Earnings Watch Party Replay: Airbnb, Hyatt, Warrior Met Coal, Deere, DraftKings, and GoDaddy

Alrighty, happy Friday everybody. Welcome. We're going to cover Warrior Met Coal, Deere, Airbnb, GoDaddy, Hyatt Hotels, and DraftKings. And let's jump right in. Let's go here in, uh, order of good ratings. So Warrior Met Coal Here's what we saw on this, on this one. This was the 0.6%, 0.6 price to economic book value. And then the Warrior McColl model, this is where we were showing on the forecast page we were going to put in the consensus estimates for revenue and then the super pessimistic margin. And the results Here are, you're, you're still getting implied prices well above the current stock price, even in that super pessimistic scenario. And then we talked about Deere and Deere, as you know, they beat, the stock's going up and this is what the rating looks like. And this is the breakdown in the model. You can see returns on capital pretty steady. Here's that margin improvement with the big increase in the margin. And the stock price. All right, Airbnb, let's get back to this one. So here we are on the model with Airbnb. This is where it looks really like a great business, an infinite return on capital, and, and then really expensive valuation here. Price to economic book value of 4.8, more than 100 years. What does that look like when you, when you really model that out? Well, if we're talking about our default scenario, here's the default scenario, and the default scenario is going to be based on consensus estimates. You can see, and then we're going to extrapolate what the margins have been historically, you know, try to be positive about that. And so here we got 17.1%, kind of an average of the last 3 years. In my neutral scenario, I got 20% going out. My optimistic scenario got higher growth rate and a higher margin of 25%, the best they've ever had. So assuming margins get even better, you can see these implied growth rates we have in the model. For Airbnb in these first few years, you got 75%, 50%, 25%. Then we drop it down to 10%. Still way, way, way above consensus, right, for these scenarios. But you see, we're jacking in, you know, jacking in some really high forecasts. And then the incremental capital is super low. Return on capital stays infinite. We just don't assume that they, they need to invest a lot. You're seeing they're adding capital, but obviously at a much lower rate than needed to get to a positive invested capital anytime in the future. So we're going to keep— give them credit basically for maintaining an incredibly capital-efficient business while growing at a breakneck pace, as fast or faster than they've ever grown in the past. You can see a 75 and 50 2 years in a row is way better than, than I think a 77 and a 40. And then 25. So super optimistic. And then what does that mean? So we've got that. I showed you the neutral and I showed you the optimistic. What we have here is our optimistic, right? And so that's going to imply specifically that they get to NOPAT of $12.2 trillion billion. And we can take a look at where that would rank in the S&P. Here's this report that I pulled a few weeks ago. For this analysis where we can rank companies by NOPAT. So we will select all here. We will sort by NOPAT, go largest to smallest, and $12.2 billion puts them above GM, puts them on level of Coke, Goldman Sachs, MasterCard, some big companies here, Comcast, Chevron. So that's impressive. Very impressive while also having an infinite return on capital. You can see that returns on capital for most of these businesses are in the teens. You got a couple outliers, 70. You've got one, Nvidia, 200. It's definitely an outlier. Apple at 80. So having a top 25 NOPAT with a best in the world return on invested capital. That would be, that would, it'd be quite a feat, right? We look at some of these other companies where they are in terms of their rank and revenue rank and NOPAT rank. You can see they're really, they don't rank very well in return on capital when they're this big. So I, I would say that that's a pretty, pretty high set of expectations. The revenue here would get to $57 billion in the optimistic scenario, get to $57 billion, $57.6 billion. Let's take a look, sort by revenue here. Ranks even a little bit lower, in the 60s, because again, it's a high margin business given the margins we've assumed. So yeah, that's Airbnb. That's why we say that it, you know, as much as it might be a good company, it is a very expensive stock. Too expensive for our taste, for sure. We think the good news is more than priced in. We think competitive pressures are going to push this business down. Ultimately, it's maybe a more efficient model for a hotel company, but that's what it is, and I don't think there's anything that magic about it other than that. And to assume margins that are that much higher than other hotel companies. Speaking of other hotel companies, let's take a look at Hyatt. We didn't talk about earnings for Airbnb. They had a beat on the on the earnings and the top at the top and bottom line. The revenue guidance is. Down, but otherwise we're seeing strong growth across the board. So all the more reasons for that revenue growth expectation I have in there to be even more positive. Just kind of reiterates the thesis— good news is priced in. We're seeing that a lot these days. Popular stocks have become crowded trades, to say the least. Very crowded trades. So Hyatt Hotels, a strong miss, and by the way, we predicted that. So they miss expectations and they set underwhelming guidance. And that's why the stock is not doing so well today. It's always interesting. Down a lot in the last couple days, but big, big time down yesterday as they missed their sales target and they missed, I think, top and bottom line and then outlook not as impressive either. And so this is a situation, unattractive warning, not a very good business. Already super high expectations. It's a tough business. So I think this is kind of interesting. Like, this is where Airbnb is likely headed. Now, I'm not saying that they will have dropped to a 