“Mentorship Program” Recommendations
- Week Beginning -
Monday, April 27, 2020

by Ian Harvey

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Option Trade – Cloudera Inc (NYSE: CLDR) Calls

Friday, May 01, 2020

** OPTION TRADE: Buy CLDR JUN 19 2020 7.5000 CALL at approximately $1.00.

Place a pre-determined sell at $2.00.

Also include a protective stop loss of $0.40.

Preamble.....

Cloudera Inc (NYSE: CLDR) is an enterprise data cloud firm that completed its merger with big-data peer Hortonworks in January 2019. The firm’s new Cloudera Data Platform made its debut on Microsoft Azure Marketplace last fall, which should provide strong exposure. Then in January of last year, Rob Bearden took over as chief executive after previously co-founding and running Hortonworks.

Cloudera went public at $15 per share in April 2017. Its revenue growth decelerated significantly in fiscal 2019, but its merger with HortonWorks, which closed at the end of fiscal 2019, boosted its revenue growth in 2020.

In addition to HortonWorks, Cloudera acquired smaller companies like Fast Forward Labs, Hyperpilot, and Arcadia Data after its IPO.

About Cloudera.....

Cloudera, Inc provides a suite of data analytics and management products in the United States, Europe, and Asia.

The company operates through two segments, Subscription and Services.

At Cloudera, we believe that data can make what is impossible today, possible tomorrow. We empower people to transform complex data into clear and actionable insights. Cloudera delivers an enterprise data cloud for any data, anywhere, from the Edge to AI. Powered by the relentless innovation of the open source community, Cloudera advances digital transformation for the world's largest enterprises.

Positive Aspects.....

Cloudera's software was originally based on Apache Hadoop, a suite of open-source software utilities that unite large computer networks for data storage and analytics tasks. Cloudera still offers free open-source tools via CDH (Cloudera's Distribution Including Hadoop) and Cloudera Express.

Cloudera's big data crunching capabilities and dependence on open-source software often spark comparisons to Red Hat, which was acquired by IBM (NYSE:IBM) last July. IBM also signed a big data and analytics partnership with Cloudera last year.

Amazon's EMR (Elastic MapReduce) is similar to Cloudera, but it isn't deployed on private clouds. Microsoft offers similar tools in Azure, which can be deployed across private, hybrid, and public clouds. But Cloudera also integrates its platforms into Amazon Web Services (AWS) and Azure -- so customers don't need to tether themselves to the two tech giants' ecosystems.

Earnings.....

Cloudera recently posted its fourth-quarter earnings. The software company's revenue grew 47% annually to $211.7 million, beating estimates by nearly $10 million. It posted a non-GAAP net profit of $0.04 per share, which topped estimates by seven cents and marked an improvement from its loss of $0.15 per share a year ago.

Cloudera expects its revenue to rise 8%-10% annually in the first quarter of 2021, with break-even earnings on a non-GAAP basis. It expects its full-year revenue to rise 8%-11% with non-GAAP earnings of $0.25-$0.29, compared to a loss of $0.13 in fiscal 2020. All those estimates either met or exceeded analysts' forecasts.

Cloudera's guidance was surprisingly confident since many companies either reduced or withdrew their guidance in the wake of the novel coronavirus (COVID-19) pandemic. During the conference call, Cloudera CFO Jim Frankola noted that the coronavirus was "more likely" to impact its services business, which generated just 14% of its revenue during the quarter, rather than its core subscription business, which relies on stable recurring revenue.

Chief executive Rob Bearden said on Cloudera’s Q4 earnings call that it “will transform from a mostly on-premise enterprise data management vendor to a true hybrid multi-cloud data platform company… CDP Public Cloud services will reflect our competitive advantage in addressing the full lifecycle of data.”

Cloudera’s consensus earnings estimates for fiscal 2021 and 2022 have soared since it reported.

Analysts’ Views…..

  • Bank of America raised their price objective on Cloudera from $8.00 to $9.00 and gave the stock an “underperform” rating in a report on Wednesday, March 11th.
  • Wedbush restated a “hold” rating and issued a $12.00 price objective on shares of Cloudera in a report on Wednesday, March 11th.
  • Finally, Craig Hallum reiterated a “buy” rating and set a $16.00 target price on shares of Cloudera in a report on Tuesday, January 14th.

One research analyst has rated the stock with a sell rating, eleven have issued a hold rating and seven have given a buy rating to the company’s stock. The stock has an average rating of “Hold” and an average target price of $10.88.

So…..

Cloudera Inc has a fifty-two week low of $4.76 and a fifty-two week high of $12.22. The company has a market cap of $2.35 billion, a PE ratio of -6.65 and a beta of 1.02. The company has a quick ratio of 1.22, a current ratio of 1.22 and a debt-to-equity ratio of 0.13. The company’s fifty day simple moving average is $7.59 and its two-hundred day simple moving average is $9.54.


Option Trade – Upwork Inc (NASDAQ: UPWK) Calls

Wednesday, April 29, 2020

** OPTION TRADE: Buy UPWK JUL 17 2020 10.000 CALL at approximately $0.90.

(Bid is $0.85. Ask is $1.00)

Place a pre-determined sell at $1.80.

