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Earnings Review - Week of 02/26/2021

Jeremiah Chapter 29 verses 11-13 state, "For I know the plans I have for you declares the Lord, plans to prosper you and not to harm you, plans to give you hope and a future. Then you will call on me and come and pray to me, and I will listen to you. You will seek me and find me when you seek me with all your heart."

This Bible verse is fundamental for me, especially when times are tough. God makes multiple promises throughout the Bible. Here I am reminded of God's love for me as His desire for me is for good and not evil for both the present and future. At the same time, I have my end of the bargain as I need to fully commit to Him above all else.


I like this verse as it relates to investments regarding the future and hope. What better time to consider the future and prospects for investments than earnings season. While I've subscribed to performing earnings updates on a weekly basis, this was one tough week as the companies involved were numerous:

  • Airbnb

  • Beyond Meat

  • DoorDash

  • Fisker

  • Overstock

  • Plug Power

  • Root

  • Square

  • Teledoc Health

  • Velodyne Lidar

  • Virgin Galactic

  • Wayfair

Airbnb


Key Points

Airbnb, Inc. (ABNB) had a seemingly mixed year for 2020. On the one hand, the company performed better than analysts expectations. On the other hand, Airbnb witnessed some very strong negative impacts to its business from both COVID, as well as from the IPO.


COVID impacts hit key areas including a 41% decline in Annual Nights & Experiences Booked to 193 million, a 37% decline in GBV to $23.9 billion, and corresponding 30% decline in Revenue. The fourth quarter witnessed improvement and management is expecting this level of improvement to be sustained in Q1 for 2021. Guidance is not specifically provided for either the upcoming quarter or full year. Regardless, Airbnb believes that in 2021, travel will be less about where you go and when you go, and more about who you are with and what you can do together. This will lead to a shift from mass travel to meaningful travel.


Airbnb is anticipating a new-normal of travel that will be very beneficial for their business model, and is taking the opportunity to market this view strongly. Arbnb's SP reaction was very strong, with a 13% gain. There are a couple areas that I believe need some scrutiny in 2021. Obviously improving Revenue will be important to monitor from 2020, but the company's FCF performance will be very important to key in on.


Prior to the fourth quarter earnings announcement, Airbnb was still generating a nearly 20% FCF margin. After Q4 in 2020, FCF plummeted from this level to negative 49%. Two line items were the culprits. Frist, Airbnb witnessed an IPO-based $1.7 billion charge for taxes related equity award settlements. Second the company saw a substantial decline in the Change in Funds Payable & Amounts Payable to Customers. I suspect that the IPO-based tax charge will not be occurring moving forward, but it is now clear as to why Airbnb took out $1.8 billion in debt proceeds in addition to the IPO proceeds. Still, the company finds itself with a strong Net Cash position at just below $5 billion. Moving forward, it will be crucial to assess the company's FCF margin.


I am modeling Airbnb with a PT near $255 per share over the next 18-month period. This assumes 25 times EV/Revenue and 125 times OCF per share, including Revenue approaching $7 billion for 2022. My Revenue estimate is more bullish than average analysts (today), but in the event Airbnb get its FCF margin back towards 20%, I see a long runway for investment performance.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $4.6 billion

  • Revenues: $3.4 billion

  • Gross Margin, GM: 74%

  • Operating Cash Flow, OCF / Margin: ($630) million / (19%)

  • Free Cash Flow, FCF / Margin: ($1.6) billion / (49%)

  • Shares Outstanding: 605 million

  • Annual Nights & Experiences Booked: 193 million

  • Annual Gross Booking Value (GBV): $23.9 billion

Valuation Metrics

  • Enterprise Value, EV: $121 billion

  • EV/Revenues: 36 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Beyond Meat


Key Points

Beyond Meat, Inc. (BYND) had a difficult year due to COVID. Expectations were high as Foodservice Sales were soaring pre-COVID, but were hit hard during lock-down measures, with sales dropping by greater than 30% for 2020. Retail Sales did benefit from consumers buying more and staying at home, with sales up over 100% in 2020. Based on a Pre-COVID trajectory, Beyond Meat would have likely witnessed much higher growth for Foodservice, and higher Revenue.


