Earnings Review 5/31 - 6/3
Review of earnings for the week ending 6/3 - $CRWD, $ESTC, $MDB, $VEEV
Disclaimer: the opinions expressed are my own and should not be mistaken for financial advice. Do your own due diligence before purchasing any equities mentioned in this article.
And just like that earnings season is over (for my holdings at least). I’m trying to post my thoughts on quarterly reports from all companies I own but life has been busy lately so I haven’t exactly done that. But I plan to review each earnings report in the future, so watch for that. With that being said, here are my thoughts on the last four reports I’ll cover this season. Note: results reflect non-GAAP metrics.
Crowdstrike (CRWD)
Crowdstrike results:
Revenue: $487.8M (beat by $30M) +61% YoY
Annual Recurring Revenue (ARR): $1.92B ($190.5M new ARR) +61% YoY
Subscription Gross Margin: 79%
Income from Operations: $83M (beat by ~$20M) +278% YoY
Net Income: $74.8M (beat by ~$20M) +320% YoY
Earnings per Share: $0.31 (beat by $0.09)
Free Cash Flow: $157.7M (compared to $117 Q1 2022)
Cash: $2.15B
Crowdstrike continues to deliver impressive results. In addition beating on all highlighted financial metrics, customer count grew 57% year-over-year to 17,945. More impressively, customers adopting four, five, and six or more modules grew to 71%, 59% and 35%. More impressive still is the fact that they are now announcing the number of customers adopting seven or more modules (19%). This is an incredible demonstration of Crowdstrike growing with their customers. Oh, and management raised full-year 2023 guidance across the board. There’s a lot to like here.
Of all the earnings reports I saw over the last few weeks, Crowdstrike’s was the only one that prompted me to rush out to buy more shares, something I have not done much in the last month. Creating a new metric to describe how many modules your customers are using because customers are outgrowing the old metric is quite impressive. For that reason, I immediately bought more shares after the report came out. Crowdstrike is now 4.6% of my growth portfolio, and it will most likely be my top position very soon. The only reason I have not rounded it out to 5% is that the stock is still trading at a premium and I don’t believe the macro environment lends itself to a 0% cash position, so I am holding fairly firm until most of these growth stocks base.
Elastic (ESTC)
Elastic results:
Revenue: $239.4M (beat by $9M) +35% YoY
Cloud Revenue: $87.7M +71% YoY
Operating Loss: $7.9M
Operating Margin: (3%)
Earnings per Share: ($0.16)
Operating Cash Flow: ($3.1M)
Free Cash Flow: ($5.3M)
Cash & Cash Equivalents: $860.9M
The highlight of this report was the cloud revenue, which grew 71% year-over-year (80% FY YoY) and now represents 37% of total revenue. Elastic Cloud is the company’s higher margin product, and they expect it will represent 50% of total revenue by 2024.
Total customers grew to 18,600 (from 15,000 in Q4 2021) and customers with Annual Contract Value (ACV) over $100k grew to 960 (compared to 730 Q4 2021). Net expansion rate came in at roughly 130%, which is in-line with previous quarters. Elastic also announced various bits of news regarding partnerships with the world’s largest cloud providers - Amazon and Microsoft. The collaboration with AWS was expanded to improve delivery of Elastic. The Microsoft partnership detailed four new Azure regions and collaboration to simplify cloud operations. These partnerships remain vital as many customers may choose to deploy Elastic in AWS or Azure.
Another good quarter for the Elastic team. This is a smaller position for me right now (2.5%), and I don’t intend to add yet for several reasons. First, this company is still not profitable and likely won’t be in the near future. Second, the company is spending nearly 50% of revenue and almost 70% of gross profit on sales and marketing. This isn’t exactly unusual, but it’s something I am keeping a very close eye on. Finally, competition has always been a concern with this company. They are building security and monitoring features into the Elastic Stack, which is expanding their TAM while garnering attention of some large competitors. With that being said, Elastic attracts customers with their search functionality and I still feel that this is a strong competitive advantage.
MongoDB (MDB)
MongoDB results:
Revenue: $285.4M (beat by $22M) +57% YoY
Gross Profit: $214.3M
Gross Margins: 75%
Income from Operations: $17.5M (beat)
Earnings per Share: $0.20 (beat by $0.30)
MongoDB Atlas Revenue +82% YoY growth
Free Cash Flow: $8.4M (flat YoY)
Cash & Cash Equivalents: $1.8B
Raised Full Year Guidance Across all Metrics
MongoDB beat expectations across the board, while also raising full-year guidance. The earnings beat was huge and it was great to see this company reel in a profitable quarter. Most importantly, Atlas growth actually accelerated from 73% to 82%. Atlas is MongoDB’s managed database-as-a-service product. This is a higher margin product, so I am encouraged to see how well the company has grown Atlas.
If there was any negative to this report, it would be the flat free cash flow figure. I’m glad to see the company is still producing positive cash flow, but it would have been nice to see this figure growth on a year-over-year basis.
Overall, the quarter was very strong. This company is still a bit richly valued, albeit not as overvalued as it has been in recent months. I’m not in a hurry to add shares as I would like to see the stock base for a while. When that happens, I will build this up to a 3.5% - 4% position because MongoDB is a disruptor in an industry dominated by legacy systems.
Veeva (VEEV)
Veeva results:
Revenue: $505M (beat by $10M) +16% YoY
Operating Income: $199M (beat) +10% YoY
Earnings per Share: $0.99 (beat by $0.08)
Crossed $2B Run-Rate Mark
Raised Full-Year Guidance Across the Board
Veeva just continues to deliver strong results every quarter, and this was no exception. The company has amassed nearly $1.25B in cash while continuing to beat their own expectations. Despite the tough macro environment, Veeva management affirmed and even raised guidance for the full year.
This quarter was highlighted by the announcement of Veeva Data Cloud, which is composed of Veeva OpenData (customer reference data), Veeva Link (real-time intelligence) and Veeva Compass (patient, prescriber and sales data), all of which bring better data to their customers and are accessible on one platform. This company continues to develop valuable new products as they have for over a decade.
There really isn’t much else to say about the results - they were great. If there was one thing I could complain about it would be that operating income actually decreased on a year-over-year basis. This was the result of $20M in additional stock-based compensation. It’s not ideal, but definitely worth noting.
As for my position in Veeva, I have no plans to add right now. I’m happy with the position size as it has organically grown to be my second largest position (4.5%). I may nibble a bit as cash rolls in, but I have other plans for my current cash.