Just Chill

NFLX had an aggressive International build in 2016. It also increased investment in its original content after so many of its shows (House of Cards, Orange is the New Black, Narcos, Stranger Things, etc) performed so well. The investments were complimented by a price increase that was 75% complete at the end of Q3. 

Subs will remain topic of focus but investors want to see the company deliver. Especially with Forward P/E at a 145x 2017 earnings. The cash burn in Q3 was $506 mln and NFLX said it expected Q4 to come in at a similar level. 

Q4 Guidance:

• Total Streaming- $2.34 bln
  • Contribution Margin 18.8%
  • Total Membership 91.94 mln
  • Net Adds 5.20 mln

Domestic Streaming

• Revenue $1.39 bln
• Contribution Margins 36.9%
• Total memberships 48.95 mln
• Net Additions 1.45 mln (Street expectations closer to 1.39 mln)

International Streaming

• Revenue $947 mln
• Contribution Margins -7.9%
• Total Memberships 43.0 mln
• Net Additions 3.75 mln (Street expectations are for a slight beat)
• Total
  • Net Income $125 mln

Q3 Recap

• NFLX reported Q3 (Sep) earnings of $0.12 per share, excluding non-recurring items, $0.07 better than the Capital IQ Consensus of $0.05. Revenues rose 31.7% year/year to $2.29 bln vs the $2.28 bln Capital IQ Consensus.
• Netflix Q3 Domestic Net Additions 0.370 mln vs 0.30 mln guidance; Q4 guidance is for 1.45 mln, expectations were for ~1.00 mln; Q2 adds was 0.16 mln 
• Netflix Q3 International Net Additions 3.20 mln vs 2.00 mln guidance; For Q4 NFLX expects addition of 3.75 mln, expectations were for ~3.00 mln; Q2 Adds was 1.52 mln 
• NFLX issued upside guidance for Q4, seeing EPS of $0.13, excluding non-recurring items, vs. $0.08 Capital IQ Consensus Estimate.

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NFLX SET TO TAKE OFF

The Take:

Einhorn really put a damper on this stock yesterday as it confirmed an all time high breakout. It seems everyone from Carl Icahn to Einhorn want to take a shot at calling a top in this stock. "Valuation" is the obvious key concern for these guys, but it's all relative to how you value the stock. Take Amazon for example, it has been shot against on valuation for years now. That short selling and top calling has done nothing more than fuel Bezos' land buying spree. 

NFLX has started to break out of a two year range and has cleared enough room for further upside. I want to play to capture that upside. 

NFLX SET TO EXPLODE WE WILL TAKE FEB 145 155 CALLS INTO THE PRINT

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Results

Netflix beats by $0.02, reports revs in-line; guides Q1 EPS above consensus

• Reports Q4 (Dec) earnings of $0.15 per share, $0.02 better than the Capital IQ Consensus of $0.13; revenues rose 35.9% year/year to $2.48 bln vs the $2.47 bln Capital IQ Consensus.
• Co issues upside guidance for Q1, sees EPS of $0.37, excluding non-recurring items, vs. $0.17 Capital IQ Consensus Estimate.
• See 16:10 comment for additional metrics.

Excerpts from Shareholders Letter:

• This was the largest quarter of net additions in our history and was driven by strong acquisition trends in both our US and International segments.
• 15% ASP growth; ASP for the international segment rose 13% year over year; US contribution margin expanded 395 basis points year-over-year to 38.2%. Margin improvement was greater than expected due primarily to higher-than-forecast revenue and the timing of content deals.
• Our anticipation for a year-over-year decline in domestic net adds reflects a difficult comparison in the year ago quarter where we exceeded our net adds forecast by 27%. Similarly, in our international segment, we will lap our Rest of World launch in January of last year. We also expect a greater membership impact from our content slate in the second half of 2017. On a sequential basis, we believe our strong Q4 results likely pulled forward some net adds from Q1'17 to Q4'16.
• Targeting global operating income of 7% (Was 4% in Q4).
• We anticipate the international segment will be slightly contribution profit positive in Q1. We plan on investing over the remaining quarters of 2017 internationally and, as a result, anticipate an international contribution loss in Q2. On a full year basis, we expect international contribution loss to improve substantially year on year.
• Net Neutrality- Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable. On a public policy basis, however, strong net neutrality is important to support innovation and smaller firms. No one wants ISPs to decide what new and potentially disruptive services can operate over their networks, or to favor one service over another. We hope the new US administration and Congress will recognize that keeping the network neutral drives job growth and innovation.
• We expect our FCF to be around -$2 billion in 2017 vs. -$1.7 billion in 2016, with FCF loss improving sequentially in Q1'17.
• We are funding our working capital needs through the debt market. In October, we raised $1 billion of senior notes with a coupon of 4.375%, which will reduce our weighted average cost of capital. We will continue to be a regular issuer of debt to finance our investment in original content as we balance our cash needs with the carrying cost of interest expense

