Updated: 03-03-2021

Quotes at time of story, top stories today: 02:27PM | 01:57PM | 12:37PM | 12:07PM | 10:18AM | 10:07AM

02:27PM ET
Ciena: Earnings Preview; results should be rocky in Q1-Q2

Ciena (CIEN -2%) is set to report Q1 (Jan) results tomorrow before the open with a call to follow at 8:30am ET. Last quarter, Ciena reported results at 7am ET, so it's likely that's when the company will report this quarter.

  • The CapitalIQ consensus for non-GAAP EPS is $0.45 and for revenue it's $750.2 mln (Dec 10 guidance: $735-765 mln, which was below consensus at the time). Of note, Ciena typically guides for revenue for the next quarter on the call.
  • In terms of performance relative to consensus, CIEN has reported an EPS miss in two of the past five quarters, including a $0.03 miss in Q4 (Oct). That followed two huge beats of $0.24 each in the prior two quarters. As such, Ciena has been pretty hit-or-miss lately. Ciena consistently reports revenue upside although the upside is usually pretty modest and that was the case again in Q4. Of note, CIEN has guided revenue below consensus in each of the past four quarters, so be careful on the call tomorrow morning.
  • So why have the results/guidance been so weak?
    • While the pandemic and working from home have increased demand for bandwidth as network traffic grows, Ciena has not been a primary beneficiary.
    • Specifically, service providers generally are risk adverse for any sort of new business (new networks, new architectures).
    • Instead, they are running their current networks "hotter." Also, these customers are more focused on access points as opposed to the metro and the core, which is understandable but that hurts Ciena.
  • Ciena's current view is that the pandemic will hurt orders in the first half of FY21, but then Ciena's pipeline of new activity will kick in the second half of the fiscal year. Ciena is confident about this because secular demand for things like 5G needs this network infrastructure to be successful.
  • In sum, investors are right to be cautious heading into this Q1 report and guidance. Ciena's business is normally fiscally second half loaded, but it's going to be a more extreme hockey stick this year. As such, expect rocky results in Q1 and Q2. We think investors will be focusing on whether Ciena maintains its excitement about orders improving in 2HFY21. But if the can gets kicked down the road into FY22, investors will not be happy. (PVIEW)

01:57PM ET
Okta: Earnings Preview; has never missed as a public company

Okta (OKTA -7%), which provides cloud-based cybersecurity focusing on identity management, is set to report Q4 (Jan) results today after the close (last time Okta reported one minute after the close) with a call to follow at 5pm ET.

  • The CapitalIQ consensus for non-GAAP EPS is a loss of $(0.01) per share, flat with a its $(0.01) loss per share last year. Revenue is expected to grow 33% yr/yr to $222 mln. Okta tends to guides for EPS and revs for the net quarter.
  • Okta has surely benefited from the shift to remote working/learning as thousands of companies have had to adapt quickly, allowing employees to easily connect and collaborate with colleagues. Additionally, as web and app traffic surged, companies have needed to modernize and strengthen their security and identity posture.
  • In terms of Okta's customer base, the vast majority of sales is generated from large enterprise customers. Based on earnings reports from others, enterprise spending has held up pretty well. It's the small business (SMB) segment that has been weaker but Okta has only limited exposure to SMB side.
  • In terms of what to expect, Okta has been very consistent relative to consensus estimates, having reported EPS upside each quarter since making its IPO debut in April 2017.
  • Bottom line, while we're not in the earnings prediction business, it would be a nice milestone for Okta if it could report another profitable quarter. Since going public, Okta had reported losses each quarter but has reported profits in each of the past two quarters. Investors may be having some doubts about the quarter as the stock is sharply lower today and has been trending lower since mid-February. High multiple tech stocks in general have been weak, but the trading action may signal some concern about tonight's earnings or guidance. (PVIEW)

12:37PM ET
Snowflake Earnings Preview - Strong report could thaw chillier sentiment

Last September, Snowflake (SNOW) captivated the market as its blockbuster IPO generated massive gains, shattering the expectations of most investors and analysts, to cement an unforgettable debut. After the close tonight, the company will be back in the spotlight as it reports 4Q20 results and possibly provides an outlook for FY21.

For this quarter, analysts are expecting the company to report a loss per share of ($0.17) and total revenue of $178.6 mln, equating to projected growth of 104%.

The big data company has one earnings report under its belt. Back on December 2, SNOW reported mixed 3Q20 results, coming up short on EPS but cruising past the top-line expectation with revenue soaring by 119% to $159.6 mln.

