Happy Sunday and Happy June.
The S&P 500 rose +0.87% in May.
Over the past year, the S&P 500 has been mainly led by Technology, Financials, and Industrials as the top drivers (BLUE above) β while Consumer Discretionary, Healthcare, and Energy (RED above) were the bottom drivers.
If the Federal Reserve issues $1 trillion in T-bills over the next six months to refill the TGA (Treasury General Account) β it could lead to a decline in bank reserves, which tends to result in low equity returns.
While banks still have excess reserves of around $3 trillion β economists believe that demand for reserves steepens at around $2.5 trillion.
Banks may not be eager to invest in T-bills due to the uncompetitive yields compared to what they can earn on their own reserves. This influx of bills could have compounding effects on stocks and bonds, along with the ECB's end of LTRO (Long-Term Refinancing Operation) β potentially causing a reduction of money supply by $1.1 trillion by year-end (according to JPMorgan).
Portfolio Updates:
Thank you all for being patient with me this last week!
I traveled to Mexico to celebrate by 27th birthday with my girlfriend. It was an incredible vacation and much needed time away. With that being said, no material changes were made to the portfolio.
However, I do want to mention I plan to open a position in Molson Coors (TAP) this coming week. As you might remember from this post, I traded call options on the Bud Light boycott and made a killing.
With that being said, in the beginning of this controversy the play was βBud Light drinkers will go drink something else for a few months before going back to drinking Bud Light again.β Weirdly enough, Bud Light drinkers havenβt returned β which makes me believe their drinking of alternatives (Molson Coors) might actually improve their bottom line.
Molson Coors reports their second quarter earnings late-July / early-August. My plan is to purchase both shares of TAP as well as call options that expire throughout June and July at the $60 strike price. Iβll keep you all posted as to when I pull the trigger.
Week in Review β Too Long, Didnβt Read:
Crowdstrike reports record free cash flow, Okta displays red flags, Dollar Generalβs core customer is facing financial trouble, the Nasdaq-100 posted the best YTD returns since 1999, Amazon Mobile might be around the corner, BlackRock doesnβt believe the Fed will cut rates at all in 2023, the Jobs Report smashed expectations for non-farm payrolls, the Manufacturing sector continues to look bleak, and credit card delinquencies reach 2008 levels.
Key Earnings Announcements:
Crowdstrike reports record free cash flow, Okta displays red flags, and Dollar Generalβs core customer is facing financial trouble.
CrowdStrike (CRWD)
Key Metrics
Revenue: $692.6 million, an increase of +42% YoY
Operating Loss: -$19.5 million, compared to -$23.9 million last year
Profits: $1.0 million, compared to -$30.4 million last year
Earnings Release Callout
βCrowdStrike's first quarter results exceeded our guided metrics and reached new financial milestones, delivering the winning combination of growth, profitability and free cash flow at scale.
Highlights of the quarter included a rule of 75 on a free cash flow basis and records across revenue, gross margin, GAAP and non-GAAP earnings, and cash flow.β
My Takeaway
Despite reporting $227M in free cash flow (+45%) and record annual recurring revenue, Wall Street wasnβt satisfied β causing their stock price to plummet some -10% in after-hours trading. Since reporting, the stock has rebounded wonderfully as investors came to their senses.
Its my opinion that CRWD is running a wonderful business and I remain a shareholder. The company reported revenue, gross margin, and operating margin figures that all outperformed Wall Streetβs expectations.
This growth was driven by their adoption of the Falcon Complete platform and continued cross-selling success.
Personally, Iβm not seeing any red flags or warning signs here. Investors had high expectations for the company after their 26% beat over Wall Streetβs ARR expectations last quarter β and when CRWD only beat by 8% investors got spooked.
The company will continue to print free cash flow, benefit from economies of scale, and ride the wave that is cybersecurity for the foreseeable future.
Okta (OKTA)