For Immediate Release
Chicago, IL – August 5, 2019 – Zacks Equity Research Alteryx (AYX - Free Report) as the Bull of the Day, Align Technology (ALGN - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Pinterest (PINS - Free Report) .
Here is a synopsis of all three stocks:
Bull of the Day:
Since I bought Alteryx for my TAZR Trader portfolio in late May, I've produced several research articles and video reports on this amazing big-data "analytics engine."
And since Alteryx just delivered another strong beat and raise quarter, which will keep it a Zacks #1 Rank (Strong Buy), it's time to recap the investment thesis and the opportunities ahead for the company.
Here's what I told my members last Wednesday night after the AYX report...
Right now, let's get to our all-star earnings player, Alteryx!
We got a beat and raise, though Q3 EPS could be softer than expected as the full year powers through to 47-cents vs consensus of 43c.
Alteryx delivered Q2 EPS of $0.01 vs expectations of a 6-cent loss.
Even better, revs came in over 7% higher than consensus at $82M vs $76.5M!
The slight "wince" on the guide was management seeing Q3 EPS 6c-9c vs. consensus 13c. But as noted above, the full-year guide is a range of 44c-50c.
And the revenue guidance still maintained an upward trajectory with Q3 seeing $88-91 million vs. consensus $87.5M.
Full-year rev guide is for $370-375 million vs. consensus of $360M, representing a blistering 83% annual growth in sales.
Key highlights of the business expansion...
**Added 305 new customers in Q2 to hit 5,278 customers, a 34% increase from Q2 2018.
**Achieved a dollar-based net expansion rate (annual contract value based) of 133%.
**Large contract momentum persists with a 50%+ increase in deals over $250,000.
**Doubling of contracts deals over $1,000,000.
"Our forward momentum continued in the second quarter highlighted by revenue growth of 59% year-over-year and net expansion rates of over 130% driven by both strong market tailwinds and solid execution,” said Dean Stoecker, CEO of Alteryx, Inc. “We continue to be humbled and amazed by the innovative ways our customers are leveraging the Alteryx platform to transform their business in remarkable ways.”
(end of TAZR notes from July 31)
That last sentence from Dean Stoecker is a key ingredient of Alteryx success. I learned this when I was studying the company platform and customers in early June during their annual user-conference Inspire in Nashville. You can learn more about that in my June 12 article and video...
Big Data Chaos: How Alteryx Creates Raving Fans
In this piece I explain that there's a new gold rush going on inside of companies as they either mine their data, or get permanently disrupted.
Bear of the Day:
On July 24, Align Technology delivered a big EPS beat of 21% and slightly better revenues. But Invisalign case shipments missed estimates (377K vs 380K+ consensus) and Q3/2H19 guidance was disappointing due to both slower adoption in China and some softness in US young adult growth.
Here were the headline prints from Bloomberg and the CEO summary, and then we'll look at analyst reaction...
--Align Technology reports Q2 EPS $1.83 vs consensus $1.51 and Q2 revenue $600.7M vs consensus $599.38M.
--Align Technology sees Q3 EPS $1.09-$1.16 vs consensus $1.24 and Q3 revenue $585M-$600M vs consensus $623.65M.
--Align Technology sees FY19 revenue at low end of 20%-30% growth target vs consensus $2.45B. Sees FY19 Invisalign revenue and volume growth at low end of long-term operating model target. Sees FY19 operating margin below low end of long-term model at roughly 22%.
Commenting on Align Q2 results and the outlook for Q3, Align Technology president and CEO Joe Hogan said, "Our second quarter revenues were at the high-end of our guidance, reflecting Invisalign volume growth primarily from international doctors, as well as very strong sales from iTero scanner and services. Q2 Invisalign volumes were up 24.6% year-over-year reflecting continued adoption from teenage and younger patients, as well as increased utilization among orthodontists and expansion of our customer base which totaled 60,000 active doctors worldwide. In Q2, total Invisalign case shipments were lower than expected, primarily due to a softness in China related to a tougher consumer environment and slower growth in young adult case in North America. Given the uncertainty in China, our outlook for the third quarter reflects a more cautious view for growth in the Asia Pacific region."
Now here's a sampling of analyst reactions...
Jefferies: Analyst Brandon Couillard explained that the 25% drop in ALGN shares on July 25 was all about the Q2 Invisalign case volume miss and Q3 guidance shortfall, due to a consumer-led slowdown in China and competitive noise in Americas. However, the analyst does not see the latest "snaggle in two pockets of the business as structural issues." Near-term, he thinks the Q3 guidance tilts conservative and believes the valuation should offer support. Couillard lowered his price target for ALGN to $275 from $345.
Credit Suisse: Analyst Erin Wilson Wright lowered her price target for Align Technology to $320 from $340 on lower outlook following quarterly results. The analyst reiterates an Outperform rating on the shares.
Stifel Nicolaus: ALGN price target lowered to $290 from $360 at Stifel on "messier than anticipated" quarter. "We expected some noise in the quarter, but results were admittedly messier than anticipated, and our 2019-2021 revenue and EPS estimates move lower." The Stifel analysts also believe management's 3Q19 case volume guidance will prove conservative. Regarding increased competitive pressures, they see that ALGN can still grow case volumes 20%+ long-term due to traction in more insulated/high-growth markets like Teen, International and LATAM.
Growth Hiccup on International Expansion and Competition
We have owned and traded ALGN shares for over two years in my Healthcare Innovators portfolio. In fact, we rode a big wave from $130 to $330 for 150% gains between May 2017 and May 2018. I believed that the premier brand of dental aligners combined with iTero, the digital scanning platform ideal for emerging markets penetration, would continue to grow at 25-30% annually and hit $5 billion in sales in 2021.
