Author

Rick Munarriz

Browsing

You might be surprised to see that these strong companies are trading lower this month.

The market is moving higher in August, but not every stock is heating up along with it. Netflix (NASDAQ:NFLX), Twilio (NYSE:TWLO), and Dropbox (NASDAQ:DBX) are some of the more surprising names that have been sitting out this month’s rally.

All three are trading lower in August as of the close of trading Wednesday, and that doesn’t seem fair. Here’s why they’re strong candidates to head higher soon.

IMAGE SOURCE: GETTY IMAGES.

Netflix

The pandemic has certainly given us a lot more time to stream video than usual, and given that it’s the undisputed top dog in this niche, that positions Netflix perfectly. The company had nearly 193 million paid subscribers worldwide at the end of June, 27% more than it had on its rolls a year earlier.

It’s true that the guidance Netflix offered in its mid-July earnings report wasn’t the best. Management forecast it would add just 2.5 million net subscribers in the current quarter. However, the company also landed well ahead of its mid-April guidance numbers for subscribers, revenue, and adjusted earnings. With the pandemic proving to be a stubborn beast, multiplex operators heading into a challenging ramp-up of restarting their operations this month, and traditional cable and broadcast networks facing difficulties producing new content, how can you bet against Netflix?

Twilio

Twilio is another platform that seems to have only gotten more useful during the pandemic. The need for in-app communication solutions has never been stronger with so many people using their smartphones to get stuff done.

The second-quarter report it delivered earlier this month trounced analysts’ expectations, with revenues up by 46%. It was also the second time in a row that Twilio delivered an adjusted profit when Wall Street pros had been braced for red ink.

Despite the blowout report, the stock still declined on five of the six subsequent trading days. Some of the factors behind the pullback are fair. The stock had nearly tripled year to date heading into the Aug. 4 financial update, and every hot investment needs to exhale every now and then. Twilio also took advantage of the buoyant price to raise $1.25 billion through a stock offering, and nobody likes dilution. Guidance for the current quarter calls for top-line growth in the 36% to 38% range, which would make this the company’s fifth straight period of decelerating revenue growth. Its dollar-based net expansion rate also took a sequential dip.

However, all of those knocks on the company are being overblown. Twilio’s 132% net expansion rate is still a mind-blowing metric that reflects how effective it is at getting its existing customers to spend more on the platform. Guidance actually topped what the prognosticators tracking the stock were expecting. Twilio took a few steps back after a lot of steps forward this year, but there’s no reason to think it won’t start moving in the right direction again this summer.

Dropbox

One of the low-key winners rocking it in the new normal is Dropbox. The ability to move large files around easily has never been more important than right now as tens of millions more of us are working from home or bouncing back and forth between the office and home to get work done.

The share price of Dropbox also buckled after it delivered a solid financial update that seemed to check off all of the bullish boxes. Revenue and earnings outpaced Wall Street’s targets, and management boosted its full-year guidance. It did announce that its CFO is moving on, and while that’s never a good look, it’s only a red flag on rare occasions. With double-digit percentage revenue growth and more than 15 million paying users, this is another strong candidate to recover after a sluggish start to August.

Netflix, Twilio, and Dropbox aren’t perfect, but they’re doing a lot of things right this summer, even if their share prices aren’t playing along this month. And they remain some of the market’s more promising growth stocks.

Author: Rick Munarriz

Source: Fool: 3 Stocks That Are Down in August, but Ready to Bounce Back

An overseas travel specialist, a struggling theme park operator, and a hot electric-car maker seem pretty vulnerable this week.

I took a look at three stocks to avoid last week, and I was totally off the mark. For the first time since I started this weekly column in early June, the average return of the three stocks I picked ended up beating the market. It wasn’t even close. All three stocks moved higher, clocking in with an average gain of 9%. The S&P 500 edged less than 1% higher.

Now that I’ve been humbled after killing it for nine weeks in a row, let’s see if I can get my bearish sixth sense back on track. I see Despegar.com (NYSE:DESP), SeaWorld Entertainment (NYSE:SEAS), and Tesla Motors (NASDAQ:TSLA) as vulnerable investments in the near term. Here’s why I think these are three stocks to avoid this week.

IMAGE SOURCE: GETTY IMAGES.

