To The Moon

• Crowdstrike Holdings Inc. beat earnings but management gave a cautious outlook for the quarter.
• Salesforce beat on the top and bottom line but the co-CEO departure along with a subdued outlook dampened the stock.
• Veeva reported a strong quarter as growth continues but the management came out with a cautious outlook.
• Marvell Technology missed the top and bottom line as the semiconductor company works through its inventory glut.
• Casey’s General Stores reported a mixed quarter along with a decent outlook.

The last two weeks after thanksgiving was full of earnings reports from companies that operate in the enterprise cloud. These companies are involved in cloud services, cybersecurity, and the semiconductor space. The companies that reported include Salesforce (CRM), Veeva Systems (VEEV), Marvell Technology (MRVL), and Crowdstrike Holdings Inc (CRWD). TecOutside of the enterprise cloud, Casey’s General Store (CASY) reported earnings as they reported a mixed quarter and we started a new position in the stock to give our portfolio a defensive posture. These companies beat on Q3 earnings but the outlook given by management was timid with a lot of caution.

Salesforce.com (CRM): The Dow Jones-listed company reported earnings of $1.40/share (beat WallStreet estimates by $0.18) and revenue of $7.84 billion (beat WallStreet estimates by $10 million). Salesforce blew our estimates by quite a mile as we expected the company to earn $1.15/share on $7.75 billion of revenue. Salesforce’s revenue number was really impressive because we thought the strong USD would be a headwind on revenue. The company reported revenue growth of 14% (and 19% on a constant currency basis). The largest portion of the company’s revenue which is subscriptions posted 13% year-over-year revenue growth at $7.32 billion. While the professional services segment had 25% revenue growth from a $600 million revenue basis.

Salesforce’s remaining performance obligation (RPO) ended the quarter at $40 billion up 40% from a year ago. The company’s current obligations (within the year)ended the quarter at $20.9 billion up 11% from a year ago. The company’s operating margin came in at 5.87% up from 0.56% as management executed better and tightened up spending. However, Salesforce’s net income margin came in at 2.68% down from 6.81% because of the higher gains from investments last year. Salesforce’s operating cash flow came in at $310 million down 23% and the company had a $120 million cash burn during the quarter.

The company announced the departure of the co-CEO on January 31, 2023, along with a cautious outlook. Management expected to have revenue growth of between 8–10% and expects a $250 million foreign currency hit on revenue. The company expects a higher compensation-based expense as they aim to retain its top talent. The stock sold off 12% plus as investors reacted to the CEO's departure coupled with the outlook. We will be assessing our stock position and we will continue to hold the stock as Benioff steadies the ship as the lone CEO.

Crowdstrike Holdings (CRWD): The cybersecurity company reported earnings of $0.40/share (beat WallStreet estimates by $0.08) and revenue of $580.88 million (beat WallStreet estimates by $5.82 million). We had high expectations for Crowdstrike given the rise of the need for better cybersecurity as enterprise cloud grows. We estimated the company would earn $0.42/share on $595 million of revenue. The company’s headline numbers were disappointing in comparison to our estimates. The company is in strong growth mode with 53% revenue growth along with higher subscription customer numbers. The company reported 21,146 customers which exceeded our fund estimate of 19,950 (likely evidence of the size of the deals probably declined due to economic headwinds).

The company reported gross margins of 72.7% down 50 basis points but they are still above 70% which is good. However, Crowdstrike recorded a wider-than-expected operating loss of 56.4 million down from $40.2 million. Operating cash flow came in at $242.9 million up from $159.1 million and free cash flow came in at $174.1 million up from $123.5 million. Crowdstrike has ample cash at $2.47 billion enough cash to make strategic bolt-on acquisitions. Management gave a cautious outlook as they expect to generate $619 million (vs expectations of $634 million) indicating sequential growth of 6.6%. The good part of the outlook is that management expects to have an operating profit.

This was a dismal quarter for Crowdstrike as the stock opened down 18% after the earnings news. The stock seems to be in a penalty box until it gets into growth mode. We will not be adding to our stock position but we will continue to hold the name going into 2023.

