Watchlist - Q4 2021

This week we are taking a look at the fourth 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.


Affirm Holdings

Ticker: $AFRM

Sector: Technology

Market Cap: $39.9 billion

Share Price: $148.47

Overview

Affirm was founded in 2012 with a mission to deliver honest financial products that improve lives and is building the next generation platform for digital and mobile-first commerce. They believe that by using modern technology, strong engineering talent, and a mission-driven approach, they can reinvent payments and commerce. Their solutions, which are built on trust and transparency, are designed to make it easier for consumers to spend responsibly and with confidence, easier for merchants to convert sales and grow, and easier for commerce to thrive.

Legacy payment options, archaic systems, and traditional risk and credit underwriting models can be harmful, deceptive, and restrictive to both consumers and merchants. Affirm believes that they are not well-suited for increasingly digital and mobile-first commerce, and are built on legacy infrastructure that does not support the innovation required for modern commerce to evolve and flourish. Their platform is designed to address these problems and is best associated with the rise of “Buy now, pay later”.

With Affirm, you’ll never owe more than you agree to up front. Instead, you’ll always get a flexible, transparent, and convenient way to pay over time. Affirm earns a commission from businesses, and shoppers pay interest on some items. Unlike credit card companies, Affirm don't depend on shoppers paying late or staying in debt. Instead, they try to give them a great experience so they come back and use Affirm again.

Latest Financial Results - Q4 Fiscal Year 2021 (30 June)

Total revenue was $261.8 million, a 71% increase year-over-year, driven by increases in network revenue and interest income, related to growth in GMV and loans held for investment.

Operating loss was $124.7 million compared to operating income of $39.3 million in the fourth quarter of fiscal 2020, and includes a $105.2 million increase in stock-based compensation following the Company's January 2021 IPO.

Gross merchandise volume was $2.5 billion, an increase of 106%.

Active merchants grew by 412% to nearly 29,000, including several thousand newly integrated Shopify merchants.

Active consumers grew 97% to 7.1 million.

Transactions per active consumer increased 8% to approximately 2.3.

Final Words

The main bear case with Affirm was that it was over reliant on revenue from a single merchant with Peloton making up 30% of Affirm’s revenue at the beginning of 2021. The company has done a lot to combat this and over the past year it has struck partnerships with the likes of Shopify, Walmart and Amazon. I expect that Affirm are in for a bumper holiday season on the back of these partnerships. 

The company are also launching a debit card that will allow customers to make instalment payments on any purchase at any merchant. This move will mean that consumers will be able to link the card to their existing bank account to either pay in full for purchases, like a typical debit card, or via monthly installments at any retailer, online or in-store. 

If you are looking to learn more about Affirm I suggest checking out the deep dive from MT Capital Research.

MT Capital Research
Affirm Holdings, Inc. ($AFRM)
Welcome to MT Capital Research! If you’re new, join a group of 1835 Informed Investors who receive weekly reports on the World’s Most Interesting Tech Companies by subscribing below…
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Duolingo, Inc

Ticker: $DUOL

Sector: Technology

Market Cap: $6.3 billion

Share Price: $168.59

Overview

Duolingo’s mission is to develop the best education in the world and make it universally available. Duolingo launched in 2012 and has since become the leading mobile learning platform globally. With over 500 million downloads, their app has become the most popular way to learn languages and the top-grossing app in the Education category on both Google Play and the Apple App Store. Duolingo works to make learning fun, free, and effective for anyone who wants to learn, wherever they are.

Although education can open the door to economic opportunity, it is also among the principal sources of inequality: the privileged can get the best education in the world, while those with fewer resources, especially in developing countries, may not be able to get even basic schooling. That is why the founders Luis von Ahn and Severin Hacker started Duolingo. They believe that everyone, regardless of how wealthy they are, should have access to high quality education. For the first time in history, the technology necessary to enable this is in the hands of billions of people, in the form of a smartphone. Duolingo build products native to the smartphone to make learning accessible and effective, opening doors for everyone alike.

For many, Duolingo has become synonymous with language learning: for example, on Google, people search the term “Duolingo” nine times more often than “learn Spanish.” Learners come from the entire spectrum, ranging from billionaires and celebrities to recently resettled refugees, a rare instance in which more money does not imply better access to a high quality educational platform.

Latest Financial Results - Q2 2021

Total revenues were $58.8 million, an increase of 47% year-over-year.

Gross Profit was $42.7 million, an increase of 51% year-over-year.

Net loss totaled $0.2 million, as compared to net income of $0.1m in the prior year quarter.

Total bookings were $64.5 million, an increase of 30% year-over-year.

Subscription bookings were $48.9 million, an increase of 34% year-over-year.

Monthly active users (MAUs) were 37.9 million, a decrease of 3% year-over-year.

Daily active users (DAUs) were 9.1 million, an increase of 2% year-over-year.

Paid Subscribers totaled 1.9 million at quarter end, an increase of 46% year-over-year.

