Square [SQ] slides as Q1 results weighed down by operating expenses
Financial and marketing service firm Square (SQ 10.48, -2.57) trades 19.7% lower this afternoon after the company reported a worse than expected earnings per share (EPS) loss for Q1, but better than expected revenues. Investors also had their eyes on revenue guidance, which for the Q2 and FY16 periods came in about in-line with expectations.
Transaction revenues for Q1 were up 42% this quarter to $300 million. Software and data product revenues were $24 million, up 197% versus last year as products like Employee Management, Customer Engagement, and Instant Deposit are beginning to make a more meaningful contribution to overall software and data product revenue. Hardware revenues were up 634% versus last year to $16 million, and Starbucks (SBUX 55.62, -0.63 -1.12%) transaction revenues were $39 million and gross profit from Starbucks was $2 million. The company reminded investors that the SBUX deal ends in 3Q16.
Further, management noted swelling operating expenses and a $50 million legal provision. Specifically, SQ noted operating expenses expanded 72% compared to last year to $207 million. Product development expenses were $65 million, up 63% versus last year. Sales and Marketing expenses also grew, +6%, to $38 million as growth in personnel costs and costs related to Square Cash peer-to-peer transfer service weighed on results. Expansion took its toll too, as G&A expenses grew 242% versus last year to $96 million as the company added personnel and saw professional fees grow across most business segments. The aforementioned litigation expense weighed on the quarter by an approximate ($0.15) per share.
Related to the company's payment services segment, gross payment volume for Q1 was up 45% versus last year to $10.3 billion. Additionally, SQ extended $153 million in Square Capital through more than 23,000 advances and loans in the period. The company noted sequential growth in Square Capital was tempered by a more challenging credit market and two new investors delaying their purchases.
Looking ahead, SQ expects in-line Q2 and FY16 revenues in the ranges of $151-156 million and $615-635 million, respectively.
In sum, business segment revenues are surging but are being weighed down by higher expenses as the business continues to grow. SQ also reminded investors in the earnings release that the 180-day lockup period expires on May 16, 2016. The company estimated that about 64 million stock options and warrants covered by the lockup will be exercisable at said expiration.
Before the open this morning, Intellia Therapeutics (NTLA) priced its up-sized 6.0 million share IPO at $18, at the high end of the $16-$18 expected price range. In all, the deal raised 27% more in gross proceeds than had been expected. Even with a soft IPO market, the fact that there was strong demand for this IPO does not come as a surprise. That's because NTLA is virtually a mirror image of Editas Medicine (EDIT), which went public on February 3 and has gained as much as 175% versus its IPO price. The enthusiasm for the deal continued in the secondary market as shares opened for trading at $22, good for a 22% pop, and are currently trading at $23.10.
NTLA is a gene editing company focused on developing curative therapeutics using a recently developed biological tool known as the CRISPR/Cas9 system. The CRISPR/Cas9 technology has the potential to transform medicine by permanently editing disease-associated genes in the human body with a single treatment course.
Before discussing the company in more detail, it helps to have a better understanding of what gene editing and CRISPR/Cas9 is. Gene editing is the precise and targeted modification of the genetic material of cells. The CRISPR/Cas9 system offers a revolutionary approach for therapeutic development due to its broad potential to precisely edit genes. This system can be used to make three general types of edits: knockouts, repairs and insertions. This approach has the potential to provide curative therapeutic options for patients with chronic diseases by addressing the underlying genetic cause of the disease.
Unlike earlier-generation gene editing technologies, the CRISPR/Cas9 system is simple and involves a single protein, Cas9, that can be directed to precisely cleave a target DNA sequence by using pieces of RNA, called guide RNAs, that specifically recognize the target DNA of interest. Therefore, CRISPR/Cas9-based therapeutics have the potential to be highly efficient, selective and scalable.
The potential application of CRISPR/Cas9 is extremely broad, and NTLA plans to continue to identify partners who can contribute resources. Its partnership focusing on chimeric antigen receptor, or CAR, T cells with Novartis (NVS) and its partnership with Regeneron Pharma (REGN) exemplify this strategy.