The company remains focused on the build out of production facilities in China and Europe, bolstering research and development capabilities, amplifying its marketing voice, upgrading IT infrastructure, and, importantly, continuing to build out talented teams across the globe to bring the company's ambitious goals to fruition. The following updates on partnerships were provided:

  • Announced a global strategic partnership with Yum! Brands (YUM) to co-create and offer "craveable and innovative" plant-based protein menu items that can only be found at KFC, Pizza Hut and Taco Bell over the next several years.

  • McDonald's (MCD) told Bloomberg that restaurants in some of its markets are already working with other suppliers on plant-based menu items. McDonald's will let that continue at their discretion and also confirmed that the Beyond Meat deal only applies to restaurants in the U.S. and its so-called international operated markets segment, representing countries like Australia, Canada and the U.K. If locations in these markets decide to test or introduce the new McPlant burger, they'll source the patty through Beyond Meat, McDonald's told Bloomberg.

For me, the investment thesis with Beyond Meat has always been about the company scaling and getting to a 15% OCF margin. This thesis was highly impacted during 2020, but I am encouraged by the company's performance. 2021 will be an aggressive investment year for the company, and I've questioned whether the need for more capital will be required. Beyond Meat has stated that their capital is sufficient right now.


I am modeling Beyond Meat with a PT near $195 per share over the next 18-month period. This assumes 15 times EV/Revenue and 750 times OCF per share, including Revenue approaching $900 million for 2022. I am looking for the company to break out with positive OCF by 2022, with increasing performance thereafter. If the company can indeed scale towards $600 million in sales for 2021, I think that the current cash position may suffice into 2022.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $134 million

  • Revenues: $407 million

  • Gross Margin, GM: 30%

  • Operating Cash Flow, OCF / Margin: ($40) million / (10%)

  • Free Cash Flow, FCF / Margin: ($108) million / (27%)

  • Shares Outstanding: 63 million

  • Retail Sales: $301 million

  • Foodservice Sales: $106 million

Valuation Metrics

  • Enterprise Value, EV: $9 billion

  • EV/Revenues: 22 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

DoorDash


Key Points

DoorDash, Inc. (DASH) truly had a spectacular year in 2020, and despite Airbnb getting the big rise after earnings, DoorDash's SP dropped, but did see a steady rise throughout the day. The most important aspect of management's update included the company's substantial growth during Q4 2020 in serving both restaurant and non-restaurant merchants on its Marketplace. I think many view DoorDash as a food delivery company, which it is, but COVID also created an opportunity for the company to launch the convenience and grocery category, the first non-restaurant vertical on its Marketplace.

The company is seeing strong benefits of its Merchant and Consumer service products. Total Orders grew by 210% to 816 million, while GOV grew by nearly the same to $24.7 billion for all of 2020. Revenue as a percentage of GOV has steadily increased over the past few years at nearly 12% as of 2020. DoorDash guided GOV in a range from $30 to $33 billion for 2021. At the mid-point, this reflects growth just below 28% from 2020. Assuming a 12% Revenue share and DoorDash may generate $3.8 billion. GOV will be an important metric to pay attention to each quarter, while making the relationship with the company's Revenue.


What is most exciting about DoorDash's performance is the inflection of Cash Flow. Performance got stronger each quarter, and if the company can continue to scale from 2020 levels, should see sustained and/or improving results moving forward. I am modeling DoorDash to generate a 15% OCF margin over the mid-term. In 2020, the company's nominal OCF witnessed a nearly $720 million swing.


I am modeling DoorDash with a PT near $195 per share over the next 18-month period. This assumes 15 times EV/Revenue and 150 times OCF per share, including Revenue approaching $4.6 billion for 2022. DoorDash is on track to see sustainable growth for its business model, especially as the company looks to enter more delivery verticals. I do see the valuation being a little stretched for my liking and is why I didn't partake in today's buying opportunity. I'm looking for a better entry below $150 per share.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $4.5 billion

