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Yesterday was big. Today is a bit of a break, but don't get complacent. Apple is coming tomorrow night. For now, of course, we're looking for reaction to Shopify as well as the BMR stocks that reported their 3Q19 numbers yesterday.


Spotify (SPOT: $140, but down sharply overnight) was a huge hit. Management was always open to the chance that they'd report a profit instead of a loss, but few investors took that scenario seriously. Every metric contributed to the applause. Revenue of $1.73 billion beat our target by $10 million and demonstrates 28% growth. That's evidently enough cash coming in to once again generate a little profit . . . substantial profit in fact. Spotify booked earnings of $240 million ($0.36 per share).


And things point up from here. Spotify added 5 million paid subscribers and another 12 million people listening in on the advertising-supported platform, which is a lot better than anyone expected. At this rate, the audience is safe from whatever giants like Apple and Amazon have been able to cook up so far. The stock soared for a reason. We love it.


Alphabet (GOOG: $1,290, up 2% during the day but then down 1% overnight) was a less ebullient story, with a miss on what we already anticipated would be a weak bottom-line comparison. Earnings of $10.12 per share just didn't live up to anyone's expectations even though revenue of $33 billion was a bit above our target. Alphabet is simply spending a fortune on Artificial Intelligence and Cloud Computing. Costs are up 25% from last year. When those investments pay off, we'll see fireworks here, but that could be a while.


Akamai (AKAM: $89, flat) did relatively well as its own Cloud Computing operations bloom. Guidance is up. We're happy. Likewise, Welltower (WELL: $87, down 1%) and Vornado (VNO: $64, flat) did what they needed to do on the REIT side. We'll be saying more about these stocks as well as Shopify, which reports this morning, in the coming days and weeks.


However, we have to say even more now about a few stocks that reported last week. First, Ventas (VTR: $65, down 2%) got hammered on Friday over what some are saying was a dramatic cut to management's outlook. Don't be taken in by the negativity. The important thing is that the 4.9% dividend we're here to collect is secure.


For one thing, "normalized" Funds From Operations, which smooths the bumps in quarter-to-quarter performance, isn't going down at all this year. Last quarter was stronger than expected. The current quarter looks a little weaker, balancing the overall trend and keeping guidance exactly where it was. That's the metric we look at with Ventas, so there's zero change to our near-term outlook here.


Admittedly, guidance on earnings per share does indicate that the current quarter is coming in light. However, this is not our focus when it comes to Real Estate stocks. The accountants throw too many curves into the math from quarter to quarter to make earnings a viable gauge of the company's operations. That's why we look at Funds From Operations in the first place, because FFO is the bucket of cash from which the dividends flow.


So what's so disastrous? The company's Senior Housing properties failed to live up to historical standards despite what management describes as "record" demand. The business isn't shrinking. It's just the companies that operate the facilities are having a hard time maintaining occupancy. That apparently came as a shock to the operators as well. Management is looking into it. They'll adjust where necessary, but for now they see no real downside here next year, after which they're looking for real growth to start up again.


After the last few years, a REIT that isn't growing is nothing noteworthy. One that isn't feeling appreciable pressure on the FFO trend is practically commendable. If Ventas doesn't make one dime more in 2020 than it did in 2019, shareholders will book that 4.9% in current income and remain exposed to the brighter future that management sees ahead.


And it's important to point out that this seems specific to Ventas operators right now. Welltower didn't report a single glitch in its Senior Housing portfolio on its earnings statement. Its view of FFO in the current quarter actually went up. And Omega Healthcare (OHI) has already wrestled with operator issues and come out in much better shape. Again, as long as the dividends get paid, patience seems reasonable at this point . . . but of course if anything changes we'll let you know.


On the other side of the scale, PayPal Holdings (PYPL, $107, flat so far this week) is one of our biggest 3Q19 winners so far, up 10% after beating estimates across the board. The company reported net income of $462 million, or $0.39 a share, up from $436 million, or $0.36 a share, in the year-prior quarter. Earnings rose to $0.61 a share from $0.58 a year earlier. Analysts had been modeling $0.52 a share in adjusted earnings.


PayPal’s revenue for the third quarter climbed to $4.4 billion from $3.7 billion in the year-ago quarter, whereas analysts were expecting $4.35 billion. Total payment volume (TPV) increased to $180 billion from $145 billion and came in ahead of estimates of $177 billion. Venmo processed $27 billion in volume, on pace to hit $100 billion this year. $100 billion!


