Key commentary from executives amid a notable selloff in tech. Plus, EV-maker Rivian has a rebound quarter following a newsworthy period related to Amazon and Ford selloffs.
[CRYPTO] Coinbase (-16.3% Since Close) Doubles Down on Long-Term Perspective, Not Worried About Volatility: “I just want to read a quote from our S-1 when we went public about a year ago that kind of laid some of this out and we actually talked about it in our earnings call last year, sort of anticipating this downturn. So the quote is that "You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn't faze us because we're always taking a long-term perspective on crypto adoption. We may earn a profit when revenues are high, we may lose money when revenues are low. But our goal is to roughly operate the company as breakeven, smoothed out over time for the time being. We are looking for long-term investors who believe in our mission and will hold through price cycles." So of course, this is the early days of this industry, and we are going to continue to invest. As the industry matures over time, we're going to be a very profitable company and more consistently profitable. But for now, regardless of whether the market is up or down, we're going to keep building.”
[LENDING TECH] Upstart (-44.6% Since Close) Lowers Guidance Citing Potential for Late-2022 Recession: “Interest rates have continued to climb in response to inflation signals and Fed tightening. The combination of inflation and monetary tightening imply the nontrivial risk of a recession potentially later this year. Given the general macro uncertainties and the emerging prospects of a recession later this year, we have deemed it prudent to reflect a higher degree of conservatism in our forward expectations.”
[MACRO RISK] Rate Hikes & Volatility Negatively Impacting Lending Volumes: “We expect less volume than we would have a few months ago based on pricing in the marketplace being higher, and that's a function of both underlying base rates being higher as well as the risk in the environment and the risk premium that either lenders or investors are demanding.”
QUESTION: “Great quarter here. I have sort of like a longer-term question. And I think I was actually surprised to see the stock trade down today so much. And I think a lot of it had to do because he reported after upstart. And I think there's a lot of confusion out there in the market from the calls that we're getting from investors about the nuances and the differences between the quality of SoFi and some of your competitors. Can you maybe talk to what people are misunderstanding here and what they're missing when they're sort of putting you in that group?”
ANSWER 1A - Product Diversification: “I would say the biggest difference between SoFi and all the other, call it, FinTech 2.0 companies – moving Square and PayPal out of that equation – so more recently-public companies. The biggest difference is, we're building a one-stop shop with a broad suite of digital financial products for our members. We're trying to build a lifetime relationship with them to be there for every one of the major financial decisions in their lives and all the days in between.”
ANSWER 1B - Wider Variety of Loans for Higher-End Customers: “Within our Lending segment, we have 4 different types of loans. We're not just in personal loans. We're also in student loans refinancing or in school loans and in mortgages. The last big thing I'd mention is we're going after a high-end customer, mass-affluent, high net wealth individuals to have a great credit profile, high income, and they need the products and services that we develop and most of the big banks have walked away from that price where we have products. They don't offer mortgages. They're not in brokerage or they don't have personal financial management.”
ANSWER 2A - Digging Into SoFi User’s Credit Profile: “Our demographic credit profile of our member base is extremely strong, and we see that playing into our results. The weighted average income of our student loan refinancing borrowers is $170,000 with an average FICO of 775. The average income of our personal loan borrowers is $160,000 with an average FICO of 746. And then our overall credit profile and risk metrics are trending really well, both on a year-over-year and sequential basis. In terms of 90-day delinquencies, our PL 90-day delinquencies are at 14 basis points which is down year-over-year and sequentially. And our student loan refinancing delinquencies remained really healthy at just 5 basis points. And then from a charge-off perspective, those remain really healthy as well and are trending in the right direction with our personal loans annualized charge-offs at 1.04%.”
ANSWER 2B - Being a Bank Has its Perks: “We can sell and hold loans, which is a great diversified market for us. We can hold loans because we're a bank, who use deposits to fund them at a low cost, and we can access the ABS market if and when we think it's appropriate. And so we have a great competitive advantage in low cost but also an ability to get really strong premiums for the credit due to broad distribution now from our capital markets.”
