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After peaking above $270 in 2018, Baidu shares have been stuck in bull market purgatory, spending most of the last 18 months under $140.
That punishment could be ending soon as the company reinvents itself and recovers from government restrictions on its advertising revenues.
Here's what I wrote on June 13 when I profiled BIDU as the Bear of the Day...
Baidu, the $40 billion web search and marketing portal that used to be considered "the Google of China," especially as they forayed into AI technologies and self-driving cars, rallied over 16% since their strong Q1 earnings report on May 18. But guidance was cloudy enough to cause analysts to lower estimates and drive the stock into the cellar of the Zacks Rank.
BIDU shares didn't remain in the cellar of the Zacks Rank for long though as analysts re-worked their models based on company guidance and the conference call. And it gave me the green light to begin a new position. Here's what I wrote in the Buy Alert for my TAZR Trader members on July 6...
It was my plan this weekend to buy BIDU this morning, but little did I know Alibaba would wake up like a beast too. Both have gapped higher and should run as BABA will enter a new phase of its bull market and BIDU is the AI-focused player in Chinese big data. Start with a 5% position this week and we'll add on any gap fills back toward $125.
Flash forward to this month's Q3 report, and the now $47 billion BIDU has ascended to a Zacks #1 Rank Strong Buy as analysts raise estimates and view the business transitions as gaining traction.
After a strong earnings beat and raised guidance, the Zacks EPS Consensus for this year jumped 10% to $8.25 in the past two weeks.
Immediately following the company presentation and conference call, Mizuho analyst James Lee raised his firm's price target on Baidu to $185 from $170, noting that the company's core revenue reached positive growth one quarter earlier than expected and was guided up 5% year-over-year for Q4.
Baidu also launched an expansion into "livestreaming," the new platform rage among Chinese youth for shopping and following influencers, by acquiring JOYY Live's Chinese business for $3.6 billion. Lee likes this move because it diversifies the revenue stream strongly into ecommerce and subscriptions and maintained Baidu as his top pick in China.
Lee also anticipates the AD (Autonomous Driving) segment's asset value could be unlocked through a strategic investment with leading OEMs, which could provide a 20% upside to the stock price.
I have always believed that AI and AD represented the primary growth drivers for Baidu, not internet search and advertising, as many Alphabet investors must also believe about their beloved.
But for Baidu, I think these growth levers are stronger here because of the strong Chinese government support for advanced technologies. In early 2018, I described the development of the first urban "AI park" outside of Beijing where Baidu would be the primary R&D company to build and test AD technologies.
Since then, an "AI park" sprung up around Shanghai in 2019. And while NVIDIA gets all the attention as the premier builder of AI hardware and software stacks, Baidu's pedigree in AI is beginning to bear fruit.
More coming up on Baidu's evolution into an AI powerhouse in China, right after we take care of some recent negative news.
Muddy Waters shorts JOYY, calls company "almost entirely fraudulent"
Unfortunately, 2 days after Baidu's strong report, I had to share this update with my TAZR members...
Carson Block's Muddy Waters Research said via Twitter, "MW is short $YY bc we conclude it is a near-total fraud. We conclude its businesses, users, and cash are a fraction of what it reports. We estimate that ~90% of YY Live revenue is fraudulent, and ~80% of Bigo rev is fraudulent...When $BIDU diligences $YY Live, the massive scale of fraud will be apparent. Is BIDU so desperate to show growth that it will pay ~7% of its market cap for an almost entirely fraudulent business? Is China Inc that rotten?. Bigo's rot stems from inception & the lie about who founded it. This lie enabled Chmnn Li to defraud at least $156.1 million of real money from $YY shareholders & YY to fraudulently report substantial remeasurement gains."
YY shares dropped over 25% late on Nov 18, from new highs above $105 all the way down to the low $70s. But they have since recovered to $90 as more is learned about the two businesses. And BIDU, who had just made new 18-month highs above $150, fell back to $140.
