The first company earnings (FSLY) are out! But first, the bigger news this morning is the merger of Teledoc (TDOC), a virtual healthcare company, and our very one Livongo (LVGO). I admit it is a very good marriage and the two will compliment each other well, but make no mistake, TDOC (58% of the deal) will be assimilating LVGO (42% of the deal), which will go away. I’m afraid the slower growth of TDOC will impact the MUCH faster growing LVGO. Fortunately, we invested in this company in the low 50’s and have realized 140%+ returns in a few short months. Given that further upside may be limited for some time and the market is not viewing the merger so kindly today, I took the opportunity to sell half of my position today and will assess the remaining position over the next few days. Of course, this is one of those companies that we’ve not been in for a full year yet, so the consequences of the short-term gains will have to be paid come tax time. A first world problem, no doubt. It is not the result I was hoping for or the reason I was invested in LVGO; and to be honest, its a little disappointing as I felt these guys could CRUSH it and the stock would appreciate far more from here, but so it goes. The deal is not done yet, but they seldom announce these until both boards have agreed on the terms (which they have) and they announced it on CNBC with both CEO’s on the call. Of course there are much worse outcomes possible, so will book this one as a nice “triple” and move on. Cheers!
FSLY (Fastly, Inc) Q2 Earnings: As anticipated, FSLY just released incredible results for the quarter. On the top line, they announce $75m in Revenues, which represents 62% revenue growth q/q, an increase from around 38% growth prior to this quarter. Nice acceleration. Additionally, they announced record new customers, increased Gross margins to 61% from 55%, increased Net Customer Retention Rate to 138% (up from 130% which is simply incredible and one of the best of any company we own), positive EBITDA, and $454m in cash. So what is NOT to like and why are trading down in price after-hours today? Well, they had already announced in the prior quarter release and guided that they anticipated much higher revenues around 56% growth due to the positive effects of Covid-19. The stock price was already up 50% in the last 5 days (yep…you read that right) and 420% in the last 6 months. Naturally some traders are taking profits off the table. On the unknown side, they also shared that they have one very large customer who is getting hamstrung right now by the US government: A little company called TicToc (who I’m sure your teenager is very well acquainted with) that makes up 12% of their revenues and who the administration is currently threatening to ban in the US. Investors don’t like uncertainty. In spite of this, FSLY raised their annual guidance again and appeared very confident in the future of the company and the trends and tailwinds they are seeing. The other possible negative I noted was a very large increase in total shares outstanding from 95m to 110m, or around a 16% increase. This causes dilution in the stock, but we already knew that in May they had done a secondary public offering, which also explains why their cash position is up so significantly. Still love the company and don’t see a reason to sell my core position. At 62% revenue growth, they are the third fastest growing company we own right now (ZM and CRWD are both MUCH higher right now). The stock is trading down about 14% after-hours, but my guess is that it will not be down that much tomorrow when the regular market re-opens. They set themselves such a high bar and the stock price was already up so much that a small drop is not unexpected…though I would of course have loved to see it scream higher!
1 company down…9 to go! Cheers! -Victor
