ServiceNow Inc

ServiceNow Inc (NYSE: NOW) provides cloud-based solutions and platforms for enabling digital workflows and unlock enterprise’s productivity.

Investment Highlights – SPECULATIVE BUY at USD 473.88

• With ongoing digital transformation, ServiceNow is getting benefitted from the rising adoption of its workflow platform. Therefore, it reported 31% year-on-year growth in the professional services division and 30% growth in the subscription revenue division in Q1 FY21.
• The acquisition of Intellibot shall provide intelligent workflow automation solution and strengthen product capabilities.
• On 10 May 2021, ServiceNow signed an agreement to acquire Lightstep (next-generation observability leader) to solidify its position as enterprise platform for digital businesses. The transaction is expected to be completed by Q2 FY21.
• In the past two years, the Company has reported a better gross margin and EBITDA margin than the industry median of 76.9% and 6.5%, respectively.
• From a technical standpoint, the MACD line has crossed over the signal line, which is supporting the bullish trend, while the 14-day RSI (43.84) is hovering close to an oversold position.

Key Risks

• The Covid-19 pandemic led disruptions have impacted its vendors, customers, partners, and results of operations with significant macroeconomic uncertainty.
• The lengthened sales cycles, pricing pressure from competition, and lengthened payment term keeping the outlook gloomy in the short-term.
• NOW’s stock has significantly underperformed the benchmark NYSE Composite index by delivering a negative return of ~7.80%.

Recent News

New Office: On 19 May 2021, ServiceNow opened a new office in Dubai Internet City to expand its commitment to Middle East & Africa.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 29 April 2021)

 (Source: Company website)

• NOW’s subscription revenue jumped around 30% in Q1 FY21 against Q1 FY20, and subsequently reported an increase in gross profit as well.
• Despite the increase in operating and R&D expenses, net income improved significantly with reduction in interest income.
• The Company has over US$1 million in annual contract value with 1,146 total customers.
• In terms of liquidity as on 31 March 2021, the Company reported cash and cash equivalents and short-term investments of US$3.5 billion.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY21) (Illustrative)

Conclusion

During Q1 FY21, ServiceNow witnessed a solid momentum in employee workflow and a noteworthy increase in customer base that supported the revenue growth and improved profitability margins. Moreover, it has substantial financial resources to fund the upcoming market opportunities. It continued to invest in infrastructure, services, and marketing to deliver long-term growth. The stock made a 52-week High and Low of USD 598.37 and USD 367.03, respectively. On the technical chart, the next important support level is at USD 426.49.

Based on the improved financials, favourable market dynamics, recent acquisition with support from valuation conducted above, we have given a "SPECULATIVE BUY" stance on ServiceNow Inc at the closing market price of USD 473.88 (as of 28 May 2021), with a lower double-digit upside potential based 58.56x Price/Cash Flow (approx.) on FY21E Cash Flow Per Share (approx.).

NIO Inc

NIO Inc (NYSE: NIO) manufactures smart electric vehicles in China. Its model comprised of ES8, ES6, EC6 and EP9 supercar.

Investment Highlights – HOLD at USD 38.62

• The overall demand continued to be strong, and the Company anticipates delivering 21,000 to 22,000 vehicles in Q2 FY21.
• NIO has accelerated R&D expenses of new technologies and products to support growth in the future.
• Solid average selling price and higher deliveries improved vehicle margin in Q1 FY21, and thus, the Company continued the achieve positive cash flow from operating activities.
• From a technical standpoint, the MACD line has just crossed over the signal line and indicating an upward trend, while the 14-day RSI (56.87) has further strength as it is still not in the overbought zone.
• Over the past two years (FY18 to FY20), revenue has given a stellar compounded annual growth rate of approximately 81.21%.

Key Risks

• The supply chain is significantly distorted with the global semiconductor shortage.
• The stock price has slipped over 27% on a YTD basis, reflecting an underperformance against the benchmark index.
• The Covid-19 pandemic led restrictions continued to cause business and operational delays.

Recent News

May 2021 Delivery Update: On 1 June 2021, NIO unveiled that it delivered 6,711 vehicles in May 2021 (95.3% year-on-year growth) despite the volatility of semiconductor supply.