That would justify a price-to-sales valuation of over 5X and sustain shares above $300. But the growth hiccup is here and will slow down the path to $5 billion with only 21-22% growth. Here's what I told members on July 25...
My take: The selling overreaction here is brutal and likely way over-done. But estimates will come down and make ALGN a Zacks #5 Rank soon. Estimates were already creeping down enough in the past week to push it to a #4 Rank yesterday morning before earnings.
Estimates did indeed come down since then with next year's topline projection falling under $3 billion and the Zacks EPS consensus slipping from $7.22 to $6.69 among eight analysts.
Unfortunately, this meant that I had to sell Align Technology and wait for the estimates to turn back up, or at least stop going down. Here's what I told members on July 26...
This is a tough decision because I believe that both investors and analysts are overreacting to the China growth miss.
But as I indicated yesterday, the stock will become a Zacks #5 Rank soon as estimates come down, so I would be selling at some point next week anyway.
In the interest of helping you make your own decision, I provide more analyst views and moves, courtesy of TheFly.com...
BofA/Merrill: Align Technology downgraded to Neutral on reduced visibility as analyst Michael Ryskin weighed the company's lighter Q2 volumes and Q3 volumes guidance that was well-below expectations. He noted that while Align has had volatile results in the past, this report stands out given the number of issues that cropped up in the quarter amid positive commentary from management in recent months. Ryskin added that this was "the first time that Align spent significant time discussing incremental pressure from competition." He lowered their PT from $350 to $220.
Piper Jaffray: Analyst Matt O'Brien lowered his price target for Align Technology to $240 from $350 saying the company's case volumes were a "little light" for Q2 and management issued second half of 2019 guidance "well below" expectations. This is the first time Align has acknowledged the impact of competition and there was also a slowdown in China, O'Brien told investors in a research note. He believes that while these issues will not resolve quickly, the company "will be able to navigate them." Further, there were some clear positives from the quarter, including "impressive" scanner growth and "excellent" doctor training numbers, contends O'Brien. He keeps an Overweight rating on Align Technology.
Of note is the huge move in price target from the BofA/ML analyst who had just raised his target to $350 only weeks before ALGN's report. One might suspect he felt fooled by company optimism this year. And if some investors feel that way too, ALGN shares may drift in purgatory for some time near $200.
But longer-term, they are probably a buy very soon. The Zacks Rank will let you know.
Meanwhile, there are often 40 or more stocks in the Medical sector with a Zacks #1 Rank and I am going through them carefully to find our next winner. Check out my special report below for some of those ideas and research...
Pinterest reported second-quarter 2019 non-GAAP loss of 6 cents per share that was narrower than the year-ago quarter loss of 27 cents.
Revenues surged 62.1% year over year to $261.2 million. Revenues from the United States jumped 55.6% to $238 million primarily due to higher advertisements revenues from emerging verticals and consumer packaged goods.
International revenues soared 200% year over year to $24 million.
The Zacks Consensus Estimate for the top and the bottom lines was pegged at $235 million and loss of $2.65, respectively.
User Base & Advertising Business Expands in Q2
MAUs (Monthly Average Users) Global increased 30% to 300 million. While United States MAUs increased 13% to 85 million, International MAUs soared 38% to 215 million.
Pinterest continued to focus on making the platform more relevant for users (called Pinners) by improving search recommendations and by adding more video content and products.
ARPU (Average Revenue Per User) Global surged 29% to 88 cents. ARPU United States and International jumped 41% and 123% on a year-over-year basis to $2.8 and 11 cents, respectively.
Growth in ARPU was primarily driven by an increase in the number of advertisements. Further, the price of advertisements increased on a year-over-year basis. Internalizing ads business, simplifying ad systems for smaller businesses and improving advertisers’ ability to measure the effectiveness of their ad spend were key priorities in the second quarter.
At the end of second-quarter 2019, Pinterest offered ads to users in 19 countries, up from 13 at the end of first-quarter 2019. New markets added were Denmark, Finland, Norway, Portugal, Sweden and Switzerland.
Revenues from large Canadian advertisers more than quadrupled year over year. The company wishes to replicate the same approach with investments made in France and Germany for 2019.
Additionally, Pinterest launched Mobile Ads Tools, a mobile version of advertising manager that boosted mobile signup activation rates.
Moreover, in the second quarter, the company integrated the Pinterest Tag with Google Tag Manager and other tag management and e-commerce platforms, making Pinterest Tag more accessible to medium & small businesses. These integrations provide a low-friction way for advertisers to install code and measure campaign performance. The number of tags added so far in 2019 is twice as many as the company added in full year 2018.
Also, the company enabled businesses to create visual ads with revamped Pin creation tools, including the ability to choose from pre-set aspect ratios of an image, crop and add text and logos.
Pinterest’s second-quarter 2019 total expenses grew 605% to $1.43 billion, which includes $1.13 billion of share-based compensation following its April 2019 IPO.
In the reported quarter, research and development expenses grew significantly to $801.9 million attributed to higher personnel and facilities-related costs.
Sales and marketing expenses surged 355.8% year over year to $296.9 million due to higher marketing expenses.
General and administrative expenses increased year over year to $224.2 million.
Adjusted EBITDA was negative $26 million compared with negative $31.9 million in the year-ago quarter, reflecting top-line growth.
Non-GAAP costs and expenses grew 48% year over year to $293 million, driven by headcount growth and increased sales coverage in the U.S. and International markets.
Loss from operations was $1.17 billion compared with loss of $41.4 million in the year-ago quarter.
For 2019, Pinterest expects revenues between $1.055 billion and $1.080 billion, indicating growth in the range of 40-43% over 2018.
The Zacks Consensus Estimate is currently pegged at $1.07 billion.
Adjusted EBITDA is expected between negative $45 million and $70 million.
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