METRICS FROM THE QUARTER

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NFLX Key Metrics Courtesy of Briefing

FLX CURRENTLY TRADING AT $144 AFTER HOURS WHICH IS ABOVE $1000 PRE-SPLIT

All Charged Up

THIS IS MY FAVORITE STOCK OF 2017. WE HAVE ALREADY MADE 400% RETURN ON OUR POSITION IN JUST THREE WEEKS.

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To me there are fewer setups that look as appetizing as Tesla this year. The stock has been lashed out at by bears for two years and has seemingly had everything thrown at it. With that, and barring a completely overall bear meltdown, I find it hard for the investors in the stock to ring the register this year.

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TSLA has been consolidating on a monthly basis.

With the slated Model 3 deliveries, 2017 marks the year that the Tesla mass consumer comes online. With that comes a new revenue stream and the growth dynamic back into play.

The automaker took 400,000 pre-orders for the Model 3 within weeks of revealing the prototype. The main issue they face is producing millions of them, on time, up to quality standards, and most importantly; without losing money. Tesla doubled their production in 2016 to 100,000 cars. In April, Musk said he wants to produce half a million cars by 2020. One month later, he said they’d get there by 2018. Aggressive as that may be, Musk seems to deliver under pressure. The Model 3’s biggest hinderance on performance deliveries are projections, expectations, and supply chain. With expectations coming as a result of projections, supply chain will be your tell with the company’s ability to deliver results.

Competition:

Many analysts who bash Tesla’s stock will have you know that there is a steady increase in competition in recent years. They’re full of shit. Tesla operates in the high end electric vehicle market. Until now, they’ve been the only real player. Recently Fisker, Farady Future , and Lucid Motors have perked up to compete but until now there really hasn’t been a viable competitor.

The main difference however is that Tesla has centered itself on building a network and working outward. SImilar to the Apple vs everybody model, Tesla has open sourced its technology and focused its attention on building a sustainable network/brand first then focus on its product offerings. That’s why the term “Cult Stock” has often been used to describe the company/stock.

Now What?:

As I’ve said above, Tesla has been range bound for nearly two years now. In early 2015, the stock broke it’s 180 “support” level and found itself bouncing sharply off of its 200 week MA. Since then the stock made a high at nearly 270 and then a failure and hold of the 180 level yet again. As of late the stock has once again broken out of its downtrend and appears to be acting constructively. With the addition of Elon Musk to the Trump Advisory team, the short interest, new product offering, and constructive behavior, this stock is set to rip in 2017.

One key amendment to this argument is the price of oil. Which since the Barron’s $20 oil cover, has been constructive and working its way higher. All of these instances bode well for Tesla which I believe has a very defined stop ($180) and a potential to break out to an all time high.

ONE LAST POINT:

TSLA’s gigafactory goes active in 2017 making them the largest battery operator/manufacturer in the world. This will provide countless jobs as well as margin expansion. This will likely bode well for TSLA moving forward with the Trump Administration and as such bears are going to get squeezed.

