Hail Mary (UAA)

Under Armour (UAA, UA) is set to report Q4 results tomorrow before the market opens with a conference call to follow at 8:30am ET. UAA is expected to report results at 7:15am. Last quarter the co provided its Q3 results at 7am and then provided prepared conference call remarks on its website shortly after the earnings release. Current Capital IQ consensus stands at EPS of $0.25 on revenues of $1.409 bln. 

Guidance

• Expects Q4 revenues to grow ~20%. (Approx $1.404 bln, Capital IQ consensus $1.409 bln) 
• Gross margin is expected to be relatively flat versus prior year.
• Expect operating income in the range of $186-191 million, representing growth of 5-8% y/y.
• Reaffirmed guidance for FY16, seeing FY16 revs of $4.93 mln vs. $4.94 bln Capital IQ Consensus Estimate. 
• Reaffirmed 2016 operating income of $440 million to $445 million.
• On track to achieve 2018 revenue goal of $7.5 billion and expect to grow full year revenues consistently in the low-20s in both 2017 and 2018.
• Lowered its 3-year CAGR for EBIT to the mid-teens from 23%.
• Expect annual operating income growth in the mid-teens in each of the next two years; Focus is on investing to 'get big fast'.
• North America Apparel growth is slowing across the industry. While expect to continue to significantly outpace the apparel industry, the growth rate going forward will be less than expected from Investor Day in 2015.
• Will invest more heavily in areas that can grow faster such as footwear, direct-to-consumer and international as well as more aggressively enter Sport Fashion, like UAS, and the much broader sports lifestyle category.

Key Issues

• Border Tax- UAA would be seen as a big loser if a border tax was enacted. It currently has approx 85% of its sales in the United States. It produces approx 65% of its products overseas in China, Jordan, Vietnam and Indonesia. 
• Valuation- UAA is trading at approx 42x Forward P/E compared to 20x for Nike (NKE). 

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Just Chill

NFLX had an aggressive International build in 2016. It also increased investment in its original content after so many of its shows (House of Cards, Orange is the New Black, Narcos, Stranger Things, etc) performed so well. The investments were complimented by a price increase that was 75% complete at the end of Q3. 

Subs will remain topic of focus but investors want to see the company deliver. Especially with Forward P/E at a 145x 2017 earnings. The cash burn in Q3 was $506 mln and NFLX said it expected Q4 to come in at a similar level. 

Q4 Guidance:

• Total Streaming- $2.34 bln
  • Contribution Margin 18.8%
  • Total Membership 91.94 mln
  • Net Adds 5.20 mln

Domestic Streaming

• Revenue $1.39 bln
• Contribution Margins 36.9%
• Total memberships 48.95 mln
• Net Additions 1.45 mln (Street expectations closer to 1.39 mln)

International Streaming

• Revenue $947 mln
• Contribution Margins -7.9%
• Total Memberships 43.0 mln
• Net Additions 3.75 mln (Street expectations are for a slight beat)
• Total
  • Net Income $125 mln

Q3 Recap

• NFLX reported Q3 (Sep) earnings of $0.12 per share, excluding non-recurring items, $0.07 better than the Capital IQ Consensus of $0.05. Revenues rose 31.7% year/year to $2.29 bln vs the $2.28 bln Capital IQ Consensus.
• Netflix Q3 Domestic Net Additions 0.370 mln vs 0.30 mln guidance; Q4 guidance is for 1.45 mln, expectations were for ~1.00 mln; Q2 adds was 0.16 mln 
• Netflix Q3 International Net Additions 3.20 mln vs 2.00 mln guidance; For Q4 NFLX expects addition of 3.75 mln, expectations were for ~3.00 mln; Q2 Adds was 1.52 mln 
• NFLX issued upside guidance for Q4, seeing EPS of $0.13, excluding non-recurring items, vs. $0.08 Capital IQ Consensus Estimate.

