Technology, Media, Internet and Telecommunications Daily Download

TIMT Desk Sector Strategy:

Last week…

Still watching and waiting..…….. Four months into C’21, the performance challenges of C’Q1 have led to an environment where PMs/Traders are less willing to make big wagers across TIMT. To highlight this point, average U.S. equity trading volumes 3 weeks into the Q1’21 earnings season are not only down > -35% vs. last quarter’s earnings (Q4’20), but are -20% Y/Y lower vs. Q1’20, where the “shape” of the recovery was arguably much harder to model given the majority of TIMT companies were NOT providing forward guidance. As we’ve stated repeatedly, investors remain undecided where their incremental investment dollars are headed --- cyclical re-opening (semis, hardware, media, telco services, solar, etc..) or secular growth (SMID internet, software, fintech/payments, etc..)???

Did you sell AHEAD of May??? Despite Commissioner Roger Goodell assuring football fans that that the NFL plans to have capacity crowds for the ’21 season, there are growing questions/concerns about the pace of 2H’21 spending (enterprise, SMB, consumer). As we head into the busiest 5-day stretch for TIMT earnings, it felt like investors were selling strength with the QQQs, SMH/semis and IGV/software finishing lower for a 2^nd week in a row. Net-net, it has been a Herculean task for stocks to trade higher (T+1) following earnings. Frustrated? Well, you’re not alone based on feedback we received late in day on Friday….

“Are we kidding ourselves into thinking that numbers matter? Only to the downside it seems.” - HF PM

“I’ve never been better … everyday easier than the one before…” – HF PM

“Do people even own tech anymore?” –MF PM

“Semiconductors have NOT gone up since January…” – MF PM

“Doesn't feel great out there…….I've seen a ton of huge / chunky hedging flows at the index level ahead of the FOMC this past week.“ – HF PM

This week…

GPN/FIS/FOUR/PYPL/SQ: Ahead of this week’s earnings from GPN, FIS, FOUR, PYPL and SQ Dan Perlin made the following conclusions after analyzing last week’s results (FISV, V, MA): 1) Acceleration in e-commerce has shown to be a structural shift that should persist post-COVID, 2) U.S. payment volumes have largely returned to pre-COVID levels, and 3) Cross-border volumes are showing signs of improvement while many borders still have yet to open. Dan believes these data points should be positive for this week’s earnings from GPN, FIS, FOUR, PYPL, and SQ

What does the buyside think?? (GPN, FIS, PYPL, SQ)

GPN (5/4) & FIS (5/6): The focus remains on their merchant/acquiring businesses. During Dan’s FISV call back last week, he got the impression that processed volumes accelerated >25%+ in late March. There is an expectation that both GPN and FIS ratcheted up their FY EPS guidance this week.

PYPL (5/5): This seems to be a crowded short ahead of Wednesday’s EPS based on a combo of valuation and lackluster upward revisions. As far as Q1’21 expectations, TPV > 42% Y/Y (vs. consensus = +39% Y/Y).

Concurrent with PYPL’s analyst day earlier this year (2/11/21), the bears were definitely more vocal after they provided their medium-term F’25 guide (750m active users/+15% CAGR, $50b in revs/+20% CAGR, $10.50 EPS/+22% CAGR, $10b in FCF). The stock is now down -8% since their Feb analyst day ($262 vs. $285)

PYPL – buyside feedback during their analyst day (2/11/21)

HF: “Not saying it’s bad but expects got ahead of fundamentals and now its execution story on super insane comps with a management team who's last good thing was buying Venmo/Braintree.”

HF: “They don't have the engineering bench to do a lot of what they're talking about either. So seems like risk skewed on the downside until they can prove otherwise.”

HF: “put simply, you can't hit people with a guide way below numbers when the stock is roofing to an ATH”

HF: “The 20% rev cagr is in-line... but the 22% EPS is a miss and the $10bn FCF is a big miss.. which raises the question of why? Less margin expansion and/or FCF conversion than we thought? There are probably legitimate answers to that and the stock will prob work over the medium-term, but you cannot have those kind of questions / hair on the story simultaneously with the stock being at a massive ATH”

HF: “Agree with a questionable track record of innovation…”

SQ (5/6): The focus has shifted from Q1 to the April Cash app gross profit trends. Last Friday, investors noted they expect growth to exceed > +110% Y/Y. As far as 2H’21, we heard +40% Y/Y to +50% Y/Y given the tough comps. As far as positioning, it definitely appears that SQ is the preferred long (vs. PYPL).