Final Words

I used Duolingo a couple of years ago to pick up a bit of Spanish before I spent some time in a Spanish speaking country. The experience was really positive and it felt like I was playing a game on my smartphone - the gamification of education. 

A strong lever for growing revenue is the Duolingo English proficiency test. This is an international standard test that people all over the globe can avail of for things like university admission to work visas. Covid-19 accelerated the uptake as the offering is completely remote in comparison to physical testing centres that were forced to close.

Finally, Duolingo currently has to pay approximately 30% of revenue to Apple in the form of fees to allow the Duolingo app on the app store for download. If this “Apple tax” is reduced as many expect it might be in the coming years, this would significantly improve the gross margins of Duolingo. If this were to happen, Duolingo could become an even more attractive proposition.

If you are looking to learn more about Duolingo I suggest checking out the deep dive from Stock Market Nerd.

Stock Market Nerd
Duolingo Deep Dive
Introduction: Duolingo (Ticker: DUOL) is an online language learning platform offering content to nearly 40 million monthly active users (MAUs) globally. The main product is its gamified mobile language learning app built for smartphones, but the company also offers a desktop version of its software for consumers and teachers. It was founded a decade ag…
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NVIDIA Corporation

Ticker: $NVDA

Sector: Technology

Market Cap: $541.9 billion

Share Price: $217.46

Overview

NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. Since their original focus on PC graphics, they have expanded to several other large and important computationally intensive fields. Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA has leveraged its graphics processing unit (GPU) architecture to create platforms for scientific computing, artificial intelligence (AI), data science, autonomous vehicles (AV), robotics, and augmented and virtual reality, or AR and VR.

The GPU was initially used to simulate human imagination, enabling the virtual worlds of video games and films. Today, it also simulates human intelligence, enabling a deeper understanding of the physical world. Its parallel processing capabilities are essential to running deep learning algorithms. This form of AI, in which software writes itself by learning from data, can serve as the brain of computers, robots and self-driving cars that can perceive and understand the world. GPU-powered deep learning is being adopted by thousands of enterprises to deliver services and products that would have been impossible with traditional coding.

NVIDIA has a platform strategy, bringing together hardware, software, algorithms, libraries, systems, and services to create unique value for the markets they serve. While the requirements of these end markets are diverse, NVIDIA addresses them with a unified underlying architecture leveraging their GPUs and software stacks. The programmable nature of their architecture allows them to support several multi-billion-dollar end markets with the same underlying technology by using a variety of software stacks developed either internally or by third party developers and partners. The large and growing number of developers across their platforms strengthens their ecosystem and increases the value of our platform to our customers.

Latest Financial Results - Q2 Fiscal Year 2022 (30 June)

Total Revenue of $6.51 billion, +68% year-over-year.

Gaming revenue of $3.06 billion, +85% year-over-year. 

Data Center revenue of $2.37 billion, +35% year-over-year. 

Profession Visualisation revenue of $0.52 billion, +156% year-over-year.

Automotive revenue of $0.15 billion, +37% year-over-year.

Gross margin 64.8% up from 58.8% year-over-year.

Net income of $2.37 billion, +282% year-over-year.

Cash flow from operations $2.68 billion, +71% year-over-year.

Final Words

NVIDIA’s most recent financial results clearly show that the company is on fire at the moment. NVIDIA is a key partner for major cloud computing players like Amazon Web Services, Alphabet’s Google Cloud, and Microsoft’s Azure Cloud because its processors are the fastest in the industry. Moving forward, that’s a non-negotiable as cloud computing begins to rely more heavily on AI. 

This rapid processing is critical to another emerging industry namely autonomous or self-driving vehicles. NVIDIA is the go-to provider of specialized technology required to make autonomous vehicles a reality having partnered with NIO at the start of 2021 to make its NVIDIA DRIVE Orin-powered supercomputer, dubbed Adam. Today, Nvidia’s Automotive division isn’t a large contributor to its overall results. However, as self-driving vehicles inch closer to completion, NVIDIA is well-positioned to be part of a new era in transportation. 

As you are probably aware, there is a global semiconductor shortage at the moment. NVIDIA CEO Jensen Huang expects a prolonged shortage that could last into next year. A reduced supply coupled with an ever increasing demand means that NVIDIA are in a position to exert significant pricing power.

If you are interested in learning more about NVIDIA I recommend checking out the deep dive by Innovestor.

Innovestor Deep Dives
Nvidia deep-dive
Key Stats History The business The market Founder Led Recent Acquisitions Growth opportunities Notes from investor day Financials Valuation Risks Key considerations Conclusion 1. Key Stats 80% of dGPU market data-center revenue has increased by 124…
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Check out last quarters watchlist if you missed it.

The Wolf of Harcourt Street
Watchlist Q3 2021
Today’s newsletter is kindly sponsored by The Average Joe Did you know: After the stock market moves up 50%, the S&P 500 tends to be down 1.5% the year after. 3 years later, the market moves up 42.4%. How should you position your portfolio for the current market environment? Find out by subscribing to…
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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.