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NFLX SET TO TAKE OFF

The Take:

Einhorn really put a damper on this stock yesterday as it confirmed an all time high breakout. It seems everyone from Carl Icahn to Einhorn want to take a shot at calling a top in this stock. "Valuation" is the obvious key concern for these guys, but it's all relative to how you value the stock. Take Amazon for example, it has been shot against on valuation for years now. That short selling and top calling has done nothing more than fuel Bezos' land buying spree. 

NFLX has started to break out of a two year range and has cleared enough room for further upside. I want to play to capture that upside. 

NFLX SET TO EXPLODE WE WILL TAKE FEB 145 155 CALLS INTO THE PRINT

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Results

Netflix beats by $0.02, reports revs in-line; guides Q1 EPS above consensus

• Reports Q4 (Dec) earnings of $0.15 per share, $0.02 better than the Capital IQ Consensus of $0.13; revenues rose 35.9% year/year to $2.48 bln vs the $2.47 bln Capital IQ Consensus.
• Co issues upside guidance for Q1, sees EPS of $0.37, excluding non-recurring items, vs. $0.17 Capital IQ Consensus Estimate.
• See 16:10 comment for additional metrics.

Excerpts from Shareholders Letter:

• This was the largest quarter of net additions in our history and was driven by strong acquisition trends in both our US and International segments.
• 15% ASP growth; ASP for the international segment rose 13% year over year; US contribution margin expanded 395 basis points year-over-year to 38.2%. Margin improvement was greater than expected due primarily to higher-than-forecast revenue and the timing of content deals.
• Our anticipation for a year-over-year decline in domestic net adds reflects a difficult comparison in the year ago quarter where we exceeded our net adds forecast by 27%. Similarly, in our international segment, we will lap our Rest of World launch in January of last year. We also expect a greater membership impact from our content slate in the second half of 2017. On a sequential basis, we believe our strong Q4 results likely pulled forward some net adds from Q1'17 to Q4'16.
• Targeting global operating income of 7% (Was 4% in Q4).
• We anticipate the international segment will be slightly contribution profit positive in Q1. We plan on investing over the remaining quarters of 2017 internationally and, as a result, anticipate an international contribution loss in Q2. On a full year basis, we expect international contribution loss to improve substantially year on year.
• Net Neutrality- Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable. On a public policy basis, however, strong net neutrality is important to support innovation and smaller firms. No one wants ISPs to decide what new and potentially disruptive services can operate over their networks, or to favor one service over another. We hope the new US administration and Congress will recognize that keeping the network neutral drives job growth and innovation.
• We expect our FCF to be around -$2 billion in 2017 vs. -$1.7 billion in 2016, with FCF loss improving sequentially in Q1'17.
• We are funding our working capital needs through the debt market. In October, we raised $1 billion of senior notes with a coupon of 4.375%, which will reduce our weighted average cost of capital. We will continue to be a regular issuer of debt to finance our investment in original content as we balance our cash needs with the carrying cost of interest expense

METRICS FROM THE QUARTER

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NFLX Key Metrics Courtesy of Briefing

FLX CURRENTLY TRADING AT $144 AFTER HOURS WHICH IS ABOVE $1000 PRE-SPLIT

Tanning Bed ($FSLR Earnings)

First Solar (FSLR) is set to report Q3 earnings after the close with a conference call to follow at 4:30pm ET. FSLR reports right after the bell and provides additional details in a presentation shortly ahead of its call.

Current Capital IQ consensus stands at EPS of $0.66 on Revenue of $985 mln.

Shares of FSLR are holding steady at the $40 level ahead of the report. Shares hit a 52-week low of $33.74 on September 20 and are up over 20% but buyers have been unwilling to move in above the $40 level. The company needs to show it is meeting the worries about 2017 head on and that the concerns in the markets are overdone before it can press back toward the $50 level. This stands as a key quarter for the company.

FY16 Guidance

• Net Sales $3.8-4.0 bln (Was reaffirmed in Q2);
• Gross Margin (GAAP)- 18.5-19.0% (Prior 18-19%);
• Operating Expense $380-400 mln (Reaffirmed);
• Operating Income $310-370 mln (Prior 300-370 mln);
• EPS $4.20-4.50 (Prior $4.10-4.50);
• Operating Cash Flow $500-600 mln (Prior $500-700 mln);
• CapEX $275-325 mln (Prior $300-400 mln);
• Shipments- 2.9-3.0 GW (Unchanged)

Get Your Fat On ($FIT Earnings)

Fitbit (FIT) is set to report Q3 results after the bell (released results last quarter at 4:05pm ET). The co has a conference call scheduled to follow at 5:00pm ET.