Despegar.com

Travel portals are hurting these days, and the situation is even more problematic in Latin America, where Despegar.com earns its keep. COVID-19 has been brutal in that region. Five of the nine countries with the highest case counts — Brazil, Mexico, Peru, Colombia, and Chile — are in Latin America, so you can probably imagine how well the travel industry is faring there.

Despegar reports quarterly results on Friday morning, and they’re not likely to be pretty. The rub for Despegar is that it wasn’t doing so hot even before the pandemic. Revenue rose a mere 1% in 2018, only to decline 1% last year.

Analysts are bracing for a widening deficit on a 92% year-over-year revenue plunge, and that could be a conservative take. Guidance isn’t likely to be very encouraging, either, leaving one to wonder why this stock has more than doubled since bottoming out in March.

SeaWorld Entertainment

One of my bad calls last week was SeaWorld Entertainment. The theme park operator posted financial results on Monday that were as bad as I expected. Revenue plummeted 95% with its attractions closed through most of the second quarter, and SeaWorld posted a larger-than-expected loss for the fourth time in a row. The market responded by bidding the stock 12% higher for the week. That doesn’t seem right.

SeaWorld did offer some encouraging words. Attendance trends improved within a month of reopening. However, with attendance between 10% and 50% of prior-year levels — and most of the patrons being locals who don’t spend as much as tourists — is this really a great report? Wall Street analysts have been widening their deficit forecasts since last week’s report. A week ago, analysts thought SeaWorld could return to profitability as soon as the current quarter. Now they don’t see an annual profit until 2022. With its larger rivals already taking defensive steps to combat waning patron interest, this probably isn’t the best time to bid up a company that has thrown in the towel on this year by pushing to 2021 all of the major coasters it was supposed to open this summer.

Tesla Motors

A stock split is the hot fashion that all the cool stocks are wearing these days, and Tesla Motors became the latest market darling to announce that it will be participating in this zero-sum stunt. The electric car maker’s decision to roll out a 5-for-1 stock split later this month sent the already richly priced shares even higher, soaring 14% last week.

Stocks tend to perform well after a stock split announcement, so history isn’t on my side with this call that Tesla could shift into reverse. I just think that Tesla, after nearly quadrupling in 2020, may bump into more resistance than usual ahead of its split at month’s end. After all, it’s not as if its fundamentals have improved fourfold this year. Revenue even declined in Tesla’s latest quarter. The long-term outlook remains bright for Tesla, but sometimes a stock rises too high too soon, and that’s why Tesla’s my third stock to avoid this week.

If you’re looking for safe stocks, you aren’t likely to find them in Depegar.com, SeaWorld Entertainment, or Tesla Motors this week.

Author: Rick Munarriz

Source: Fool: 3 Stocks to Avoid This Week

The bulls have been largely driven out of Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER). The ride-hailing duopoly has been a one-two sucker punch, with Lyft and Uber falling precipitously since hitting the market earlier this year at $72 and $45, respectively. No one said that investing in IPOs would be easy.

Oddly enough, the bears are also moving on. There were just 15.8 million shares of Lyft sold short at the beginning of this month, the lowest count of financially vested naysayers since mid-April. Lyft and Uber may seem to be boring and broken IPOs, but there are a few good reasons to expect better things in the year ahead. Let’s go over why both stocks can rev up come 2020.

1. Business is booming

Personal mobility is here to stay. Lyft and Uber are posting double-digit revenue gains, growing at the expense of old-school ways of getting around and even vehicle ownership trends. The financial reports they put out earlier this month are far more exciting than their stock charts.

Revenue at Uber rose 30% to $3.8 billion in the third quarter, more than doubling the 14% year-over-year top-line increase that rattled investors three months earlier. Growth has been decelerating at Lyft, but it’s hard to stay mad at a company that just clocked in with a 63% surge in quarterly revenue. Lyft’s growth is a combination of a 28% increase in active riders and a 27% boost to its revenue per active rider. In short, we’re leaning on the only two car services that matter more and more with every passing quarter.

Lyft is growing briskly as a pure play on North American personal mobility. Uber is the much larger player with a strong international presence. Uber also has operations in restaurant delivery and freight that are growing even faster than its flagship service.