Also include a protective stop loss of $0.35.

Preamble.....

A small stock price doesn't always mean a small company. There are several factors that go into determining a company's value, including its market capitalization -- the price of each share of the company multiplied by the number of shares outstanding. A stock with a small price could actually be a big company, depending on how many shares are traded on the open market.

It is often the case that stocks trading for lower values tend to have smaller market caps. But that also means they have more room to grow.

And, Upwork Inc (NASDAQ: UPWK), which is uniquely poised to benefit from the gig economy, fits this category. According to research, the gig economy is projected to grow at a 17% compound annual growth rate (CAGR) until 2023 due to evolving social attitudes and digitization rates around the globe.

The gig economy is based on flexible, temporary, or freelance jobs, often involving connecting with clients or customers through an online platform. The gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.

With the coronavirus pandemic boosting interest in work-from-home opportunities, Upwork may post better-than-expected results in 2020. Cash stands at $48.3 million compared to a net loss of $16.7 million in 2019.

About Upwork.....

Upwork is a global freelancing platform that helps businesses and independent professionals connect and collaborate remotely. The company makes money by connecting freelancers with projects through its platform for a fee and charging employers fees related to payment processing and other related servicing charges. Upwork is headquartered in Santa Clara, Calif., with offices in San Francisco and Chicago.

The company was formed in 2014 through the merger of Elance (founded in 1998) and oDesk (2003), two prior competitors in the freelance space. Upwork changed to its current moniker in 2015 and went public in 2018, raising net proceeds of $109.4 million at $15 per share. It now trades near $8 per share, equating to a market cap of ~$900 million.

Upwork Debt.....

Assessing debt is important when looking at buying into companies. Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy.

Upwork had US$18.3m of debt at December 2019, down from US$23.9m a year prior. But on the other hand it also has US$133.9m in cash, leading to a US$115.6m net cash position.

According to the last reported balance sheet, Upwork had liabilities of US$149.1m due within 12 months, and liabilities of US$37.9m due beyond 12 months. On the other hand, it had cash of US$133.9m and US$30.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$22.9m.

Of course, Upwork has a market capitalization of US$959.2m, so these liabilities are probably manageable.

In the last year Upwork wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$301m.

Influencing Factors…..

The Upwork platform delivers value in a few key ways….

It maintains a bustling marketplace where freelancers know there will be many job opportunities and employers know there will be many freelancers.

The company screens freelancers and employers, weeding out people and businesses that do not meet basic quality standards.

Upwork facilitates project management with communications tools, milestone planning, and payments processing.

Based on its reported data, Upwork has a large and growing platform with a fast-growing revenue base.

Upwork's biggest selling point is its size. Ultimately, freelancers are going to choose Upwork over another platform if it has the best job opportunities for them, and Upwork appears to have an edge over its competition in terms of attracting talent. Because Upwork can attract the most talent, it will also continue to attract the most employers. When a platform is more useful the greater its scale, this is referred to as a network effect.

Optimistic Analysts’.....

While Upwork hasn’t been immune to the COVID-19 pandemic, BTIG’s Marvin Fong believes the company's “potential is underappreciated.” Fong reiterated a Buy rating, along with a $14 price target. Expect upside of a spectacular 160%, should Fong’s forecast plays out.

Despite the alarming downturn, Fong believes Upwork “has held up reasonably well” and is “doing better than most.” But the contracting global economy has affected activity on the platform. Job listings on March 31 indicated a 12% drop since the start of the month, with the trend remaining negative, both on the domestic and international front.

Although Upwork belongs to the “work-at-home” category, Fong is not surprised to see its business depressed in the near-term. During recessions, the availability of freelancers increases, while jobs become scarcer. The difference this time, though, is that even people in full employment are working from home.

Yet, Fong believes there is a brewing opportunity for Upwork here: “What UPWK has going for it in this environment is the ability to help businesses find low-cost talent and provide rapid hiring in a world where physical interviews and onboarding are undesirable.  In the longer run, with more freelancers on the site and businesses of all sizes getting more comfortable with remote workforces, we believe the pandemic could help Upwork’s enterprise offering gain improved traction once things settle down and businesses get out of survival mode.”

As for the rest of the Street, four research analysts have rated the stock with a hold rating and six have given a buy rating to the company’s stock. The company presently has an average rating of “Buy” and an average target price of $14.13.

Earnings.....

Upwork will release financial results for the first quarter of 2020 on Wednesday, May 6, 2020 after market close.

Upwork last posted its quarterly earnings data on Wednesday, February 26th. The company reported ($0.05) earnings per share (EPS) for the quarter, topping analysts’ consensus estimates of ($0.06) by $0.01.

The firm had revenue of $80.29 million during the quarter, compared to analysts’ expectations of $79.43 million. Upwork had a negative return on equity of 5.89% and a negative net margin of 4.99%.

Equities research analysts forecast that Upwork will post -0.27 EPS for the current fiscal year.