  • Revenues: $2.9 billion

  • Gross Margin, GM: 53%

  • Operating Cash Flow, OCF / Margin: $252 million / 9%

  • Free Cash Flow, FCF / Margin: $91 million / 3%

  • Shares Outstanding: 320 million

  • Total Orders: 816 million

  • Marketplace Gross Order Volume (GOV): $24.7 billion

Valuation Metrics

  • Enterprise Value, EV: $49.7 billion

  • EV/Revenues: 17 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 215 times

Fisker


Key Points

Fisker, Inc. (FSR) had two catalysts that propelled its SP higher. First, the company announced that it entered into a MOU with Hon Hai Technology Group (supporting a project to develop a breakthrough electric vehicle). Highlights of the proposed collaboration, codenamed 'Project PEAR' include Fisker and Foxconn to jointly develop a breakthrough new segment vehicle. Foxconn to manufacture the vehicle at projected annual volumes of more than 250,000. Global market scope - including North America, Europe, China, and India. Projected start of production is Q4 2023; this will be the second vehicle introduced by the Fisker brand, following the launch of the Ocean SUV in Q4 2022.


Second, the company provided a very clear indication during its Q4 2020 earnings report that it has set all the pieces in place, and is now firmly on an execution track to get the Ocean produced, reiterating confidence for start-of-production, SOP, next year, Q4 2022.


Management provided further that Ocean and future Fisker vehicles will be differentiated and stand out to customers through design, unique features, and optimized sustainability. Key to the strategy is Fisker's asset-light development process, rapid decision-making and flat organization structure, enabling identification and implementation of advanced technologies as late as 18 months before production launch. In an industry where technology is changing so rapidly, the company believes this is a significant advantage over the traditional product development process where most manufacturers typically freeze design, technology, and attributes 2.5 - 3 years before launch.


Other key highlights include:

  • Nominated a significant number of global suppliers for key components. Global supplier nominations for high energy-density battery cells, battery pack technology, and integrated drive units support an increase in Ocean’s targeted range to 350+ miles (for the Ultra Long Range (ULR) version of the vehicle) and 0-60 times of <4.0 seconds for all but the base version of the Ocean. These specifications are meaningfully above our initial targets and are expected to support overall vehicle performance consistent with the segment leaders at launch.

  • Partnered with Magna to develop Fisker-Intelligent Pilot ADAS / AV hardware, standardized across all versions of Fisker Ocean. This system includes state-of-the-art vision, digital-imaging radar, and multi-domain controller and acts as a platform to deliver unique software-based safety, anti-annoyance, and entertainment features.

  • Reservations total 12,467 as of today. The trailing 30-day average of daily retail reservations reflects an approximate 400% increase since our public listing in October 2020.

Fisker is anticipating Operating Expenses around $225 million and CAPEX around $225 million as well for 2021. This is inline with my model assuming a cash burn of around $450 million for 2021. Revenue will remain negligible, as SOP will commence in Q4 of 2022.


I am modeling Fisker with a PT near $50 per share over the next 18-month period. This assumes 30 times EV/Revenue, including Revenue at $600 million for 2022, per management's guidance. I have bought into Fisker more aggressively of late as the company has made announcements and is tracking well towards its key milestones. I think if successful, this one is going to explode towards $350 per share over the mid-term.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $991 million

  • Revenues: N/A

  • Gross Margin, GM: N/A

  • Operating Cash Flow, OCF / Margin: ($38) million / N/A

  • Free Cash Flow, FCF / Margin: ($39) million / N/A

  • Shares Outstanding: 325 million

Valuation Metrics

  • Enterprise Value, EV: $8.3 billion

  • EV/Revenues: N/A

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Overstock


Key Points

Overstock, Inc. (OSTK) witnessed very strong tailwinds from the COVID-driven digital transactions for home goods and many other items. The company doubled new customers, driving significant Revenue growth, while improving margins and delivering strong Cash Flow performance. For 2021, the company will be focused on sustaining its Revenue and Cash Flow performance while continuing to take market share.


It is important to break out Retail Segment Revenue. This segment reflects the lion-share of performance with $2.5 billion in Revenue, driving profitability. Both Medici Ventures and tZERO generated nearly $60 million in Revenue, up over 130% from 2019, but also lost $56 million in profits.

On January 25, 2021, Overstock entered into a partnership with Pelion Venture Partners, a third-party venture capital firm with a proven track record of successfully investing in early stage companies, to oversee Medici Ventures' blockchain assets.


