Now that it’s October, the third quarter earnings season is officially in high gear. It is important for investors to watch earnings reports because they have the power to move stocks up or down, as well as changing investor sentiment. Earnings reports provide a three-month snapshot of a company’s performance, along with management feedback on that company’s future performance and long-term strategy. If you think a company performed well in the quarter, it may also be a good idea to buy more shares before the results are released.
Three Motley Fool contributors monitor banking and payments fintech Square (NYSE: SQ), the bank of the digital market Loan Club (NYSE: LC), and the web developer Wix.com (NASDAQ: WIX). Here’s why these actions are important to watch this earnings season.
Will Square deliver another successful quarter?
Keith Noonan (Square): Fintech services leader Square has seen tremendous growth, with revenue rising 195% year-over-year in the first half of 2021. Although the company is unlikely to continue to grow at a At such a rapid pace, the company’s long-term prospects remain intriguing, and it will likely be a very influential player in fintech over the next decade.
The company’s Cash App mobile payment application and its merchant payment processing service have built an impressive user base, and the growing adoption of these platforms and other favorable winds have helped the company to show strong performance. The company has also made significant acquisitions, most recently announcing purchase plans After payment – a leader in the fast growing category buy now, pay later.
Square is expected to release its third quarter results after the market closes on November 4, and it’s fair to say that expectations are high. Square crushed second-quarter earnings expectations, generating adjusted earnings of $ 0.18 per share as analysts’ average estimate was for adjusted earnings per share of $ 0.05. The company’s stock price is now up 245% over the past three years.
Some investors and analysts are concerned that the slower growth of Cash App will lead to stock sales or limit near-term upside potential. However, the company has many tailwinds in the industry and could have some big changes in store.
Notably, Bitcoin sales increased the turnover of the fintech leader. As the market-leading cryptocurrency enjoys strong momentum at the end of the third quarter and recently hit new price highs, Square could deliver another earnings surprise with its next quarterly release. CEO Jack Dorsey also recently said on Twitter that Square was planning to build an open-source Bitcoin mining system, and it’s possible investors will get an update on those plans during the fintech company’s third-quarter conference call.
With a market cap of around $ 118 billion and stocks trading at around 6.2 times expected sales and 136.5 times expected earnings, Square’s third quarter results will be under close scrutiny, and Company performance could have a knock-on effect on valuations in the fintech space.
A potentially huge catalyst for LendingClub
Bram berkowitz (Loan club): LendingClub digital market bank is up around 266% year-to-date. But with only a market cap of $ 3.4 billion, I think stocks are still well undervalued. It’s been quite a long journey for the online personal lender, who got embroiled in a scandal in 2016 and took several years to recover.
Earlier this year, LendingClub completed its branchless acquisition of Radius Bank, which has helped it streamline its lending operations by providing it with a cheap deposit base to use to fund loans and save costs. loan origination. Radius could also come in handy later by providing other features such as checking accounts. With Radius intact, the management of LendingClub chose to change its sales model of all its loans to investors to hold up to a quarter of the loans it issues on its balance sheet, which then generates net interest income. monthly and recurring. The company expects loans held on the balance sheet to be three times more profitable over their lifetime than those sold to investors.
In the second quarter, the first full quarter with Radius attached, LendingClub delivered tremendous results. The bank made profits several quarters before it was supposed to, generated more than $ 204 million in revenue and made $ 2.7 billion in loans in the quarter. Management has also significantly increased its forecast for the entire year. The stock rose about 50% in the week following the earnings report.
I think LendingClub’s profits on October 27 could be another turning point for action. I think if investors see another strong and consistent quarter, they will reward the stock well as several of its competitors are trading at huge premiums for the company. My only question for the quarter is whether the soaring delta variant in the third quarter impacted the overall personal loan market and dampened demand. But if the market were active, I am very confident that LendingClub will generate strong profits.
Much more than just a basic website builder
Nicolas rossolillo (Wix.com): Wix has made a name for itself over the years as an easy-to-use platform for website development. Earlier this year, the company said it had passed the 200 million registered user mark, and management said it believed half of all new websites could be created using Wix in the next five to seven years. This is the whole ambition.
However, it’s not just the code-free enterprise platform that is increasing adoption among small business owners, budding entrepreneurs, and web developers. Wix has an ever-expanding toolkit to help increase the functionality of modern business web and mobile application presence. Among these tools are drag-and-drop features that enable things like calendar planning, in-store and restaurant ordering, and shipping and fulfillment options – tightly integrated with Wix payments, hardware. point of sale, or for use with over 50 other third-party digital payment providers.
Payments, e-commerce and related services are driving impressive growth for the software company. In the second quarter of 2021, business solutions sales increased 75% year-over-year to $ 80.5 million. That’s only about a quarter of Wix’s total revenue, but at this rate, these more advanced web capabilities will grow to encompass a much larger portion of the company’s bottom line (as Creative Service subscription revenue of core websites grew only 24%. in Q2).
Wix shares have been hit hard lately, in part due to an expected slowdown in the overall growth trajectory due to the COVID-19 delta variant as well as lower free cash flow this year then that the company spends a lot to support its expansion. As a result, the stock is trading for just under 10x sales over 12 months at the time of writing. Nonetheless, the top team at Wix said they expected revenue growth of at least 22% in the third quarter of 2021. This is a sustainable growth story to watch over the next earnings season, and if Wix continues to stick to its forecast, don’t expect stocks to stay. down and out for too long.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.