The short report claims that YY meaningfully misled investors regarding its financials by misrepresenting how revenues flow between itself and talent agencies. Essentially, YY controls talent agencies that manage influencers on the livestreaming platform and paid more than 50% of the total volume of virtual gifts. To support that claim, the Muddy Waters report points to PRC’s Credit Bureau, indicating that the five largest MCNs (talent agencies) on YY contributed only 15% of YY Live’s reported revenues.
Here was the reaction from Mizuho's Lee...
We do not cover YY, but based on our understanding of the Livestreaming industry, a platform typically has an internal talent agency that acquires, trains and manages influencers, so the claim by the report is not unusual, but materiality of revenues is the issue that YY needs to address, in our view.
In light of this report, we have confidence in Baidu management to conduct additional due diligence on issues raised by the report. At the same time, we believe that the acquisition could be delayed if YY hires an independent advisor to conduct its own reviews, very similar to what IQ did when facing an allegation of accounting improprieties a few months ago. Furthermore, a potential SEC inquiry could also slow the process.
If Baidu cannot move forward with the acquisition due to MAC (material adverse change), we believe that the company could either build a livestreaming platform internally, or seek other acquisition candidates.
Lee maintained Baidu as their top China Internet pick with a $185 price target, based on a SOTP (sum of the parts) valuation, noting that the stock trades at only 4X FY22 Baidu core EBITDA, against their estimated CAGR of 16%. He said the buy thesis has not changed as all previously outlined catalysts are still in play.
Baidu's Industrial AI Frontier in China
I've always admired Baidu for its committed role in AI, especially as I learned more about the vision and ethics of former chief scientist Andrew Yan-Tak Ng. As a technologist and investor, Ng co-founded and led Google Brain and was a former Vice President and Chief Scientist at Baidu, building the company's Artificial Intelligence Group into a team of several thousand people.
Ng is now an adjunct professor at Stanford University (formerly associate professor and Director of its AI Lab). Also a pioneer in online education, Ng co-founded Coursera and deeplearning.ai where he has successfully spearheaded many efforts to "democratize deep learning," teaching over 2.5 million students through his online courses.
In July when I bought shares, I highlighted news for TAZR members on Baidu's "new infrastructure" plan for the smart economy (courtesy of company PR excerpts)...
Baidu Unveils Plan to Increase Investments in New Infrastructure to Power the Rise of Industrial AI
Plans to Deploy 5 Million AI Cloud Servers by 2030 and Train 5 Million AI Professionals
Baidu announced that it will increase its investments in cloud computing, AI education, AI platforms, chipsets, and data centers in the coming ten years as part of its efforts to construct "new infrastructure" for the smart economy of the future.
"New infrastructure -- which encompasses emerging technologies like AI, cloud computing, 5G, IoT, and blockchain -- will be the driver for China's economic development in the coming decades," said Baidu Chief Technology Officer Haifeng Wang.
Under the plan, Baidu aims to have 5 million intelligent cloud servers by 2030 and train 5 million AI professionals within 5 years, which will help facilitate the widespread application of AI in transportation, city management, finance, energy, health care, and manufacturing to eventually achieve industrial intelligence.
Deploying 5 million intelligent cloud servers by 2030 is an ambitious target that would create a combined computing capability equal to seven times the total calculable computing power of the world's existing top 500 supercomputers.
Viewing human capital as a core component of the new infrastructure, the Baidu goal to train 5 million AI professionals in the next five years keeps humans at the center of this massive AI R&D. Baidu has been working with more than 200 leading universities in China to develop courses related to AI and deep learning and has already trained more than 1 million AI experts.
It sounds like China might be better paced than the US to migrate college students into jobs of the future.
Baidu has more than 7,000 published AI patent applications in China, the highest in the country. The AI open platform Baidu Brain has made available more than 250 core AI capabilities to over 1.9 million developers, while PaddlePaddle, the largest open-source deep learning platform in China, services 84,000 enterprises.
Baidu's Kunlun and Honghu AI chips are among the highest performing AI chips and are built for a wide range of scenarios. Baidu Cloud is China's leader in public cloud and AI cloud services with more than ten data centers across the country.
This new infrastructure is already allowing Baidu to lead the intelligent transformation of different industries. Baidu's smart finance products serve nearly 200 financial institutions, while Baidu's intelligent healthcare products are deployed at more than 300 hospitals and 1500 grassroots medical institutions.
