleanCap specifically should be up around 5% to 10% and that 75% of CleanCap estimated revenue is based on binding purchase orders that are in hand.
Management also discussed how vaccines are the first line of defense against viruses and that Covid-19 will be like the flu. In other words, people are going to keep getting vaccinated for years (just under 40% of global population vaccinated as of right now), even after treatments (Tamiflu hasn’t crushed flu vaccine demand) come to market. That argument seems even more valid when we consider that Merck’s (MRK) initial price point for molnupiravir (Covid-19 treatment) will be around $700 for a five-day regimen. Covid-19 vaccines are closer to $25.
Importantly, Maravai’s CleanCap tech has enormous growth potential from other mRNA vaccines/treatments that have yet to be approved as the roadmap for the Covid-19 vaccines have illuminated the benefits of the tech. Roughly 85% of current MRVI customers are working with CleanCap in areas such as oncology, influenza and infectious diseases.
In summary, MRVI has been beat up on concerns that Covid-19 vaccine demand is going to evaporate. That doesn’t seem to align with reality. This report “should” help the stock recover some of its lost ground. That said, the debate around MRVI is likely to continue so we’ll need a steady stream of bullish data/management commentary in order to see a prolonged rally in the stock. Because even a smallish rebound to the 44 area (where MRVI was last week) would represent a 25% gain, I’m moving back to buy. BUY