Unity Software (-27.1% Since Close) Hit by Apple Privacy Changes and Tech Debt: “The most succinct framing for the challenges we are facing is that we built more for growth and less for resiliency. Following years of rapid growth and working through the challenges of Apple's privacy changes, we got hit hard by 2 issues. The first was a fault in our platform that resulted in reduced accuracy for our Audience Pinpointer tool, a revenue-expensive issue given that our Pinpointer tool experienced significant growth post the IDFA changes. The second is that we lost the value of a portion of our data -- training data, due in part to us ingesting bad data from a large customer. We estimate the impact to our business of approximately $110 million in 2022 with no carryover impact to 2023.”
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Palantir (-15.1% Since Close) Misses on Government Revenue, a Natural Insulator from Inflationary Headwinds Across Other Business Units: “We're a company to thrive in good times and we thrive in bad times… We're a company that expected inflation. We're obviously super committed to the mission. But it was obvious to us even at inception in bad times, the quality of government revenues would be crucial because other revenues would suffer from inflation.”
Forget “Geopolitical Unrest”, Palantir is Discussing a Nuclear Attack: “At Palantir, we are playing a critical, crucial and much bigger role than we're allowed to mention or would ever discuss in public in current events, obviously, commercially, because our partners and other future partners are being disrupted. Their supply chains are disrupted. There's a threat of a disruption in the broader economy. And many realize that the reality of a truly monumental, epic and horrific disruption in the form of a nuclear attack is much higher than is being reported.”
Still, Palantir Expects Upside from Geopolitical Unrest: “There's a wide range of potential upside above our guidance, including those driven by our role in responding to developing geopolitical events.”
QUESTION: “A couple of questions for you, Barry. You talked about tech debt. Also, any examples as to if you're able to resolve the tech debt, what improvements in processes, execution timeline that you could have?”
ANSWER 1A - Peloton’s “Hacky” Origins: “Well, so let me tell the story this way. The business was crowdsourced so there's a bunch of software that was hacked. The business started to have success, like all tech companies I've ever been associated with, all of the resources of the business were focused on engineering and product in order to accelerate growth. And then COVID hit. And so the business explodes from 700,000 subs to 3 million subs. And all those systems-related issues are still present in the business today. So the order management system is still the original code that was hacked when the business was first organized. And pretty much all of that needs to be rewritten.”
ANSWER 1B - Slowness in Dev & Testing: “Other [issues] relate to our ability to push code in our engineering team and the productivity of engineers. This is an issue, for instance, in the last couple of years that's [followed by the Barry effect] that we wrestled to the ground. But even after it was public, it was an issue that they had to address, and we have to address it here as well. And so as a consequence, it slows down the speed at which we're able to A/B test and the speed at which we're able to update our e-commerce platform. You see that in our ability to quickly get to market to A/B test Fitness-as-a-Service, for instance. I mean, really, we have to wait until the end of June to be able to A/B test on the website. That's something that would take 1.5 days at Netflix, even early on.”
Peloton Inventory Accumulating in Warehouses Due to Declining Demand: “What we've also seen, which we will experience in Q3 and Q4, is higher detention and demurrage and storage costs, given the fact that our inventory position is higher than we expected given the decline in our demand forecast.”
Production is On Track and Demand Remains High: “With regard to our production, we are encouraged by the acceleration of our demonstrated production rate. Our plant is now achieving cycle times 3x higher than the start of the year. These demonstrated production rates, which we expect to continue to increase, coupled with our current supply chain outlook, give us confidence in our ability to hit our targets for 2022 [25,000 vehicles produced]. Equally important, demand continues to accelerate. And as of May 9, we had over 90,000 preorders for our R1 products in the U.S. and Canada. All of our orders have been attracted by organic growth and brand awareness and without any paid marketing or media. It is worth noting that since our March 1 price increase, we've received over 10,000 R1 preorders for the U.S. and Canadian market with an average price of over $93,000.”
The Worst of the Semiconductor Shortage is in the Rear-View Mirror: “We have very tight relationships with the semiconductor suppliers, and we believe we've seen really the worst of it or sort of the valley, if you will, of these supply constraints. And the suppliers are leaned in. We have very high levels of visibility into what the allocations will be on a go-forward basis. And that gives us the confidence of what the ramp will look like as we look out through the remainder of this year.”