Baidu Brain for Cities is already in place in Chongqing, Suzhou, and other cities, supporting more intelligent city management. Baidu's new investments will enhance its ability to rollout AI applications in these scenarios, as well as in manufacturing, energy, and transportation.
Bottom line on Baidu: The transformation into an AI powerhouse is real and streaming/social deals won't determine the fortunes of BIDU. I would remain a buyer of pullbacks to $130.
Disclosure: I own shares of BIDU, BABA, and NVDA for the Zacks TAZR Trader portfolio.
CyberArk Software is a $4 billion provider of IT security solutions, serving more than 5,400 global businesses, which include over 50% of the Fortune 500 and more than 35% of the Global 2000 companies. Headquartered in Petach Tikva, Israel, CyberArk Software Ltd. was founded in 1999.
CyberArk offers services, which protect organizational privileged accounts from cyber-attacks. Its products include CyberArk Shared Technology Platform, Privileged Account Security Solution and Sensitive Information Management Solution.
On November 10, the company reported Q3 2020 non-GAAP earnings of 31 cents per share that exceeded the Zacks Consensus Estimate by 6.9%. The bottom line, however, declined 52.3% year over year.
CyberArk’s revenues fell 1.4% year over year to $106.6 million and missed the consensus mark by 5.7%. Markedly, 59% of quarterly revenues were recurring in nature, which grew 40% year over year to $63 million.
Impressively, ARR (annual recurring revenues), an important measure for software companies with enterprise customers seeking more of their services, increased 40% year over year to $250 million.
But after the company outlook and conference call, analysts took down 2021 EPS estimates dramatically from $2.33 to $1.47, or 37%, resulting in a -20% earnings wipeout for next year -- following a 34% decline this year!
It's a wonder the stock is even higher after their report considering this reaction. But maybe that ARR growth number is winning the day, over EPS, with investors. They also unveiled some new enterprise services that integrate with Microsoft's Azure platform.
Quarter Details
Segment-wise, License revenues (42.9% of total revenues) decreased 20.9% year over year to $45.8 million. On a combined basis, SaaS and subscription revenues increased roughly 200% year over year and accounted for 28% of total license revenues.
Maintenance and Professional Services (57.1%) revenues increased 21% year over year to $60.8 million. Within the segment, professional services revenues came in at $9.9 million, representing 9% of total revenues.
The company witnessed strong year-over-year growth in financials, healthcare, telecom, pharma and the IT services software vertical.
CyberArk’s non-GAAP gross profit was $89.5 million, marking year-over-year decline of 4.8%. Moreover, gross margin contracted 300 basis points (bps) to 83.9% on unfavorable revenue mix (higher SaaS revenues) and increased cloud infrastructure cost related to SaaS business.
Operating expenses increased 20.8% year over year to $94.7 million. As a percentage of revenues, operating expenses were 88.8% compared with 72.5% reported in the year-ago quarter.
The company reported non-GAAP operating income of $13.1 million, down 55.4% year over year. Non-GAAP operating margin declined from 27.2% reported in the year-ago quarter to 12.3% in the reported quarter.
Key Developments
During the reported quarter, the company introduced CyberArk Cloud Entitlements Manager, an AI-powered service, to remove excessive cloud permissions.
Moreover, the company’s solutions are now available on Microsoft’s cloud platform Azure. Further, CyberArk achieved AWS Digital Workplace Competency Status and AWS Outposts Ready designation.
Guidance
For the fourth quarter of 2020, CyberArk estimates revenues of $125-$135 million.
Non-GAAP operating income is expected in the band of $25-$33 million. The company projects non-GAAP earnings in the 52-67 cents per share range.
Bottom line on CYBR: The company is a differentiated provider in security and the MSFT alliance will be a key driver going forward. We just want to see the estimates stop going down and start heading back up. The Zacks Rank will let you know.
