TMTB Morning Wrap

Good morning. QQQs flattish, yields ticking up 2-3bps across the curve and 10 year testing 4.3%; China +1.6% as reports of more stimulus swirl. BTC +2.6% gaining momentum and over $71k for first time since June. Big night of earnings ahead with AMD, GOOGL, SNAP, RDDT, and V on the docket among others.

We’ll hit up earnings recaps first (PYPL, GLW, CHKP, CDNS, FFIV) then dive into some research/news/3p from this morning. Let’s get to it.

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PYPL -3%: Looks mixed with slight rev miss, better EPS (1.20 vs bogeys of 1.10); transaction margin $ and branded TPV better, but subdued Q4 guide and lack of go-forward narrative has stock selling off

Transaction margin $ beat at 8% y/y vs 4% y/y on 50bps TPV beat (branded held at 6% vs expects at 5%).
TPV +9% in line with street
TE rate dropped -2bps y/y (unbranded TPV slowed by 8ppt) and lower txn/credit losses.
EPS beat handedly 1.20 vs buyside expects of 1.10

Investors not as excited about the Q4 guide:

FY TM$ raised to MSD growth but even assuming 6% implies Q4 slows to 400bps to 3.5% y/y.
Q4 TPV guide to LSD vs street at 5.5% on slower Braintree TPV and Q4 EPS slightly below.
FY EPS raised to high teens vs low to mid teens prior.

Bulls will say print was fine and mgmt typically guides conservative and new initiatives will begin to ramp up at some point in 2025 while stock still only trading at 15x ‘26 P/E.

Bears will extrapolate weaker Q4 guide to 2025. In our preview we wrote why the go-forward narrative wasn’t great and likely why stock not being defended here as we head into next year:

As investors look forward TPV growth will likely come under more scrutiny while major ‘24 drivers won’t recur (Braintree pricing, float income flipping to a headwind, lower y/y transaction losses).

New product announcements (Adyen, Fastlane, etc.) won’t likely contribute much until 2H’2025 at the earliest.

Overall, we think quarter was ok and guide is conservative, but still think stock unexciting for us right now given lack of go-forward catalysts/narrative (although we do get an investor day in Feb 2025).

Q3 Results:
- ADJ EPS $1.20 vs. $0.98 y/y, EST $1.07
- Total payment volume $422.64B, +9% y/y, EST $421.64B
- Transaction margin dollars $3.65B
- Payment transactions 6.63B, +5.7% y/y, EST 6.83B
- Active customer accounts 432M, +0.9% y/y, EST 429.42M
- Net revenue $7.85B, +5.8% y/y, EST $7.88B
- Transaction revenue $7.07B, +6.2% y/y, EST $7.13B
- Other value added services revenue $780M, +2.1% y/y, EST $746.9M
- US net revenue $4.52B, +6.1% y/y, EST $4.43B
- International net revenue $3.33B, +5.3% y/y, EST $3.44B
- ADJ operating income $1.48B, EST $1.38B
- ADJ operating margin 18.8% vs. 16.9% y/y, EST 18.6%

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GLW +8%: Results look good as co upped Q4 guide

GLW also outlined Display expectations for next year, which is mostly in line with the Street but better than feared given concerns around Yen (The company noted that Display net income is expected to be $900-950m for CY25). All segments beat with Optical driving biggest upside with 55% y/y growth in enterprise portion after GLW said would only be >40% y/y at their investor event in Sept

Q4 Guide:

EPS: 53-57c vs street at 52c
Revenue: $3.75B vs street at $3.65B

Q3 Results
- Core EPS $0.54 vs. $0.45 y/y, EST $0.52
- Core sales $3.73B, +7.9% y/y, EST $3.71B
- Display Technologies net sales $1.02B, +4.4% y/y, EST $1B
- Optical Communications net sales $1.25B, +36% y/y, EST $1.17B
- Specialty Materials net sales $548M, -2.7% y/y, EST $559.2M
- Environmental Technologies net sales $382M, -15% y/y, EST $417.6M
- Life Sciences net sales $244M, +6.1% y/y, EST $248M
- All Other net sales $298M, -8.9% y/y, EST $333.2M

From the PR:

Our outperformance was led by Optical Communications, with 36% year-over-year sales growth – and 55% sales growth in the Enterprise portion of the segment, driven by continued strong adoption of our new optical connectivity products for generative AI. We also demonstrated progress on the powerful incremental profit and cash flow embedded in our ‘Springboard’ plan – we saw significant operating margin expansion and generated $553 million of adjusted free cash flow.”

