United States Steel Corp. has revised its earnings outlook higher for the first quarter of 2021. The company's CEO David B. Burritt said that “Strong market conditions and our well-timed acquisition of Big River Steel are allowing us to drive significant earnings growth.”
U.S. Steel (X) expects to report adjusted earnings of $1.02 per share in 1Q, which is higher than its earlier forecast of $0.61 per share. Moreover, it compared favorably to the analysts' estimates of $0.73 per share.
The sectoral tailwinds, low steel supply chain inventories, and strong demand are expected to drive U.S. Steel's adjusted EBITDA and earnings in the coming quarters. (See United States Steel Corp. stock analysis on TipRanks)
The company said that its 1Q earnings forecast excludes the “impacts related to acquiring the remaining stake in Big River Steel as well as impacts from non-recurring refinancing costs related to balance sheet enhancements executed in the quarter.”
U.S. Steel expects to report an adjusted EBITDA of about $540 million in 1Q, which is also higher than the analyst's estimates of $522.1 million.
On Feb. 24, Argus Research analyst David Coleman raised the stock’s price target to $23 (4.8% downside potential) from $20 and maintained a Buy rating.
In a note to investors, Coleman said that he expects the company's acquisition of the remaining stake in Big River Steel to boost growth in 2021 and beyond. Meanwhile, improving demand and pricing further strengthens his bullish view.
Overall, the Street has a Moderate Buy consensus rating on the stock based on 3 Buys, 2 Holds and 1 Sell. The average analyst price target of $20.98 implies downside potential of 13.2% to current levels, given the share price rally of over 305% in one year.
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Last week, Coupang (CPNG) – which is the largest e-commerce operator in South Korea – pulled off the largest IPO of the year in the U.S. equities markets. The company raised a hefty $4.6 billion and the price surged 41% on the first day of trading, with the market cap hitting $89 billion. The underwriters included Goldman Sachs, Allen & Company, J.P. Morgan, Citi and HSBC.
The CEO and founder, Bom Kim, started the company in 2010. He actually dropped out of the Harvard MBA program to do so, realizing that the opportunity in South Korea was too big to ignore.
But interestingly enough, Coupang went through several changes in its business focus. At first, the platform catered to daily deals, which was the hot thing at the time. This was when Groupon (GRPN) was growing at a brisk pace.
However, when the market started to get saturated, Coupang would then transform itself into an e-commerce marketplace be similar to Alibaba (BABA).
This business did see strong growth, yet Kim was not satisfied. He believed he needed control over the distribution, with this including warehouses and the logistics.
And yes, this proved to be the right approach. It’s what has been essential for the torrid growth of Coupang. Since 2018, the quarterly revenues have surged from $900 million to $3.8 billion.
The Competitive Advantages
The market opportunity in South Korea is enormous. The country’s economy ranks No. 4 in Asia and No. 12 globally, with the gross domestic production landing at $1.6 trillion, or $31,847.15 per capita.
The country also has a high penetration rate for smartphones and access to high-speed Internet. As a result, the e-commerce segment has been particularly strong. The spending per buyer is forecasted to go from $2,600 in 2019 to $4,300 in 2024.
Although the market is intensely competitive, Coupang has been investing aggressively in innovating its platform. And at the heart of this is a sophisticated delivery infrastructure, which is called the Rocket Delivery service. Orders are received as late as midnight and before 7 am. In fact, about 70% of South Korea’s population is within seven miles of a Coupang logistics center.
Consider that over 75% of parcels are boxless. Additionally, the returns are frictionless. You do not have to pack a box or print a label. Instead, you just tap a button on the app and leave the item outside your home or business.
Coupang also leverages AI (Artificial Intelligence) to anticipate changes in demand and optimize inventory for quick delivery. What's more, there are roughly 15,000 drivers in South Korea.
According to the S-1 filing, “To realize such a differentiated customer experience, we built a completely integrated e-commerce and logistics system that controls every facet of the customer experience from the purchase on the app to the delivery and photo confirmation of the order at the door.”
Conclusion
Coupang continues to lose substantial amounts of money. Last year, the net loss came in at $567.6 million. It should be noted, though, that this was down from $770.2 million in 2019.
However, Wall Street is more focused on the revenues – and the prospects look encouraging. Coupang was the only major e-commerce player in South Korea to notch market share gains in 2020, with the figure moving from 18.1% to 24.6% on a year-over-year basis.