Additional content:
Sony Bets Big on PS5 for Holiday Season
With the launch of the highly-anticipated PlayStation 5 (PS5) gaming console on Nov 12, Sony Corp. aimed to heighten the festive cheers in the upcoming holiday season and capitalize on the uptick in pandemic-induced nesting activities — games, streaming video and home fitness. The product seemed to have hit the right chords with the gamers from the very onset.
Despite appearing in the markets a couple of days after the arrival of Microsoft's Xbox Series X, the gaming console was immediately sold out worldwide. As demand far outstripped supply, rival firms surely have reasons to ponder about the driving factors behind this unprecedented success.
PS5 Launch: A Chaotic Frenzy
The PS5 launch was largely dictated by the coronavirus-triggered social distancing restrictions with Sony focusing primarily on online distribution channels rather than brick-and-mortar retail stores. Nevertheless, the event marked a chaotic frenzy with websites crashing, early orders being canceled, retailers jumping the gun in the pre-order period and delivery firms being blamed for potential later deliveries. This caused widespread product shortfalls, which in turn led to various resellers and Internet bots flooding online retail stores with re-sale offers at exorbitant prices.
In an official statement in response to the apparent shortage of PS5, Sony has assured fans that more stocks will be available before the end of the year. PS4, the predecessor of PS5, had been one of the best-selling gaming consoles in its era and had reportedly sold more than seven million units between its launch in November 2013 and the end of Sony’s fiscal year in April 2014. The top management of the Japanese conglomerate is quite confident that PS5 will exceed this record despite rumored initial hiccups related to manufacturing snag as raw-material supplies were reportedly hit by the virus outbreak.
Testing Waters?
Some industry experts opine that Sony had intentionally limited the production of PS5 consoles in the wake of the coronavirus pandemic. Notably, videogame companies often keep slender profit margins from hardware sales or even undercut the production costs to rake in more money through the additional sales of lucrative gaming software and online subscription services.
With wafer-thin or even non-existent profit margins, Sony is probably aiming to test the waters before running a full-fledged production schedule to cash in on the huge customer response of PS5.
Features Loaded
In order to convince gamers to splurge nearly $500 on this gaming console, Sony is banking on the updated graphics, a newly-redesigned controller and a collection of exclusive games. With a powerful 8-core AMD Zen 2 processor, 10.3 teraflops of graphics power, gorgeous 4K visuals and an immersive end-user experience, the PS5 promises some of the best performance ever witnessed in a gaming console. Moreover, PS5 loads games about 10 to 20 seconds faster than the PS4 Pro and can even read physical discs a few minutes faster, making it an ideal choice for techno-savvy impatient gamers.
With such astonishing features, some of the games have reportedly performed better in PS5 compared with Xbox Series X. Industry experts believe that such performance-related issues stem from the fact that Microsoft has allowed developers to submit games for Xbox Series X certification in June, leaving them with less time to optimize their gaming titles. On the contrary, PS5 developers had access to development kits from the very beginning, thereby offering the required window to solve any complication.
Rivals' Edge
However, Sony apparently loses on the entertainment quotient with less app support on offer. Currently, PS5 has only 24 apps, including Netflix and Hulu, with notable apps missing like Pandora, Sling and Starz that are featured in Xbox Series X that boasts 50 apps. In addition, PS5 comes with 825 GB of storage while Xbox Series X offers 1TB storage capacity.
Meanwhile, Nintendo Co. is reportedly working on an upgraded version of its Switch console and plans to ship it in 2021. With more computing power and 4K graphics, it has created quite a buzz in the gaming arena and aims to derail the hegemony of PS and Xbox models. Nintendo has particularly flourished during the pandemic with its social simulation game titled ‘Animal Crossing: New Horizons’ selling more than 26 million copies since its release in March. Sales of its Switch and Switch Lite consoles have also improved significantly during this period.
Nevertheless, PS5 has created such a buzz with its launch that has surely not gone unnoticed. It appears that the onus is now on rival players to play a catch-up game with Black Friday sales probably offering a curtain raiser of the showdown on offer.
Game on, Gamers….