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E-Commerce/SHOP/ETSY/W: Shopify confirmed Dan’s #1 take-aways from last week’s fintech/payment earnings --- the acceleration in e-commerce has shown to be a structural shift that should persist post-COVID. To highlight this point, SHOP called out “sustained strength” in countries that had re-opened (Australia, New Zealand).

“In terms of the pandemic……. if you actually look at Australia and New Zealand, which is not an exact proxy for the rest of the world, but certainly provide some interesting insights. In those places where things have really opened up post pandemic. We're actually not seen any slowdown, whatsoever, in terms of consumers buying from our merchants. In fact online GMV remains at elevated levels beyond in those places.” – Harvey Finkelstein (SHOP President) on the Q1’21 earnings call - 4/28/21

Thoughts/bogeys for this week’s e-commerce earnings (ETSY, W). There are definitely MORE concerns after AMZN traded lower following their VERY strong results ….

ETSY (5/5): Prelim bogeys ~ Q1’21 GMS > +130% Y/Y (VA = +124% Y/Y), Q2’21 GMS = > +10% Y/Y (VA = +5% Y/Y). Buyside seems focused on tough comps/valuation, which likely speaks to a healthy short base.

W (5/6): Prelim bogeys ~ Q1’21 revs > +50% Y/Y (vs. consensus = +45% Y/Y), Q2’21 revs flat-to-up (vs. consensus = -7% Y/Y).  As a reminder, W reversed higher (+) during their Q4’20 call (2/25) when they noted that Q1 revs had reaccelerated and they’d once again deliver + EBITDA.

We’ll be back with updated thoughts on LYFT (5/4) and UBER (5/5) ahead of earnings…

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Software (HUBS/TWLO/DDOG/NET/RPD): Most investors agree that IT spending bottomed in the fall (‘20) and subsequently improved throughout Q4’20. With upbeat checks ahead of C’Q1 earnings and a LOT of industry buzz surrounding digital transformation initiatives, the expectation was that these (+) spending trends were set to continue in C’21. These lofty 1H’21 expectations were the #1 reason investors last week were questioning how conservative both MSFT and NOW were with their respective C’Q2 guides.

Secular growth/multiples: The 24 secular growth tech companies that trade  > 20x C’22 have lagged this year (-6% YTD vs. S&P +11%, NASDAQ +8%). Interestingly, 3 of the names (SHOP, FIVN, TEAM) that reported last week traded higher T+1. This week we’ll hear from 5 more (APPN, BILL, DDOG, NET, TWLO).

Thoughts/bogeys for this week’s software earnings (HUBS, TWLO, DDOG, NET, RPD)

HUBS (5/5): This company has delivered 2 “wow” quarters in a row as they’ve upsided consensus billings expectations by > +15%.  For Q1’21 billings, we heard > $285m/+37% Y/Y vs. +43% Y/Y in Q4’20 and consensus = $272m/+31% Y/Y.  

TWLO (5/5): No organic slowdown. Last week we heard TWLO should deliver organic revenue growth in the low 60s vs. the +59% Y/Y growth (ex-Segment) in Q4’20.

DDOG (5/6): Based on previous quarterly outperformance, Matt noted DDOG could deliver Q1’21 revs closer to +54% Y/Y (vs. +56% Y/Y in Q4’20 and consensus = +42% Y/Y). See Matt’s DDOG preview: Link

There were seemingly a lot of frustrated DDOG holders last Friday that expected the stock to trade better on the back of AWS’ Q1 revenue acceleration. Feedback below…

HF: “That stock doesn’t act well lately”

HF: “everyone long now and not short anymore?”

HF: “This definitely feels like a crowded long these days  since many think they'll accelerate this quarter/next quarter”

HF: “I think AWS acceleration is a positive indicator for DDOG given how it gets deployed and am confused by the move today”

HF: “It should definitely be up on AWS but who knows, been all over the place recently”

HF: “Feels like the AWS acceleration would also benefit other monitoring vendors like DT too no? Esp since DT has had the longest partnership with them”

MF: “…The Q/Q revenue add in AWS was pretty impressive - and comparing it to last year should mean good things for DDOG. I read the GOOG/MSFT results as in-line for DDOG but AWS as positive.”