2. Bottom-line improvements will come

The biggest knock on Uber and Lyft is that they’re losing a lot of money. The operating and net loss widened for both companies in their latest earnings reports, and the red ink isn’t going away anytime soon. However, there are still some encouraging signs out there.

Lyft revealed earlier this month that it expects to be profitable on an adjusted EBITDA basis by the fourth quarter of 2021, well ahead of when most analysts figured that would happen. Uber’s personal mobility business has increased its segment adjusted EBITDA to the point where it can cover its platform R&D and corporate G&A costs.

3. Starting lines matter in any race

Uber and Lyft are broken IPOs, trading 38% and 39% below their underwriter pricing, respectively. Put another way — and here is where the math is cool — Uber would have to move 61% higher in the coming year (and Lyft up a whopping 64%) just to get back to what the market thought these two companies were worth during their springtime IPOs.

Bears will argue that Uber and Lyft won’t recover. Their stick shifts will be stuck in reverse forever. However, let’s jump a year from now. What if Uber and Lyft are still posting healthy top-line growth with engagement continuing to improve? What if the take rates keep tilting in their favor in these scalable businesses? What if Uber Eats joins Uber in generating positive adjusted EBITDA? Won’t we be just a year away from Lyft turning profitable on an adjusted EBITDA basis? If at least one of these questions is answered in the affirmative, it’s easy to see how the stocks will at least be trading higher than they are right now. If the answers are all positive, it would be a shock if the stocks aren’t at least back to where they were at the time of their early 2019 IPOs.

The rearview mirror isn’t pretty when it comes to Uber and Lyft, but look ahead. The road isn’t as winding as you might think, and the windshield isn’t cracked.

Author: Rick Munarriz

Source: Fool: 3 Reasons Uber and Lyft Will Beat the Market in 2020

Stocks typically have low prices for a reason, but it doesn’t mean the shallow pool is just for speculators. Investors who can recognize some of the traits that the market as a whole is missing can score some pretty big returns if they can stomach the risk.

Groupon (NASDAQ:GRPN), Trivago (NASDAQ:TRVG), and Fitbit (NYSE:FIT) are some of the intriguing stocks that are trading below $5 right now. Investing in growth stocks is often about looking past the broken players trading for pocket change. Let’s see, though, why these low-priced stocks should command your attention.

Groupon — $2.96

The once-iconic flash-sale leader is shrinking, but Groupon isn’t as irrelevant as you may think. It’s true that revenue has declined for 14 consecutive quarters, and that the size of those year-over-year dips is widening. However, you may be surprised to learn that trailing revenue is actually just 18% lower than it was when Groupon’s top line peaked in 2014, even though the shares themselves have fallen by more than 90% off their post-IPO 2011 highs. Turning growth around is a priority for investors, but Groupon isn’t going away anytime soon with its cash-flush balance sheet.

Some of the slide in Groupon’s business is by design, as it shifts away from the low-margin product sales that have propped up the top line at the expense of profitability. The upside to the strategic shift is that Groupon is generating positive and growing adjusted earnings in this climate. Adjusted profit per share has risen from $0.18 last year to a projected $0.22 this year, pricing the stock at just 13 times earnings. The stock is as cheap as some of its deals, and you don’t find too many low-priced stocks with growing bottom lines.

Trivago — $3.64

Inns aren’t out at Trivago, even if the online portal that generates leads for hotel operators and the travel sites that book overnight stays is coming off six straight quarters of declining top-line results. Just as we’re seeing with Groupon, the slowdown in revenue is strategic.

Trivago shares soared 22% in July after posting better-than-expected quarterly results. It is spending less to generate leads for its advertisers, but the average revenue per qualified referral has soared 28% over the past year. The end result here is that Trivago surprised the market with a small profit, reversing a loss from the same period a year earlier. Emphasizing quality over quantity, although it may result in weak revenue growth — something that we’re seeing at both Groupon and Trivago — is the right approach for both companies. We’ll get a fresh read on Trivago when it reports its third-quarter financials in two weeks.

Fitbit — $3.86

The game has changed for Fitbit. Just the fact that it’s adapting to the changes, however, is important given how low the share price has gotten. The Fitbit name is synonymous with the wrist-hugging gadgets that measure physical activity, but when that business started to fade a couple of years ago, it was its foray into the smartwatch market that kept the top line growing. Now that the industry leader has put out cheaper smartwatches, the game has migrated back to fitness trackers, where Fitbit’s starting to regain some of its former glory.