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Baidu, CyberArk, Sony, Microsoft and Nintendo as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – November 30, 2020 – Zacks Equity Research highlights Baidu (BIDU - Free Report) as the Bull of the Day and CyberArk Software (CYBR - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Sony Corp. , Microsoft (MSFT - Free Report) and Nintendo Co. (NTDOY - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
After peaking above $270 in 2018, Baidu shares have been stuck in bull market purgatory, spending most of the last 18 months under $140.
That punishment could be ending soon as the company reinvents itself and recovers from government restrictions on its advertising revenues.
Here's what I wrote on June 13 when I profiled BIDU as the Bear of the Day...
Baidu, the $40 billion web search and marketing portal that used to be considered "the Google of China," especially as they forayed into AI technologies and self-driving cars, rallied over 16% since their strong Q1 earnings report on May 18. But guidance was cloudy enough to cause analysts to lower estimates and drive the stock into the cellar of the Zacks Rank.
BIDU shares didn't remain in the cellar of the Zacks Rank for long though as analysts re-worked their models based on company guidance and the conference call. And it gave me the green light to begin a new position. Here's what I wrote in the Buy Alert for my TAZR Trader members on July 6...
It was my plan this weekend to buy BIDU this morning, but little did I know Alibaba would wake up like a beast too. Both have gapped higher and should run as BABA will enter a new phase of its bull market and BIDU is the AI-focused player in Chinese big data. Start with a 5% position this week and we'll add on any gap fills back toward $125.
Flash forward to this month's Q3 report, and the now $47 billion BIDU has ascended to a Zacks #1 Rank Strong Buy as analysts raise estimates and view the business transitions as gaining traction.
After a strong earnings beat and raised guidance, the Zacks EPS Consensus for this year jumped 10% to $8.25 in the past two weeks.
Immediately following the company presentation and conference call, Mizuho analyst James Lee raised his firm's price target on Baidu to $185 from $170, noting that the company's core revenue reached positive growth one quarter earlier than expected and was guided up 5% year-over-year for Q4.
Baidu also launched an expansion into "livestreaming," the new platform rage among Chinese youth for shopping and following influencers, by acquiring JOYY Live's Chinese business for $3.6 billion. Lee likes this move because it diversifies the revenue stream strongly into ecommerce and subscriptions and maintained Baidu as his top pick in China.
Lee also anticipates the AD (Autonomous Driving) segment's asset value could be unlocked through a strategic investment with leading OEMs, which could provide a 20% upside to the stock price.
I have always believed that AI and AD represented the primary growth drivers for Baidu, not internet search and advertising, as many Alphabet investors must also believe about their beloved.
But for Baidu, I think these growth levers are stronger here because of the strong Chinese government support for advanced technologies. In early 2018, I described the development of the first urban "AI park" outside of Beijing where Baidu would be the primary R&D company to build and test AD technologies.
Since then, an "AI park" sprung up around Shanghai in 2019. And while NVIDIA gets all the attention as the premier builder of AI hardware and software stacks, Baidu's pedigree in AI is beginning to bear fruit.
More coming up on Baidu's evolution into an AI powerhouse in China, right after we take care of some recent negative news.
Muddy Waters shorts JOYY, calls company "almost entirely fraudulent"
Unfortunately, 2 days after Baidu's strong report, I had to share this update with my TAZR members...
Carson Block's Muddy Waters Research said via Twitter, "MW is short $YY bc we conclude it is a near-total fraud. We conclude its businesses, users, and cash are a fraction of what it reports. We estimate that ~90% of YY Live revenue is fraudulent, and ~80% of Bigo rev is fraudulent...When $BIDU diligences $YY Live, the massive scale of fraud will be apparent. Is BIDU so desperate to show growth that it will pay ~7% of its market cap for an almost entirely fraudulent business? Is China Inc that rotten?. Bigo's rot stems from inception & the lie about who founded it. This lie enabled Chmnn Li to defraud at least $156.1 million of real money from $YY shareholders & YY to fraudulently report substantial remeasurement gains."
YY shares dropped over 25% late on Nov 18, from new highs above $105 all the way down to the low $70s. But they have since recovered to $90 as more is learned about the two businesses. And BIDU, who had just made new 18-month highs above $150, fell back to $140.