NET (5/6): Once again, DDOG and NET are set to report on the same night. Last quarter, more investors seemingly came out + on NET with a belief that the model will reaccelerate in Q1’21 (> +50% Y/Y vs. consensus = +43% Y/Y). At $85, most analysts think that is now the “base case”. Beyond Q1, we haven’t received much push back to Matt’s “upside revenue case” --- C’22 revenue ~ $1b (vs. $779m consensus). See Matt’s NET preview: Link

RPD (5/6): Matt previewed the quarter last weekend -  Link.  Despite mgt guiding C’21 ARR growth = +20% Y/Y, he believes they could exit the year growing ARR closer to +30% Y/Y.

Bi-Weekly Software Call: Be sure to join us on Tuesday (12pm EST), where we’ll discuss this week’s software earnings (AKAM, ANSS, AYX, BILL, CDAY, CSOD, CVLT, DBX, DDOG, FROG, GDDY, HUBS, LPSN, MCFE, NET, NTCT, OTEX, PAYC, PCTY, PING, PRO, QTWO, RNG, RPD, TDC, TWLO, ZI).

Link to the 12pm EST webcast on Tuesday (5/4): https://www.veracast.com/webcasts/rbc/meetings/U51c83.cfm

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See the full list of RBC TIMT marketing below. As always, the calendar for all of this week’s TIMT events is attached.

RBC Marketing:
5/4: RBC Software Team’s (Seth Ostrie/Matt Hedberg) Bi-Weekly Update Call @ 12pm EST
5/6: VZ – virtual NDR
5/11: QTS – virtual NDR (Boston)
5/11: WOW – virtual NDR
5/12: VRNS – virtual NDR (EMEA)
5/13: NOW – Group Call (EMEA)
5/13: Datacenters - NoVA “in person” meetings
5/18-5/20: PING – virtual NDR (Group call – 5/19)
5/21: JMIA – virtual NDR (Chicago)
5/25: RBC Global Datacenter, Cloud and Broadband Infrastructure Conference
5/25: WOW – virtual NDR
6/3: RBC Auto-Tech Virtual Bus Tour (APTV, CIIC, GOEV, FSR, RIDE, LAZR, NKLA, ACTC, QS)
6/16: CCI – Group Call (EMEA)
6/17: RBC Financial Technology Conference
7/13-7/13: RBC Technology Private Company Conference
11/16-11/17: RBC Global TIMT Conference

RBC Analyst Marketing:
5/4-5/13: Jon Atkin (Communication Infrastructure) – EMEA

TIMT Desk Sector Strategy:

Watching…. Last week it seemed as if everyone was “watching” with U.S. trading volumes hitting a new YTD low on Friday; failing to eclipse 9b shares (vs. 20 day average = 11.8b). Despite the tepid volumes, the S&P 500 was able to notch “another” all-time high (the tech-heavy NASDAQ is now down just -2% from its 2/16/21 highs).  Based on conversations with HF investors, they continue to pare exposures (long/short) as they contemplate their next move (s) ahead of earnings…

Last week’s conversations (internet advertising, semiconductors, software): In an attempt to summarize our conversations/questions, the majority revolved around the following: (1) Internet Advertising: Pending iOS (AAPL) changes and their impact on Q2 internet advertising revenues? (2) Semiconductors: How will semiconductor stocks react if supply constraints limit near-term earnings/revenue upside? (3) Software: Positioning/Expectations ahead of earnings?

Internet Advertising ~ AAPL/GOOGL/TWTR/FB/PINS/SNAP/PUBM/MGNI/TTD

AAPL/GOOGL/TWTR/FB/PINS/SNAP/PUBM/MGNI/TTD: Will internet advertisers face headwinds from AAPL’s iOS changes beginning this quarter (C’Q2)? Despite investors expecting strong Q1 results from internet advertisers (FB, GOOGL, PINS, SNAP, TWTR are up an average of > +25% YTD), we received some questions last week about potential revenue headwinds after Tim Cook commented (Link) that the upgrade of AAPL’s iOS ATT (application tracking transparency) is set to be released over the coming weeks. We’d imagine these concerns will remain topical following this weekend’s WSJ article (Link) that highlights how these changes will cause headwinds to the SMB advertisers that drive the majority of revenues on platforms such as FB.