Under the arrangement, which will close after obtaining necessary legal and regulatory approvals, Medici Ventures, Overstock's wholly owned blockchain-focused subsidiary, will be converted to a limited partnership (the "Fund"). Overstock will be a limited partner in the Fund, and Pelion will act as general partner of the Fund. After closing, Pelion will have sole authority and responsibility regarding investment decisions, appointing board members of the portfolio companies, and exercising all shareholder rights for investments Medici Ventures currently holds. The Fund will have an eight-year life and a total capital commitment of $45 million. The Fund will return invested capital to Overstock first and then split profits on successful exits as outlined in the Fund's Limited Partnership Agreement.


Overstock continues to trade in a volatile fashion as the interest in the company's Blockchain potential is lucrative. However, bringing a third-party in to manage and split profits is not necessarily as exciting, although this information was already known before the earnings report.


Overstock doesn't have the best visibility to model. On the one hand, they may be able to grow their e-commerce business successfully, but I wouldn't expect them to see 20% or higher growth in a more normalized market. At the same time, if they are further successful with their Blockchain endeavors, they could see stronger Revenue upside potential, but likely at a higher cost in the short-term.


In any case, their Cash Flow margins will likely contract towards 5% as things normalize, but based on the continued Blockchain potential, their multiples are likely to expand. I am modeling Overstock with a PT near $101 per share over the next 18-month period. This assumes 1.75 times EV/Revenue and 35 times OCF per share, including Revenue approaching $2.8 billion for 2022.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $527 million

  • Revenues: $2.6 billion

  • Gross Margin, GM: 23%

  • Operating Cash Flow, OCF / Margin: $196 million / 8%

  • Free Cash Flow, FCF / Margin: $172 million / 7%

  • Shares Outstanding: 43 million

  • Retail Gross Merchandise Sales (GMS): $3.2 billion

  • Retail Segment Rev: $2.5 billion

  • tZERO Rev: $46 million

  • Medici Ventures Rev: $10 million

Valuation Metrics

  • Enterprise Value, EV: $2.6 billion

  • EV/Revenues: 1 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 16 times

Plug Power


Key Points

First off, Plug Power, Inc. (PLUG) had a very confusing quarter as Revenue turned negative for 2020. How does that happen? Management explained that reported revenue and results were negatively impacted by certain costs of $456 million recorded in the fourth quarter, the majority being non-cash charges related to the accelerated vesting of a customer’s remaining warrants (Amazon). Given the expenses for this customer program have been fully expensed, the Company’s go-forward reported results should be easier to understand. This resulted in reported revenue of negative $316 million for the quarter and negative $100 million for the full year.


Other key highlights included:

  • Plan to make continued investment during 2021 to deliver on substantial growth opportunity in the green hydrogen economy on a global basis.

  • Strong balance sheet with now over $5 billion in cash to execute on its global growth strategy and objectives.

  • On track to deliver on recently raised 2021 and 2024 financial targets.

  • Added a fourth pedestal customer and selected site for gigafactory to drive scale.

  • Executed strategic acquisitions of United Hydrogen and Giner ELX positioning Plug Power as a fully vertically green hydrogen generation company.

  • Announced global joint ventures and strategic partnerships with Renault, SK Group and ACCIONA.

With negative Revenue for the year, the SP rallied today up nearly 12% so something must be right, right? Plug Power remains a somewhat speculative play with strong upside potential based on the slew of recent developments as noted in the highlights. The focal point remains the companies 2024 mid-term financial targets.


To this point, Plug Power recognized a record in nearly $340 million in Gross Billings, and recently raised its guidance for 2021 and 2024 Gross Billings to $475 million and $1.7 billion respectively. Analysts are estimating $460 and $690 million in Revenue through 2022 each year. However, visibility on Gross Billings and corresponding Revenue are not perfectly clear at the moment. The correlation between the two is what will be important to track moving forward.