The company processed more than 1 billion transactions per month over a quarter, the first time ever that it had hit this number. The company added 10 million net new active accounts in the third quarter hitting the 280 million mark. If you’re worried about eBay leaving the company, don’t be. eBay volume represented just 8% of total TPV in the period and is projected to reach just 6% when the agreement ends in 2020. eBay will begin the transition in the second half of this year and hopes most of its customers will be using Adyen by 2021. But shoppers will have an option to use the off-platform PayPal as a payment option until 2023.


PayPal invested $750 million earlier this year in Mercado Libre, an Argentina-based e-commerce marketplace with 250 million registered users in 19 countries, more than eBay’s 180 million. The company expects the investment to pay off in growth in Latin America.


The company issued its full-year revenue outlook to $17.7 billion. It did $9.2 billion in 2015, $10.8 billion in 2016, $13.1 billion in 2017, $15.5 billion in 2018. When they hit $17.7 this year, what do you think they will hit in 2020?  $20 billion?  You can count on something big.


IN FACT, WE THINK THAT PAYPAL is one of the best investments one can make today. Our subscribers are always asking us what stock we like the best or what stock is going to be a home run in the next 5-10 years. Let us tell you here and now – PAYPAL is one of them and we would put it at the very, very top of our list.




Earnings Preview: Exact Sciences (EXAS: $93, up 3% this week)

Earnings Date: Tuesday, 5:00 PM ET

Expectations: 3Q19
Revenue: $216 million
Net Loss: $55 million
EPS: -($0.41)

Year Ago Quarter Results
Revenue: $118 million

Net Loss: $45 million
EPS: -($0.37)

Implied Revenue Growth: 80%
Implied EPS Decline: widening loss to fuel growth

Target: $145
Sell Price: $93
Date Added: August 23, 2018
BMR Performance: 32%


Key Things To Watch For in the Quarter


Exact Sciences is the Healthcare stock with a growth profile that only a few Technology companies can match. The biggest challenge here is making sure to keep building capacity to process what one day will be millions of mail-in cancer diagnostic kits. As long as management can stay ahead of surging demand, profitability will come. For now, we'll settle for 80% expansion on the top line.




Earnings Preview: Paycom (PAYC: $209, flat)

Earnings Date: Tuesday, 5:00 PM ET

Expectations: 3Q19
Revenue: $171 million
Net Profit: $39 million
EPS: $0.67

Year Ago Quarter Results
Revenue: $133 million

Net Profit: $31 million
EPS: $0.52

Implied Revenue Growth: 28%
Implied EPS Growth: 28%

Target: $280
Sell Price: $220
Date Added: April 11, 2018
BMR Performance: 88%


Key Things To Watch For in the Quarter


Management excels at providing clear guidance so there isn't a lot of suspense here. As long as the business steered clear of any unforeseen cliffs, we're getting close to 30% sales growth yet again. There's also a chance that our earnings target is a little low, but we'd rather err on the side of caution . . . Paycom has a habit of receding on perfect earnings, so the lower our expectations are, the less room there is for disappointment.


But all of this is really just gaming the results. We can't control what other investors think. All we can count on is that this is a company that has beaten our targets every quarter for years, often raising guidance in the process. And banks like Citigroup are telling their clients Paycom is worth at least $260. We've been saying that for months now.



Earnings Preview: Ares Capital (ARCC: $18.47, flat)


Earnings Date: Wednesday, 5:00 PM ET

Expectations: 3Q19
Revenue: $370 million
Net Profit: $195 million
EPS: $0.46

Year Ago Quarter Results
Revenue: $342 million

Net Profit: $192 million
EPS: $0.45

Implied Revenue Growth: 2%
Implied EPS Growth: 8%

Target: $19
Sell Price: $15
Date Added: November 17, 2018
BMR Performance: 17%


Key Things To Watch For in the Quarter


While Business Lending is rarely a fast-paced enterprise, it brings in a lot of cash. For Ares Capital, all that's necessary is for that cash to top $0.42 per share this quarter and the 8.7% yield is secure. That's not bad in itself. However, management is reaching for 15% earnings growth in the near future so we suspect guidance will show at least a little acceleration from here. After all, expiring fee waivers are going to add at least $10 million a quarter to the company's bottom line, so the winds are definitely blowing in the right direction.


And never forget that unlike companies that borrow to fund their operations, Ares still has $27 billion waiting to deploy. They estimate that money will generate $270 million in annual fees once they put it to work . . . it's just a matter of finding the right targets. We know how they feel. But once they finally allocate those funds, cash flow will double and that dividend will get a lot richer.