These new changes are set to require all Apple apps to ask for explicit permission to track users, with full implementation on the iOS platform by Spring ‘21. The concerns stem from the prospects that the AAPL/ATT changes will cause a loss of signal for advertisers. This signal loss is thought to be most problematic for the direct-response players (FB, PINS, SNAP). In speaking with investors, they seem to be most concerned about FB (vs. GOOGL) with a belief that PINS and SNAP will still be able to deliver strong Q2 revenue growth. TWTR is thought to be less impacted due to their reliance on brand advertising (vs. direct response). These Q2 concerns have surfaced now that FB’s stock has ripped +12% ($278 to $312) after some (+) comments from Mark Zuckerberg during a recent Clubhouse interview:

“When it comes to the iOS 14 changes, for example, and their impact on our business, I think the reality is that I'm confident that we're gonna be able to manage through that situation. And we'll be in a good position. I think it's possible that we may even be in a stronger position if Apple's changes encourage more businesses to conduct commerce on our platforms….” Mark Zuckerberg (3/19/21)

Some buyside feedback below to AAPL’s pending iOS changes and potential impact to both internet advertising platforms (FB, PINS, SNAP, TWTR, GOOGL) and the ad-technology companies (MGNI, PUBM, TTD)..

Will AAPL’s iOS changes be a headwind (Q2) to internet advertising platforms (FB, PINS, SNAP, TWTR, GOOGL)?

HF: “Everyone thinks it will hit Q2’21 results – that’s why pods are short FB. But it’s dumb. Since IDFA will either not matter at all, or it’ll hit the whole industry short term and make FB (and GOOGL) stronger in longer term. Said differently if my 2Q21 FB numbers come down - I’ll take up my 2022/2023 #s numbers.”

MF: “How crowded is GOOGL vs. FB?”

HF: “GOOGL probably still the one stock that’s universally crowded. FB is relative to itself, but I feel like but GOOGL is relative to everything. As far as FB, it feels about as crowded long as it’s been in a while.”

HF: “Google is best way to play ads if you think it’s a headwind. If you think less, I’d own SNAP from these levels. But I agree that if it is a headwind to industry, in time, it will just consolidate share to the FB, GOOGL, SNAP’s of the world. Those with 1P data and better technology.”

MF: “Seems inevitable -  but also something that is relatively minimal revenue wise and expected at this point. Just feels like there’s huge divergence as to what investors are expecting.”

MF: “Still just trying to figure out how big the headwind is. CPM’s declined 50% without IDFA in a test and I’ve seen estimates of opt out rates are >50% = that’s when FB might just shut down FAN altogether which would hit like 5-6% of revs, probably same for SNAP. My early sense is the CPM pressure is likely real but I don’t have complete faith that opt out rates would be that high, particularly in US and Europe which obviously matter most.”

Will AAPL’s iOS changes be a headwind to either PUBM or MGNI?

HF: “I do think it should be a slight headwind as there are likely CPM headwinds to the overall ad market.  But I wouldn't flag it as significant or concerning. They should be relative offsets , but you can't just say they will offset it 100%. So I don't know a # but there should be some headwind.”

HF: “CTV and social commerce will likely offset any “potential” AAPL-induced headwinds.”

HF: “It won’t be helpful but I think app download conversions are the greater issue for IDFA. For Google next year, likely to be a greater headwind to DSPs and SSPs unless they can make great strides on a common ID solution.“

HF: “I don’t think it will be a big deal for them. TTD has quantified how much of their spend uses IDFA. Its ~10%. Don’t know why it would be much different for these guys (MGNI/PUBM). So if it’s down 20-30%,  which I don’t think it will be, but as an example – it’s -LSD”

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Semiconductor earnings: NVDA, MRVL, TSM, SMH

NVDA/MRVL/TSM: Most semi-dedicated investors we spoke with do NOT expect a change to NVDA #s at tomorrow’s analyst day. So, what’s the key question for semi investors??? How do semiconductor stocks react “near-term” if tightness across the supply chain leads to “less upside” (Q1/Q2) following the SMH’s +11% rally over the past month. This debate will be a focus ahead of TSM’s earnings/commentary on Thursday.

