May 9, 2024

Earnings reports have been on the menu this week. Some have gone our way, with Zeta (ZETA) and EverQuote (EVER) having fantastic reactions. We’ve taken a few punches too, and Talkspace (TALK) was cut on weakness while Alphatec (ATEC) is down but not yet out of the portfolio.

I’ve upgraded Intapp (INTA) this week as that stock looks like it could move significantly higher. We also add to our Weave (WEAV) position today in anticipation of a rebound in the share price.

All these earnings reports and reactions have poured in while in the background the 10-year yield has fallen (4.7% two weeks ago, now at 4.5%). That’s helped the S&P 600 Small Cap Index jump more than 3%. I continue to think rates are the main thing holding the small-cap index back.

Expectations for the first Fed rate cut have shifted forward (a good thing). Market odds now contemplate a September cut (49% probability as of this morning). With no October FOMC meeting, a “hold” in September would mean November 7 is the next potential first cut date. I think there’s a 0.00% chance the Fed would cut just a few days after the Presidential election.

My two cents, for what it’s worth: I think the Fed needs to cut in September before the economy gets in trouble. Consumers are pulling back, while at the same time more is going on credit cards.

Let’s get to our stocks.

Recent Changes:
Intapp (INTA) upgraded to BUY on Wednesday
Weave (WEAV) moves to BUY SECOND HALF today

Updates

Alphatec (ATEC) fell a ridiculous 22% yesterday after the Q1 report (after the bell Tuesday) showed revenue beat while EPS missed. Management raised full-year revenue guidance by more than the beat. I was fully expecting shares to trade down, but the magnitude of the decline seems out of whack with the results. Not expecting to sell into this weakness. HOLD

Earnings: Done

Docebo (DCBO) has continued to hold up just above its 200-day moving average line. The company will report today after the bell. Keeping at buy but obviously it’s a dice roll if you buy right now. We’re looking for Q1 revenue +23.3% to $51.1 million and EPS of $0.17 (+86%). We’re also looking for full-year revenue guidance of at least $221.7 million. BUY

Earnings: Thursday, May 9

Enovix (ENVX) reported last Thursday and shares rallied 45% as management talked about all the progress they’re making. The biggest news was a development agreement with a major smartphone OEM (fifth largest by volume) that’s likely based in China (probably Xiaomi or OPPO) given management’s prior commentary on these players being “first in line.” The team also discussed work to reduce $35 million in fixed costs. We found out earlier this week that part of this entails laying off about a third of the workforce (roughly 170 people). During the company’s Ask Me Anything (“AMA”) event company President and CEO Raj Talluri stated most of these are hourly workers at the Fremont, CA, plant that were making samples. These battery samples are now being made in Malaysia at much lower cost so the Fremont labor force can be cut way down. Keeping at buy as we look for production to ramp and actual orders to start. BUY

Earnings: Done

EverQuote (EVER) jumped to multi-year highs above 25 on Tuesday after delivering a very nice Q1 report Monday after the close. Revenue dipped 17% to $91 million but that was $10.7 million (13.3%) better than expected and should be the last quarterly decline. Remember, Q1 2023 was a crazy strong quarter when everybody thought the auto insurance market was going to recover (that recovery imploded in Q2). Adjusted EPS of $0.05 beat by $0.12. The quote of the day was management saying they are enjoying “higher volumes and higher pricing” as a small number of carriers (i.e., Progressive) have accelerated spending to more normal levels. Looking for a dip to justify a move back to buy. We’re up around 70%. HOLD THREE QUARTERS

Earnings: Done

Intapp (INTA) reported a better-than-expected Q3 fiscal 2024 after the close on Tuesday and I detailed the report yesterday morning. It was good enough to warrant upgrading the stock to buy. Looking for follow-through as the AI angle percolates. BUY

Earnings: Done

RxSight (RXST) reported a solid quarter on Monday with both revenue and EPS beating expectations. Full-year revenue guidance moved up by more than the Q1 beat to a range of $132 to $137 million (+48% to 54%). The stock hit a new high after the event and was down a little over the last two days. After the close yesterday, management announced a $100 million secondary offering. This morning pricing of the offering was announced at 56. That’s going to dent shares today by about 6%. We’ve seen strong stocks absorb offerings with barely a wobble and that may easily be the case here. Keeping at buy on the belief these newly offered shares will be snapped up. BUY

Earnings: Done

Talkspace (TALK) was our small, virtual behavioral health company but we let it go this week after Q1 results and guidance underwhelmed. It also seemed like little issues were popping up in numerous areas of the business. First, with the Payer segment growing but having smaller gross profit margins than other segments, it sounded as if there’s some pressure on margin. There’s also some account attrition in the Enterprise segment (competition, budget issues, etc.), and it’ll be some time for the Medicare market to ramp up. Bottom line, it sounded like there’s some risk in the business and it’s better to move on and see how it plays out than hold and hope. SOLD

Earnings: Done

TransMedics Group (TMDX) delivered a fantastic earnings report last Monday that sent the stock to new all-time highs above 120 and our gain on our remaining stake to just above 270%. Revenue grew 133% to $97 million, beating by $13.1 million (15.7%) while EPS improved to $0.35 from a loss of -$0.08 in Q1 2023 and destroyed expectations by $0.37. It sounds like more good times ahead with the full-year revenue guidance range moving from $360 - $370 million up to $390 - $400 million. HOLD A QUARTER

Earnings: Done

Weave (WEAV) reported Q1 results last Wednesday that beat expectations, and guidance was raised. Still, shares sold off the next day. My theory is that accounting changes and earlier-than-usual bonus payments caused a significant change to cash flow from operations (CFO) that might have messed with some trading programs. And in fact, WEAV shares have stabilized and look to be creeping a little higher. Let’s take another swing here and fill the second half of our position. BUY SECOND HALF

Earnings: Done

Zeta Global (ZETA) is our most recent addition, having just joined the portfolio last Thursday. It was worth pre-running earnings (thankfully!). Shares rallied 20% after the company beat across the board and struck a bullish tone when discussing virtually all of the growth initiatives I covered in my report. Keeping at buy. BUY HALF

That’s it for this week. Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.

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