I am modeling Plug Power with a PT near $63 per share over the next 18-month period. This assumes 40 times EV/Revenue and 525 times OCF per share, including Revenue approaching $750 million for 2022. I am being more aggressive than the average analyst target, as Plug Power has witnessed substantial tailwinds from investment ($5 billion in cash on the B/S), and partnerships.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $919 million

  • Revenues: N/A

  • Gross Margin, GM: N/A

  • Operating Cash Flow, OCF / Margin: ($156) million / N/A

  • Free Cash Flow, FCF / Margin: ($175) million / N/A

  • Shares Outstanding: 425 million

  • Gross Billings: $337 million

Valuation Metrics

  • Enterprise Value, EV: $19.7 billion

  • EV/Revenues: N/A

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Root


Key Points

Root, Inc. (ROOT) remains a very challenging investment, and will require patience over time. For investors, the most complexing part of the business is distinguishing between Direct Written and Earned Premiums and Net Earned Premiums, and how this translates to GAAP Revenue. For 2020, the company generated $617 and $605 million for the former, and $322.5 million for the latter. Over the past couple of years, Root has witnessed a continued decrease in the margin between Net Earned Premiums and Direct Earned Premiums towards 53%. Net Earned Premium is the company's primary GAAP Revenue driver as Net Earned Premiums have reflected 93% and 94% of Revenue the past two years.


To this point, management guided for Direct Written Premiums at $830 million and Direct Earned Premiums at $700 million from the mid-point, equating to a 35% and 16% increase from 2020. Auto Policies in Force reflected around 98% of total policies, and these policies multiplied by the Premium per Policy equate to the Direct Written Premiums, with Direct Earned Premiums equating to the amount of direct premium that was earned during the period. These metrics are key for the company's continued success to scale over the long-term. Root's estimated GAAP Revenue at the mid-point is $285 million, suggesting a further decline for Net Earned Premiums towards 41%.


Reinsurance impacts have fluctuated over the past few years, and Root is expecting increasing losses in 2021 as the company ramps up marketing spend and varying degrees of premium retention throughout the year. To this point, the company expects to see a substantial increase in operating loss, which will likely also significantly increase the company's cash burn.


I am modeling Root with a PT near $19 per share over the next 18-month period. This assumes 15 times EV/Revenue (GAAP Revenue), including GAAP Revenue approaching $360 million for 2022. It was a very tough day after earnings for Root. There's a couple points of clarification that are needed. First once analysts update their estimates for 2022, it will be clear as to whether they are assuming Direct Written Premium, Direct Earned Premium, or GAAP Revenue. If it's the latter, there will be serious reduced estimate targets.


Both Root and Lemonade, Inc. (LMND) have displayed solid performance for growing premiums and corresponding Direct/Gross Written Premium results. However, both companies are likely going to continue burning cash for the foreseeable future. I expect that Root will need more capital after 2022, and likely look to raise via equity in the event the SP can recover back towards $20 per share. Root and Lemonade are going to require time and patience for the business model and investment thesis to unfold.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $926 million

  • Revenues: $347 million

  • Gross Margin, GM: (4%)

  • Operating Cash Flow, OCF / Margin: ($287) million / (83%)

  • Free Cash Flow, FCF / Margin: ($301) million / (87%)

  • Shares Outstanding: 255 million

  • Auto Policies in Force / Premiums per Policy: 333,000 / $939

  • Renter Policies in Force / Premiums per Policy: 7,700 / $140

  • Direct Written Premium: $617 million

  • Net Earned Premium: $322.5 million

Valuation Metrics

  • Enterprise Value, EV: $2.5 billion

  • EV/Revenues: 7 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Square


Key Points

Square Inc. (SQ) definitely had a mixed year for 2020. On the one hand, COVID impacted the company's Seller business slowing growth. On the other hand, the Cash App side grew substantially, driven mostly by Bitcoin Revenue. Nearly 77% of Cash App Revenue was directly from Bitcoin, while just below 50% of all Revenue was from Bitcoin.


While the company's acceleration of Bitcoin transactions helped increase Revenue performance to greater than 100% for the year collectively, the impact on margins was severely negative. Gross Margin declined from 40% in 2019 to 29% for 2020. Cash Flow margins, OCF/FCF, declined from 10%/6.5% in 2019 to 4%/6% in 2020. With a substantial amount of Square's Revenue derived from Bitcoin, it will be increasingly important for the Seller side of the business to see a strong acceleration of Revenue performance moving forward.