4% return on capital, but it will be a reasonable number. I mean, can they maintain above 20 or 30? Possibly, right? Like, because they don't have to own the underlying property. I get that. And maybe they can just be a software that books it all. And that's great. So they have a high, high return on capital. But the margin, is it going to be that better than where Hyatt is? You can see margins here for Hyatt. Obviously COVID took a big dive, but you know, you're talking 5%, 3.5%, 4.7%, up a little bit here recently. That's probably, you know, again, I don't know that Airbnb will drop this low, but we're probably looking at maybe 10%, mid-teens margins. And I think what do we have in our model for them? We had middle to high teens and over 20%, you know, and that's a NOPAT margin. Yeah, mid, mid-high teens, over 20%. So yeah, I would say expectations are super high for Hyatt. This one's easier because you're not maybe as attracted to the strong economics. but expensive stock. And we did predict the miss. We saw accounting earnings diverge here from core earnings and they missed, they missed. So we nailed that one. That's where the earnings distortion score comes in really handy. Earnings distortion score is a shorter-term metric that's kind of telling us whether or not a company will meet or miss and meet, beat or miss, meet or miss. And in any given quarter, we don't really care so much about that as much as we do about the underlying economics of the business. over time. But it's also— it's a very nice indicator to have. So it's kind of a neat feature inside of New Constructs. You can get a short-term and a long-term view, but the long-term view here on Hyatt is not so good. All right, how about GoDaddy? This is one we've been kind of talking about, I know, for a while as a firm, because the expectations are super expensive here too. How did they do? They missed on EPS, they beat on revenue, guidance was in line. So Let's see. Stock down a lot. Well, why is that? Well, when you don't come in and beat, when you get expectations this high, your stock's going to get crushed. It's that simple. And I know if we opened a model for this, the, the inputs we have to put in to make this stock worth what the market says it's worth are ridiculous. This is a super expensive stock. And we recommend you avoid this. You know, you see accounting, we see a divergence here. That's not good. Look, economic earnings are positive, so we're giving them credit for that. But this divergence, not good, right? Accounting earnings growing a lot faster. Return on capital getting better. Yay, I'm glad for you, but it's still nowhere near what's implied by the market price. Margins getting better. That's good. This is pretty much a commodity business. There's not a lot of differentiation here. selling URLs and domain names. There's website blog stuff, but that's like, I mean, how much of that's just gonna even be taken over by AI? Do you really need even a human that much to do a lot of this kind of stuff? That's the kind of stuff where I do think AI can have a big impact is building stuff that you don't really need a really super sophisticated set of skills to build. So yeah, GoDaddy, we, we told you they might miss, they did. And super expensive valuation, stock's gonna get crushed when it does miss. And we would expect more misses in the future. This is never a good sign. This is them trying to boost the, boost the headline numbers. And look, we see this all the time in bull markets. Companies overstate earnings. Bear markets, they understate earnings. Yes, I did not misspeak. Companies purposely understate earnings in bear markets. It's called the kitchen sink. I've seen it since the tech bubble. Why? When sentiment is bad, they know they won't get any credit if they beat because everybody's negative on the market. So you might as well Throw the kitchen sink at your earnings numbers. Get rid of all those expenses, clean your books, and move on so that when things are good, you can show better comps. Because when you're putting those bad numbers in the— in your rearview mirror, well, then the new numbers look even better in comparison. And then you've got maybe some little extra goodies in your cookie jar to boost earnings when the market's good and will give you credit for beating numbers more so than otherwise. So GoDaddy, we recommend you avoid that. All right. Last but not least, we might have time for one or two requests. So if you want them, get them in here. Let's take a look at DraftKings. All right, here we go. Bad, bad, bad company. Bad, bad valuation. This is double bad. If they hadn't raised so much money in their IPO, probably be a zombie stock, but a -17% return on capital. And you're seeing kind of pretty ridiculous expectations for future cash flows. Might be fun to do a model here. Let's run through the breakdown. You've seen a little bit of improvement here and here too, but coming from a pretty bad place. Look, I mean, I'm not saying that betting won't be a profitable business, but is it going to be as profitable as the market expects? Is the market overreacting? Yeah. Wow. Up a lot. People are loving it. 23%. Interesting. I'm showing that they missed on revenue but beat on earnings, and they raised their revenue guidance. So that's a good thing. That's a good thing, you know, raising the revenue guidance. But let's take a look quickly. Let's get real. What kind of revenue is required to justify the stock price? What kind of revenue guidance do we— or performance do we need? So let's say they get up to like— I'm going to go with the neutral scenario— 10%, 10%, 10%, 10%, 10% margin. Just go way up. Assume they get a good margin. It's competitive business. And let's grow at— let's see, consensus has them at 40. Let's go 50, then 30. Let's go 40. Let's double. Let's go double again here, double again there, double again there. And then let's just kind of— we'll trail it down, see what that does for us in terms of the expectations baked in the stock price. My guess is that When we're looking at the numbers this big, we're going to see— do I need