The $TSLA Play:

To play this stock’s potential, I’ll be putting on a leaped call spread (bullish risk reversal) with the Jan 2019 350 C being bought and the Jan 19 100 P being sold. (You can also buy a lower put strike to hedge your downside risk as well.) This prices that Tesla will see a 50% gain in the next two years which “sounds crazy” but isn’t anywhere near crazy given this stock’s price action/ability. At the time of writing, this position cost a net debit of ~$2.2. 

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To see more trades like this one, and for a full 2017 road map preview please check out my 2017 roadmap in the trade reports section on my site. Or click here to purchase: http://www.everytimeicash.com/digitalcontent/2017-stock-market-road-map

Droning On ($GPRO Earnings)

GoPro (GPRO) is set to report Q3 earnings tonight after the close with a conference call to follow at 5pm ET.

Current Capital IQ consensus stands at loss of ($0.34) per share on Revenue of $312.7 mln.

GPRO did reaffirm its guidance on September 19 which bodes well for the Q3 results. But the key will be for GPRO to reaffirm that it expects to return to profitability in Q4 and that the launch of Hero5 and Karma are beating expectations.

Key Metrics

• Gross Margin- 2H16 is expected to be in the range of 39-41% as the uptick in marketing spend around the launch of its new products takes its toll. Q2 Gross Margin was 42.4%.
• Units Shipped- Q2 saw an 8% increase in units shipped to 759,000.
• Average Selling Price- ASPs increased 11% q/q and 14% y/y in Q2.
• Inventory- With the roll over to a new product, inventory management remains key. Q2 Unit sell-thru was up approximately 10% sequentially and was more than 50% higher than sell-in for the second quarter in a row, resulting in an estimated 35% sequential reduction in channel inventory. Inventory declined $50 million, or 36%, from the first quarter to $90 million, the company's  lowest inventory level since the second quarter of 2014.

Guidance

• On 9/19 reiterated that it expected FY16 revenue to fall in the range of $1.35-1.50 bln. Analysts have tweaked consensus numbers higher as it has moved to $1.38 bln from $1.33 bln according to Capital IQ.
• 2H Non-GAAP Gross Margin is expected to be in the range of 39-41%.
• GPRO has said it expects to return to profitability in Q4.

$TWLO Earnings Preview

Twilio is slated to release its Q3 results after the close today, with a conference call scheduled for 5 PM ET to discuss the report. Last quarter, the company's report hit the wires at 4:05 PM ET. 

For Q3, current street estimates call for EPS of ($0.08) on revs of $70.85 mln (+60% y/y). 

This compares to the company's latest guidance for EPS of ($0.05-0.04) on revs of $70.25-71.25 mln. In early October, the company offered prelim Q3 results, which exceeded the guidance given when it reported Q2 results.

• Highlights from Last Quarter

• Reported Q2 (Jun) loss of $0.08 per share, excluding non-recurring items, $0.07 better than the Capital IQ Consensus of ($0.15); revenues rose 70.0% year/year to $64.5 mln vs the $58.23 mln Capital IQ Consensus.
• Base revenue of $56.4 million for the second quarter of 2016, up 84% from the second quarter of 2015 and 13% sequentially from the first quarter of 2016.
  • 30,780 Active Customer Accounts as of June 30, 2016, compared to 21,226 Active Customer Accounts as of June 30, 2015.

Analyst Commentary

• On Tuesday, shares were initiated with an Outperform at Oppenheimer and given a $50 price target
• In late October, shares were initiated with a Neutral at Mitsubishi UFJ

Options Activity

• Based on TWLO options, the current implied volatility stands at ~ 80%, which is 7% higher than historical volatility (over the past 30 days). Based on the TWLO Weekly Nov04 $33.5 straddle, the options market is currently pricing in a move of ~4% in either direction by weekly expiration (Friday).

Visine ($FEYE Earnings)

FireEye (FEYE) is set to report Q3 results tonight after the close with a conference call to follow at 5pm ET. FEYE is expected to report results at 4:01pm. Current Capital IQ consensus stands at a Loss of ($0.31) per share on Revenue of $182.26 mln.

Analysts remain cautious on the company ahead of the Q3 report as channel checks are suggesting an in line quarter at best. There is some hope though as FEYE released there new MVX sensor product in August and a new cloud product that will allow the co to reach smaller price-sensitive customers is expected on the horizon (most are hoping it will be announced this afternoon).