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CHKP -7%: Weaker Q3 as billings miss and sub rev growth decels

Focus mainly on the billings miss given more positive sentiment on CHKP going into the print. Billings came in at 6% vs street at 8% expects closer to high single digits/10%, despite comp being 4 ppts easier
ST billings only 5% vs street at 9% and, and a decel from 7% despite comp being 6 ppts easier.
Total Revs only inline with street
Sub revs missed at 11.5% vs street at 12.5% and a decel from 14% last q and 15% in Q1
The one bright spot is product growth at 4% vs street at 2%

This stock had been a bit of a crowded long going into the print given CHKP is in the middle of a product cycle and checks had been good going in, so this will put a dent in bull’s thesis.

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CDNS +6% as Rev beat and guide better than feared

Investor sentiment was generally cautious heading into the print (stock dn 23% from highs) so the better Q3 being looked at favorable as Revs beat by 3% and EPS came in at 1.64 vs street at 1.45 on better OPMs (45% vs street at 41.6%).

CDNS maintained FY24 revenue guidance at midpoint implying confidence in hw acceleration and China to get better. This somewhat de-risks Q4 in that guidance now requires 26% growth vs 29% before. EPS FY24 guide goes up by 3c. Mgmt expects dd growth in FY24 and GenAI continuing to be main driving force of growth. Backlog declined q/q but CFO said Q4’24 hw pipeline strongest Q4 during his tenure at the company.

Other key pts: SD&A saw >40% y/y rev growth helped by auto and aerospace while IP seg grew >50% y/y/Verification +20% y/y helping offset weaker trends in custom and digital.

Bulls will say this print supports view that 2024 exit growth sustainable in 2025 and that Q4 guide is de-risked as 1) hw product cycle should last through ‘25; 2) IP is getting better and 3) China weakness in ‘24 sets up an easy comp for next year

Q3 Results:
- ADJ EPS $1.64 vs. $1.26 y/y, EST $1.45
- Revenue $1.22B, +19% y/y, EST $1.18B
- Product and maintenance revenue $1.10B, +14% y/y, EST $1.1B
- Services revenue $115.1M vs. $57.3M y/y, EST $85.8M
- ADJ operating margin 45% vs. 41% y/y, EST 41.5%
- ADJ net income $450.2M, +31% y/y, EST $397.5M

FY 2024 Revenue GUIDE $4.61bn - $4.65bn vs. St est $4.628bn (Previous guidance $4.60-$4.66bn)
FY2024 Non GAAP Op Mgn GUIDE 42% to 43% vs Street est. 42.5% (Previous guide 41.7%-43.3%)
FY 2024 EPS GUIDE $5.87-$5.93 vs.street est. $5.89 (Previous guidance $5.77-$5.97)

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FFIV: Better than Expected Q4 and FY25 reacceleration driven by software renewals

Revs beat by 2% and product revs beat by 6.6%, up 10% y/y driven by strong sw growth +19% y/y and improving systems demand. Co guided to reaccelerating rev growth in FY25 up 4-5% weighted toward FY25 driven by sw growth given FFIV has good visibility thanks to renewal basee containing the FY19 and FY22 cohorts (sw expected to grow HSD and Systems MSD)

Key takeaways from the call: 1) Software growth outlook: Management expects acceleration in H2'25 driven by strong renewal rates, Healthy expansion activity, Robust new business pipeline 2) Systems business recovery: Projecting mid-single-digit growth for FY25, gaining market share and benefiting from refresh cycle momentum; 3) AI opportunity: Seeing demand across both hardware and software offerings, several early customer wins secured. No AI upside included in FY25 guidance 4) Federal business stability: No disruption from Carahsoft relationship (10% of Q4FY23 revenue) as U.S. government bookings meeting expectations

Bulls will say the above points all sound good, especially AI opportunity and reacceleration in total revs driven by high margin/high visibility sw. Stock still only 15x fwd P/E.

Bears will say certain growth areas not showing growth needed for a re-rating as security revs flat y/y and ARR of core SaaS and managed serves was up only ~5%. Seems like bulls have it for now.

GUIDANCE: Q1
- Guides revenue $705M to $725M, EST $703.1M
- Guides ADJ EPS $3.29 to $3.41, EST $3.37
RESULTS: Q4
- Net revenue $746.7M, +5.6% y/y, EST $730.7M
- Net service revenue $388.4M, +1.8% y/y, EST $393.9M
- Net product revenues $358.3M, +10% y/y, EST $337.3M
- ADJ EPS $3.67 vs. $3.50 y/y, EST $3.46
- ADJ net income $217M, +3.8% y/y, EST $203.7M

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Research/News

3P Roundup

UBER: Hearing 3p saying Q4 tracking slight above street