Seller Gross Margin increased to nearly 50% during 2020, while Cash App Gross Margin declined from 40% to 20.5%, largely stemming from the Bitcoin Revenue mix. Transaction and subscription services did increase by nearly 140% for Cash App, it just wasn't enough to offset the 440% growth in Bitcoin.


Moving forward, if Square's estimated $15.6 billion in 2022 Revenue generates 50% or so in Bitcoin, translating to $7.5 billion, Square will be hard-pressed to improve its Cash Flow margins. In 2020, Square's Cash App had 3 million Bitcoin customers, and in January 2021, more than 1 million customers purchased Bitcoin for the first time. I will be focusing on the Revenue mix with Bitcoin and other services for both Cash App and Seller segments. In order for Square to head towards a 10% Cash Margin, they will likely need Bitcoin to reflect closer to 20% of Revenue.


These are the two key concerns moving forward - Bitcoin Revenue mix and growth reacceleration post-COVID. Square is going to need to see its Cash App transaction and subscription services and Seller segment outgrow Bitcoin transactions long-term. For the time being, I am continuing to model Square's mid-term potential with a 10% OCF margin. My PT over the next 18-month period is set at just below $350 per share assuming 11 times EV/Revenue, and 110 times OCF per share.


If Square continues to see its Revenue mix impacting Cash Flow negatively, I may reduce this PT and reconsider the long-term thesis. This does not automatically mean I would consider selling Square, but rather, reduce weighting over time, by holding Square's position, and concurrently increasing other Fintech positions with more upside potential.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $1.7 billion

  • Revenues: $9.5 billion

  • Gross Margin, GM: 29%

  • Operating Cash Flow, OCF / Margin: $382 million / 4%

  • Free Cash Flow, FCF / Margin: $548 million / 6%

  • Shares Outstanding: 455 million

  • Cash App Rev: $6 billion

  • Seller Rev: $3.5 billion

  • Gross Payment Volume (GPV): $112 billion

  • Card Payments: 2 billion

  • Payment Cards: 405 million

  • Buyer Profiles: 210 million

  • Items Listed by Square Sellers: 295 million

  • Cash App Monthly Active Customers (MACs): 36 million

Valuation Metrics

  • Enterprise Value, EV: $106 billion

  • EV/Revenues: 11 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 283 times

Teledoc Health


Key Points

Most everyone knows that Teledoc Health (TDOC) merged with Livongo Health last year, serving as a telemedicine mega-deal. As such, Teledoc witnessed substantial Revenue growth at 98% from 2019, broken down by 86% growth for Access Fee, and 140% growth for Visit Fee Revenues. U.S. Paid Memberships increased by 41%, while U.S. Visit Only Access increased by 10%. Total Visits were up 156%, and 206% when including Platform-Enabled Sessions from the merger.


Based on the merger with Livongo, there are two red flags that have emerged. First, Teledoc has gone from a Net Cash to Net Debt position. The company increased its borrowing by $1 billion to help facilitate the deal, and as such, now has a Net Debt position just below $660 million. Second, after achieving a 10% FCF margin in 2019, Cash Flow margins turned negative for 2020.


Adjustments to reconcile Net Income were positive, so the issue was with Working Capital. Since a merger was recently transacted and completed last fall, Teledoc should see a return to Cash Flow performance, especially from the anticipated synergies from the deal. However, this will be an area worth monitoring on a quarterly and LTM basis. Historically, Working Capital has been flat, and improving Working Capital should be expected to result over the next two years.


Teledoc did provide 2021 guidance with Revenue expected to achieve $2 billion, or 82% growth from 2020, primarily benefitting from a full year of performance with Livongo. The company isn't anticipating a major increase in Paid Membership or Visit Fee Only Access, but rather expects Total Visits to increase by 18%.