Veeva Systems (VEEV): The healthcare cloud provider reported earnings of $1.13/share (beat WallStreet estimates by $0.06) and revenue of $552.4 million (beat WallStreet estimates by $6.29 million). In comparison to our fund estimates, Veeva Systems missed on earnings but beat on revenue as we estimated the company would earn $1.15/share on $550 million of revenue. The company reported revenue growth of 16% which was primarily driven by the subscription segment (16% YoY revenue growth). The company reported an operating income of $121.4 million up from $32.7 million. Veeva’s net income came in at $108.5 million up from $105.9 million.

Veeva’s management is executing at a high level as they expanded operating and net income margins to 22% and 20% respectively. Despite executing well in an inflationary environment and preserving margins management gave a cautious outlook. Management indicated that Q4 revenue would essentially be flat coming in between $551–553 million. The company’s cash balance ended the quarter at $868 million on the balance sheet. Veeva reported impressive operating cash flow numbers as the company generated $143 million in operating cash flow. However, the strong cash flow numbers were not enough to stop the stock sell-off and this presents a good opportunity to add to our stock position.

Marvell Technology (MRVL): The semiconductor company reported earnings of $0.57/share (missed WallStreet estimates by $0.02) and revenue of $1.54 billion (missed WallStreet estimates by $20 million). In comparison to our fund estimates, Marvell missed on both the top and bottom line as we estimated the company would earn $0.58/share on $1.56 billion of revenue. The company had a weak quarter which shows orders are slowing as technology spending and double ordering have come to a halt. The company had 26.9% revenue growth as most of the company’s end markets are still in secular growth mode from 5G to Data Centers.

Management noted that the double ordering that has taken place due to supply chain constraints will affect Q4 numbers. Management gave a cautious outlook as they expect to generate $1.4 billion in revenue and have gross profit margins of 49.2%. These projected margins are lower than what the company had this quarter of 50.6% which is 1.2% from a year ago as management contends with inflationary and commodity pressure. Marvell Technology generated $363.4 million in free cash flow compared to $186 million a year ago. The company had a net cash increase of $106.3 million and ended the quarter with $723.4 million on the balance sheet.

Overall, the stock sold off on the earnings and weak outlook as the company gets rid of its inventory glut going into 2023. We think 2023 Q1 will be the inflection point of the company as they clear out their inventory. We will continue to hold the stock going into yearend.

Casey’s General Store (CASY): The convenience store and gas retailer reported earnings of $3.67/share (beat WallStreet estimates by $0.54) and revenue of $3.98 billion (missed WallStreet estimates by $47.11 million). The company’s revenue miss was a bit disappointing as we expected the company to do well from higher gas prices. We estimated that the company would earn $3.25/share on revenue of $4.08 billion. Casey’s reported revenue growth of 21.9% and this was fueled by strong same-store sales growth of 7.9%. This was coupled with strong fuel sales which were up 0.3% from a year ago.

Casey’s General Store showed that they are contending with inflationary pressure from the increase in operating expenses of $38.56 million. The company added 11 net new stores and ended the quarter with 2,463 stores. In terms of cash & liquidity, Casey’s has $884 million in liquidity and management has $400 million worth of shares to repurchase. Management gave a solid outlook for FY2023 as they expect to have between 5–7% in same-store sales with operating expenses going up between 9–10% (as management factors in higher wages). The company expects to add 80 stores during the year.

Casey’s stock reacted well to the earnings news and outlook as it went up 7%. We will be looking at our stock position because we like the stock characteristics that Casey’s General Store has which are it is a good mid-cap sized company with good growth aspects. The stock has a healthy dividend yield of 0.62% (as of December 9, 2022) with room for growth along with a share buyback that will buy back up to 4% of the company.

Disclosure: Cresco Investments is long Salesforce.com (CRM), Veeva Systems (VEEV), Marvell Technology (MRVL), and Casey’s General Store (CASY).

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor(s).