HF: “If MRVL was any indication, not well.”

HF: “Semis will underperform in near term but eventually catches up. Take a look at Realtek for instance and even Aspeed. I personally think it's a good thing for under-supply. Lengthens the cycle. I am bullish on semis still. Still an upcycle.”

HF: “I think that should be relatively well understood. Even last qtr other than TXN, you didn’t have big beats”

HF: “They shouldn’t and if they don't I think that is very short-sighted. I expect supply issues for the next 4-6 quarters. So essentially slight beats and raises”

HF: “I think qualitative commentary on bookings and length of the cycle will be important but you can either get two really big quarters or stronger for longer with good margins and I prefer the latter”

Software (CRWD, DDOG, NET, OKTA, ZS, COUP):

CRWD/DDOG/NET/OKTA/ZS/COUP: If you happened to miss our bi-weekly software update last week, please click on the link below. Will software continue to underperform? For context, the 17 software stocks (APPN, BILL, COUP, CRWD, DDOG, NCNO, NET, OKTA, PLTR, SHOP, SNOW, TEAM, U, ZI, ZM, ZS) that trade > 20x C’22 EV/sales are down an average of -3% over the past month --- significantly lagging the SMH’s (semiconductor) +11% move.  

We previewed software positioning and expectations ahead of the March/April quarter software earnings season: https://www.veracast.com/webcasts/rbc/meetings/7M14ia.cfm#/player/html5/speed/v150

See the full list of RBC TIMT marketing below. As always, the calendar for all of this week’s TIMT events is attached. 

RBC Marketing:
4/27: T – Group Call @ 1pm EST
5/11: QTS – virtual NDR (Boston)
5/18-5/20: PING – virtual NDR
5/25: RBC Global Datacenter, Cloud and Broadband Infrastructure Conference
6/3: RBC Auto-Tech Virtual Bus Tour (APTV, CIIC, GOEV, FSR, RIDE, LAZR, NKLA, ACTC, QS)
6/17: RBC Financial Technology Conference
11/16-11/17: RBC TIMT Conference 

RBC Analyst Marketing:
4/7-4/8: Jon Atkin (Communication Infrastructure)
5/13: Mitch Steves (Semiconductors) & Seth Ostrie (TIMT Desk Sector Strategy)

TIMT Desk Sector Strategy:

What to do at the start of Q2?? Q1’21 has been a “rollercoaster”. The ups and downs over the past 3 months, combined with the 1 year anniversary of the pandemic, has certainly resulted in a fair amount of fatigue. The majority of fundamental investors we’ve spoken with have messaged that in Q1, January was a tough month for performance, followed by a better February, subsequently ending with a challenging March. The Q1’20 bookends (Jan & Mar) were frustrating for different reasons. In January, the shorts caused the pain, while the long side seemingly detracted from performance last month. The result of these aforementioned challenges on “both” sides of portfolios (long and short) has been frustrating as the S&P 500 motored to close at an time high last Thursday (~4020, +7% YTD). Over the past few weeks, TIMT investors have responded by trading less and reducing their long “and” short exposures (i.e. grosses) as they contemplate their next move (s).

Barbell strategy: With the additional fiscal stimulus resulting in very strong March economic #s (employment, auto sales, etc..), economists have been busy ratcheting up their U.S. GDP estimates for both Q2’21 (~+7% Y/Y) and C’21 (~+6% Y/Y). Ever since the initial PFE vaccine efficacy data (+) hit late last year (11/9/20), most of the TIMT investors we speak with have pivoted to a barbell strategy, with their long side inclusive of “both” cyclical (semis, enterprise hardware, comms equipment, media, telecom services, etc…) and secular (software, fintech/payments, internet, etc..) companies.  The cyclical pivot has seemingly accelerated over the past month, evident in the outperformance of semis/SMH ripping ~ +11% vs. the average high-multiple/growth company (> 20x C’22 EV/sales = APPN, BILL, COUP, CRWD, DDOG, NET, OKTA, PLTR, SHOP, SNOW, TEAM, U, VEEV, ZI, ZM, ZS) up just ~ +1% over the same time period. With public markets thought to be relatively efficient in assessing risk/reward, investors are asking what would cause a sustainable pivot back towards TIMT’s higher multiple/growth names??

