Watchlist Q2 2021

This week we are take a look at the second watchlist of 2021. None of the stocks referenced below are buy recommendations. This list is designed to act as a starting point for you when doing your own due diligence and represents stocks that are on my own radar but I have not invested in at the time of writing.


Olo Inc.

Ticker: $OLO

Sector: Technology

Market Cap: $4.2 billion

Share Price: $29.95

Overview

Olo which stands for “Online Ordering”, provides a cloud-based commerce platform for multi-location restaurant brands. The platform powers restaurant brands’ commerce operations, enabling digital ordering and delivery, while further strengthening and enhancing the restaurants’ direct consumer relationships. Olo is a recent addition to the public markets having completed its initial public offering on 16th March 2021.

Consumers today expect more convenience and personalisation from restaurants, particularly through digital channels, but many restaurants lack the in-house infrastructure and expertise to satisfy this demand in a cost-effective way. Olo provides restaurants with a SaaS platform to manage their complex digital businesses and enable fast and more personalised experiences for their customers. 

The platform and application programming interfaces, or APIs, seamlessly integrate with a wide range of solutions, unifying disparate technologies across the restaurant ecosystem. Olo helps restaurant brands to increase their digital and in-store sales, maximise profitability, establish and maintain direct consumer relationships, and collect, protect, and leverage valuable consumer data. 

Restaurants are an incredibly complex area of the retail industry, making their shift to on-demand commerce challenging. The restaurant building uniquely serve as both the factory and showroom floor: restaurant operators must manage food production and customer service simultaneously while providing the high-quality, consistency, and hospitality that fosters consumer loyalty and trust. On top of this, restaurants serve food that is perishable and must be made to order for just-in-time consumption under strict regulatory standards for health and safety. 

Most restaurant brands do not have the expertise or the resources to develop their own solutions to manage on-demand commerce and are challenged because their in-store technology is comprised of a fragmented set of legacy solutions, many of which were developed before the internet even existed. Concurrently, delivery service providers (Uber, Door Dash etc) and ordering aggregators have captured digital demand, but pose new challenges for restaurant brands through lower long-term profitability, increased complexity, elimination of the restaurant’s direct relationship with the consumer and directly competitive food offerings. 

Latest Financial Results - 31 December 2020

Total revenue for the year ended 2020 was $98.4 million, compared to $50.7 million for the year ended 2019, an increase of 94% year-over-year.

  • Platform revenue in 2020 was $92.7 million, compared to $45.1 million in 2019, an increase of 110% year-over-year

  • Professional services and other revenue in 2020 was $5.7 million, compared to $5.6 million in 2019, an increase of 2% year-over-year

Gross profit was $79.8 million in 2020, compared to $35.1 million in 2019, an increase of 127% year-over-year. Gross margin in 2020 was 81% compared to 69% in 2019.

Operating income was $16.1 million in 2020 compared to a loss of $5.1 million in 2019. It is worth pointing out that positive operating income in a public SaaS company this early is rare.

Net cash provided by operating activities in 2020 was $20.8 million, compared to $2.4 million in 2019, a 766% year-over-year increase.

Final Words

Olo is a company that is helping the modernization of restaurants by keeping them in control of their data and brand. For too long, restaurants have been at the mercy of delivery service providers and ordering aggregators that offer no brand loyalty and erode margins. 

The $1.6 trillion food industry is one of the largest consumer markets in the United States. According to the National Restaurant Association, restaurants accounted for $659 billion of that spend in 2020 despite the impact of COVID-19. However, consumer spending on restaurants is expected to rebound to $1.1 trillion by 2024 according to analysis by The Freedonia Group.

Much like how Shopify has empowered merchants, Olo has the potential to empower restaurants in the same way. We have all seen how that has worked out for Shopify!


Roblox Corporation

Ticker: $RBLX

Sector: Communication Services

Market Cap: $38.4 billion

Share Price: $69.82

Overview

Roblox is an online video game platform that allows for the development, creation, and exploration of gaming experiences. Their mission is to build a human co-experience platform that enables shared experiences among billions of users. The company is another recent addition to the public markets having completed its direct listing on 10th March 2021.

An average of 36 million people from around the world come to Roblox every day to connect with friends. Together they play, learn, communicate, explore, and expand their friendships, all in 3D digital worlds that are entirely user-generated, built by their community of 8 million active developers. Roblox management call this emerging category “human co-experience,” which they consider to be the new form of social interaction. The platform is powered by user-generated content and draws inspiration from gaming, entertainment, social media, and even toys. 

Some refer to this category as the metaverse, a term often used to describe the concept of persistent, shared, 3D virtual spaces in a virtual universe. With the advent of increasingly powerful consumer computing devices, cloud computing, and high bandwidth internet connections, the concept of the metaverse is materializing.

Roblox games are free to play, but include in-app purchases for items to use in games, like a magical sword or fast race car. Users can also design virtual gear to dress up their online representations, known as avatars, and sell the digital wares to others. All transactions are made in “Robux,” the company’s own digital currency that can be converted back into real money. 

Growth at Roblox has been driven primarily by a significant investment in technology and two mutually reinforcing network effects: content and social.

First, user-generated content, built by the community of developers and creators, powers the platform. As developers and creators build increasingly high-quality content, more users are attracted to the platform. The more users on our platform, the higher the engagement and the more attractive Roblox becomes to developers and creators. With more users, more Robux are spent on the platform, incentivising developers and creators to design increasingly engaging content and encouraging new developers and creators to start building on the platform. 