Q2 Recap

• FEYE reported Q2 (Jun) loss of $0.33 per share, excluding non-recurring items, $0.06 better than the Capital IQ Consensus of ($0.39). Revenues rose 18.9% year/year to $175 mln vs the $181.57 mln Capital IQ Consensus.
• Co issued guidance for Q3, seeing EPS of ($0.32)-($0.30), excluding non-recurring items, vs. ($0.24) Capital IQ Consensus Estimate. FEYE expectes revenue in the range of $180-186 mln vs. $208.09 mln Capital IQ Consensus Estimate.
  • Total Billings in the range of $200-215 mln.
  • Operating margin in the negative 25-27% range.

Getting Organic ($WFM Earnings)

Whole Foods (WFM) is scheduled to report Q4 earnings after the bell today. 

Cap IQ consensus calls for Q4 adj. EPS of $0.24 on revs +6% to $3.5 bln. 

Current Cap IQ Consensus estimates FY 17 EPS of $1.47 on revs +4% to $16.4 bln

Look for co to provide FY 17 guidance in the release. Last Q4 the co provided guidance for the following:

• Sales growth, comps, new stores, square footage growth, EBITDA margin, Capex, and ROIC
• The co also commented on its quarterly comps expectations

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Shares have traded in the 27.5/29.5 range for the next two months and WFM is currently trading at 28.25 (down 16% from pre-last quarter's earnings).

• Expects FY 17 Square footage growth of ~6%
• Q4 Guidance: Noted comps quarter-to-date of -2.4% as of July 27

On September 23, the co announced plans to purchase stake in Instacart, according to Bloomberg Bloomberg Article

Grocers: KR, SVU, WMT, WFM, TGT, SFM, WMK

Tanning Bed ($FSLR Earnings)

First Solar (FSLR) is set to report Q3 earnings after the close with a conference call to follow at 4:30pm ET. FSLR reports right after the bell and provides additional details in a presentation shortly ahead of its call.

Current Capital IQ consensus stands at EPS of $0.66 on Revenue of $985 mln.

Shares of FSLR are holding steady at the $40 level ahead of the report. Shares hit a 52-week low of $33.74 on September 20 and are up over 20% but buyers have been unwilling to move in above the $40 level. The company needs to show it is meeting the worries about 2017 head on and that the concerns in the markets are overdone before it can press back toward the $50 level. This stands as a key quarter for the company.

FY16 Guidance

• Net Sales $3.8-4.0 bln (Was reaffirmed in Q2);
• Gross Margin (GAAP)- 18.5-19.0% (Prior 18-19%);
• Operating Expense $380-400 mln (Reaffirmed);
• Operating Income $310-370 mln (Prior 300-370 mln);
• EPS $4.20-4.50 (Prior $4.10-4.50);
• Operating Cash Flow $500-600 mln (Prior $500-700 mln);
• CapEX $275-325 mln (Prior $300-400 mln);
• Shipments- 2.9-3.0 GW (Unchanged)

Get Your Fat On ($FIT Earnings)

Fitbit (FIT) is set to report Q3 results after the bell (released results last quarter at 4:05pm ET). The co has a conference call scheduled to follow at 5:00pm ET.

 Cap IQ Consensus estimates Q3 EPS of $0.19 (vs. $0.24 in 3Q15) w/revs of $506.6 mln (+23.6% y/y). 

Guidance

• On the Q2 call, co issued guidance for Q3, sees EPS of $0.17-0.19 vs. the $0.17 Capital IQ Consensus Estimate (at the time); sees Q3 revs of $490-510 mln vs. the $497.82 mln Capital IQ Consensus Estimate (at the time).
• On the Q2 call, co reaffirms guidance for FY16, sees EPS of $1.12-1.24 vs. the $1.17 Capital IQ Consensus Estimate (at the time); sees FY16 revs of $2.5-2.6 bln vs. the $2.58 bln Capital IQ Consensus Estimate (at the time).