Secular Growth: Frequent readers of RBC’s TIMT Daily/Weekly know we believe that revenue and earnings revision patterns are the most important drivers for stock performance over the long term – specifically outperformance vs. consensus estimates.  Despite our stated view, many TIMT investors (MFs, HFs, VC, PE) have been intently watching interest rates as of late given the strong economic data expected in the 1H’21.  With this backdrop, we asked our largest institutional investors to rank the following metrics in order of importance as to when to aggressively add/defend the high multiple/growth names -- 1. Interest rates 2. Estimate (revenue) revisions 3. Multiples 4. M&A

Buy-side growth survey: We received 113 responses last Thursday (4/1/21). Believe it or not, interest rates were NOT the #1 reason to step in and buy/defend high growth/multiple stocks (estimate/revenue revisions were). Interest rates and multiples ranked evenly as a close 2^nd/3^rd (which makes sense given the correlation). Potential M&A doesn’t seem like a catalyst. See below.

#1: Estimate (revenue) revisions (35%)

#2 Interest Rates (30%)

#3 Multiples (30%)

#4 M&A (5%)

Software call @ 12pm EST tomorrow: Software multiples have pulled back but remain elevated (see below). Be sure to join Matt and I tomorrow (12pm EST) where we’ll discuss thoughts about future estimate revisions (+) and catalysts/events this week (OKTA, CRWD). Link to the webcast: https://www.veracast.com/webcasts/rbc/meetings/7M14ia.cfm

See the full list of RBC TIMT marketing below. As always, the calendar for all of this week’s TIMT events is attached.

Enjoy the day with the fam! 

RBC Marketing:
4/5: RBC Bi-Weekly Software Call @ 12pm EST (Seth Ostrie/Matt Hedberg)
5/11: QTS – virtual NDR (Boston)
5/25: RBC Global Datacenter, Cloud and Broadband Infrastructure Conference
6/3: RBC Auto-Tech Virtual Bus Tour (APTV, CIIC, GOEV, FSR, RIDE, LAZR, NKLA, ACTC, QS)
6/17: RBC Financial Technology Conference
11/16-11/17: RBC TIMT Conference

RBC Analyst Marketing:
4/7-4/8: Jon Atkin (Communication Infrastructure)

TIMT Desk Sector Strategy:

What a difference a year makes..….Most TIMT investors are keenly aware they are now faced with 2 earnings season during each quarter. During calendar Q1, December quarter reports constitute the first earnings period, with the second wave comprised of January software/semiconductor earnings (ADI, ADSK, AVGO, COUP, CRM, CRWD, DOCU, ESTC, INTU, MDB, MRVL, NTNX, NVDA, OKTA, PANW, PLAN, SMAR, SPLK, VMW, WDAY, WORK, ZM, ZS). This time last year, BABA made cautious comments on their earnings call related to Chinese discretionary spend and AAPL had negatively preannounced. With this backdrop, investors believed they’d have to contend with a third “negative” earnings preannouncement season in C’Q1 that coincided with MS’ TMT Conference (beginning of March). Fast forward 12 months, investors are starting to question if this year’s third C’Q1 earnings preannouncement season could actually be the result of a slew of “positive” preannouncements at MS’s TMT Conference (V, UBER, TXN, STM, WDC, STX, AMD, TEL, MU, QRVO)…..

Estimate revisions still matter/TWLO..… This has certainly been the case for software. Software companies that have recently delivered strong results that resulted in consensus C’22 revenues being revised higher > +5% (HUBS, BILL, NET, PTC, DT, VRNS, TLND, TDC), their underlying stocks ripped higher by an average of ~ +15% T+1. Conversely, software companies where C’22 revenues were revised lower by > -5% (NEWR, MIME, CDAY, AYX), saw their stock decline by an average of ~ -13% T+1.  The one exception where C’22 revenues were revised > +5% “but” the stock declined was NET ($85.95 -6%). Clearly if you trade > 20x C’22 EV/sales, expectations are VERY high. For context, during our buyside software survey (n=96) last month, the majority of respondents expect TWLO to deliver “organic” revenue growth similar to what they delivered in Q3.

