Earnings Update: Reports for CDNS, LTHM, ABNB, TTD

Another week of earnings season is in the books, and last week we had 4 more disruptors report: Cadence Design Systems (CDNS), Livent Corp. (LTHM), Airbnb (ABNB), and The Trade Desk (TTD).

In case you missed my last earnings update where I covered Pinterest (PINS), Enphase (ENPH), Uber (UBER), Cameco (CCJ), and Proto Labs (PRLB), you can find it here.

Now, let’s see how these 4 high-growth companies fared in Q4:

Cadence Design Systems (CDNS):

Any way you look at it, Cadence stood out from the crowd in Q4 with an incredible earnings report as well as a bullish outlook for 2023 (which is becoming increasingly hard to find). Overall, their revenue was up 19% YoY, and one area that outperformed this was their “functional verification” segment, which grew 28% YoY.

This is a really interesting part of their business, which works with super hi-tech products like state-of-the-art data centers/supercomputers and EV hardware to make sure there’s no issues with the design/construction of the product. Basically, Cadence not only needs to know how these products are built, but also need to make sure every detail of them is built correctly. Very few companies can do this, which gives Cadence a major edge.

The 28% growth here was also a pleasant surprise given that hardware/durable goods sales have been weak over the past year in general. In fact, about 2/3 of Cadence’s orders in 2022 were from its two main verification products, called Palladium and Protium, so this is a huge part of their business.

Not only did Cadence see strong demand in this area for Q4, but management noted on their earnings call that hardware demand (for the specific products they test) is still strong in 2023. Within a weak market, they’re working with a segment that’s seeing growth, which further demonstrates the value of their business, and is one of the main things that defines a “disruptor.”

Livent Corp. (LTHM):

Another area that’s seeing no shortage of demand is lithium, which should be no surprise given the scale at which adoption of EVs and other alternative energy products is growing.

As such, Livent’s Q4 revenue was up a massive 79% YoY. Additionally, they recorded an operating margin of 46.49%, which is an all-time high for the company. So, not only are their sales growing, but they’re growing faster than their expenses, which is a huge bonus when it comes to growth stocks.

They also have $189m in cash with no short-term debt and just $242m in long-term debt and $632m in total liabilities, which is very strong for a capital-intensive company such as Livent.

The growth is set to continue for the foreseeable future, as Livent has some huge developments taking place throughout the year. First, they added about 5k metric tons worth of additional capacity to their lithium hydroxide facility in North Carolina at the end of 2022, which makes Livent the biggest producer of lithium hydroxide in the US.

They’re also working to expand their production in Argentina, which is where they mine lithium and produce lithium carbonate. Sometime this quarter, they expect to have about 10k metric tons worth of additional capacity coming online, which is expected to generate revenue as soon as Q2. At the same time, they’re working on a second expansion of their Argentina facility that would add another 10k metric tons of capacity. This one is expected to be done around the end of the year and will boost revenue for 2024. To put this in perspective, Livent’s expansion in Argentina will increase their overall carbonate production by 111%, from 18k to 38k metric tons.

Overall, this sets Livent up for lots of success going forward. In 2023, they expect to sell 20% more LCEs (lithium carbonate equivalents – a base measurement for lithium) than 2022. Even if the price of each unit sold stays the same, that’s a 20% increase in revenue by itself! There are two reasons to think the price will likely go up: the demand for lithium is likely only going higher from here as alternative energy products continue to take market share, and contracts in the industry are shifting from fixed-price to market-price, which means Lithium’s revenue will be tied closer to the actual price of lithium as 2023 progresses.

Airbnb (ABNB):

Just like Cadence continues to stand out from the pack in terms of hardware services, Airbnb is in a league of its own when it comes to consumer services.

As I’ve mentioned before, Airbnb shouldn’t be seen as just another travel company. It’s also a source of income for lots of people, which is why it thrived right off the bat despite terrible financial conditions surrounding its creation in 2008. As the macro picture continues to darken, Airbnb continues to defy the idea that all consumer services are in for a rough time.

Q4 was a nice end to a year in which revenue and margins saw lots of expansion. Specifically, their revenue jumped 40% YoY and their operating margin went from 4.97% to 12.47% YoY. Airbnb also continues to rake in the cash, with $3.4b in free cash flow in Q4. These major cash inflows have brought their total cash/equivalents account to $9.6b vs less than $2b of total debt, none of which is due in the next year.

A lot of this growth has been fueled by the growth in listings; with 6.6m listings in Q4, this total was up 16% YoY. Even more impressive, however, is the fact that 36% of new hosts in Q4 were prior guests. That’s an all-time high, and it shows that people who have had good experiences renting from Airbnb go on to use the platform to generate some extra income and expand Airbnb’s overall network: a win-win.

One major development to look forward to in 2023 is Airbnb’s Friendly Apartments product, which allows people to rent out their apartments to guests. This opens up a whole new demographic of customers, and also benefits landlords by giving them part of the rental fees. So far, Airbnb has expanded to 175 different apartment buildings, which is just scratching the surface, and I see this being yet another source of growth to look forward to in 2023.

The Trade Desk (TTD):

The disruptors keep disrupting, and The Trade Desk is yet another company who stands out from competitors in terms of growth.

Essentially, TTD specializes in matching buyers and sellers in the ad space market. Like Airbnb, you’d think that a weakening consumer landscape would leave a noticeable mark on TTD’s growth in 2022. After all, competitors like Google and Meta are getting crushed because of this. However, TTD has continued to grow steadily throughout 2022, and actually saw incredible revenue growth of 32% in Q4.

There are two main reasons for this:

First, TTD’s claim to fame is their creation of the UID2 identity standard as an alternative to “cookies.” UID2 gives a lot more privacy to consumers, replacing their email address and/or phone number with a set of seemingly-random letters and numbers. This is sort of like how a Bitcoin address works, where your activity on the Bitcoin network (buying, sending, receiving, etc.) can be seen, but nobody necessarily knows it’s you specifically making those transactions. It essentially gives advertisers better insight into which people buy which products, without knowing the identity of the buyers. And since advertisers have had to tighten budgets due to weak consumers, they’re becoming more and more interested in this type of “precision advertising.”

Second, more people are using Connected TV (CTV), such as Roku, Apple TV, etc. In fact, about 92% of households in the US can be reached by advertising on CTV platforms. But here’s the thing: advertisers haven’t been targeting CTV audiences nearly as much. As a result, there’s a ton more market share to capture in CTV than traditional cable, with trillions of dollars potentially at stake. Thankfully for TTD, this is where they specialize, and that’s the top reason their growth has been outpacing the market, and will for the foreseeable future. More advertisers are moving over to CTV; this is clear by the fact that Google and Meta didn’t account for >50% of the digital advertising market in 2022 for the first time in a decade. TTD is benefitting from this transition, and will continue to benefit for the foreseeable future.

Disclaimer: Everything presented on my Substack is based on my personal research and opinions, and it should never be taken as investment advice. Just because I say good things about a stock or crypto or any investment doesn’t mean it’ll go up (although I wish that were the case). Any action that you take after reading anything on my Substack is your own responsibility.