The short report claims that YY meaningfully misled investors regarding its financials by misrepresenting how revenues flow between itself and talent agencies. Essentially, YY controls talent agencies that manage influencers on the livestreaming platform and paid more than 50% of the total volume of virtual gifts. To support that claim, the Muddy Waters report points to PRC’s Credit Bureau, indicating that the five largest MCNs (talent agencies) on YY contributed only 15% of YY Live’s reported revenues.
Here was the reaction from Mizuho's Lee...
We do not cover YY, but based on our understanding of the Livestreaming industry, a platform typically has an internal talent agency that acquires, trains and manages influencers, so the claim by the report is not unusual, but materiality of revenues is the issue that YY needs to address, in our view.
In light of this report, we have confidence in Baidu management to conduct additional due diligence on issues raised by the report. At the same time, we believe that the acquisition could be delayed if YY hires an independent advisor to conduct its own reviews, very similar to what IQ did when facing an allegation of accounting improprieties a few months ago. Furthermore, a potential SEC inquiry could also slow the process.
If Baidu cannot move forward with the acquisition due to MAC (material adverse change), we believe that the company could either build a livestreaming platform internally, or seek other acquisition candidates.
Lee maintained Baidu as their top China Internet pick with a $185 price target, based on a SOTP (sum of the parts) valuation, noting that the stock trades at only 4X FY22 Baidu core EBITDA, against their estimated CAGR of 16%. He said the buy thesis has not changed as all previously outlined catalysts are still in play.
Baidu's Industrial AI Frontier in China
I've always admired Baidu for its committed role in AI, especially as I learned more about the vision and ethics of former chief scientist Andrew Yan-Tak Ng. As a technologist and investor, Ng co-founded and led Google Brain and was a former Vice President and Chief Scientist at Baidu, building the company's Artificial Intelligence Group into a team of several thousand people.
Ng is now an adjunct professor at Stanford University (formerly associate professor and Director of its AI Lab). Also a pioneer in online education, Ng co-founded Coursera and deeplearning.ai where he has successfully spearheaded many efforts to "democratize deep learning," teaching over 2.5 million students through his online courses.
In July when I bought shares, I highlighted news for TAZR members on Baidu's "new infrastructure" plan for the smart economy (courtesy of company PR excerpts)...
Baidu Unveils Plan to Increase Investments in New Infrastructure to Power the Rise of Industrial AI
Plans to Deploy 5 Million AI Cloud Servers by 2030 and Train 5 Million AI Professionals
Baidu announced that it will increase its investments in cloud computing, AI education, AI platforms, chipsets, and data centers in the coming ten years as part of its efforts to construct "new infrastructure" for the smart economy of the future.
"New infrastructure -- which encompasses emerging technologies like AI, cloud computing, 5G, IoT, and blockchain -- will be the driver for China's economic development in the coming decades," said Baidu Chief Technology Officer Haifeng Wang.
Under the plan, Baidu aims to have 5 million intelligent cloud servers by 2030 and train 5 million AI professionals within 5 years, which will help facilitate the widespread application of AI in transportation, city management, finance, energy, health care, and manufacturing to eventually achieve industrial intelligence.
Deploying 5 million intelligent cloud servers by 2030 is an ambitious target that would create a combined computing capability equal to seven times the total calculable computing power of the world's existing top 500 supercomputers.
Viewing human capital as a core component of the new infrastructure, the Baidu goal to train 5 million AI professionals in the next five years keeps humans at the center of this massive AI R&D. Baidu has been working with more than 200 leading universities in China to develop courses related to AI and deep learning and has already trained more than 1 million AI experts.
It sounds like China might be better paced than the US to migrate college students into jobs of the future.
Baidu has more than 7,000 published AI patent applications in China, the highest in the country. The AI open platform Baidu Brain has made available more than 250 core AI capabilities to over 1.9 million developers, while PaddlePaddle, the largest open-source deep learning platform in China, services 84,000 enterprises.
Baidu's Kunlun and Honghu AI chips are among the highest performing AI chips and are built for a wide range of scenarios. Baidu Cloud is China's leader in public cloud and AI cloud services with more than ten data centers across the country.