This is critical as the company will benefit from economies of scale. Coupang will also likely become a top-of-mind brand in South Korea. As seen with Amazon (AMZN) in the U.S., this can be valuable – and lead to a premium valuation.
It’s true that there will be volatility, but this is normal for any hot IPO. Then again, for those investors looking for an interesting long-term play on e-commerce outside of the U.S., Coupang does look like a pretty good choice.
Disclosure: Tom Taulli owns shares in CPNG.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
Software stocks have taken a beating recently as sentiment has turned bearish due to fear of inflation and expectations of interest rate hikes. These fears are not unfounded as interest rates are near historic lows, and even a modest increase can have a dramatic impact on stock pricing models.
One of the hardest hit software stocks during the market correction was Alteryx, Inc. (AYX), an industry leader in data analytics. The stock plummeted from $140 to less than $90 in one month and is now sitting on long-term support that has been in place since mid-2019.
With the depressed share price, Alteryx now has a more reasonable valuation at least by tech standards, with a price/sales ratio of 12. This figure is significantly less than many software companies that still sport lofty valuations in spite of the recent sell-off. A good example is competitor Palantir Technologies Inc (PLTR), which has an elevated price/sales ratio of 45 after its recent direct listing.
Slowdown In Growth
Prior to the pandemic, Alteryx was considered to be a high-growth company, with a five-year revenue growth of 56% per annum. But unlike most other digital transformation enablers, Alteryx did not benefit from the pandemic-driven work-from-home environment, primarily due to lack of cloud presence and high-priced subscriptions.
In 2020, Alteryx achieved a much more modest revenue growth of 19%, reporting shorter contract durations and above normal churn in mid-sized enterprises. While the revenue growth was still impressive given the recession-like conditions, the company's financial performance made it difficult to justify the lofty stock valuation that high-growth companies typically command.
Slowing revenue growth is one factor that contributed to the stock price decline, but there were others such as churn in senior management and weak guidance for 2021. This year is a year of transformation for Alteryx, implying that performance will be weak for an extended period of time, but these are not the words that investors like to hear.
Management Turnover
Alteryx has been busy over the last few months replacing top management, starting with the CEO back in October, who in turn brought in his own hand-picked senior management, including both a new Chief Product Officer (CPO) and Chief Revenue Officer (CRO), among others. Unfortunately, the new CRO, expected to lead the next phase of company growth, has since left due to an inappropriate post on social media, leaving the CRO position unfilled. The exodus of the new CRO certainly did not boost investor confidence in the company's recent changes.
Weak Guidance For 2021
Not only was 2020 revenue growth subpar by company standards, but management also provided weak guidance for 2021 during the Q4 2020 earnings call, forecasting revenue of $555-565 million, which translates to an annual growth rate of 13%. This is significantly less than the company has achieved in previous years. The weak guidance is predicated on continued economic weakness, continuation of shorter contract durations, ramp up of the new management team, and the implementation of the new sales strategy which involves greater focus on larger organizations while allowing partners to address small customers.
Perhaps a better performance metric is the growth of annual recurring revenue (ARR). Alteryx expects to have approximately $625 million in ARR at the end of 2021, representing an annual growth rate of 25%. This is still below historical standards but better than the guidance for total revenue growth.
Wall Street’s Take
From Wall Street analysts, Alteryx earns a Strong Buy consensus rating, based on 10 Buys and 3 Holds. Additionally, the average analyst price target of $146.82 puts the upside potential at 71%. (See Alteryx stock analysis on TipRanks)
Summary And Conclusions
Alteryx is an industry leader in data analytics and has been considered a high-growth investment up until 2020 when COVID-19 sent the world into lockdown. While other digital transformation companies benefited from the work-from-home environment, Alteryx experienced soft revenue growth and is guiding for more of the same in 2021.
This is a year of transformation for Alteryx, as it shifts towards the cloud and sets its sights on large enterprise while expanding its partner network, which is expected to pick up the slack with smaller customers.
Assuming that the new management is able to successfully complete the company transformation, Alteryx should approach historical levels of revenue growth beyond 2021. With the currently depressed stock price, now might be a good time to invest.
Disclosure: On the date of publication, Steve Auger did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.