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August 4, 2023

Earnings Roundup: LUNG, RACE, ELF, SHOP, HUBS, FIX

Pulmonx (LUNG) beat on the top and bottom lines, delivering revenue growth of 23% to $17.2 million, $1.3 million ahead of expectations, and EPS of -$0.43, $0.02 ahead of expectations. Full-year revenue guidance was increased by $1 million to a range of $64 to $66 million (+19% to 23%). My big takeaway from the call was how concerned management seemed about Q3 given the seasonality that occurred in the quarter last year. Yes, it was a very different environment, but given that we’re in August (i.e., one month into the quarter) they must have some visibility. And if we look back, the surprise downturn in Q3 2022 drove a 61% selloff in LUNG. It has taken the stock nine months to battle back to where it was before that event. I don’t know if history will rhyme this year, but I’m not in a risk-taking mood. We jumped into LUNG at a good price in March and are up around 20% since. Let’s book the gain. SELL

Ferrari (RACE) beat expectations and raised guidance, which it rarely does mid-year. After converting to dollars, revenue rose 19% to $1.6 billion and EPS of $2.00 was nicely ahead of consensus. Shipments in EMEA were strong (+13%) while Americas, China and APAC were on the weak side (-11% to -18%). Hybrid deliveries totaled 43% of total shipments, more than double the proportion from last year. Ultimately, I think RACE will go higher, but in the medium-term shares may have topped out. In the last four quarters, this is the only report after which RACE isn’t up. We’re up about 7%. Let’s take the modest gain on the trade, walk away and see if another buying opportunity arises. SELL

e.l.f. (ELF) delivered yet another blowout quarter this week with Q1 fiscal 2024 revenue of $216.3 million (+76%) and beating by almost $32 million. Management said the sales growth was due to a 56% jump in sales volume and 20% due to product mix. The company has roughly 9.5% market share, but around 18% at Target (TGT) where it’s the number one brand. Management sees potential to get up to 18% at other mass-market retailers too, not to mention grow internationally. Management raised full-year guidance to what seems like a conservative range of $792 - $802 million (+37% to 39%). Analysts are raising price targets. We’re now up around 40%. HOLD

Shopify (SHOP) also surpassed expectations with revenue of $1.69 billion (+31%) beating by $70 million and EPS of $0.14 beating by $0.09. This continues to be a period of transition for Shopify after it exited the fulfillment business by divesting Shopify Fulfillment Network (SFN) to Flexport. We’re still waiting for an agreement that outlines Shopify’s take rate on orders that Flexport will handle. The company is reinvesting across its product portfolio to strengthen existing solutions and offer more to current and future customers. The takeaway after listening to the conference call is that analysts and investors were more or less OK with the quarter but would like to know more about what this business looks like two, three, five years down the road. Management didn’t have any “wow” answers on that front, opting to double down on the “power of the Shopify platform” and discuss how Shopify should continue to improve profit margins over time. I continue to think it’s a good stock to own and will stick with a “buy a half” rating for now. BUY HALF

HubSpot (HUBS) beat on the top and bottom lines and raised guidance for the year, but shares fell. Revenue grew 26% to $529 million (beating by $23.6 million) while adjusted EPS of $1.34 beat by $0.35. Full-year revenue guidance was given for around $2.12 billion versus consensus of $2.09 billion. The pullback in shares after the report is likely because investors were expecting more outperformance and possibly a higher guide, with less discussion about macro concerns. References to longer sales cycles, more deal scrutiny, etc. aren’t super bullish, even though management said nothing really has changed big picture since last quarter. The double-digit decline after earnings isn’t what we want, but at the same time, we’re still up nearly 20% after four months with HUBS. And there’s potential for the macro picture to get less gloomy with a less hawkish Fed. Let’s stick with HUBS and look for shares to stabilize next week. BUY HALF

Comfort Systems (FIX) reported revenue of $1.29 billion (+27%) and EPS of $1.93. Revenue beat by $70 million while EPS beat by $0.32. Management reports backlog is up by 50% and sounds bullish on the rest of the year. Not a lot more to say. The stock is working, and we’ll stick with it. BUY HALF

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.