Based on the stock's huge rally following the print, it's clear that investors weren't bothered by SNOW's EPS of ($1.01) missing the ($0.26)/share consensus estimate. In fact, the report served as a main catalyst for the stock surging higher by as much as 45% over a four day stretch, culminating in SNOW hitting post-IPO highs on December 8.

The reaction illustrates that investors are laser-focused on one item: growth.

In that category, SNOW is in rarefied air. Across the board, the company's demand-related metrics showed spectacular performance. Here's a sampling:

  • Product revenue in Q3 jumped by 115% yr/yr to $148.5 mln. Of note, SNOW considers product revenue, not total revenue, to be the most relevant demand metric it offers. This notion is related to SNOW's consumption-based business model in which product revenue is directly linked to a customer's platform usage.
  • Remaining performance obligations (RPO) were $927.9 million, representing 240% yr/yr growth.
  • Total customers totaled 3,554, up 437 from the end of last July.
  • Net revenue retention rate was 162% as of October 31, 2020.

There's nothing mysterious or surprising about SNOW's primary growth catalyst. As the developer and provider of a platform that accumulates massive sets of data, SNOW is capitalizing on the exponential growth of data moving to the cloud. What makes SNOW especially compelling is that it wins no matter what cloud storage provider is currently gaining share, whether it's Amazon's (AMZN) AWS, Microsoft's (MSFT) Azure, or Google (GOOG) Cloud. On a related note, SNOW's platform is actually built into each of these systems.

The acceleration in the digitization of business has made it critical for companies to attain and analyze data in order to effectively compete and to identify key trends. This puts SNOW in the sweet-spot, virtually assuring that the company's results tonight will exhibit robust growth.

Less certain is whether the results will be strong enough to spark a rally. The stock's ultra-rich valuation has garnered nearly as much attention as its growth, prompting a "priced-to-perfection" label from investors. However, SNOW has cooled off considerably with shares down about 40% from post-IPO highs. While still very expensive at 66x forward sales, the pull-back does create a favorable set-up on strong Q4 results and upside guidance. 

Although the buzz and hype have faded from SNOW's jaw-dropping debut, its 1Q21 report offers the opportunity for the company to put its compelling growth story back in the headlines.

12:07PM ET
Google is searching for balance between ads and user privacy and privacy is winning

Alphabet's (GOOG) Google segment appears to be searching for the right balance between selling targeted ads and maintaining user privacy. Today's announcement that the company will not use alternate identifiers to track user browsing following the phase-out of third-party cookies pulls Google toward the privacy side of the spectrum, which has the potential to really shake up the digital ad space.

  • Last year, Chrome announced its intent to remove support for third-party cookies, and it has been working with the broader industry on the Privacy Sandbox to come up with ideas to "protect anonymity while still delivering results for advertisers and publishers", per a statement on the company's blog. Google says that it has continued to field questions regarding whether it will join other ad tech industry players in plans to replace third-party cookies with alternative user-level identifiers.
  • Today, Google has stated explicitly that after third-party cookies are phased out, Google "will not build alternate identifiers to track individuals as they browse across the web", and neither does Google intend to use them in its products. Instead, the company's web products will be "powered by privacy-preserving APIs which prevent individual tracking while still delivering results for advertisers and publishers".
  • Google is not the only one moving more toward increased privacy protections. Apple (AAPL) plans to roll out a key update in its upcoming iOS 14 that requires an opt-in to give apps permission to track people's activity across other apps and the web. Not surprisingly, Facebook (FB) is furious about this, as it makes most of its money from targeted ads.

Google is just one company, but its massive size could really help push the digital ad industry toward the privacy direction. The ripple effect goes beyond search. It is likely to affect lots of digital publishers and marketers.

For example, The Trade Desk (TTD -8%), which operates a cloud-based advertising-buying platform, is sharply lower today. Magnite (MGNI -6%), a sell-side advertising platform, is also sharply lower. Digital ads are not going anywhere, but there is the potential that they will become less valuable over time if individual browsing behavior is not being tracked. We also think it's likely that a stronger push back on consumer tracking will affect other areas over time, like credit card purchases, which could hurt companies like Cardlytics (CDLX -3%).

In sum, it looks like growing demand for consumer privacy is winning out with tech titans, and this is likely to re-shape the digital ad industry over the coming years. Also, it's likely just a matter of time before the industry faces a more stringent regulatory environment, as both sides of the political aisle are advocating for enhanced consumer privacy.

10:18AM ET
Wendy's getting a bite taken out of its stock after lackluster earnings/guidance

Wendy's (WEN -6%) is getting a bite taken out of its stock today following a lackluster Q4 earnings report. The quarter's numbers were not awful, but they were not great either. WEN reported a penny EPS miss while revenue was slightly below analyst expectations. Wendy's tends to report results right around consensus, maybe a slight beat or miss, so the penny downside was not a huge surprise.