This new infrastructure is already allowing Baidu to lead the intelligent transformation of different industries. Baidu's smart finance products serve nearly 200 financial institutions, while Baidu's intelligent healthcare products are deployed at more than 300 hospitals and 1500 grassroots medical institutions.
Baidu Brain for Cities is already in place in Chongqing, Suzhou, and other cities, supporting more intelligent city management. Baidu's new investments will enhance its ability to rollout AI applications in these scenarios, as well as in manufacturing, energy, and transportation.
Bottom line on Baidu: The transformation into an AI powerhouse is real and streaming/social deals won't determine the fortunes of BIDU. I would remain a buyer of pullbacks to $130.
Disclosure: I own shares of BIDU, BABA, and NVDA for the Zacks TAZR Trader portfolio.
Bear of the Day:
CyberArk Software is a $4 billion provider of IT security solutions, serving more than 5,400 global businesses, which include over 50% of the Fortune 500 and more than 35% of the Global 2000 companies. Headquartered in Petach Tikva, Israel, CyberArk Software Ltd. was founded in 1999.
CyberArk offers services, which protect organizational privileged accounts from cyber-attacks. Its products include CyberArk Shared Technology Platform, Privileged Account Security Solution and Sensitive Information Management Solution.
On November 10, the company reported Q3 2020 non-GAAP earnings of 31 cents per share that exceeded the Zacks Consensus Estimate by 6.9%. The bottom line, however, declined 52.3% year over year.
CyberArk’s revenues fell 1.4% year over year to $106.6 million and missed the consensus mark by 5.7%. Markedly, 59% of quarterly revenues were recurring in nature, which grew 40% year over year to $63 million.
Impressively, ARR (annual recurring revenues), an important measure for software companies with enterprise customers seeking more of their services, increased 40% year over year to $250 million.
But after the company outlook and conference call, analysts took down 2021 EPS estimates dramatically from $2.33 to $1.47, or 37%, resulting in a -20% earnings wipeout for next year -- following a 34% decline this year!
It's a wonder the stock is even higher after their report considering this reaction. But maybe that ARR growth number is winning the day, over EPS, with investors. They also unveiled some new enterprise services that integrate with Microsoft's Azure platform.
Quarter Details
Segment-wise, License revenues (42.9% of total revenues) decreased 20.9% year over year to $45.8 million. On a combined basis, SaaS and subscription revenues increased roughly 200% year over year and accounted for 28% of total license revenues.
Maintenance and Professional Services (57.1%) revenues increased 21% year over year to $60.8 million. Within the segment, professional services revenues came in at $9.9 million, representing 9% of total revenues.
The company witnessed strong year-over-year growth in financials, healthcare, telecom, pharma and the IT services software vertical.
CyberArk’s non-GAAP gross profit was $89.5 million, marking year-over-year decline of 4.8%. Moreover, gross margin contracted 300 basis points (bps) to 83.9% on unfavorable revenue mix (higher SaaS revenues) and increased cloud infrastructure cost related to SaaS business.
Operating expenses increased 20.8% year over year to $94.7 million. As a percentage of revenues, operating expenses were 88.8% compared with 72.5% reported in the year-ago quarter.
The company reported non-GAAP operating income of $13.1 million, down 55.4% year over year. Non-GAAP operating margin declined from 27.2% reported in the year-ago quarter to 12.3% in the reported quarter.
Key Developments
During the reported quarter, the company introduced CyberArk Cloud Entitlements Manager, an AI-powered service, to remove excessive cloud permissions.
Moreover, the company’s solutions are now available on Microsoft’s cloud platform Azure. Further, CyberArk achieved AWS Digital Workplace Competency Status and AWS Outposts Ready designation.
Guidance
For the fourth quarter of 2020, CyberArk estimates revenues of $125-$135 million.
Non-GAAP operating income is expected in the band of $25-$33 million. The company projects non-GAAP earnings in the 52-67 cents per share range.
Bottom line on CYBR: The company is a differentiated provider in security and the MSFT alliance will be a key driver going forward. We just want to see the estimates stop going down and start heading back up. The Zacks Rank will let you know.
