We hope you had a great St. Paddyโs Weekend!
Major shoutout to my dad who recently found out heโs Irish โ enjoy that corned beef!
Now before we jump into this Week in Review, I have a few shocking images I wanted to share โ all surrounding โinflation.โ The first image is the aggregate US inflation rate since January of 2020.
Unfortunately for us, 23.98% of our spending power and wealth has been invisibly seized by the government โ alarming to say the least. This is a wonderful reminder as to why itโs so incredibly important to be investing your money. Over the same period of time, the S&P 500 has returned +59% โ netting out a +35% return when adjusted for inflation.
The second image (above) displays the monthly mortgage payment needed to purchase the median priced home for sale in the US โ increasing from $1,698 in March of 2021 to $2,686 in March of 2024. Thatโs a +58% increase over the last 3 years.
Of course, this increase wasnโt entirely due to the median price actually increasing โ although it certainly did (as shown above). The real culprit of this increase is the recent rise in interest rates, thanks to the Federal Reserve.
Coming full circle here โ as we all know, the Federal Reserve began raising interest rates in March of 2022 to combat rampant inflation (as shown above). If the Fed could make it harder for everyday people to borrow money, then theoretically demand for goods would decrease โ bringing down the price of those goods over time (inflation).
And it worked.
As you can see below, the annual increase in price of all items (excluding shelter) are now back to pre-pandemic averages โ a good thing.
However, itโs excluding shelter โ the red line.
Shelter (mortgage payments, rent, etc.) canโt begin to meaningfully tick lower until interest rates come down (as explained above) โ but if we cut interest rates too soon the vicious cycle of inflation heats back up, causing everything (including shelter) to rise in price.
Hell of a pickle weโre in, huh?
Portfolio Updates:
Above is the Dividend Growth Portfolioโs performance year-to-date, an +8.7% return. Funny enough, the biggest winner in the Dividend Growth Stock section of the portfolio has been Williams-Sonoma (WSM), up +41% YTD.
Other names who lagged most of 2023 are also beginning to shine โ including Kroger, Tractor Supply Company, and WW Grainger.
I decided against deploying new capital to this section of the Dividend Growth Portfolio in March as the opportunity cost (not buying Bitcoin, Ethereum, and Chainlink on a dip) was too high.
Above is my year-to-date return inside of the Crypto portfolio โ a smooth +$45,400 in only 3-months. As you all know, I plan to continue riding this portfolio higher into 2025. If you want a refresher on my entire Bitcoin profit-taking strategy, listen to this episode of my podcast, Rich Habits.
Month-to-date Iโve deployed $12,500 toward the cryptocurrency portfolio โ purchasing both Bitcoin and Ethereum.
Week in Review โ Too Long, Didnโt Read:
Williams-Sonoma increased their dividend by +26%, Oracleโs RPO backlog eclipsed $80B, SentinelOne continues to trend in the right direction, The unexpected removal of standard real estate agent fees, Boeingโs bumpy flight path, the potential ban of TikTok, Inflation comes in hot, and Retail Sales make a jump.
Key Earnings Announcements:
Williams-Sonoma increased their dividend by +26%, Oracleโs RPO backlog eclipsed $80B, and SentinelOne continues to trend in the right direction.
Williams-Sonoma (WSM)
Key Metrics
Revenue: $2.3 billion, compared to $2.4 billion last year
Operating Income: $458.1 million, compared to $469.8 million last year
Profits: $354.4 million, compared to $355.0 million last year
Earnings Release Callout
โWe outperformed in 2023 despite the slowest housing market in several decades and geopolitical unrest. Although this pressured our top-line trend, we stayed focused on full-price selling, supply chain efficiencies, and best-in-class customer service.
We have transformed our business model and as a result, we delivered an operating margin well ahead of our pre-pandemic profitability.โ
My Takeaway
The reason Williams-Sonomaโs stock price skyrocketed by +20% after their earnings release is because the company announced a +26% increase to their quarterly dividend and authorized $1B in stock repurchasing. Iโm very, very happy theyโre a part of my dividend growth portfolio!
Management noted their supply chain pressures are easing โ allowing them to capture more of a margin on their sales (up +5.6%). This was predominantly aided by lower air freight expense. However, demand is still under pressure โ senior leadership highlighted pockets of strength across the business, with seasonal categories expanding double-digits as consumers continue to shop up for key events (Valentineโs Day).
Management guided to comparable sales to be -4.5% to +1.5%, compared to Wall Streetโs -1.1% expectations โ as well as operating margins between 16.5% to 16.8%. Management also updated longer-term expectations for sustained operating margins to be in the โmid-to-high-teensโ compared to prior guidance of 15%.
Iโll continue to hold and accumulate more shares of this company. As interest rates begin to tick down in 2025 and single family home sales subsequently tick higher, this stock should see positive momentum. In the meantime, Iโll enjoy the dividend.
