Tag Archives: amzn

Fitbit Q1 Earnings Preview: What You Need To Know

Fitbit ( FIT ) is due for a health checkup late Wednesday and the prognosis for its first-quarter earnings report is looking favorable. But investors got the jitters on the eve of the company’s Q1 report. Fitbit stock fell 6.5% to 17.18 in heavy volume on the stock market today . Fitbit stock has tumbled more than 40% this year as competition has risen and the pace of growth has slowed. Analysts polled by Thomson Reuters expect the maker of wearable fitness devices to earn 2 cents a share excluding items on sales of $443.1 million. On a year-over-year basis, sales would be up 32% if it meets the consensus forecast. That would be down from 92% growth in Q4, 168% in Q3 and 253% in Q2. Fitbit made its IPO last June, pricing shares at 20. For the current quarter, Wall Street is modeling for Fitbit to earn 26 cents a share, up 24%, on sales of $532.8 million, up 33%. Pacific Crest Securities analyst Brad Erickson on Monday reiterated his sector weight, or hold, rating on Fitbit stock. Erickson expects a “beat-and-raise” quarter from Fitbit, but is cautious based on “longer-term views of poor category user trends, a lack of sensor differentiation and a more limited total addressable market.” In the near term, demand appears relatively healthy for the Fitbit Blaze smart fitness watch and the Alta activity tracker, he said. Fitbit also has stocked the retail channel with Charge HR devices for Mother’s Day sales, he said in a research report. Piper Jaffray analyst Erinn Murphy maintained her neutral rating on Fitbit with a price target of 16. “While data points during the quarter have been positive, with strong Amazon ( AMZN ) trends for the newly launched Alta and Blaze models, we remain on the sidelines behind the second-half weighted earnings (we estimate 70% of earnings lie in 2H) and given the tougher product launch comparisons in 2H,” she said in a report Monday. Mizuho Securities analyst Betty Chen kept her buy rating and price target of 20 on Fitbit stock in a report Monday. “Our recent survey highlights increases in Fitbit ownership as well as planned purchase intent at higher average selling prices,” she said. “Moreover, data indicates increased upgrade intent and attachment rate, with 21% of Fitbit device buyers purchasing at least one additional wristband in the last three months. We believe this bodes well for Fitbit’s long-term growth and margin profile.” Last week, diversified rival Garmin ( GRMN ) said its sales of wearable fitness devices rose 9% year over year in Q1, to $142.4 million, but profit margins declined because of intense competition in the category. Garmin also makes GPS navigation devices for automotive, aviation, marine and outdoor markets. In addition to Fitbit and Garmin, other companies competing in the health-and-fitness wearables sector include Apple ( AAPL ), Jawbone, Microsoft ( MSFT ) and Under Armour ( UA ). RELATED: Fitbit Bolsters China Prospects With E-Commerce Deal