Additional content:
Sony Bets Big on PS5 for Holiday Season
With the launch of the highly-anticipated PlayStation 5 (PS5) gaming console on Nov 12, Sony Corp. aimed to heighten the festive cheers in the upcoming holiday season and capitalize on the uptick in pandemic-induced nesting activities — games, streaming video and home fitness. The product seemed to have hit the right chords with the gamers from the very onset.
Despite appearing in the markets a couple of days after the arrival of Microsoft's Xbox Series X, the gaming console was immediately sold out worldwide. As demand far outstripped supply, rival firms surely have reasons to ponder about the driving factors behind this unprecedented success.
PS5 Launch: A Chaotic Frenzy
The PS5 launch was largely dictated by the coronavirus-triggered social distancing restrictions with Sony focusing primarily on online distribution channels rather than brick-and-mortar retail stores. Nevertheless, the event marked a chaotic frenzy with websites crashing, early orders being canceled, retailers jumping the gun in the pre-order period and delivery firms being blamed for potential later deliveries. This caused widespread product shortfalls, which in turn led to various resellers and Internet bots flooding online retail stores with re-sale offers at exorbitant prices.
In an official statement in response to the apparent shortage of PS5, Sony has assured fans that more stocks will be available before the end of the year. PS4, the predecessor of PS5, had been one of the best-selling gaming consoles in its era and had reportedly sold more than seven million units between its launch in November 2013 and the end of Sony’s fiscal year in April 2014. The top management of the Japanese conglomerate is quite confident that PS5 will exceed this record despite rumored initial hiccups related to manufacturing snag as raw-material supplies were reportedly hit by the virus outbreak.
Testing Waters?
Some industry experts opine that Sony had intentionally limited the production of PS5 consoles in the wake of the coronavirus pandemic. Notably, videogame companies often keep slender profit margins from hardware sales or even undercut the production costs to rake in more money through the additional sales of lucrative gaming software and online subscription services.
With wafer-thin or even non-existent profit margins, Sony is probably aiming to test the waters before running a full-fledged production schedule to cash in on the huge customer response of PS5.
Features Loaded
In order to convince gamers to splurge nearly $500 on this gaming console, Sony is banking on the updated graphics, a newly-redesigned controller and a collection of exclusive games. With a powerful 8-core AMD Zen 2 processor, 10.3 teraflops of graphics power, gorgeous 4K visuals and an immersive end-user experience, the PS5 promises some of the best performance ever witnessed in a gaming console. Moreover, PS5 loads games about 10 to 20 seconds faster than the PS4 Pro and can even read physical discs a few minutes faster, making it an ideal choice for techno-savvy impatient gamers.
With such astonishing features, some of the games have reportedly performed better in PS5 compared with Xbox Series X. Industry experts believe that such performance-related issues stem from the fact that Microsoft has allowed developers to submit games for Xbox Series X certification in June, leaving them with less time to optimize their gaming titles. On the contrary, PS5 developers had access to development kits from the very beginning, thereby offering the required window to solve any complication.
Rivals' Edge
However, Sony apparently loses on the entertainment quotient with less app support on offer. Currently, PS5 has only 24 apps, including Netflix and Hulu, with notable apps missing like Pandora, Sling and Starz that are featured in Xbox Series X that boasts 50 apps. In addition, PS5 comes with 825 GB of storage while Xbox Series X offers 1TB storage capacity.
Meanwhile, Nintendo Co. is reportedly working on an upgraded version of its Switch console and plans to ship it in 2021. With more computing power and 4K graphics, it has created quite a buzz in the gaming arena and aims to derail the hegemony of PS and Xbox models. Nintendo has particularly flourished during the pandemic with its social simulation game titled ‘Animal Crossing: New Horizons’ selling more than 26 million copies since its release in March. Sales of its Switch and Switch Lite consoles have also improved significantly during this period.
Nevertheless, PS5 has created such a buzz with its launch that has surely not gone unnoticed. It appears that the onus is now on rival players to play a catch-up game with Black Friday sales probably offering a curtain raiser of the showdown on offer.
Game on, Gamers….
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