Taking a closer look at NTLA's aspirations, it plans to use the CRISPR/Cas9 system across two broad areas: in vivo applications, in which CRISPR/Cas9 therapeutic products are delivered directly to target cells within the body, and ex vivo applications, in which cells are removed from a patient's body, modified using CRISPR/Cas9 and then returned to the patient.
The company has chosen four sentinel in vivo liver programs employing different editing strategies to explore the scope of the gene edits through the CRISPR/Cas9 system: Transthyretin amyloidosis, Alpha-1 antitrypsin deficiency, Hepatitis B virus, and inborn errors of metabolism. Its ex vivo programs are in CAR T cell and hematopoietic stem cell applications. These programs will help inform the broader applicability of CRISPR/Cas9 in an ex vivo setting, which it plans to explore in eXtellia, a division of the company focused on the application of CRISPR/Cas9 gene editing in the fields of immuno-oncology and autoimmune and inflammatory diseases.
Taking a quick look at the financials, as you can imagine with a preclinical genomics company, NTLA has never been profitable nor does it generate any product revenue. NTLA does not expect profits for the foreseeable future and any FDA approvals are years away, if ever.
Gogo's [GOGO] record quarter overshadowed by competitive concerns around legacy service
Gogo (GOGO) shares are down 5% after the company reported record quarterly EBITDA and revenue and reaffirmed 2016 guidance.
Gogo reported a smaller than expected Q1 net loss and higher than expected sales. Adjusted earnings before interest tax, depreciation and amortization grew 76% to $14.5 mln with sales up 23% to $141.7 mln.
The chart tells a different story, however. GOGO is down some 40% year to date on competitive concerns.
In February, American Airlines (AAL) notified Gogo that it found superior in flight Wi-Fi service [from ViaSat (VSAT)] and the stock fell ~40% in one day.
Gogo is quick to point out American is using its legacy Wi-Fi product. Gogo's next generation 2Ku service recently hit the market. It is comparable to the Wi-Fi we are used to on the ground and allows for video streaming, which is obviously in high demand.
Gogo says it submitted its 2Ku proposal to American (as its contract permitted) and it is awaiting American's response. Gogo expects to have long term relationship with American, having installed its (legacy) service in over 1000 American aircraft to date.
Gogo reaffirmed its 75 installation target for its 2Ku service in 2016 and over 300 next year. The installation metric includes upgrades, not just new contracts.
Gogo will need to raise capital at some point (debt and or equity) as it purchases more bandwidth to accelerate deployments.
Negative sentiment around Gogo's legacy service is holding the stock down. A response from American will be a big catalyst for the stock.
EOG Resources (EOG 81.55 +0.31) reported a first quarter loss of $0.83 per share, slightly topping expectations. On the top line, revenues fell 41.6% year/year to $1.35 billion, falling short of expectations.
The adjusted non-GAAP net loss for the first quarter was down from a profit of $0.03 per share in the prior year period. In the first quarter 2016, EOG implemented its previously announced strategy to focus capital in areas which generate premium rates of return.
This move significantly improved average well performance and contributed to EOG's strong production in the first quarter 2016. U.S. crude oil volumes exceeded the high end of the company's forecast in the first quarter 2016. In addition, EOG continued to reduce costs across its operations.
At March 31, 2016, EOG's total debt outstanding was $7.0 billion with a debt-to-total capitalization ratio of 36%. Taking into account cash on the balance sheet of $668 million at the end of the first quarter, EOG's net debt was $6.3 billion with a net debt-to-total capitalization ratio of 34%.
For the period April 12 through April 30, 2016, EOG had crude oil financial price swap contracts in place for 90,000 Bopd at a weighted average price of $42.30 per barrel. For the period May 1 through June 30, 2016, EOG has crude oil financial price swap contracts in place for 128,000 Bopd at a weighted average price of $42.56 per barrel.