Second, the platform is social. When users join, they typically play with friends. This inspires them to invite more friends, who in turn, invite their friends, driving organic growth. The more friends that each of the users has playing together on the platform, the more valuable and engaging the platform becomes. This drives more users to the platform through word of mouth from their existing friends on the platform.

Latest Financial Results - 31 December 2020

Total revenue for the year ended 2020 was $923.9 million, compared to $508.4 million for the year ended 2019, an increase of 82% year-over-year.

Gross profit was $684 million in 2020, compared to $386 million in 2019, an increase of 77% year-over-year. Gross margin in 2020 was 74% compared to 76% in 2019.

Operating loss was -$266.1 million in 2020 compared to a loss of -$76.4 million in 2019.

Net cash provided by operating activities in 2020 was $524.3 million, compared to $99.2 million in 2019, a 428% year-over-year increase. Free cash flow in 2020 was $411.2 million, compared to $14.5 million in 2019.

Bookings of $1.882 billion in 2020, compared to $694 million in 2019, an increase of 171% year-over-year. Revenue from bookings is recognised over the estimated user lifetime of paying users.

Final Words

Three quarters of U.S children aged between 9 and 12 use Roblox which is a mindblow statistic. Any parents and teachers of young children in Ireland that I have spoken to say that it is just as popular here. What is even more impressive is how Roblox has done so well to monetise such a young cohort. 

CEO and founder Dave Baszucki says his ultimate vision is to turn Roblox into a vast science-fiction virtual reality metaverse. Roblox’s online gaming space would be transformed into a virtual world with endless real estate, enabling users to experience and build what they want and that would be seen via virtual reality headsets. Instead of just reading a book about ancient Rome, future Roblox users could visit the historical city re-created in the metaverse and take a stroll around. 

The loyal group 9 to 12 year old users who are growing up with Roblox might be the ones to make this metaverse a reality in the future. 


Wix.com Ltd.

Ticker: $WIX

Sector: Technology

Market Cap: $16.7 billion

Share Price: $295.90

Overview

Wix.com is a cloud-based web development platform. The technology allows users to create a professional and functional web presence. Whether it’s your first time creating or you’re a long time expert, Wix.com offers the features and solutions you need to build a professional website with creative freedom.

Wix.com provides its platform to over 200 million users in 190 countries, empowering everyone to express themselves and build their online presence. Whether you’re an entrepreneur, designer, developer, musician, photographer or restaurant owner, you’ll find specialized features to create a professional website and manage your business.

Wix.com is continually developing new tools to enhance its product offering. With Wix Stores, you can sell your products and get paid online. Market your brand further by designing a customized logo using Wix Logo Maker and get discovered in search engines with Wix SEO Wiz. Create promotional videos in seconds using Wix Video Maker and share your story with your online community with a stunning Wix Blog.  Build advanced web applications using serverless computing and hassle-free coding with our open development platform, Velo by Wix.

Latest Financial Results - 31 December 2020

Total revenue for the year ended 2020 was $988.8 million, compared to $761.1 million in 2019, an increase of 30% year-over-year.

  • Creative Subscriptions revenue in 2020 was $783.5 million, compared to $644.5 million in 2019, an increase of 22% year-over-year.

  • Business Solutions revenue in 2020 was $205.3 million, compared to $116.6 million in 2019, an increase of 76% year-over-year.

Creative Subscriptions Annualised Recurring Revenue (ARR) was $878.0 million in the fourth quarter of 2020, compared to $707.2 million in the fourth quarter of 2019, an increase of 24% year-over-year.

Business Solutions ARR was $138.3 million in the fourth quarter of 2020, compared to $94.8 million in the fourth quarter of 2019, an increase of 46% year-over-year.

Total collections in 2020 were $1.102 billion, compared to $832.5 million in 2019, an increase of 32% year-over-year.

Overall gross margin in 2020 was 68%, compared to 74% in 2019. Decrease related to the investment in expanding Customer Care and higher hosting costs to serve the increased number of users.

GAAP net loss in 2020 was -$216.5 million compared to a net loss of -$86.4 million in 2019.

Net cash provided by operating activities in 2020 was $148.0 million, while capital expenditures totalled $18.9 million, leading to free cash flow of $129.2 million, compared to $127.5 million of free cash flow in 2019, a 1.3% year-over-year increase.

Final Words

Wix.com is providing the digital infrastructure for a lot of small to midsize businesses and is expanding its service’s capabilities with an estimated total addressable market of $300 billion. The company had a phenomenal 2020, driven by new product launches and the demand for a digital presence from businesses worldwide.  As the transition to digital is being accelerated, the Wix.com CEO Avishai Abrahami recently stated that “My goal and belief is that at this rate of growth, in the next 5-7 years, 50% of anything new built on the internet will be done on Wix”.

With a demonstrated track record of innovation Wix.com is continuously introducing new tools to better serve its customers and fight off competitors. 


Check out last quarters watchlist if you missed it Watchlist Q1 2021.

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Happy investing

Wolf of Harcourt Street

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Disclaimer: I am not a financial adviser and I am not here to give specific financial advice. The opinions expressed are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The information is based on personal opinion and experience, it should not be considered professional financial investment advice. There is no substitute for doing your own due diligence and building your own conviction when it comes to investing.