All posts by Sean Udall
Post-Earnings Analysis: Tech in Focus
FN — Reported very strongly on Monday and continues to signal strength for my fiber thesis. The most curious thing is how little pin action is occurring off of these strong reports. More on this below. This stock would probably be up more if not for the CEO announcing he is leaving. Selling into the mid/high $30’s here probably makes sense. I still favor other names in the space. OCLR — Case in point, they have sold off since they reported a whopper and again, has shown no real upside pin action, though it’s showing a touch of a bounce today. A possible explanation here is that there have been continuing rumors on OCLR as a target for a FNSR takeout. One would think this could/should have the stock higher, but maybe some think that OCLR has risen a lot and won’t garner a big premium. My view is that the forward PSR is still just barely above 2. This is very cheap on any LT or M&A valuation perspective given the consolidation that’s occurred in the space over the last few years. I was buying some OCLR again recently into the selling. I’ll look to add more in the mid $8’s or lower should it go there. AKAM — Strong report but this stock had already soared and a guide which was largely inline just isn’t enough to keep this stock going. In the mid/high $50’s, I’ll take a gander at this one. This is also somewhat indicative of some rotation action that’s starting to emanate further in the market. Strong reports on hot stocks are seeing more flat to selling action than buying action. This is something I was harping on all the way back in Nov/Dec of last year. NEWR — Another very good report and the stock is down moderately. Again, it was close to yearky highs. I prefer SPLK and VRNS and HDP in this space. LITE — Back to the Fibers… LITE reported a good but not a great QTR at all. However, they talked about a strong forward outlook out past just one QTR and the shares are ripping. LITE has also been seeing product shortages and that’s usually well received in Tech land. Again, I would think this would engender a lot more pin action than we are seeing but that pin action might come in delayed reaction fashion as is popular with Algo trading the last couple years. TWLO — The best report of last night, hands down, was TWLO’s very big beat on the current quarter with a notably raised Rev. guide for both the QTR and FY outlooks. I’m a buyer on any notable weakness here. If one looks at how something like an ANET or several other IPO’s traded in recent years, the first year of trading is fraught with lots of raids and rumors. I suppose the machines can mess with TWLO for another QTR or two but if they keep delivering these sorts of results this could have a very substantial move higher. In the meantime, I think a range trade of 4-6pts will occur a good number of times. And guess what, we just saw a 6pt move off the recent early year lows. A break above $32.50 will break that range and setup the next higher leg. Disclosure: Position in OCLR, SPLK, VMS, HDP, TWLO
Continue Reading -->Twitter: It’s Not About Earnings, It’s About the Reaction
I could post my numbers here and say that Twitter‘s gonna beat on EPS, have inline revenues, and the guide conservative, but frankly folks it doesn’t matter. For Twitter and this quarter, I think it’s all about the reaction to what they say. And what they are saying is new messaging and the messaging they should have had all along, which is about total platform engagement and the growth of that. Not the MAU metric, especially as Twitter doesn’t give themselves that soft-shoe MAU measurement. Twitter has never measured MAU’s the same drab way most every other social media company does. They hold their MAU’s to a higher standard than does FB, LNKD, and pretty much everyone else. But Adam Bain has been quite vocal about Twitter’s total audience and if that is where the commentary goes, Twitter is at least worth twice what it is today just given industry comps. Now I’m not going to say that Twitter’s quarter is totally meaningless on either something very good or very bad. A huge beat or a huge miss will obviously move the stock. But I’m not sure Twitter posts a quarter that is a big “financial surprise.” It’s all about assessing the opportunity and the future growth. The most encouraging “change” of late is the large ramp in video content and live streaming deals. This is definitely a notable positive change. A few more deals as well as “applications” that Twitter can keep bolting on and they will increase the “non-logged” audience as well as MAU’s. Simply put, there’s nothing more useful than Twitter from a personal and business tool in the social media space. Over time we will find out just how valuable that utility is to the company and others that are still activity building money making 3rd party apps using Twitter’s data. Oh, I will say that everyone that keeps playing Twitter for the M&A takeout will likely be disappointed, assuming they don’t hold it long enough. The single worst thing Twitter can do is sell itself for a premium over its currently depressed stock value. In fact, the more I look at the economic landscape I’m starting to think that LNKD made a huge mistake selling to MSFT. Why? Because if this US and Global economy does what I think it’s going to do, the next phase will be a material change in jobs growth, especially of better paying jobs. I also think salaries and wages could start increasing again. It’s very overdue for such a change as they haven’t risen in any material ways since 2006. That’s a decade folks. Thus, in a strengthening economy that grows Jobs, LNKD probably just sold itself for $5-10B less than what it would have risen to again on its own, And possibly $10-20B less than maybe they could have sold the company for in the future. Now just think that Twitter’s total addressable market is for sure 5X and possibly as much as 15X what LNKD’s TAM is, and you can see the potential for massive catch-up. However, that isn’t going to occur in weeks or on a single earnings report, especially one where the company has just finally figured out its correct messaging. Bottom line, I’m not sure the numbers for Twitter will be much of a surprise and I do very much think they will continue to guide conservatively. That is also a new and very positive long-term change which finally just occurred last quarter. However, if Twitter can keep tapping into to it’s “non-logged” usage which is roughly 500mm a day and grow that to the point where Twitter’s combined audience grows from the current 800mm total to 1.0-1.2Bish… we have a powder keg to the upside. And that is what I think the long-term path of Twitter is. The last thought I will leave you all with is IBM’s Watson. Is there a more important data stream to Watson than Twitter’s? I doubt it. And that’s just one example. I find it interesting that no one even talks about the Twitter Data license revenue anymore. But it hasn’t gone away and keep growing at a very strong rate. Once this stream’s base is big enough, it will become another key value driver for the shares. In the meantime, I’ll still be selling rips and buying dips but will retain a large slug in my core holdings for what I still believe should be a multi-bagger move. P.S. — I’d add one more thing. I think we are very close to a peak FB, Instagram, Snapchat type moment. IE., where the use of fun but sorta useless and definitely time-wasting social media platforms starts to see materially decelerating growth. That usage growth might itself even turn negative. If that occurs and Twitter’s use stays steady or even starts increasing again, that could be a whopper of an “inflection moment”. Moreover, I’ve not even baked that moment/turn into my long-term case, but it’s something I’ve been thinking about lately. As to me it’s very similar to thesis to where I called “peak Android” and noted that I thought iOS would see a massive increase and uptake of usage back in 2013. And I definitely think it’s worth noting that I’m having the above thought more frequently of late. ********* This was a special bonus edition of Sean Udall’s TechStrat Report. Click here to learn how you can get Sean’s best stock picks straight to your inbox.
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