  • We think the main reason the stock is lower is the company's downside EPS guidance for 2021. In fairness, it's reassuring that WEN's management feels comfortable guiding again, as the company did not provide guidance last quarter. Also, the guidance of $0.67-0.69 represents 18-21% growth from 2020. After EPS fell by 3.4% in 2020, it's nice to see EPS growing again, and growing pretty briskly. The problem is that the outlook was below analyst expectations.
  • Before digging into the numbers, what jumps out is how to reconcile WEN raising its dividend not once but twice since November. It's rare to see a company hike its dividend twice within a matter of months. The rational thought is that such a move suggests that management feels business is getting back on track. Still, when WEN then goes and misses by a penny and guides EPS below consensus for 2021, it's a bit of a head scratcher for us. Maybe the guidance is conservative, but this pattern is not what we would have expected.
  • Turning to the earnings results, same store comps are the most important operating metric. For Q4, global comps came in at +4.7% which well exceeded its full year 2020 result at +1.2%, indicating that WEN closed out 2020 on a strong note. However, Q4's result was a decline from +6.1% in Q3. Granted, Q3 was WEN's highest global comp in 15 years, and the period benefited from pent-up demand as restaurants started to open again, but it still was a sequential decline.
  • US comps, which investors really focus on, came in at +5.5%. Though that result is strong, it was again below Q3's US comps of a robust +7.0%. Consider further that McDonald's (MCD) Q4 US comps grew sequentially (+5.5% vs +4.6% in Q3), so Wendy's results were a bit of a downer by comparison.

Looking ahead, notably, Wendy's launched its breakfast menu almost exactly a year ago, in March 2020. The expanded offering acted as a nice tailwind in 2020. However, the upcoming inclusion of breakfast sales in the year ago comp numbers is likely to create some headwinds for comps starting in Q2. The good news is that WEN is lapping easy US comps in 1H21, but this could become an issue in 2H21.

In sum, we think investors are having difficulty reconciling the two recent dividend increases with WEN missing slightly for Q4 and guiding EPS below consensus for 2021. Maybe we are overanalyzing it, but we thought the dividend hikes signaled a better outlook for 2021.

10:07AM ET
Lyft riding higher as update points to possible U-turn ahead for rideshare business
When Lyft (LYFT) reported 4Q20 results on February 9, CEO and Co-Founder Logan Green characterized the ridesharing company as a "tightly coiled spring" that's poised to generate strong growth and margin expansion. After the company raised its 1Q21 adjusted EBITDA guidance last night, it appears that the spring is about to be sprung as more business restrictions are lifted and as vaccines are distributed.

LYFT now believes it can manage its 1Q21 adjusted EBITDA loss to $135 mln vs. its prior outlook of $145-150 mln. While aggressive cost cutting measures are the main driver behind the improved profitability, we believe that the encouraging trends in the rideshare market are carrying more weight with investors. Underscoring that premise, we note that shares of Uber (UBER) are also rallying on LYFT's update.

The recovery occurring in the rideshare market has been subtle and gradual but also meaningful and potentially foretelling of a stronger upturn in the near future.

Momentum began building in February; ridership in the last week of the month hit the highest level since March 2020. What's especially promising is that average daily rideshare for the entire month was up 4% compared to January, despite the fact that severe weather ravaged several states, including Texas, during the month.

LYFT expects this push to continue, predicting that rideshare volume beginning the week ending March 21, 2021 will show positive yr/yr growth. Also, LYFT's expectation for this growth trend to continue throughout the remainder of the year suggests that the rideshare market may have just reached a key turning point.

The "tightly coiled spring" then comes into play because LYFT is emerging from the pandemic as a much leaner company. In Q4, the company cut fixed costs by $360 mln on an annualized basis, with an emphasis on lowering driver acquisition costs. Furthermore, LYFT slashed operating expenses by over $200 mln, with declines seen across sales and marketing, operations and support, and R&D.

As rideshare demand picks up steam, margins are set to expand considerably due to the lower cost structure. In turn, adjusted EBITDA profitability by the end of this year seems very attainable. In fact, during the Q4 earnings call, CFO Brian Roberts commented that profitability on an adjusted EBITDA basis may be possible in Q3 if the rideshare market experiences a robust recovery during the summer.

LYFT's update and improved outlook has the feel of a prime event in its recovery journey. Business conditions are still far from optimal, but there's a sense that the tipping point is near. Barring an unforeseen setback with vaccines or the economy, LYFT is on the verge of a major financial turnaround due to the combination of cost cuts and improving rideshare demand.

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