Stock Market Nerd – Updated EBIT comp sheet for Growth Tech – June 22, 2024
Thank you to Isaac for recommending that I start putting these in weekly articles. I’m going to start doing one per week between earnings seasons. They will only be published here. This week uses an EBIT lens for high growth tech firms. Next week, I will use the same metrics but for the more mature and established names in the network. FCF comp sheets will come after that.
Needed Overarching Data Caveats:
- Lower on the right-most column means cheaper.
- This is simply one slice of data. It is not the be-all-end-all of valuation. It is one of three profit metrics that I usually lean on (FCF and net income the others). I will provide FCF and net income comp sheets in the coming weeks. Using those three in tandem is better than using any in isolation.
- EBIT multiples use next 12-month profits. Y/Y growth uses the firm’s current fiscal year. The 2-year CAGR goes out another year. Fiscal calendars don’t perfectly match. Schedules are mostly similar, but not identical.
Needed Company-Specific Caveats:
- Snow is investing heavily in GenAI this year. That’s leading to negative Y/Y profit growth and would have made its EBIT growth multiple look ridiculous (25.1). I went out another year to eliminate the noise from these investments. But this is still absolutely worth noting.
- MongoDB collected about $80 million in one-time, pure margin revenue last year. It’s also undergoing a business model transition that is impacting things. The $80 million is not recurring and is leading to negative EBIT growth for this year. Like for Snow, I went out another year to eliminate this noise. Its growth multiple would have been a ridiculously high 37.0. Eliminating outliers and one-off events makes averages and relative comps more valuable.
- The Trade Desk and Airbnb don’t make non-GAAP EBIT adjustments. Most of the rest do. To make the comps fairer, I used EBITDA multiples for both companies and added about 10 turns (historical norms) to arrive at the presumed non-GAAP EBIT multiples. I also used EBITDA growth instead of GAAP EBIT growth. Both companies had temporary items that led to negative EBIT growth last year. This made comps for GAAP EBIT extremely easy and would have made both look unfairly cheap. Hence using EBITDA growth.
- SoFi and Robinhood also don’t make adjustments. Still, I don’t love how either calculate adjusted EBITDA, so I elected to use GAAP EBIT for their multiples. SoFi trades for 9x 2024 EBITDA and Robinhood trades for about 19x 2024 EBITDA for context. Still, the EBITDA calculations don’t change from year to year. I felt comfortable using EBITDA growth instead of more rapid GAAP EBIT growth to avoid making SoFi look unfairly cheap. Its growth multiple would have been 0.27 had I not done this.
- For Samsara and Block, the CAGR period is one year further into the future to avoid unfairly crediting them for exponential EBIT growth in connection with turning EBIT positive.
Some Observations:
- Fintech is immensely out of favor at the moment.
- Zscaler looks pretty darn cheap here.