I am modeling an 18-month PT for Teledoc at just below $370 per share. This assumes a multiple at 21 times EV/Revenue and 175 times OCF per share. I am estimating Revenue for 2022 at $2.7 billion and a 10% OCF margin. Teledoc is similar to Square, in that I may be taking a more cautious stance until more visibility plays out - I am currently holding the position. If Revenue growth shows signs of slowing more than anticipated, I will likely revisit the investment thesis, and expand investments for the Healthcare sector into other positions.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Debt Position: $659 million

  • Revenues: $1.1 billion

  • Gross Margin, GM: 64%

  • Operating Cash Flow, OCF / Margin: ($56) million / (5%)

  • Free Cash Flow, FCF / Margin: ($47) million / (4%)

  • Shares Outstanding: 145 million

  • Access Fees Rev: $862 million

  • Visit Fee Rev: $207 million

  • Other Rev: $25 million

  • U.S. Paid Membership: 51.8 million

  • U.S. Visit Fee Only Access: 21.3 million

  • Chronic Care Enrollment: 0.6 million

  • Total Visits: 10.6 million

  • Utilization: 16%

  • Platform-Enabled Sessions: 2.1 million

Valuation Metrics

  • Enterprise Value, EV: $37.5 billion

  • EV/Revenues: 34 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Velodyne Lidar


Key Points

Velodyne Lidar (VLDR) faced challenges from COVID as their manufacturing and production was hampered in the quarter. But results were pretty good as evidenced by the company's increasing agreements and pipeline projects to 25 and 183 respectively. As of February 2021, these have further increased to 26 and 194 respectively.


Management stated that Lidar’s status as a critical sensor in many applications gives the company the opportunity to add higher value to customers by providing comprehensive solutions. There is increasing adoption of lidar across a wide variety of industries, some of which are accelerating in a post-COVID world. Velodyne Lidar's pipeline in industries such as Robotics grew 220% from 873,000 units in February of 2020 to 1.9 million units as of December 31, 2020. Agreements signed in 2020 include: Emesent for drones, Motional (a joint Hyundai-Aptiv venture) for autonomous vehicles, ThorDrive for industrial applications, and a Smart City partnership with Qualcomm.


For the company's business outlook, and as of February 19, 2021, Velodyne estimates that it could have the opportunity for over $1.0 billion of revenue from signed and awarded projects from 2021 through 2025 plus a pipeline of projects for 2021 through 2025 that are not yet signed and awarded of $4.4 billion. In addition, it continues to be Velodyne’s top priority to invest in scalable lidar architectures, advanced manufacturing technology and software solutions. This underpins the company’s long-term business outlook of total gross margin percentage ranging in the mid to high 50s and EBITDA margin of more than 20%..


I am modeling Velodyne Lidar with a PT near $26.5 per share over the next 18-month period. This assumes 23 times EV/Revenue and 300 times OCF per share, including Revenue approaching $250 million for 2022. It may be a little premature, but I am modeling Velodyne Lidar to generate a 7% OCF by this time. Over the mid-term I am expecting the 20% EBITDA margin to transfer towards a 15-20% OCF margin.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $350 million

  • Revenues: $95 million

  • Gross Margin, GM: 26%

  • Operating Cash Flow, OCF / Margin: ($68) million / (72%)

  • Free Cash Flow, FCF / Margin: ($39.5) million / (41%)

  • Shares Outstanding: 192 million

  • Product Rev: $68 million

  • License & Services Rev: $27 million

  • Sensor Units: 11,710

  • Average Selling Price (ASP): $5,800

  • Agreements: 25

  • Pipeline Projects: 183

Valuation Metrics

  • Enterprise Value, EV: $2.5 billion

  • EV/Revenues: 26 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Virgin Galactic


Key Points

Virgin Galactic Holdings (SPCE) remains a speculative play as it is still in the development stage before commercialization of its customer services. Based on this, it's most beneficial to provide the company's highlights and path forward.

  • Completed significant build milestones on second spaceship, in preparation for its scheduled rollout on March 30, 2021.

  • Conducted safe test flight on December 12, 2020 during which the onboard computer lost connection and halted ignition of the rocket motor.

  • Appointed two new pilots into Virgin Galactic Pilot Corps, bringing the total number of pilots to eight as of October 27, 2020.

  • Successfully closed the “One Small Step” program on December 31, 2020, with approximately 1,000 participants enrolled.

  • Total Future Astronauts remained at approximately 600, as of December 31, 2020.