Yelp Inc. (YELP) is rallying 18% today after reporting its first EPS beat after four misses in a row. It has been a tough environment for Yelp on the competitive front and in terms of its stock price, but today's earnings/guidance was better than expected.
In case you're not familiar, Yelp was founded in San Francisco in July 2004. Yelp is one of the world's largest local business review sites. It connects people with local businesses by bringing "word of mouth" online and providing a platform for businesses and consumers to engage and transact. Its app and website have been a platform for 100+ mln cumulative reviews of almost every type of local business in more than 30 countries.
Consumers share their everyday local business experiences, through reviews, tips, photos and videos, and engage directly with businesses, through reviews, phone calls and Yelp's Message the Business feature. The reviews contributed to Yelp's platform cover a wide set of local business categories, including restaurants, shopping, beauty and fitness, arts, entertainment and events, home and local services, health, nightlife, etc.
Yelp's platform also provides businesses with a variety of free and paid services that help them engage with consumers. For example, businesses can register a business account for free and "claim" the Yelp business listing page for each of their locations, allowing them to enhance the page with additional information about their business and respond to reviews, among other features. Businesses can also pay for premium services to promote themselves through targeted search advertising, discounted offers and further enhancements to their business listing pages.
Yelp generates revenue primarily from the sale of advertising on its website and mobile app. Yelp previously offered display advertising for national brands as well; however, Yelp phased this out in 2H15 so it can focus on its core strength of local advertising. In February 2015, Yelp acquired Eat24Hours.com, an online food ordering service to drive daily engagement in Yelp's restaurant vertical.
Turning to the Q1 results, non-GAAP EPS declined to $0.08 from $0.10 in the prior year period, but the $0.08 was much better than market expectations. Revenue rose 33.8% year/year to $158.6 mln, above prior guidance of $154-157 mln. As mentioned earlier, Yelp phased out national brand advertising in 2015. This impacted revenue growth. If you exclude Yelp's display advertising product in 2015, revenue actually grew 42% YoY. Local revenue totaled $138.1 mln, representing 40% YoY growth. Transactions revenue totaled $14.5 mln, more than double its $6.6 mln in 1Q15. The increase was primarily due to the acquisition of Eat24 in 1Q15. Other revenue declined 11% to $6.0 mln.
Adjusted EBITDA declined 20% YoY to $13.03 mln, but that was above prior guidance of $10-12 mln. In terms of guidance, Yelp expects Q2 revenue to come in around $167-171 mln with adjusted EBITDA of $21-25 mln. For FY16, Yelp expects revenue of $690-702 mln and adjusted EBITDA of $93-105 mln. The mid-point of the revenue guidance for both Q2 and FY16 were above market expectations.
Yelps says it had a great start to the year with local revenue growth accelerating to 40% YoY. Cumulative reviews in Q1 grew 31% YoY to approximately 102 mln. App Unique Devices grew 32% to approximately 21 mln on a monthly average basis. Local advertising accounts grew 34% to 121,000. Yelp notes that it hit a major milestone in Q1, surpassing 100 mln cumulative reviews. A mobile review was contributed every two seconds on average in Q1.
In sum, this was a good quarter for Yelp, a nice beat after four EPS misses in a row. It was also a good jolt for the stock which has been slumping over the past couple of years. Yelp was trading north of $80 as recently as September 2014. It's now in the $24 area. Probably the biggest reason for the EPS misses and the weakness in the share price is competition. There are not a lot of barriers to entry in this business. For example, competing services like Google Services is cutting into Yelp's business.
Motorola Solutions [MSI] Slides Despite Earnings Beat
Motorola Solutions (MSI 69.79, -4.46) reported better than expected earnings for the first quarter.
The company delivered earnings of $0.52 per share on $1.19 billion in revenue. Motorola's top line declined 2.5%, coming in just ahead of market expectations. The company noted that its top line was reduced by $22 million due to currency headwinds, but the acquisition of Airwave added $61 million to total revenue.