Oracle (ORCL)
Key Metrics
Revenue: $13.3 billion, an increase of +7% YoY
Operating Income: $3.8 billion, an increase of +15% YoY
Profits: $2.4 billion, an increase of +44% YoY
Earnings Release Callout
โLarge new cloud infrastructure contracts signed in Q3 drove Oracle's total Remaining Performance Obligations up 29% to over $80 billionโan all-time record.
We expect to continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supplyโdespite the fact we are opening new and expanding existing cloud datacenters very, very rapidly.
We expect that 43% of our current $80 billion of Remaining Performance Obligations will be recognized as revenue over the next four quarters, and that our Gen2 Cloud Infrastructure business will remain in a hypergrowth phaseโup 53% in Q3โfor the foreseeable future."
My Takeaway
What a banner quarter for Oracle โ with Oracle Cloud Infrastructure (OCI) net adds of +$200M, exceeding Wall Streetโs expectations by +$35M with many fearing a miss. Very strong remaining performance obligations of over $80 billion (+41% YoY) driven by customers demanding larger contracts.
Larry Ellison even commented on the buildout of a Salt Lake City data center that could fit eight (8) 747 airplanes head-to-tail, with the company initially expecting to spend $10B on capital expenditures in 2025 โ up from $7B. Something interesting to note is this massive demand in OCI backlog isnโt driven by AI โ a business segment which management stated should begin to see AI-specific revenue in 2025.
Additionally, CEO Safra Catz remains firmly committed to their 2026 goals set in September of 2022 โ which she indicated may prove wildly conservative given their momentum in cloud. These goals include $65B in total revenue at a 45% operating margin and double-digit EPS growth. However, this would require a meaningful acceleration in top-line growth in both 2025 and 2026 โ about +11% growth compounded annually to hit these targets.
The stock trades at 24X 2025โs EPS estimates, compared to Microsoftโs 29X โ which makes me optimistic that this stock can grind higher over the next 12-18 months. I will be opening a position this week and adding it to my โLong Technologyโ section of the portfolio.
Sentinel One (S)
Key Metrics
Revenue: $174.1 million, an increase of +38% YoY
Operating Loss: -$81.2 million, compared to -$100.2 million last year
Net Loss: -$71.9 million, compared to -$93.7 million last year
Earnings Release Callout
โWe closed the year on a very strong note and surpassed our fourth quarter top and bottom line expectations. In fiscal year 2024, we delivered industry-leading revenue growth of 47% and operating margin improvement of more than 30 percentage points compared to the prior year.
Building on our fiscal year 2024 outperformance, we aim to maintain our industry-leading growth profile while turning the page on profitability by the end of the year.โ
My Takeaway
I think the above images tell you everything there is to know about this companyโs progress over the last 12-months. Annual recurring revenue is closing in on $1B, their gross margin is climbing, their GAAP and Non-GAAP operating margin is ticking higher, as reflected in their operating loss improvements.
The company reported a -$6M loss in operating cash flow during the quarter, compared to -$22M last year โ and -$11M in free cash flow compared to -$25M last year.
The stock price is down for three reasons: 1) Crowdstrike raised Wall Streetโs expectations for SentinelOne after their blowout quarter reported last week โ when you net out those expectations, SentinelOneโs stock traded down from $25 to $22 / share, 2) Total ARR was $3M below Wall Streetโs expectations, and 3) 2024 guidance was $1M below Wall Streetโs expectations โฆ cry me a river.
If we simply dig a bit deeper, we see just how strong this quarter was โ strength across the board with Q4 billings and RPO up +50% and 47%, respectively YoY on larger deal sized and longer contract durations โ combined with higher gross margins weโre certainly moving in the right direction.
The number of customers spending more than $100K / year with SentinelOne accelerated quarter-over-quarter, with new customer accounts now accounting for 50% of revenue growth vs. only 33% at Crowdstrike.
Management noted theyโre not seeing any of the negative trends Palo Alto Networks mentioned two weeks ago โ and mentioned SentinelOne is NOT offering free product bundles or discounts at the moment. Demand is healthy.
Iโll continue to own and dollar cost average into this long-term winner.
Investor Events / Global Affairs:
The unexpected removal of standard real estate agent fees, Boeingโs bumpy flight path, and the potential ban of TikTok.
Massive Shake-Up in Real Estate
In a shocking move on Friday โ The National Association of Realtors (NAR) agreed to cut commissions as part of a settlement for lawsuits, paying $418 million over about four years, pending court approval. This move could result in significant savings for homeowners โ potentially reducing realtors' standard 6% sales commission fee by up to 30%.
However, experts have varying opinions on whether this will lead to meaningful decreases in housing market prices, with some skepticism about the impact on overall home prices. Hereโs a couple of threads that are pretty interesting!
Not to mentionโฆ each of you probably knows someone that is a real estate agent. The final decision on this move could very much impact their career in a big way.
"NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possibleโฆ This settlement achieves both of those goals.โ