Financial Highlights for the quarterly period ended 31 March 2021 (Q1 FY21) (as on 29 April 2021)

 (Source: Company Website)

• During Q1 FY21, there was a 489.8% increase in vehicle deliveries against Q1 FY20, led to 481.8% surge in revenue from Q1 FY20.
• The gross margin stood at 19.5% in Q1 FY21 from a negative 12.2% in Q1 FY20, with a strong vehicle margin.
• The loss from operations and net loss were decreased by 81.2% and 73.3%, respectively, from Q1 FY20.
• As on 31 March 2021, liquid assets (comprising of cash and cash equivalents and short-term investments) were around US$7.3 billion, reflecting strong financial resources.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

NIO is likely to deliver accelerated delivery in June 2021, given the current production and delivery plan. Therefore, the Company has reiterated its delivery guidance of 21,000 to 22,000 vehicles in Q2 FY21. Moreover, the Company signed manufacturing agreements with Jianghuai Automobile Group Co on 24 May 2021, which shall support the production capabilities. NIO is also investing in battery swapping and charging facilities to support future growth. Also, the growing electric vehicle demand in China can sustain the growth momentum in the stock. The stock made a 52-week High and Low of USD 66.99 and USD 3.96, respectively.

Considering the impressive vehicle deliveries, encouraging revenue growth, margin improvements, strong demand, and semiconductor shortage amid volatile macro environment, we have given a "HOLD" stance on NIO Inc at the closing market price of USD 38.62 (as of 28 May 2021), while we look forward to reinvesting when we have better clarity regarding the business outlook and market conditions. 

Roku Inc

Roku Inc (NASDAQ: ROKU) provides streaming content to the TV in the US. The Company also provides advertising platform, streaming channels, streaming devices, and Roku TV around the world.

Investment Rationale – SPECULATIVE BUY at USD 346.71

• During the first quarter of FY21, Roku delivered record revenue and profit growth as a secular shift to streaming services continued.
• The Company has recently bolstered liquidity by raising nearly US$1 billion through an At-The-Market stock offering.
• Given the breadth of the business model, impressive platform growth and favourable market dynamics, robust revenue growth is expected in H1 FY21.
• From a technical standpoint, the MACD line has recently crossed over the signal line, supporting the bullish trend, while the 14-day RSI (54.78) indicates a neutral strength in the stock.
• Over the past five years (FY15 to FY20), revenue and gross profit have grown significantly by a CAGR of around 40.93% and 55.18%, respectively.

Risk Assessments

• Sustained high demand for IT product and consumer electronics categories has created logistic delays.
• Inflation fears and overstretched stock price can keep the price volatile in the short-term.
• With lockdown easing, stay-at-home order can experience growth rate slowdown in H2 FY21.

Recent News

New Agreement: On 27 May 2021, Roku announced a landmark agreement with Saban Films, which is Roku’s first-ever pay-one licensing agreement.

Financial Highlights for the quarterly period ended 31 March 2021 (as on 6 May 2021)

 (Source: Company Website)

• Roku delivered exceptional growth in content distribution partnerships and advertising business during the first quarter of FY21.
• Revenue surged 79% year-on-year in Q1 FY21, following the 101% year-on-year revenue growth in the platform business.
• Similarly, gross profit surged 132% year-on-year in Q1 FY21, while the Company added 2.4 million incremental Active Accounts.
• The streaming hours soared by 1.4 billion hours over Q1 FY20 and Average Revenue Per User grew 32% year-on-year in Q1 FY21.

One Year Share Price Chart

 (Research done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative)

Conclusion

Roku is giving an opportunity for long-term investors post reporting better than expected Q1 FY21 results. The Company is operating in a growth industry space while its revenue and profits are still growing. The accelerated user expansion amid the pandemic continued to benefit Roku and expand its user base. In Q2 FY21, the Company expects to generate US$615 million in revenue, representing 73% year-on-year growth. Moreover, the Company has been investing aggressively to capitalise on long-term opportunity. The stock made a 52 week High and Low of USD 486.72 and USD 100.19, respectively. On the technical chart, the next important support level is at USD 312.04.

Based on the robust revenue growth, improved financials, favourable market dynamics, with support from valuation conducted above, we have given a “SPECULATIVE BUY” stance on Roku Inc at the closing price of USD 346.71 (as on 28 May 2021), with a lower double-digit upside potential based 19.61x EV/Sales (approx.) on FY21E Sales (approx.). 

Virgin Galactic Holdings Inc

Virgin Galactic Holdings Inc (NYSE: SPCE) is a vertically integrated aerospace and space travel entity that manufactures advanced air and space vehicles.

Investment Highlights – HOLD at USD 31.23

• SPCE might be able to commence commercial operations in Q1 FY22 post announcing another successful test flight.
• In the first quarter of FY21, SPCE extended its global partnership with Land Rover for three years and established the Virgin Galactic Space Advisory Board.
• The Company has maintained a strong cash and balance sheet position, and it is investing organically for growth.
• The spaceflight systems industry is likely to grow dramatically with new products, enhanced technologies, and increased government funding.
• From a technical standpoint, the MACD line is sustaining above the signal line and supporting the bullish trend in the stock.