So…..

Given the current environment where interviews for employment are being postponed and employees are working remotely, the demand for work performed by freelancers will expand. The professional services portion of the gig economy is going to grow ~20% over the next five years, and Upwork is the market leader. It trades at ~3x's TTM revenue with 71% gross margins. To provide some prospective, at the beginning of 2019, it traded at ~9x's TTM revenue with 69% gross margins. Its rival Fiverr currently trades at 8.4x's TTM revenue.


Option Trade – Coca-Cola Co (NYSE: KO) Calls

Tuesday, April 28, 2020

** OPTION TRADE: Buy KO JUL 17 2020 50.000 CALL at approximately $0.90.

Place a pre-determined sell at $1.80.

Also include a protective stop loss of $0.35.

Preamble.....

Coca-Cola Co (NYSE: KO) an American multinational corporation, and manufacturer, retailer, and marketer of non-alcoholic beverage concentrates and syrups, is wildly successful because it has a presence in all but one country (North Korea) worldwide. This allows the company to take advantage of more robust growth opportunities in emerging and developing economies while also generating highly predictable cash flow in developed markets.

Coca-Cola also happens to be one of the most-recognized brands in the world, which helps when it comes to engaging consumers and forming a connection to the brand. Coca-Cola has used everything from holiday themes and in-store displays to digital marketing and even social media influencers to push its image and create a multigenerational connection with its products.

With 21 brands KO is currently generating at least $1 billion in sales.

A New Development.....

On Monday, Coca-Cola announced a five-year deal with technology giant Microsoft (NASDAQ:MSFT). According to terms of the agreement, Coca-Cola will use Microsoft products, such as Azure, Microsoft 365, and Dynamic 365, to simplify and modernize its business processes.  

At a time when many people are working from home, collaboration tools are essential for communication. As part of the deal announced today, Coca Cola will deploy Microsoft 365 and Teams to help its global employee base communicate effectively during these uncertain times. This adds to the strong surge in daily active users Microsoft Teams has experienced this year.

By leveraging Microsoft's technology, Coca-Cola will be able to get a 360-degree customer and business view using Microsoft's suite of products. This will help Coca-Cola improve marketing efforts, predict demand, and provide its sales force with relevant customer information.

Coca-Cola's Barry Simpson, senior VP and chief information and integrated services officer, states, "This partnership with Microsoft allows us to really step change our employee experience through replacing previously disparate and fragmented systems. These platforms allow us to deliver relevant, personalized experiences as we network our organization."

In short, this strategic partnership will help the beverage giant transform its digital operations and replace legacy systems. The size of this deal was undisclosed.

Influencing Factors.....

Coca-Cola is not immune to the effects of the ongoing coronavirus pandemic, which initially emerged in China. In February, it announced that the coronavirus outbreak in China, which is its third-largest market in the world, based on unit case volume, is likely to hurt its first-quarter 2020 performance.

Also, China contributes nearly 10% to the company’s global volume. China is Coca-Cola’s third-largest market in the world based on the unit case volume. This led to huge supply-chain disruptions in China due to travel restrictions as well as the closure of stores, movie halls and restaurants, cancellation of major sporting events, and promotion of social distancing to reduce the transmission of the virus.

Earnings.....

The Coca-Cola Company delivered top and bottom-line beat in first-quarter 2020 when it reported last week. Comparable earnings of 51 cents per share beat the Consensus Estimate of 44 cents and improved 8% from the year-ago period. Currency translations negatively impacted earnings by 2%. Comparable currency-neutral earnings per share rose 10%.

Revenues of $8,601 million surpassed the Consensus Estimate of $8,403 million but declined 1% year over year. Organic revenues remained the same as the prior-year quarter. During the quarter, both concentrate sales and price/mix were flat. Further, the first quarter had one less operational day, which hurt revenue growth by nearly 1 percentage point. Moreover, currency headwinds hurt the company’s top line by 2%.

It continued to witness increase in global value share, particularly in total non-alcoholic ready-to-drink (NARTD) beverages.

Though the company did not provide guidance for the second quarter and 2020 due to the uncertainties related to the coronavirus pandemic, it outlined the expected currency impacts on its results for both periods.

For 2020, it estimates currency headwinds of mid-single digits on comparable net revenues and high-single digits on comparable operating income, based on current rates and hedge positions. It expects underlying effective tax rate of 19.5% for 2020.

For the second quarter, the company expects currency impacts of 4-5% on comparable net revenues and 5-6% on comparable operating income.

Moving Forward…..

Coca-Cola added some debt cash to its balance sheet last month. Coca-Cola continues to generate substantial revenues even during these dark times as a consumer staple.

Coca-Cola also has an unwavering commitment to strong dividend payments as it has boosted its annual payouts without fail in each of the last 57 years.  But even if we consider the worst scenario since this is a unique situation the world has never found itself in, Coke's board of directors could free up another $6.9 billion of annual cash flows if they break the trend and pause their dividend policy.

So…..

Expect Coca-Cola to land on its feet when the economy and living in general restart.