AVLR and RVLV Earnings
After yesterday’s bloodbath in growth stocks, today feels pretty good. We may be able to thank a downright terrible April jobs number this morning (266,000 added versus expectation of 1 million), which may have temporarily quelled concerns over rising rates.
Still, there’s no doubt that investors are jumpy when it comes to expensive growth stocks. It doesn’t matter if they’re large, mid or small caps. For example, even with the recent pullback high growth software stocks still trade at a healthy premium to their long-term average. Sure, there are valid reasons why they should, but there are also valid reasons why they shouldn’t. It’s just a matter of which argument wins the day.
But that’s the high-level stuff. Right now, we’re focused on two companies that reported yesterday afternoon.
Avalara (AVLR) reported yesterday that Q1 revenue grew by 37.8% to $153.6 million (beating by $10.5 million) while adjusted EPS of -$0.08 beat by $0.04. Management also provided Q2 and full-year guidance ($652 million at the midpoint) above expectations. Acquisitions are seen adding $37 million to 2021 revenue. Full-year guidance increased by more than the Q1 beat. Billings were $172 million, well ahead of consensus of $147.5 million. Net revenue retention of 107% was an increase from 104% last quarter. One concern is the recent acquisition of TaxJar by Stripe, which could create pressure in the e-commerce market, especially as it relates to Shopify (SHOP) given Stripe’s collaboration with Shopify. Another concern is just general lackluster sentiment toward high-valuation software stocks. Despite compelling growth, investors are just not willing to pay the same premium as six months ago. Surveying analyst reactions to Avalara’s report I’ll note that most are bullish on it and Morgan Stanley and Bank of America in particular see the stock moving materially higher over the coming year (price targets in the 175 – 200 range). I want to feel equally bullish, but the stock’s reaction today (has given up much of the early pop by mid-day) suggests this report doesn’t materially change the story. Let’s take a little risk off the table by selling another quarter position at a roughly 220% gain and hold our remaining half stake. SELL A QUARTER, HOLD HALF
Revolve (RVLV) reported yesterday that Q1 revenue jumped 22.5% to $178.9 million (beating by $21.5 million) and adjusted EPS grew 400% to $0.30 (beating by $0.17). We expected a good quarter, but this was far better than envisioned and has helped send shares of RVLV up over 12%. Our paper profit now stands near 30% in just over a month. International sales were up by 38% (thanks Canada) while domestic was up 19%. Full-price selling was 80% of the mix (i.e. less discounting), helping push gross margins to a record 54% (up 5.5%). Management is going to push more on the marketing front to capture more recovery/going out sales. This will increase costs but it’s time to make hay. Analysts are pushing up price targets. Even with the stock breaking out to new highs today I think you can still buy it. That said, I expect there will be a pullback at some point in the coming weeks so, as always, averaging into your position still makes sense. BUY