Key Risks

• The Covid-19 pandemic led restrictions continued to cause business and operational delays.
• The Company does not generate any revenue and has a history of incurring losses; therefore, it can face liquidity issues amid uncertain macroeconomic conditions.
• There are underlying uncertainties pertinent to availability of raw material, timing of finalizing spaceflight systems design and specifications, availability of funding, and performance of manufacturing facilities.

Recent News

First Human Spaceflight: On 22 May 2021, SPCE announced its third spaceflight, which is also first ever spaceflight from Spaceport America.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 10 May 2021)

 (Source: Company website)

• During Q1 FY21, the Company failed to generate any revenue, and reported a net loss of US$130 million, which reduced significantly from the Q1 FY20 level.
• The cash position at the end of Q1 FY21 remained robust with US$617 million in cash and cash equivalents.
• The adjusted EBITDA loss moderately increased from US$53 million in Q1 FY20 to US$56 million in Q1 FY21.
• During the first quarter, SPCE also incurred higher GAAP selling, general, and administrative expenses and research and development expenses.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

SPCE has access to a Space facility at Spaceport America in New Mexico, which provides them with a competitive advantage to support spaceflights and operate under predictable weather conditions. The Company is in the final phase of developing the commercial spaceflight program; however, the Covid-19 restrictions are currently procrastinating its revenue generating abilities. Nevertheless, the Company has witnessed significant interest from potential future astronauts for SpaceShip flights. It has the capability to generate substantial value for its shareholders once the commercialization is achieved. The stock made a 52-week high and low of USD 62.80 and USD 14.21, respectively.

Based on the recent successful flight, reduced losses, and favourable potential demand, we have given a "HOLD" stance on Virgin Galactic Holdings Inc at the closing market price of USD 31.23 (as of 28 May 2021), while we look forward to reinvesting when we have better clarity regarding the commercialisation and macroeconomic uncertainties.

Appian Corp

Appian Corp (NASDAQ: APPN) provides low-code software development and automation platform in the US and internationally. It helps organizations in maximizing resources and improving business results.

Investment Rationale – WATCH at USD 90.48

• Subdued economic activity amid the Covid-19 pandemic can keep the business environment fluid, while the Company expects to report a net loss in FY21 as well.
• It is dependent upon external resources (equity and debt financing arrangement) to pursue growth opportunities (such as marketing expense to drive market adoption and investment in new platforms to increase customer base.
• From a technical standpoint, 21-period EMA (USD 93.53) is sustaining above the current market price and indicating a bearish trend.
• Over the past four years (FY16 to FY20), the Company has generated lower gross margin than the industry median, while the other profitability margin remained in the negative territory.

Risk Assessments

• APPN’s recent growth may not enough to drive future growth if it is not able to manage growth effectively since it is dependent upon on a single product, and material portion of revenue comes from a limited number of customers.
• It is still a loss-making entity facing fierce competition and relies on Amazon Web Services to operate cloud offerings. Therefore, the stock price is likely to be volatile in the short term.

Recent News

Product Expansion: On 11 May 2021, APPN unveiled a new version of the Low-code Automation Platform with enhanced AI-driven Intelligent Document Processing.

Financial Highlights for the quarterly period ended 31 March 2021 (as on 6 May 2021)

 (Source: Company Website)

• During Q1 FY21, APPN touched a new high for gross profit margin following the 38% year-on-year increase in cloud subscription revenue.
• However, the GAAP operating loss and GAAP net loss widened in Q1 FY21 as compared to Q1 FY20.
• As on 31 March 2021, the Company had a liquidity of US$255.1 million (comprised of cash, cash equivalents, and short-term investments).
• During the first quarter, APPN also appointed a new Chief Marketing Officer (Denise Broady).

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

Although the Company expects to generate 16-17% total revenue growth in FY21, adjusted EBITDA is projected to be in the negative zone. The Non-GAAP net loss per share is likely to remain in the range of US$0.68 and US$0.65. In the absence of substantial growth catalysts, we are not recommending to punt on this stock presently, while we will keep a close watch over its triggering events to find an attractive opportunity to invest at the right price. The stock made a 52 week High and Low of USD 260.00 and USD 44.03, respectively.

Based on the negative outlook, macroeconomic uncertainties, and loss-making status we have given a “WATCH” stance on Appian Corp at the closing price of USD 90.48 (as on 28 May 2021), while we look forward to taking fresh position when we have material fundamentals or catalyst for future profitability.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.