  • Continue to prepare for next rocket-powered spaceflight from Spaceport America, targeted for May 2021. Completing modifications and conducting technical checks ahead of flight, which will include revenue-generating payloads as part of the NASA Flight Opportunities Program.

  • Re-confirmed second and third spaceflights from Spaceport America, including Sir Richard Branson’s flight, and announced timing for revenue-generating spaceflight with the Italian Air Force.

  • Accelerating multi-month enhancement program to mothership vehicle, VMS Eve, and preparing for second generation mothership build program.

The company also stated that it is continuing to experience ongoing delays to its business and operations due to COVID-19 in 2021.


Virgin Galactic continues to burn cash at a rapid rate as it has burned over $630 million the previous three years. The company has already witnessed some delay as Revenue is now expected to begin ramping up in 2022 towards $150 million. As such, continued cash burn is likely to continue for the foreseeable future.


I am modeling Virgin Galactic with a PT near $60 per share over the next 18-month period. This assumes 90 times EV/Revenue, including Revenue approaching $175 million for 2022. It's tough to model Virgin Galactic, analyst estimates are all over the place for 2022 ranging from $60 to $240 million. Despite further cash burn leading to anticipated near-term capital raises, the valuation of Virgin Galactic is predominantly associated with testing milestone success and initial stages of Revenue acceleration. As the space industry is a very exciting and new endeavor, the premium and valuation process will be unique to other industries.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Cash Position: $653 million

  • Revenues: N/A

  • Gross Margin, GM: N/A

  • Operating Cash Flow, OCF / Margin: ($233) million / N/A

  • Free Cash Flow, FCF / Margin: ($253) million / N/A

  • Shares Outstanding: 237 million

Valuation Metrics

  • Enterprise Value, EV: $8.1 billion

  • EV/Revenues: N/A

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: N/A

Wayfair


Key Points

Wayfair, Inc. (W) had a tremendous year in 2020. The company witnessed Revenue growth of 55% to $14.1 billion, with corresponding Active Customer growth of 54% to over 31 million, and Orders Delivered growth of 62% to 61 million.


With the ramp up in Revenue growth, the company witnessed major Cash Flow inflection with OCF/FCF margins expanding to 10% and 8% respectively. The big question moving forward, is how will Wayfair's Cash Flow margins perform over the next few years. There are quite a few companies that have emerged as big winners from the impacts of COVID during 2020. I am of the opinion that many of these companies, especially those at larger scale, will continue to see success. What is becoming more clear is that the post-COVID world will not revert back to pre-COVID activities in the mid-term. Longer-term, newer generational preferences and consumer habits will likely further shift things.


To this point, there are those thinking that Wayfair will see its Gross Margin and Cash Flow margins revert back towards lower levels. At the same time, analysts have often been critical about Wayfair's exposure to Asia shipping and some of the recent challenges associated with supply chain backlogs, akin to Peloton Interactive, Inc. (PTON) concerns. I feel that 2020 has made Wayfair a stronger and more efficient company for the future.


I am modeling Wayfair with a PT near $404 per share over the next 18-month period. This assumes 2.25 times EV/Revenue and 38 times OCF per share, including Revenue approaching $20 billion for 2022. I am looking to be somewhat conservative estimating that Wayfair's OCF margin may contract towards 6% through 2022. However, I also expect that the company may be able to see further expansion over the mid-term back towards 10%, especially as the business continues to scale.

Financial Metrics on a Last Twelve-Month, LTM, Basis

  • Net Debt Position: $68 million

  • Revenues: $14.1 billion

  • Gross Margin, GM: 29%

  • Operating Cash Flow, OCF / Margin: $1.4 billion / 10%

  • Free Cash Flow, FCF / Margin: $1.1 billion / 8%

  • Shares Outstanding: 102 million

  • Active Customers: 31.2 million

  • Net Rev per Active Customer: $453

  • Orders Delivered: 61 million

  • Average Oder Value (AOV): $232

Valuation Metrics

  • Enterprise Value, EV: $29.7 billion

  • EV/Revenues: 2.1 times

  • Net Debt/OCF: N/A

  • Stock Price, SP/OCF per Share: 21 times

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