Based on FIT options, the current implied volatility stands at ~ 75%, which is 64% higher than historical volatility (over the past 30 days). Based on the FIT Weekly Nov04 $12.5 straddle, the options market is currently pricing in a move of ~12% in either direction by weekly expiration (Friday).

Technical Take

Technically, FIT has been in a range for the better portion of this year. It found support in Feb and June with each probe of the $12-level, but also struggled to maintain strength above the $16-area. 

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$FB Earnings Preview

FB is set to report Earnings tonight after the close. Expectations for Facebook remain quite high.

• FB is up 19% from the post-Brexit low on June 27 and up 4.6% since its second quarter report on July 27.  
  • FB is sitting right on top of its 50-day simple moving average (128.63), so technical traders will be watching to see if FB can hold that line of technical support after its report

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FB Weekly Chart

Key Metrics

• Daily active users (DAUs)-  Expectations are for 3 DAUs to be approx 1.16 bln which would represent approx 15% growth.  Q2 DAUs were 1.13 billion on average for June 2016, an increase of 17% y/y; Q1 +16%, Q4 +17%; 
  • Mobile DAUs- Mobile DAUs were 1.03 billion on average for June 2016, an increase of 22% y/y; Q1 was +24%, Q4 was +25%; 3Q16 was 894 mln so the co needs to hit approx 1.09 bln to keep that 22% growth rate.
• Monthly active users (MAUs)- Expectations are for this to be approx 1.76 bln which would represent growth of approx 13%; MAUs were 1.71 billion, better than expected, as of June 30, 2016, an increase of 15% y/y
  • Mobile MAUs were 1.57 billion as of June 30, 2016, an increase of 20% year-over-year; Q1 and Q4 was 21% so FB needs to come in at around 1.67 bln in order to keep the growth rates in the 20% range. 

• Ad spending drives Facebook's top line, accounting for 97% of the company's revenue in the second quarter.  Facebook, therefore, is watched closely as a barometer for how advertisers are spending and where they are allocating their advertising budgets.
  • Mobile advertising represented approximately 84% of advertising revenue
  • Facebook has a large international presence with 86% of its monthly active users at the end of 2015 residing outside the U.S. and Canada and 50% of its total 2015 revenue derived outside the U.S. and Canada. Facebook, then, will have some revealing insight to share on global user activity and the impact of foreign currency on its operating results.

Stocks Affected

• FB
• • Twitter (TWTR)
  • LinkedIn (LNKD)
  • Microsoft (MSFT)
  • Yelp (YELP)
  • Alphabet (GOOG/GOOGL

Related ETFs

• PowerShares QQQ Trust (QQQ)
• SPDR S&P 500 ETF (SPY)
• Global X Social Media Index ETF (SOCL)
  • FB is third largest holding at 9.36% of assets

Swipin ($MTCH Earnings)

Match Group (MTCH) will report Q3 results after the bell. The company will release a slide presentation with guidance soon after the press release and host a call tomorrow morning at 8:30.