to really jack the numbers up? What does free cash flow look like? Negative, negative, negative, negative. They're growing, so that's understandable. Economic book value, no growth value, pretty negative. Any red flags here in the valuation front? You got non-recurring hidden items here. That's not good. $1.4 billion in debt. Not a huge amount. That's a fair amount compared to the market value. So let's take a look here. The neutral scenario still doesn't get us anywhere close to the stock price, so we've got to go even higher. So why don't we go 50, 50, 50, 40, 20, 10. Save that off. Probably should have made that optimistic. Create a new scenario. All right, there we go. Neutral. Got there. So 7 years. So let's just assume that they grow like crazy. That's a 7-year compounded annual growth rate of 39.4%, or the return on capital dramatically increasing as we see here. So what does that mean in terms of revenue? That would mean they would get to, to $37.4 billion. That would put them at here where Salesforce is, Honeywell, Qualcomm. It's a lot of big businesses. And they would also have to have a return on invested capital. Something's off in my forecast there, but it doesn't matter. Return on invested capital of 132%, which would put them like in the top 3 or 4. Top 5 of all companies for return on invested capital. Top 5. So yeah, that's a really pretty big future baked in the stock price. Super high growth rate maintained for a long time. Highly unlikely it's going to be a competitive business. I think it's going to be a low— it's going to be a commodity business, right? At the end of the day, I mean, I think we saw this with the weed stocks, right? Like competing with the mob is good maybe in the beginning if you're first to market, but ultimately it's commodity business. That's why the mob was in it. Nobody really wanted else wanted to. Well, maybe it's because it was illegal, but that was why the mob was in it. But if you're making it legal, there's going to be kind of a gold rush probably in the beginning. But you know, at the end of the day, I mean, I don't I don't have a lot of warm feelings for businesses that effectively prey on people's weaknesses, which is when you're betting, you know, and some people have an edge, most people don't, and most people that are betting don't have an edge. So it's just kind of it's entertainment. And it's pretty commodity entertainment. You know, I don't know that one betting app is that much better than any other. It's gonna— who gives the better odds, who pays out better, and who's better at preying on the credulity, incredulity of individuals. And, you know, I just don't— you know, there's a lot of businesses that compete at that. They do a good job. So I don't think it's going to be that great. If you're interested in our ratings and an ETF based on that. We don't have an ETF based on that. We do have an index. There's a Very Attractive Stocks Index if you wanted to see how that does over time. I think that's a very interesting concept as well. We hope to license that to someone at some point in the future. All right, we got time for one request here while we're finishing up. Let's jump in here. Let's go with— Yeah. ETF. So this gets a Very Attractive rating. It's a good, it's a good fund. For those of you that don't know about our fund ratings, Here they are. They are based on the underlying holdings. So you can see here that we are looking at the allocations of this mutual fund to good stocks and bad stocks. And you can see they got a strong allocation here, 33%. That's good to attractive or very attractive stocks, then a bunch of neutral and not so much, and very attractive and unattractive. So we like that. That's a good thing. Total annual cost, super low. So this is one we would say, hey, this is a good fund compared to other funds. A great option for those of you who are in funds. We have great screening tools for mutual funds as well if you wanted to come in and see, okay, hey, give me all of your technology small-cap— I'm sorry, let's go small-cap funds. There they are. Those are the attractive ones. A lot. If you want to go technology, large cap, what does that look like? Quite a few very attractive there too. We like a lot of these. Let's see if we go ETF only. Still looks pretty good. Let's— if we tried a different sector, what happens? The way these ratings work is that the top 10% of all funds get an attractive rating. So you're going to see always a fair amount. We had to do that on a relative scale because otherwise they kind of all come out at neutral because it sort of washes out over time with the allocation based on ratings of the underlying stocks— VM, VF, MF— because the majority of stocks we cover is neutral. And so most of the ratings showed up as neutral. And so we segregated the market where you got 10, 20, 40, 20, 10 in terms of Distribution. Okay, thanks so much for being with me today. Appreciate the questions. Appreciate for sure the the chat and the Q&A. Usually I'm all over that. Thank you and have a great weekend. We'll be back next week. I got three more next week: Wednesday, Thursday, Friday. They're different times. Let's see. Let me tell you that the times next week are going to be Wednesday. We're going to do it at 12 p.m. Eastern. Thursday at 4 p.m. Eastern and Friday at 3 PM Eastern. And then I want to make sure that you guys know about our next special training. It's about the Golden Metric, and it's a new way that we pick stocks and new constructs that is not part of an ETF or an index or even a mutual fund or a model portfolio. It is something we've figured out in our own R&D that just looks great. Looks great. And, and we rolled out a bundle of these stocks last year. Performance has been great. We got stocks up 50, 70%, and the overall bundle outperformed the market as well. So we're, we're psyched to be able to, to talk about this special metric again and train people on it and talk about potentially some very special stock picks. All right. Again, thanks everybody for being with me today. I appreciate it, and we will see you next week.