North American sales increased 2.0%, but that was not enough to offset weakness in Latin America and Europe.
Products revenue declined 7.0% year-over-year to $702 million, which represented 59.0% of total revenue. Services revenue grew 6.0% year-over-year to $491 million and the growth was mostly due to the acquisition of Airwave. Excluding the impact of Airwave, the services business saw an 8.0% decline, mostly due to currency headwinds and a decline in systems integrations revenue.
Shares of Motorola Solutions have surrendered 6.0%, which puts the stock right on its 100-day moving average (69.77).
FireEye [FEYE] Beats Bottom-Line Estimates, but Guidance Weighs on Shares
FireEye (FEYE 14.40, -1.58) reported a bottom-line beat last evening, but the report was overshadowed by disappointing revenue and cautious guidance.
The cybersecurity software provider reported a first-quarter loss of $0.47 per share on $168 million in revenue. The company's top line surged 34.0% year-over-year, but came up short of analysts' average estimates.
The company highlighted its billings, which increased 23.0% year-over-year to $186 million. FireEye CEO noted strength in cloud-based and cloud-enabled solutions, which fueled the overall growth in billings.
FireEye's non-GAAP operating margin was reported at -44.0%, which was an improvement from -57.0% in the same quarter a year ago. Meanwhile, GAAP operating margin hit -93.0% after being reported at -106.0% in the same quarter in 2015.
Subscription and services revenue grew 57.7% year-over-year and totaled $134.26 million, representing nearly 80.0% of total revenue. Product revenue, which made up the remaining 20.0% of total revenue, contracted 16.2% year-over-year to $33.71 million.
Looking forward, the company expects to record a second-quarter loss per share between $0.40 and $0.38 on revenue between $178 million and $185 million. The company's guidance range is below current market expectations. Full-year guidance was a bit closer to expectations with the company priming the market for a loss between $1.27 and $1.20 per share on revenue between $780 million and $810 million.
Shares of FireEye are on track to begin the day with a 9.9% decline that will put the stock near levels last seen in late February.
Bad Karma Surrounds GoPro [GPRO] Earnings Report
Focus on the positive, not the negative. That is the art of writing an earnings press release, and GoPro (GPRO 10.71) perfected it with the press release detailing its very negative first quarter results.
How negative? Revenue was down 49.5% year-over-year to $183.5 million, its non-GAAP gross margin contracted by 1,220 basis points to 33.0%, it reported a non-GAAP operating loss of $96.8 million versus an operating profit of $49.1 million last year, and the company registered a non-GAAP diluted loss of $0.63 per share compared to a non-GAAP diluted profit of $0.24 per share in the same period a year ago.
The first quote from Founder and CEO, Nicholas Woodman, is that "Consumer demand for GoPro remains solid." He also emphasized that revenue exceeded the company's guidance and that unit sell-thru rates were approximately 50% higher than sell-in which drove global inventory levels down.
Just like art, though, beauty is in the eye of the beholder. At the moment, investors don't seem to like what they saw or heard. Shares of GPRO, which are down 40.5% year-to-date and 77.8% over the last 52 weeks, are down 8.0% in pre-market trading.
To be fair, the inventory improvement is laudable. Inventory declined 25.8% from the end of the fourth quarter. Also, the company reaffirmed its estimate for full-year revenue to be in the range of $1.35 billion to $1.50 billion.
The hang up, however, is that GoPro announced it is going to delay the launch of its Karma drone until the holiday season. It had been thought that Karma would be out in the first half of 2016, but because of the need to "fine tune" some of the different components that go into Karma versus other drones, it was decided to delay Karma until the holiday season.
Of course, that delay was presented as a relatively good thing based on the view that Karma's launch should now benefit from the holidays.
Credibility factors might be coming into play with the negative response. It's hard to say, but for now, ongoing concerns about growth, increased competition, and GoPro's execution are generating some bad karma for the stock and an artful display of skepticism about the future that can be seen in the 23% short interest in the issue.