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

All Charged Up

THIS IS MY FAVORITE STOCK OF 2017. WE HAVE ALREADY MADE 400% RETURN ON OUR POSITION IN JUST THREE WEEKS.

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To me there are fewer setups that look as appetizing as Tesla this year. The stock has been lashed out at by bears for two years and has seemingly had everything thrown at it. With that, and barring a completely overall bear meltdown, I find it hard for the investors in the stock to ring the register this year.

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TSLA has been consolidating on a monthly basis.

With the slated Model 3 deliveries, 2017 marks the year that the Tesla mass consumer comes online. With that comes a new revenue stream and the growth dynamic back into play.

The automaker took 400,000 pre-orders for the Model 3 within weeks of revealing the prototype. The main issue they face is producing millions of them, on time, up to quality standards, and most importantly; without losing money. Tesla doubled their production in 2016 to 100,000 cars. In April, Musk said he wants to produce half a million cars by 2020. One month later, he said they’d get there by 2018. Aggressive as that may be, Musk seems to deliver under pressure. The Model 3’s biggest hinderance on performance deliveries are projections, expectations, and supply chain. With expectations coming as a result of projections, supply chain will be your tell with the company’s ability to deliver results.

Competition:

Many analysts who bash Tesla’s stock will have you know that there is a steady increase in competition in recent years. They’re full of shit. Tesla operates in the high end electric vehicle market. Until now, they’ve been the only real player. Recently Fisker, Farady Future , and Lucid Motors have perked up to compete but until now there really hasn’t been a viable competitor.

The main difference however is that Tesla has centered itself on building a network and working outward. SImilar to the Apple vs everybody model, Tesla has open sourced its technology and focused its attention on building a sustainable network/brand first then focus on its product offerings. That’s why the term “Cult Stock” has often been used to describe the company/stock.

Now What?:

As I’ve said above, Tesla has been range bound for nearly two years now. In early 2015, the stock broke it’s 180 “support” level and found itself bouncing sharply off of its 200 week MA. Since then the stock made a high at nearly 270 and then a failure and hold of the 180 level yet again. As of late the stock has once again broken out of its downtrend and appears to be acting constructively. With the addition of Elon Musk to the Trump Advisory team, the short interest, new product offering, and constructive behavior, this stock is set to rip in 2017.

One key amendment to this argument is the price of oil. Which since the Barron’s $20 oil cover, has been constructive and working its way higher. All of these instances bode well for Tesla which I believe has a very defined stop ($180) and a potential to break out to an all time high.

ONE LAST POINT:

TSLA’s gigafactory goes active in 2017 making them the largest battery operator/manufacturer in the world. This will provide countless jobs as well as margin expansion. This will likely bode well for TSLA moving forward with the Trump Administration and as such bears are going to get squeezed.

The $TSLA Play:

To play this stock’s potential, I’ll be putting on a leaped call spread (bullish risk reversal) with the Jan 2019 350 C being bought and the Jan 19 100 P being sold. (You can also buy a lower put strike to hedge your downside risk as well.) This prices that Tesla will see a 50% gain in the next two years which “sounds crazy” but isn’t anywhere near crazy given this stock’s price action/ability. At the time of writing, this position cost a net debit of ~$2.2. 

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To see more trades like this one, and for a full 2017 road map preview please check out my 2017 roadmap in the trade reports section on my site. Or click here to purchase: http://www.everytimeicash.com/digitalcontent/2017-stock-market-road-map

Droning On ($GPRO Earnings)

GoPro (GPRO) is set to report Q3 earnings tonight after the close with a conference call to follow at 5pm ET.

Current Capital IQ consensus stands at loss of ($0.34) per share on Revenue of $312.7 mln.

GPRO did reaffirm its guidance on September 19 which bodes well for the Q3 results. But the key will be for GPRO to reaffirm that it expects to return to profitability in Q4 and that the launch of Hero5 and Karma are beating expectations.

Key Metrics

• Gross Margin- 2H16 is expected to be in the range of 39-41% as the uptick in marketing spend around the launch of its new products takes its toll. Q2 Gross Margin was 42.4%.
• Units Shipped- Q2 saw an 8% increase in units shipped to 759,000.
• Average Selling Price- ASPs increased 11% q/q and 14% y/y in Q2.
• Inventory- With the roll over to a new product, inventory management remains key. Q2 Unit sell-thru was up approximately 10% sequentially and was more than 50% higher than sell-in for the second quarter in a row, resulting in an estimated 35% sequential reduction in channel inventory. Inventory declined $50 million, or 36%, from the first quarter to $90 million, the company's  lowest inventory level since the second quarter of 2014.

Guidance

• On 9/19 reiterated that it expected FY16 revenue to fall in the range of $1.35-1.50 bln. Analysts have tweaked consensus numbers higher as it has moved to $1.38 bln from $1.33 bln according to Capital IQ.
• 2H Non-GAAP Gross Margin is expected to be in the range of 39-41%.
• GPRO has said it expects to return to profitability in Q4.

$TWLO Earnings Preview

Twilio is slated to release its Q3 results after the close today, with a conference call scheduled for 5 PM ET to discuss the report. Last quarter, the company's report hit the wires at 4:05 PM ET. 

For Q3, current street estimates call for EPS of ($0.08) on revs of $70.85 mln (+60% y/y). 

This compares to the company's latest guidance for EPS of ($0.05-0.04) on revs of $70.25-71.25 mln. In early October, the company offered prelim Q3 results, which exceeded the guidance given when it reported Q2 results.

• Highlights from Last Quarter

• Reported Q2 (Jun) loss of $0.08 per share, excluding non-recurring items, $0.07 better than the Capital IQ Consensus of ($0.15); revenues rose 70.0% year/year to $64.5 mln vs the $58.23 mln Capital IQ Consensus.
• Base revenue of $56.4 million for the second quarter of 2016, up 84% from the second quarter of 2015 and 13% sequentially from the first quarter of 2016.
  • 30,780 Active Customer Accounts as of June 30, 2016, compared to 21,226 Active Customer Accounts as of June 30, 2015.

Analyst Commentary

• On Tuesday, shares were initiated with an Outperform at Oppenheimer and given a $50 price target
• In late October, shares were initiated with a Neutral at Mitsubishi UFJ

Options Activity

• Based on TWLO options, the current implied volatility stands at ~ 80%, which is 7% higher than historical volatility (over the past 30 days). Based on the TWLO Weekly Nov04 $33.5 straddle, the options market is currently pricing in a move of ~4% in either direction by weekly expiration (Friday).