Happy Sunday.
Before we dive in, thanks so much to all of the veterans that read Rate of Return.
We appreciate all that you’ve done for our country — and we hope you were able to have a restful weekend! 🇺🇸
Let’s jump right in to everything you should know from the last week in the market.
Week in Review — Too Long, Didn’t Read:
Celsius delivers record revenue, Uber is finally S&P 500 eligible, Disney is ready to turn on the free cash flow printing machine, new tax brackets and retirement limits, Amazon double-downs on healthcare, credit card debt hits another all-time-high, it’s becoming increasingly harder to borrow money, and JPow remains “uncertain.”
Key Earnings Announcements:
Celsius delivers record revenue, Uber is finally S&P 500 eligible, and Disney is ready to turn on the free cash flow printing machine.
Celsius Holdings (CELH)
Key Metrics
Revenue: $385.0 million, an increase of +104% YoY
Operating Income: $97.7 million, compared to -$147.6 million last year
Profits: $104.7 million, compared to -$146.4 million last year
Earnings Release Callout
“Gross profit as a percentage of revenue was 48.1% for the nine months ended September 30, 2023, up from 40.3% for the prior year first nine months.
Non-GAAP Adjusted EBITDA increased 301% to approximately $230 million for the first nine months of 2023, compared to $57 million for the prior year first nine months benefiting from substantial revenue growth and significantly improved gross margins as well as continued leverage across SG&A.”
My Takeaway
As you all might remember from last week’s post, I had replaced my “Risky” position in Napco Security Technologies (NSSC) with Celsius Holdings (CELH). Sure, Napco is still a solid company and long-term investors will be rewarded — but the future growth potential for Celsius is too large to ignore.
This quarter’s results reiterate a few key investment theses for me:
Immense sales growth — the company only has ~10% of the US energy drink market share, with more to take over the coming years as their fulfillment partnership with Pepsi continues to take shape.
Unit economics — sure, the company is growing revenue by ~100%, but more important they’re growing their gross profit by ~150%. This means not only is the company growing, their profits are outpacing their revenue growth — creating a compounding effect.
Brand affinity — this company will be studied by marketing and branding classes for years to come. They've done an incredible job of introducing this beverage to women, athletes, celebrities, and everyone in between.
At the end of the day, Celsius has a ton of long-term growth potential to help them continue to take market share — including an incredible partnership with 7-Eleven. 2024 will be a massive growth year for this company.
Uber Technologies (UBER)
Key Metrics
Revenue: $9.3 billion, an increase of +11% YoY
Operating Income: $394.0 million, compared to -$495.0 million last year
Profits: $176.0 million, compared to -$1.2 billion last year
Earnings Release Callout
“Strong topline trends and record profitability demonstrate the durability of our growth and the significant earnings power underlying our platform.
We continue to make disciplined investments in growth opportunities to support long-term value creation for all stakeholders.”
My Takeaway
Boom! What an incredible quarterly report by a company we’ve been mega-bullish on since Q1. So excited to see their stock price nearly double since we posted about the company both here on Substack and on Twitter.
So why the surge in stock price?
Unit economics for the company are finally beginning to really take shape — encouraged by continual operating profitability and free cash flow. As you all might remember, Uber was losing billions on an annualized basis before the pandemic. Now, just three years later — the company guided to $4B in adj. EBITDA for 2023. This figure is expected to increase to $5B+ in 2024.
Strong demand for the ride app continued all year long, despite a softening macro-economic backdrop. Uber management actually mentioned during their earnings call how resilient their business has been despite the “recession.”
Uber Ads continues to grow aggressively — with more than 445,000 buyers received a 700-1,000% return on their ad spend. The company is slowly but surely marching toward $1B in annual advertising revenue. Remember when Amazon launched their advertising business? It’s now doing $12B in revenue per QUARTER.
Finally, one very special thing just happened for Uber — they’re finally eligible to be added to the S&P 500 Index! This happened recently for both Lululemon and Palo Alto Networks — whose stock prices are up +30% and +83% YTD, respectively.
Very excited for the future of UBER and I remain a happy shareholder.
Walt Disney Company (DIS)
Key Metrics
Revenue: $21.2 billion, an increase of +5% YoY
Operating Income: $1.0 billion, an increase of +167% YoY
Profits: $697.0 million, an increase of +173% YoY
Earnings Release Callout
We have a solid foundation of creative excellence and innovation built over the past century, which has only been reinforced by the important restructuring and cost efficiency work we’ve done this year, and we’re on track to achieve roughly $7.5 billion in cost reductions.
As we look forward, there are four key building opportunities that will be central to our success: achieving significant and sustained profitability in our streaming business, building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our parks and experiences business.”
My Takeaway