Taiwan Semi's Upbeat Outlook Is Welcome News for Chip Stocks
Taiwan Semiconductor (TSM) rose 2.3% on Thursday after delivering a Q1 report that wasn't spectacular, but also didn't do anything to upend the view (now held by many) that chip industry sales are in the process of bottoming.
TSMC, which manufactures chips for Apple (AAPL) , Qualcomm (QCOM) , Broadcom (AVGO) , Nvidia (NVDA) , AMD (AMD) and many other major chip developers, reported Q1 revenue of NT$218.7 billion ($7.1 billion) and EPS of $0.38. Revenue, which was already known thanks to monthly sales reports, fell 16% annually in dollars, while EPS missed a FactSet analyst consensus by $0.02.
However, TSMC also guided for Q2 revenue of $7.55 billion to $7.65 billion. At a $7.6 billion midpoint, this outlook implies a 7% sequential increase and a 3% annual drop, and is slightly above a pre-earnings consensus of $7.58 billion.
The company also reiterated its full-year outlook for slight revenue growth, and its full-year capital spending budget of $10 billion to $11 billion. And -- in line with remarks from many other prominent chip industry firms -- TSMC, which has strong iPhone exposure, forecast a second-half sales recovery, while adding that customer inventories (elevated in recent quarters) will drop "substantially" in Q2 and approach seasonal levels around mid-year.
With the Philadelphia Semiconductor Index now up nearly 50% from its December lows, TSMC's outlook isn't by itself a signal to become bullish on chip stocks in general -- arguably, it makes a lot of sense to be more selective at this point. But the numbers and commentary provided by the world's biggest chip contract manufacturer definitely aren't a reason to turn bearish either.
Atlassian's Tumble Highlights Valuation Risks for Enterprise Software
Atlassian (TEAM) , which provides a slew of popular collaboration tools for developers, IT operations teams and other office workers, beat its March quarter (fiscal third quarter) revenue, EPS and free cash flow (FCF) consensus estimates on Wednesday afternoon, while also issuing above-consensus revenue guidance for its June quarter and hiking its full-year FCF guidance. Nonetheless, its shares fell 8.3% on Thursday.
A key culprit behind the decline: Though revenue of $309.3 million (up 38% annually) beat expectations, Atlassian reported billings of $325.5 million, up 31% but below a consensus of $331.9 million. The company blames order pull-ins (ahead of price hikes) that happened in the December quarter, when billings topped consensus by $34 million. In addition, thanks to a step-up in hiring activity (particularly in R&D), Atlassian's June quarter operating margin and EPS outlooks were a little below expectations.
At this point, it's worth noting that Atlassian's stock had risen almost 80% in the 12 months prior to its March quarter report. This had led shares to go into earnings trading for 42 times their fiscal 2021 (ends in June 2021) FCF consensus.
Overall, there's still a lot to like about Atlassian's story. The company still has a lot of headroom to grow penetration rates for popular offerings with the help of cross-selling; its reliance on word-of-mouth and virality to drive sales has done wonders of its margins and cash flows; and (as BTIG analyst Joel Fishbein has been arguing) the company arguably has a lot of untapped pricing power at major customers.
However, like many other high-growth enterprise software firms, Atlassian has been priced for perfection or close to it. Other richly-valued names in the space could also easily sell off if they deliver earnings reports that are good in many ways, but flawed in one or two respects.
Pinterest Is an OK Post-IPO Deal, While Zoom Is Pretty FrothyThough it's hardly surprising that Zoom Video Communications ( ZM) saw a decent post-IPO pop, given all of the positives its story has, the multiples it's now sporting are pretty stunning.
After pricing its IPO at $36 (above an elevated range of $33 to $35), Zoom opened at $65.00 and is currently trading at $63.23. That leaves the conferencing and collaboration software firm valued at about $18.4 billion after accounting for outstanding stock options, or about 55 times its fiscal 2019 (ended in Jan. 2019) revenue and 46 times its fiscal 2019 billings.
Zoom did record triple-digit revenue growth in fiscal 2019, and (as previously discussed) should continue growing at a rapid clip as its highly popular offerings continue taking share from incumbents. And unlike many fast-growing software-as-a-service (SaaS) plays, Zoom has become profitable and cash-flow positive. But at current levels, markets are pricing in a considerable amount of future growth.
Pinterest (PINS) , by comparison, doesn't look quite as richly valued. The image-sharing platform opened at $23.75 (above an elevated IPO price of $19) and is currently trading at $24.03. That leaves Pinterest valued at about $16.2 billion after accounting for outstanding stock options and restricted stock units (RSUs), or about 21 times its 2018 revenue, which was up 60% annually.
I thought Pinterest's original $15 to $17 IPO price range looked pretty reasonable, given that the company still has a lot of headroom to grow its top line (especially outside the U.S) with the help of its strong e-commerce and search exposure and (thanks to a cost structure that looks much better than that of a company like Snap (SNAP) ) also has a clear path to delivering positive annual profits. But at $24, the bull case feels a little less strong.
Pinterest still doesn't look exorbitantly valued in light of its growth potential, not to mention its potential strategic value to larger tech and/or media firms. But it doesn't look like a screaming bargain either.
To see Tech Check coverage from the previous trading day, click here.