Tracker revenue soared 51% in Fitbit’s second quarter, offsetting the sharp drop in smartwatch sales and enough to extend its streak of total revenue growth to four consecutive quarters. Fitbit’s installed user base keeps growing, and the 3.5 million devices it sold in the second quarter was 31% higher than a year earlier. Fitbit is still serving up red ink on the bottom line, but the deficits are narrowing.

Though Fitbit stock got a boost last month when reports surfaced that it was considering putting itself up for sale, it’s not sitting still for a potential suitor that can take advantage of the company’s established brand and growing customer base. Fitbit keeps expanding its business internationally, and making moves including recently shifting production out of China to snip tariff concerns.

Author: Rick Munarriz

Source: Fool: 3 Top Stocks Under $5

It’s time for Netflix (NASDAQ:NFLX) to throw the market a plot twist that its recently scorched investors need. The leading premium streaming-video service reports quarterly results on Wednesday afternoon, and it’s bumping up against a rough narrative.

The stock is trading lower in 2019, having shed 22% of its value since posting disappointing second-quarter results three months ago. The looming launch of rival services and a rare subscriber forecast miss last time out have been weighing on the shares. If Netflix wants to turn its fortunes around it will have to happen later this week, and only the out-of-favor entertainment giant can write its own Hollywood ending. Let’s go over a few things that will have to happen to get the stock back on track.

1. The 7-million-member challenge

The biggest reason for the shares selling off last time out was Netflix falling short of the 5 million it was previously forecasting in net paid subscriber additions for the three months ending in June. Netflix grew its rolls by only 2.7 million paid global streaming accounts, the largest whiff in recent memory. Netflix’s guidance calling for 7 million net adds in the quarter it will discuss after Wednesday’s market close wasn’t enough to soothe investors this summer, and obviously the stock continuing to drift lower suggests that Netflix is about to miss its own mark again.

Some of the bearish analyst moves heading into this week’s report have pointed out the difficulty of Netflix’s clearing the high bar it has set for itself this time. Investor confidence will be rattled if the historically conservative platform operator misses again this week. It won’t be pretty, and it will be hard to take the fourth-quarter outlook it will initiate seriously if it falls flat on its face again. In its letter to shareholders explaining its uninspiring second-quarter performance, Netflix pointed out there will be lumpiness to its forecasts. It went back a few years to point out that it has whiffed once in each of the three previous years. But things will be different if it misses twice in the same year.

2. Reshaping the metrics of evaluation

Netflix was able to land near its top-line target of $4.928 billion and exceed its $249 million goal for earnings in the second quarter, despite having fallen short on its subscriber growth forecast in its previous financial update. Netflix made it work because average revenue per user is on the rise as a result of a price hike in some markets, including the U.S., earlier this year. It also helps that net additions in any single quarter are a small tile in a much larger mosaic, but let’s focus on Netflix ramping up its ability to monetize its traffic.

Subscriber growth will decelerate at this point, and the narrative has to turn to how Netflix can cash in on its massive audience if it wants to be a market darling again in this era of slowing membership gains. There are a lot of tools at Netflix’s disposal, but it’s been reluctant to turn to them in the past. Netflix will want to emphasize revenue and earnings growth over the subscriber growth that most have used to measure its success in the past.

3. Playing down the rivals

A big thing keeping Netflix back this year is the hype that Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) are generating for their streaming premium services, which will launch next month. Disney+ and Apple TV+ are launching with compelling original content and aggressive pricing, and that has made Netflix seem vulnerable. After four substantial increases in pricing since 2014, it seems that there is no more elasticity with the stock that used to be a top consumer discretionary stock for growth investors.

Even if Netflix somehow nails its subscriber goal or finds a way to emphasize more flattering metrics, it won’t matter if it can’t ease investor fears that Disney and Apple will eat its lunch in the coming weeks. Netflix will need to play up the expanding market or its earlier successes in dominating cheaper competition. Netflix knows when to play it humble and safe, and this week won’t be one of those times.

Author: Rick Munarriz

Source: Fool: 3 Things Netflix Stock Needs to Get Right This Week

Ad Blocker Detected!

Advertisements fund this website. Please disable your adblocking software or whitelist our website.
Thank You!