Amazon, Facebook Admit Stock Compensation Is A Normal Cost

For more than a decade, technology companies doled out heaps of stock to recruit top talent — then pretended this wasn’t a normal part of doing business by reporting profit numbers that subtracted the cost. That’s changing as the industry grows up and responds to pressure from regulators and investors. Amazon.com ( AMZN ) started breaking out stock-based compensation in the results of its different businesses in the first quarter. This is “the way we now evaluate our business performance and manage our operations,” Chief Financial Officer Brian Olsavsky told analysts after the earnings report last week. Facebook ( FB ) Chief Financial Officer David Wehner had a similar message. From now on, he said he’ll talk about the social network’s results and other metrics based on U.S. standards known as Generally Accepted Accounting Principles, or GAAP, which include equity-based pay costs, instead of a mix of GAAP and non-GAAP numbers. “We view it as a real expense,” he said. Some technology companies, such as Netflix ( NFLX ) and Intel ( INTC ), already take this approach, but many don’t. If the shift to focusing on the real bottom line catches on more broadly, it could slice billions of dollars off the reported profits and official forecasts that underpin the technology sector’s lofty market valuations. Facebook stock trades at about 35 times estimated earnings over the next 12 months. Add in equity compensation expense and that price-to-earnings ratio jumps to 50, according to a Sanford C. Bernstein & Co. analysis. Amazon would trade at 122 times projected profit, rather than a multiple of 63. Using GAAP numbers, Alphabet ( GOOGL ) would trade at 26 times forecast profit, versus 21 times, Bernstein estimates. The change also highlights the struggles of smaller Internet companies like Twitter ( TWTR ) and LinkedIn ( LNKD ) to generate GAAP earnings. Facebook, Amazon and Alphabet may have high stock valuations, but they are also very profitable by GAAP and non-GAAP measures. Twitter shares trade at about 36 times estimated profit, but including stock-based compensation analysts expect it to have a loss over the next 12 months, Bernstein research shows. “If you can act from a position of strength, which Amazon and Facebook clearly are, there’s no better time to change your behavior,” said Denny Fish, who helps oversee $2.5 billion in technology stocks at Janus Capital Group Inc. “They look more responsible and it makes them accountable for how they issue stock for compensation in the future.” New Disclosure Amazon in prior quarters disclosed overall stock-based compensation, but didn’t tell investors how much went to each business and didn’t allocate this expense to these divisions for its own management purposes. In the fourth quarter, the AWS cloud business generated $687 million in operating income, and investors were left to estimate how much of Amazon’s total equity-pay costs of $606 million went into that division. Last Thursday, the company said AWS had first-quarter operating profit of $604 million, including $112 million in stock-compensation expense. Alphabet may focus more on GAAP results in the future, while Twitter is unlikely to do so because that would make its numbers look a lot worse, Fish said. In February, Alphabet started reporting stock-based compensation for its Google business and a group of newer businesses known as Other Bets. The Google unit had $1.3 billion in equity pay expense in the final quarter of 2015, leaving an operating profit of $6.8 billion. Other Bets spent $498 million on equity awards for the whole of last year, contributing to a $3.6 billion annual operating loss. ‘Egregious’ Compensation Twitter reported 2015 non-GAAP profit of $277 million, or 40 cents a share. On a GAAP basis, including stock-based compensation, the company posted a loss of $521 million, or 79 cents. “Some companies have been egregious with stock compensation,” Fish said, citing LinkedIn, which has relatively high equity-based pay compared to its revenue and earnings. Analysts on average project that LinkedIn will have profit of $591 million, or $4.27 a share, in 2017 — a non-GAAP number that excludes stock-based compensation costs. When that expense is included, along with other items, the company is forecast to lose $36 million, or 29 cents, according to data compiled by Bloomberg. LinkedIn cut growth forecasts earlier this year, making it more important for investors to assess its long-term compensation costs. “When fundamentals deteriorate relative to high-growth expectations and stock-based comp is high as well, companies can be doubly penalized,” Fish said. LinkedIn shares have declined 44 percent this year, while rival social network Facebook is up 13 percent. “Non-GAAP results are the most accurate representation of our operating results,” LinkedIn spokesman Hani Durzy wrote in an e-mail. Still, he said the company aims to reduce stock-based compensation to about 10 percent of revenue from the current 17 percent, while still using equity as a hiring tool. “Talent is critical in this industry, and we want to make sure that we’re balancing the trade-offs appropriately,” Durzy said. Representatives at Facebook, Amazon and Alphabet declined to comment. A Twitter spokesman didn’t respond to an e-mail seeking comment. Mounting Criticism Facebook and Amazon’s new approach follows mounting criticism about many companies’ overuse of non-GAAP numbers, especially in technology, where big equity awards are common. In his latest shareholder letter, Warren Buffett disparaged the omission of pay as “the most egregious” example of non-GAAP accounting. “If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?” he wrote. Companies have taken note. The Society of Corporate Secretaries and Governance Professionals, which represents company executives and other managers, sent a memo to members last month highlighting comments on this issue by officials at the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board. SEC Chief Accountant James Schnurr said executives and directors on boards’ audit committees should ask why non-GAAP numbers are an appropriate way to measure performance and probe whether they’re really useful to investors. Investor Pressure Shareholder pressure may also have had a big impact at Facebook and Amazon. The companies recently told one large technology investor that they made the change in response to investor requests and for competitive reasons. When large, profitable technology companies exclude stock-based compensation, they promote an accounting concept that lets smaller rivals appear more profitable than they actually are. This helps these same rivals compete better for talented employees, who are looking to work at the most successful firms, said this investor, who asked not to be identified because the conversations were private. If the tech industry keeps shifting toward treating share-based pay as a real expense, Twitter may be most exposed, according to Carlos Kirjner, an Internet analyst at Bernstein. The social-media company has to compete with Internet behemoths Facebook and Alphabet and venture-backed startups to hire talented product and engineering employees, and issuing stock as part of a job offer is a good way to lure candidates. Yet these expenses will eat up a “very large portion” of Twitter’s future free cash flow, and long-term investors should consider this when deciding whether to back the company, Kirjner said. “Some companies like Twitter that pay their employees generously with hundreds of millions of dollars in equity grants will say they are free-cash-flow positive before expensing stock-based comp,” the analyst wrote. “Maybe they should define free cash flow before any expenses, which would look even better,” he joked.  

Will Commvault Hit Another Home Run With Earnings Report?

On the heels of a company transition, Commvault Systems ( CVLT ) is set to report earnings before the market open Tuesday, with the stock up sharply from its previous quarterly earnings report. The provider of data management services is expected to post revenue of $157 million, up 4% year over year and marking the second quarter in a row of revenue growth after three previous quarters of declines. The consensus on earnings per share minus items, based on analysts polled by Thomson Reuters, is 25 cents, down from 27 cents in the year-earlier period, for its fiscal fourth quarter ended March 31. After reporting fiscal Q3 earnings after the close on Jan. 27 that beat estimates, Commvault stock soared 16% the following day. From that point, the stock is up 21%, about where it was one year ago. Commvault stock was trading near 43.50, down a fraction, in midday trading in the stock market today . Commvault has an IBD Accumlation/Distribution Rating of A+, suggesting heavy institutional buying and little selling of late. Pacific Crest Securities analyst Brent Bracelin said in a research note that much of Commvault’s turnaround is now behind it, giving the company a “line of sight to a recovery.” This, he said, was further proof of Commvault’s success in enabling businesses to migrate to cloud services from providers such as Amazon ( AMZN ), Google parent Alphabet ( GOOGL ) and Microsoft ( MSFT ). “We see new products driving a return to double-digit license growth in the coming year,” Bracelin wrote.