Earnings Preview for Next Week – Amazon (AMZN), PayPal (PYPL), SoFi (SOFI) and Lemonade (LMND) – April 27, 2024
Amazon (AMZN)
Amazon should report excellent Q1 numbers next week. Google Cloud and Azure were both strong, Visa’s commentary on robust ecommerce spending was notable. There are no excuses for this company not to deliver, and that’s exactly what I expect it to do. How does the stock react? Not sure. The setup here isn’t as difficult as it was for Meta, but it’s far more difficult than it was for Tesla. The bar for execution is high. The countless margin tailwinds we discuss frequently, uniformly positive sell-side channel checks for its e-commerce marketplace and robust cloud spending should all lead to more success for this titan.
PayPal (PYPL)
PayPal needs to show the world that its initial 2024 guidance was greatly sand-bagged. It needs to raise transaction margin dollar guidance; it needs to keep layering on higher margin revenue for Braintree clients; it needs to expand private label success across the globe; it needs to monetize Venmo much better, and it needs to maintain its fair share of branded checkout. Cost cuts can only let profits compound for so long. Structural, long term profit growth will require these items if it’s to happen. I am cautiously optimistic here, as 0% annual transaction margin dollar and EPS growth just doesn’t make sense. It assumes none of the needed product releases from 2023 have any impact at all. And furthermore, branded is still growing well in excess of U.S. GDP, which is a high margin business. Shifting its Braintree “growth-at-any-cost” philosophy to one that embraces rational pricing and software cross-selling should also help a lot. Focus is finally well-placed. If it has any success in fixing the broken business model whatsoever… there should be upside. I’m cautiously optimistic. If this quarter doesn’t go well… if the initial annual guidance doesn’t turn out to be the kitchen sink… I will seriously consider exiting this position.
SoFi (SOFI)
I’m not at all concerned about Q1 results here. CEO Anthony Noto conducted an interview 90% of the way through calendar Q1 where he basically reiterated all guidance. The only uncertainty here is surrounding 2024 guidance. Sentiment here is pretty poor at the moment, and a beat and raise can go a long way in changing that. Don’t be surprised if we see another gap up Monday morning and a subsequent sell-off. This is a highly liquid name, with a massive share count. The pattern of spikes and sell-offs will continue to play out… until it doesn’t. When? Not sure. But for now, all I care about is this company continuing to grow quickly, expand margins and march towards its 2026 targets.
Lemonade (LMND)
As we’ve discussed in the newsletter, insurance premium inflation stinks for consumers, but is great for Lemonade. Insurers struggle with inflation as claims rise with rising prices, but premiums are anchored until slow regulators approve updates. The insurance premium inflation we’ve seen recently hints that those updates are now coming. If that’s happening, it would open up more geographies (like California) for Lemonade to lean into growth.
This company continues to trade around cash value and is quickly shrinking its burn rate. Balance sheet risk has vanished as its margins improve and its growth engine churns. All it will take is temporary macro headwinds to fade for that growth engine to pick up once more. This is arguably the best $1 billion company I’ve ever seen in terms of being able to closely control their revenue growth. It has also been surgical in its modeling of margin trends for the last several years. If they feel less need to control costs and growth due to the reasons cited… large revenue beats and meeting profit targets should be what plays out. If brightening macro doesn’t occur, I see in-line revenue and outperforming profit. The initial 2024 guide was quite conservative… we’ll see if they over-deliver like I expect.