• The Street is looking for adj. EPS of $0.20 with revenue +16% to $318 mln and Adj. EBITDA +29% to $108.5 mln.
  • Match guided for Dating revenue up 2-3% Q/Q (to $280.8-283.6 mln) with a Dating adj. EBITDA margin of 35-37%.
• Match already guided for Q4 Dating revenue +4-6% Q/Q with Dating adj. EBITDA margins in the mid 40% range.
• Match also guided for FY16 adj. EBITDA of $400-415 mln with Dating revenue of $1.10-1.14 bln. Last quarter, strength in Dating revenue, led by Tinder, was offset by lower than expected indirect (adverting) revenue.
• Last quarter, Match pushed out expectations for the advertising model as Tinder chose to focus on driving user growth and engagement. Less advertising was more than offset by higher direct rev but the company also increased its investment in Tinder (mostly headcount), which resulted in lower EBITDA guidance for 2016.
• Tinder's Q2 paid member count (PMC) was up 20% Q/Q to 1.23 mln. Match reaffirmed guidance for PMC doubling this year to 1.6 mln. Match is focused on adding features to drive Tinder user growth and engagement as there is competition in this low barrier to entry business. That said, network effects are on its side. Still, Tinder is focused on growing the business before really ramping up the advertising business model on top of it.
• Q2 total dating rev was up 23% with avg. PMC +30% to 5.3 mln. Indirect (advertising) revenue was up 25% at just $11.9 mln. Non-dating revenue consists of just the Princeton Review, which averages ~$25 mln in revenue per quarter.
• Tinder essentially changed the game of dating with its simple swipe left/right app based on location and a quick profile with pictures.
  • Bears see competition in a low barriers to entry business and Tinder cannibalizing the company's legacy dating brands as serious risks.
  • Bulls point to secular tailwinds like the shift to online dating and the fact that millennials are staying single longer.
• Match's legacy dating brands like Match and OkCupid have struggled with the shift to mobile. As Tinder reduces the stigma of online dating, it could be a benefit to the legacy dating brands longer term.
• IAC (IAC) still owns 83.8% of the shares outstanding after spinning off MTCH one year ago.
• Meanwhile, 23% of the float is sold short.
• MTCH broke out to a new all time high two weeks ago but the stock has since pulled back to retest the level that offered resistance for most of October. 

$GILD Earnings

Gilead Sciences is expected to report Q3 earnings today after the close with a conference call to follow at 4:30 pm ET the same day.

Capital IQ Consensus calls for EPS of $2.84 & a revenue decline of 12.5% to $7.44 bln, compared to EPS of $3.22 on revenue of $8.51 bln in the same quarter last year.

FY16 guidance

• Co updated guidance for FY16 in their Q2 earnings release.
  • Lowered net product sales to between $29.5-30.5 bln from $30-31 bln; reaffirmed adj gross margin between 88-90%.

Techs:

GILD has been in a slump throughout 2016 as it sits down -26% YTD near the $73-area. The path of least resistance remains to the downside as price flirts with 2-1/2 year lows & its down-trending 50-day simple moving avg near $77.

Options Activity

Based on GILD options, the current implied volatility stands at ~ 33%, which is 67% higher than historical volatility (over the past 30 days). Based on the GILD Weekly Nov04 $74 straddle, the options market is currently pricing in a move of ~5% in either direction by weekly expiration (Friday).

Peers include: AMGN, RHHBY, NVS, CELG, SHPG, REGN, BMRN, ALXN, BIIB

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RESULTS:

Gilead Sciences misses by $0.09, reports revs in-line; reaffirms FY16 (Dec) revs in-line

• Reports Q3 (Sep) earnings of $2.75 per share, $0.09 worse than the Capital IQ Consensus of $2.84.
  • Antiviral product sales, which include primarily products in Gilead's HIV and liver disease areas, were $6.8 billion for the third quarter of 2016 compared to $7.7 billion for the same period in 2015.
    • HIV and other antiviral product sales were $3.5 billion compared to $2.9 billion for the same period in 2015.
    • HCV product sales, which consist of Harvoni (ledipasvir 90 mg/sofosbuvir 400 mg), Sovaldi (sofosbuvir 400 mg) and Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg), were $3.3 billion compared to $4.8 billion for the same period in 2015.
  • Other product sales, which include Letairis (ambrisentan), Ranexa (ranolazine) and AmBisome (amphotericin B liposome for injection), were $564 million for the third quarter of 2016 compared to $509 million for the same period in 2015.
• Co reaffirms guidance for FY16 (Dec), sees FY16 (Dec) revs of 29.5-30.5 vs. $30.38 bln Capital IQ Consensus Estimate.

GILD notes they have seen 'strong adoption' of TAF-based regimens where they received reimbursement

• In the US, of the nearly 840k people on antiretroviral therapy, 80% receive a Gilead regiment

Anticipated Milestones:

• Achieve 48-week endpoint in Phase 3 studies in treatment-naïve and switch patients
• Complete Phase 1 study in HIV cure.
• Complete enrollment of Phase 2 study in HCM
• Complete Phase 3 study in LQT-3 syndrome
• Complete Phase 2 study in HCM
• Complete Phase 2 study in ebola virus disease