Rivian Sitting on Cash: “We're clearly in the driver seat with $17 billion of cash on hand.”
Roblox (-5.9% Since Close) Says March was Worst Month for Comps: “March, we believe, was our most difficult month lapping COVID. And what is really exciting is all of the user gains generally we accrued during COVID, we've kept. As expected, our bookings are highly correlated with hours of engagement, and our hours have decreased in some cohorts as we've emerged from COVID.”
EA (+2.3% Since Close) - Gaming has Become Just as Much About Social Interaction as Entertainment: “And as it relates to player engagement and the value that we see from that over the course of time, I think what you've heard from us throughout COVID is that players sought out our games in the beginning for entertainment reasons, but they stay deeply engaged in them beyond just entertainment. They really saw games as a means of deep social connection with their atomic unit of friends. And this is that 4 or 5 friends that you spend a great deal of your social time with. What we have seen even as we are moving past COVID and that people are returning to work and returning to life and returning to school is our engagement has continued to be very, very strong, and in many cases, across some of our franchises at record levels. Given the level of entertainment that we're developing and delivering, given the value of social interaction as part of those experiences, we think this is going to be a continued driver for growth for us.”
Roblox Says Social Interaction and Communication with Friends Will Drive Engagement: “Longer term, we believe anything around improving the usage of Roblox as a spontaneous communication medium for shorter conversations, maintaining context with friends will drive that frequency. I'm personally optimistic, we have a lot of headroom there.”
Strong Q1 Attendance and Even Stronger Customer Spending: Following on the heels of our progress throughout 2021, AMC's first quarter of 2022 marked yet another milestone. Thanks in part to Sony's Uncharted and Warner Bros. The Batman, it was our best first quarter in 2 years… What a difference a year makes. We are especially encouraged that when they did come to our theaters, our guests have been spending like never before, with revenues per patron through the roof at AMC up 34% above prepandemic norms and meaningfully higher than was seen at our largest competitors.”
Doctor Strange is an Indicator of Movie Theaters’ Resilience: “But the real news of the day is the $187.4 million domestic opening and the $450 million global opening of Disney's Doctor Strange. This one was the biggest movie opening of 2022 and the second biggest opening of the pandemic era second only to Spider-Man: No Way Home. Let me say it again to all those who doubted the consumer appeal of movie theaters, Doctor Strange, Doctor Strange, Doctor Strange, Doctor Strange. And not only is the movie clearly a big hit, I'm also absolutely pleased to report to you that AMC overperformed for this movie at opening weekend, with a 26% domestic market share considerably higher than our historic 22% domestic market share norms. Given that AMC is the largest movie theater company in the world, we can say to our shareholders with some glee and delight that the resilience of movie theaters is right now on clear display and that the future of the cinema is bright.”
Huge Slate of Blockbuster Films in the 2022 Pipeline: “Many of us on this call can remember the revealing and clarifying language that came out of the 1992 presidential campaign, when James Carville said, "It's the economy, stupid." Well, for the movie theater business, it's the movies, stupid. And oh, do we have hit movies now coming to an AMC Theatre near you.”
Specific Films Slated for 2022: “The movies keep coming in 2022. We'll finish the year with Warner Bros., DC Comics-based Black Adam, starting Dwayne "The Rock" Johnson, and 3 more Disney films, which is sure to be monstrous hits, including the animated Strange World and 2 highly anticipated tentpole Disney sequels, Marvel's Black Panther: Wakanda Forever and James Cameron's Avatar 2, the sequel to Avatar at the time of its original release, the highest worldwide grossing movie of all time.”
AMC Sees Themselves as an Escape from All Ongoing Turmoil - Economic & Geopolitical: “It's just so very clear in our eyes, moviegoers are so eager to return to the magic offered at AMC Theatres. They want dazzling images on a huge silver screen, they want to immerse themselves in stories that are perfect and powerful, they want to enjoy comfortable recliner seating, a bucket of buttered popcorn and a Coke. They want more IMAX and Dolby Cinema screens at AMC that are not offered by any other movie exhibitor. And for just a few hours they want to escape. They want to skip the news, the Internet, war, politics, inflation, interest rate hikes, their phone and the interruptions that inevitably come when at home.”
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