FVRR, ACCD, QTWO Report
This week feels a lot like March. In other words, it’s pretty awful for growth stocks both big and small. The positive momentum from April has seemingly evaporated. There’s no sugar coating it – we’re taking a hit this week. The chatter around higher rates and inflation is getting amplified out there and it’s just a crusher on high valuation/growth stocks.
The irony is that earnings reports have been largely great. These companies (by “these” I refer to a huge swath of small and mid-cap growth stocks, not just those in our portfolio) are firing on all cylinders. It’s just not enough for the market and as we move into Q2 the comparable results (i.e., versus 2020 pandemic quarters) will get tougher for many. The concern that “the best of days” are behind these companies, but still reflected in valuations, is palpable.
Still, we saw healthy bounces in March, and the same potential is on the table for May too. Another positive is that after a week or so of blah performance the mega cap tech stocks (AMZN, MSFT, AAPL, etc.) appear to be firming up. Silver lining?
Today’s message is that we’re not throwing in the towel, but we will likely look to keep trimming a few things here and there in the coming days/weeks. But not this afternoon. Some of this selling feels overdone to me.
For today, let’s just take a look at the most recent earnings reports. Tonight we hear from Avalara (AVLR) and Revolve (RVLV). Suffice to say I’m making no predictions regarding stock price reactions. But I do think both companies will report terrific numbers.
Fiverr (FVRR) reported yesterday afternoon that revenue grew by 100% to $68.3 million (beating by $3.2 million), driven by 56% growth in active buyers and 22% growth in spend per buyer (to $216). Adjusted EPS of -$0.01 beat by $0.10. Full-year guidance was raised from 46% to 50% growth to 59% to 63% ($302 - $308 million). Does anybody care? Not really. Shares of FVRR are down around 4% as small cap software (and other growthy names) retreat. The stock has also dipped below previous support at 184 today. We’ll let this day close out and see what tomorrow looks like as this may easily be another flush day after which names like FVRR firm up. HOLD
Accolade (ACCD) pre reported Q4 fiscal 2021 results weeks ago but yesterday was the official release. Revenue came in at $59.2 million (beating by $2.7 million) while adjusted EPS of -$0.16 fell from -$0.04 in the year ago quarter. Management gave fiscal 2022 guidance of $260 - $265 million (up around 55%), which is likely well below the real number (closer to $300 million in my view, with acquisitions included). Since the last report Accolade has acquired two companies (2nd Md., PlushCare) to build out expert medical opinion and virtual primary care services. With a much larger market opportunity resulting, but investments in the platform required, Accolade’s future now becomes a “get the job done” situation where the stated goal of 20% revenue growth is a must-do. I have little reason to believe the company can’t execute, especially given the all-in growth rate in 2022 is likely near 76%, then around 25% in fiscal 2023. This is a brutal day, but if you can see through the rubble out there ACCD still looks good long term. Keeping at buy, but suggest waiting until mid-morning tomorrow to see how the open goes before executing any orders. BUY
Q2 Holdings (QTWO) reported yesterday afternoon that Q1 revenue grew by 26% to $116.5 million (beating by $1.1 million) while adjusted EPS of $0.10 grew by 211% (beating by $0.02). Management reported that it signed an $8 billion tier-1 digital banking customer for three solutions as well as two additional Tier 1 banks for digital acquisition and onboarding solutions. Registered user growth wasn’t terrific, but management pushed up full-year revenue guidance to around $123 million (up roughly 24%). The stock was indicated higher pre-market but pretty much nothing is working in software today and QTWO is no exception. That said, shares are only down fractionally, which is a relative win on a day like this. Given that this stock has been in the dumps for a while, but the quarter was fine and business momentum appears good, I think the best move is to sit tight right now. Buying some shares around here is likely to work out just fine longer term but there just isn’t a lot of incentive to do so. Let’s move to hold and see how QTWO behaves in the coming days. HOLD