Blame trade tension or just a rally due for a rest, it's been a challenging week for our stocks. However, earnings ultimately remain balanced to the upside.
The BMR universe recovered its balance yesterday with 10 of our recommendations nudging into positive territory for the week while many of the rest narrowed their losses. All in all we're now down less than 2% since last Friday's close, a little better than the S&P 500 which continues to decline.
Roku (ROKU: $83, up 28% this week) was a key component in our outperformance, but Omega Healthcare Investors (OHI: $37, up 2%) helped. Both companies beat expectations on earnings and reaped the rewards. Their success proves that when the numbers come in strong enough, even a setback in global trade negotiations becomes irrelevant to investors' hunger for stocks with powerful fundamentals.
Last night we got similar numbers from Dropbox (DBX: $23, down 5% before rallying back to $24.50 overnight after earnings) and a decent report from Synaptics (SYNA: $32, down 12% but again, rising overnight) to keep the sizzle alive in the BMR universe. If Hospitality Properties Trust (HPT: $26, down 1%) follows suit this morning, we will end the week on an up note after all.
Dropbox did everything right. Revenue of $386 million beat our target by $4 million and proved that the top line is still rising 22% a year, while that extra cash flow almost entirely translated into profit. We thought we'd see $0.06 per share in earnings here but the company gave us $0.10, which given the subscription-oriented nature of the business should be the new base from here.
Luckily management provided plenty of guidance so we aren't recalculating in the dark. They're happy targeting $400 million in revenue for the current quarter and $1.6 billion for the full year... roughly confirming what we expected. That's 17% growth, and as margins expand we suspect 2019 profit will at least match last year's level despite substantial investment in customer acquisition.
Those customers are coming along. Dropbox converted nearly 1 million more free accounts to paid subscriptions last quarter, well ahead of schedule. On average they're paying $40 a month, so having more than 13 million of them on the program creates a solid revenue platform. It's all at least what we wanted and on most fronts a little better than we hoped. Great stuff.
Synaptics, on the other hand, keeps doing well enough to stay on our radar without providing much in the way of instant gratification. We'd cheer a serious acquisition bid and suspect the board of directors would join us this time. As it is, management's goal of pivoting away from low-margin Mobile Device markets into more profitable Voice Computing and other components of the Internet Of Things is working, just not fast.
We knew revenue would come in significantly below last year's level, so it really doesn't make much difference whether Synaptics hit our target there or not. We wanted $345 million (13% below last year) and got $334 million (down 15%). The top line will remain challenged for months to come. We expected that too.
But while guidance on the top line suggests that the legacy Mobile Devices business hasn't bottomed out yet, it's great to see that the products Synaptics is selling now turned into an $0.83 per-share profit, a full $0.10 better than we hoped to see and only 10% below last year. The pivot is happening. The question is whether the stock will anticipate those better days ahead. If not, we may pull the plug here and come back when we see a little movement going our way.