 Cap IQ Consensus estimates Q3 EPS of $0.19 (vs. $0.24 in 3Q15) w/revs of $506.6 mln (+23.6% y/y). 

Guidance

• On the Q2 call, co issued guidance for Q3, sees EPS of $0.17-0.19 vs. the $0.17 Capital IQ Consensus Estimate (at the time); sees Q3 revs of $490-510 mln vs. the $497.82 mln Capital IQ Consensus Estimate (at the time).
• On the Q2 call, co reaffirms guidance for FY16, sees EPS of $1.12-1.24 vs. the $1.17 Capital IQ Consensus Estimate (at the time); sees FY16 revs of $2.5-2.6 bln vs. the $2.58 bln Capital IQ Consensus Estimate (at the time).

Based on FIT options, the current implied volatility stands at ~ 75%, which is 64% higher than historical volatility (over the past 30 days). Based on the FIT Weekly Nov04 $12.5 straddle, the options market is currently pricing in a move of ~12% in either direction by weekly expiration (Friday).

Technical Take

Technically, FIT has been in a range for the better portion of this year. It found support in Feb and June with each probe of the $12-level, but also struggled to maintain strength above the $16-area. 

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Swipin ($MTCH Earnings)

Match Group (MTCH) will report Q3 results after the bell. The company will release a slide presentation with guidance soon after the press release and host a call tomorrow morning at 8:30.

• The Street is looking for adj. EPS of $0.20 with revenue +16% to $318 mln and Adj. EBITDA +29% to $108.5 mln.
  • Match guided for Dating revenue up 2-3% Q/Q (to $280.8-283.6 mln) with a Dating adj. EBITDA margin of 35-37%.
• Match already guided for Q4 Dating revenue +4-6% Q/Q with Dating adj. EBITDA margins in the mid 40% range.
• Match also guided for FY16 adj. EBITDA of $400-415 mln with Dating revenue of $1.10-1.14 bln. Last quarter, strength in Dating revenue, led by Tinder, was offset by lower than expected indirect (adverting) revenue.
• Last quarter, Match pushed out expectations for the advertising model as Tinder chose to focus on driving user growth and engagement. Less advertising was more than offset by higher direct rev but the company also increased its investment in Tinder (mostly headcount), which resulted in lower EBITDA guidance for 2016.
• Tinder's Q2 paid member count (PMC) was up 20% Q/Q to 1.23 mln. Match reaffirmed guidance for PMC doubling this year to 1.6 mln. Match is focused on adding features to drive Tinder user growth and engagement as there is competition in this low barrier to entry business. That said, network effects are on its side. Still, Tinder is focused on growing the business before really ramping up the advertising business model on top of it.
• Q2 total dating rev was up 23% with avg. PMC +30% to 5.3 mln. Indirect (advertising) revenue was up 25% at just $11.9 mln. Non-dating revenue consists of just the Princeton Review, which averages ~$25 mln in revenue per quarter.
• Tinder essentially changed the game of dating with its simple swipe left/right app based on location and a quick profile with pictures.
  • Bears see competition in a low barriers to entry business and Tinder cannibalizing the company's legacy dating brands as serious risks.
  • Bulls point to secular tailwinds like the shift to online dating and the fact that millennials are staying single longer.
• Match's legacy dating brands like Match and OkCupid have struggled with the shift to mobile. As Tinder reduces the stigma of online dating, it could be a benefit to the legacy dating brands longer term.
• IAC (IAC) still owns 83.8% of the shares outstanding after spinning off MTCH one year ago.
• Meanwhile, 23% of the float is sold short.
• MTCH broke out to a new all time high two weeks ago but the stock has since pulled back to retest the level that offered resistance for most of October.