It’s been 20 years since the famous dot.com bubble burst, and during that time the internet economy has matured. Dot.coms are still with us, but in a more stable form, and some of the early online pioneers have grown into today’s corporate giants (think Amazon).
With money to be made on the internet, we need to track it. B. Riley FBR analyst Lee Krowl makes it easy with a detailed report on three internet companies reporting earnings tomorrow. Krowl rates 5 stars in the TipRanks database, and stands in the top 5% of Wall Street’s analyst corps.
We’ve pulled up Krowl’s internet calls, and looked at them through the lens of the Stock Comparison tool:
The results are interesting. Krowl’s subjects span a range of sizes and subjects, and they’ve shown a variety of chart behaviors in recent months, but he sees reason for optimism in each of them – and takes care to bring them to our attention before the earnings releases. Let's take a closer look.
Cars.com, Inc. (CARS)
The first of two automotive-related internet stocks we’re looking at today is Cars.com, one of the web’s premier sites for buying and selling cars. The company was founded in 1998 and is a survivor of the original dot.com era. Today it holds a market cap of $767 million and is the second largest automotive classified ad site online.
The company’s profitability is clear from the most recent quarterly report. CARS reported, for Q3 2019, an EPS of 32 cents, beating the forecast by 10%. Revenue beat more modestly, by 2%, and came in at $152.09 million. While both numbers were over the estimates, both were also down year-over-year.
Shares in CARS have traded mostly flat since reporting the Q3 numbers, which was seen as a turn for the better. The stock has dropped sharply when the company reported a steep miss in the Q2 results, losing 44% last August. It still has not recouped that loss, but the third quarter staunched the damage. Looking ahead, CARS is expected to show a 28-cent EPS in tomorrow’s report.
The company is expected to report revenue in line with the consensus guidelines tomorrow. In addition to earnings, Wall Street is also looking for CARS to address upper management churn. Cars.com lost its top financial executive, Becky Sheehan, when she announced her resignation in mid-December. Her departure contributed to the stock’s volatility in recent weeks.
Krowl writes, looking at CARS’ upcoming conference call, “…the company indicated that it expects about $50M in incremental FCF in 2H20 due to the roll off of Wholesale revenue agreements with publishers. On the call, we look to a time line for appointing a permanent CFO, as, in our view, the capital structure optimization and shareholder return plan will start to become a core pillar of the thesis, starting in 2020, as FCF stabilizes and begins to grow.”
Even with all of the uncertainty here, Krowl is upbeat on CARS’ prospects. He rates the stock a Buy, and gives it an $18 price target, suggesting an impressive upside potential of 70%. (To watch Krowl’s track record, click here)
Overall, both of CARS’ most recent analyst reviews are Buy-side, giving the stock a Moderate Buy from the analyst consensus. Shares sell for $10.58, and the average price target is slightly more aggressive than Krowl’s. At $19, it implies strong upside growth of 80% in coming months. (See Cars.com’s stock analysis at TipRanks)
Carvana Company (CVNA)
Next up is another online car marketplace, this one more than an order of magnitude bigger with a market cap of $15.9 billion. Carvana brought a unique twist to purchasing used cars online, by allowing purchaser a choice – have their car delivered, or pick it up from one of Carvana’s vending machines. The company operates a chain of 23 semi-automated storage units around the US, which act as pick-up locations for car purchases from the site. Customers can test drive vehicles, and all cars have a 7-day return policy.
Carvana showed a serious net loss in Q3, reporting a negative EPS of 56 cents. This badly missed the expectation of a 39-cent loss, and was down year-over-year. It was the eighth quarter in a row that CVNA reported worse losses than expected. At the same time, revenues were reported higher than forecast, at $1.09 billion, and up over 103% from the year before. Investors were more impressed by the revenue gain – CVNA shares have gained 35% since reported the Q3 numbers. For the fourth quarter, the common wisdom expects to see a 65 cent EPS loss in tomorrow’s earnings forecast.
As noted, shares in CVNA are up, and the most recent gains simply cap a long, successful, run. Carvana stock has been trading since April 2017, and in that time has risen from $11.10 to the current price of $104.07, for an appreciation of 837%. Few stocks can match that sort of growth.
B Riley’s Krowl is clearly upbeat on CVNA, and he writes of the stock, looking forward, “We believe the key factors for FY20 will be increasing penetration of market cohorts, along with the process improvements and increases in capacity tied to the push for a higher mix of consumer-sourced units, which will be key to driving GPU improvement throughout the year. Furthermore, we anticipate that the company opens another 40 markets in 2020, with 15 added in mostly secondary markets in 1Q to date.”
Krowl gives CVNA a Buy rating, and bumped his price target from $91 to $125. His new target implies an upside of 20%. (To watch Krowl’s track record, click here)
CVNA's Moderate Buy consensus rating is based on a mix of reviews, including 7 Buys, 3 Holds, and 1 Sell. As noted, the stock price has run up steeply recently, and the recent gains have pushed it to the current average price target. (See Carvana stock analysis at TipRanks)
Rubicon Project (RUBI)
Last on our list is a tech firm, specializing in online advertising. Rubicon offers customers an automation platform, allowing customers and publishers to streamline their online advertising transactions. The LA-based company went public in 2014.
Rubicon lives in a competitive niche, and the stock bottomed out in early 2018. It has been gaining ground since then, at a faster pace recently. In the quarters since, RUBI has consistently beaten the earnings forecasts. In the coming report, the company is expected to show a 5-cent positive EPS.
A look back at the third quarter figures may be useful. Earnings then were 66% better than expected, showing a small 2-cent per share loss compared to the 6-cents expected. This was based on revenue of $37.64 million, which missed the estimate by 2.9% -- but was up 26% year-over-year. Shares in RUBI more than doubled in 2019, gaining 118% for the year. They are up 42% so far in 2020.
All of this has Krowl optimistic in his note on Rubicon. He sees a clear path forward, and writes, “We note that the industry is likely to see a growing shift from desktop to mobile in 2020, as targeting is more robust on mobile due to the lack of reliance on third-party cookies, which are being phased out completely by most major browsers. On the call, we look to management's commentary around the trajectory of the company's consolidated pre-bid solution, Demand Manager, expected to ramp throughout 2020 and position the company for incremental ad spend take-rate gains.”
Krowl gives RUBI shares a Buy rating. His $13 price target suggests an upside of 12%. (To watch Krowl’s track record, click here)
Overall, RUBI’s Strong Buy consensus rating comes from 3 recent Buys. However, he stock’s $12 average price target implies a modest upside from the current trading price of $11.64. (See Rubicon’s stock analysis at TipRanks)