TWLO (EPS – 2/17): What will TWLO report for their “organic” (Segment closed 11/2/20) Q4’20 revenues vs. consensus = $455m (+37% Y/Y) and Q3’20 = $448m (+52% Y/Y)?  

1. <$454m (+37% Y/Y) (2%)
2. $457m (+38% Y/Y) to $467m (+41% Y/Y) (10%)
3. $470m (+42% Y/Y) to $480m (+45% Y/Y) (31%)
4. $484m (+46% Y/Y) to $494m (+49% Y/Y) (21%)
5. >$497m (+50% Y/Y) (36%)**

**Buyside software survey (n=96) conducted 1/22/21

C’22 EV/sales valuations for secular growth software companies (COUP, CRWD, DDOG, DOCU, NET, OKTA, TWLO, ZM, ZS): With expectations clearly higher for software companies that trade > 20x C’22 EV/sales based on the fact that both DDOG and NET failed to rally on solid beats/raises last Friday, we revisited “potential” upside scenarios based on investor conversations last month. We’d imagine these will be more topical ahead of TWLO (this Wednesday) and January quarter earnings (COUP, CRWD, DOCU, OKTA, ZM, ZS) over the coming weeks.

TIMT Earnings tomorrow morning (PLTR)

PLTR FQ4’20 Earnings Call @ 8am EST tomorrow. 14% implied move: This is certainly a unique software company, that remains misunderstood based on conversations with investors. The bears are concerned about customer concentration (132 total customers), lack of FCF, and valuation (C’22: 38x EV/sales) ~ we’ve seen shorts pressing “once again” ahead of tomorrow’s earnings. The bulls believe PLTR has a massive TAM (~$120b = $56b Commercial/$63b Govt) with potentially accelerating revenue and improving margins (as large customers scale). The bulls have won over the past 3 months given the +120% intra-quarter move! That said, this is clearly a name that has a LOT of retail interest (average daily volume = 60m shares). We received the following institutional  PLTR feedback last Friday…

HF: “I’m concerned about the lock-up. But for earnings, they better crush it (i.e, 45%+ growth in Q4 and at least 40%+ guide) for the stock not to go down a lot given they announced all these massive contract wins. If you add them all up, seems like that suggests a massive beat and raise.”

HF: “they have to grow > +45%”

HF: “Enterprise business needs to grow more. They should raise FY….”

HF: “Everyone thinks this is broken not a real company; i.e. a service company….. everyone short for that reason and lockup. If they give you evidence about durable software growth (+ WSB likes it); stock works. They’ve been signing some big customers. Govt spending on cyber security and cyber military is exploding. You wanna bet against the 1 person that sells it??  I like it.”

Bi-Weekly Software call tomorrow @ 12pm EST

Be sure to join us for our bi-weekly Software call tomorrow (12pm EST), where Matt and I will discuss expectations and positioning across software. Link to tomorrow’s call: https://www.veracast.com/webcasts/rbc/meetings/w87Lc2.cfm

As always, the calendar for all of this week’s TIMT events is attached

RBC Marketing:
2/16: Constellation Software – Group Call @ 10am EST
2/16: RBC Software Team’s Bi-Weekly Call @ 12pm EST
2/17: JCOM – virtual NDR (Boston)
2/22: VCRA – virtual NDR
2/23: VRNS – Group Call @ 11am EST
2/24: NICE – virtual NDR (Canada)
2/24-2/26: RBC Global ESG Conference
2/25: RBC Canadian Private Technology Symposium – “The Future is Now”
2/25: JCOM virtual NDR
3/2: AMZN: Conference Call - “How Amazon will impact the Retail Sector” – 11am EST
3/4: RCM – virtual NDR
3/29-3/30: Datacenter/Cloud Infrastructure Executive Meetings (CONE, Megaport, NEXTDC, VNET, GDS, DLR, QTS, COR, EQIX)
5/25: RBC Global Datacenter, Cloud and Broadband Infrastructure Conference
6/17: RBC Financial Technology Conference11/19-11/17: RBC TIMT Conference