SentinelOne: A Strong Defender and Q4 Review

Posted on March 28, 2022June 30, 2026 by io-fund

SentinelOne: A Strong Defender and Q4 Review

The marketing language between Crowdstrike and SentinelOne is thick, and I don’t expect this to change anytime soon. We’ve called SentinelOne a “stellar product” in our first analysis and an “exceptional product” in our second analysis. This is based not only on detection, where Crowdstrikes rank high, but also on accuracy of triggering a response.

The product differentiation is best summed up by the fact other vendors require data to be sent to the cloud for analysis and often have many humans monitoring the alerts to take action. Meanwhile, SentinelOne uses automation to find the threat which reduces the number of false positives. Instead of getting every piece of telemetry that requires the security team to investigate, SentinelOne’s endpoint detection and response solution eliminates the noise so that the security team is only responding to those that have the potential to be critical.

SentinelOne often emphasizes the fact that legacy antivirus powered by human-generated signatures still remains a widely used security technology. This is in spite of the fact that they are ineffective and reactive. Human-powered endpoint detection and response, or EDR, emerged as the alternative in which people became the detection and response crew.

Speed is everything in security and SentinelOne asserts Crowdstrike’s 1-10-60 rule is outdated. The 1-10-60 response rule claims the best achievable cybersecurity outcome is capped at one minute to detect an attack, 10 minutes to investigate, and 60 minutes to respond. Meanwhile, recent ransomware attacks have proved that it only takes milliseconds to breach an organization and cause damage.

Data + AI = Storylines

SentinelOne believes that cybersecurity is fundamentally a data problem. The company’s Singularity Platform ingests, correlates, and queries petabytes of structured and unstructured data from ever-expanding disparate external and internal sources in real-time. It builds rich context and delivers greater visibility by constructing a dynamic representation of data across an organization. As a result, the company’s AI models are often highly accurate in triggering a response.

The company’s distributed AI models run both locally on every endpoint and every cloud workload, as well as on the company’s cloud platform and the AI models predict threats in milliseconds. The behavioral AI model maps and links all behaviors on the endpoint to create Storylines. When an activity is deemed to be a threat, the system automatically takes action to kill the attack.

In the cloud, the company’s platform aggregates these Storylines. The streaming AI detects anomalies that surface when multiple data feeds are correlated with additional external and internal data. By providing full visibility into the Storyline of every secured device across the organization through one console, the platform makes it fast for analysts to search and hunt for threats.

Storylines maintain a complete record of unauthorized changes that are made during an attack and can roll back or remediate any damage done during an attack very quickly. The ability to turn back time on a device is unique to SentinelOne. According to the company, this is the “ultimate safety net” and eliminates costly incident cleanup.

S versus CRWD = No Clear Answers

The challenge for analysts and investors is that Crowdstrike also has a strong product and is certainly the heavyweight in the space with SentinelOne being the defender. We’ve written a more thorough overview on product comparing SentinelOne and Crowdstrike here.

In our previous analysis, we’ve discussed SentinelOne’s strength in ranking at the top in Peer Reviews despite ranking lower across industry analyst reviews. The most recent MITRE ATT&CK evaluations showed a very strong report for Crowdstrike on 100% detection yet showed very strong results for SentinelOne on 100% visibility and no misdetection.

If public investors are looking for clarity directly from the source, there will be none offered as these two companies are committed to battling it out on earnings calls, marketing materials and anywhere else they can find an opening.

It probably says something about S, however, that CRWD would even bother to defend itself given its annual revenue will be over $2 billion when S is at roughly $400 million. In other words, why bother with a competitor 1/5th your size in a crowded endpoint security vendor market? I imagine it’s because S makes bold, ongoing statements like this in their earnings calls and elsewhere: “We've maintained incredibly strong win rates in all competitive situations against both legacy and next-gen vendors. This is because of the breadth of our platform, covering endpoints and surfaces of all types, cloud workloads, Kubernetes, mobile devices and IoT devices and soon, identity.”

Cloud Security Segment Could Rival Endpoint Security

Cloud is a growth lever for SentinelOne as the company leverages a microservices architecture for rapid and frequent updates. The company offers support for Kubernetes workloads with additional runtime protection and simplified deployment.

In our previous write-up, we had stated this was the most important statement on the Q3 call:

“Cloud still remains our fastest-growing module. About 10% of endpoints are covered by cloud and servers. It has been our fastest-growing module for some time. Cloud is a piece of the business, I think that we think will expand greatly in the future. We anticipate that at some point, it will be the similar size to the endpoint market.”

The company stated that across the company, it’s the “cloud workload protection and data retention modules that outperformed the most with year-over-year ACV growth of over 10X.” We are talking outsized growth on small numbers but this is key to watch moving forward with the more revelatory statement long-term coming from Q3 about the market matching the endpoint market.

In August, the company released SentinelOne Storyline Active Response (STAR) which is the cloud-based automation engine that allows security teams to create custom detection and response rules.

The company stated DataSet was up 20% year-over-year. The product DataSet is what became of last year’s Scalyr acquisition, a leading cloud-native data analytics platform that serves as a big data engine for the XDR platform. This speeds up the process and drives down costs by ingesting and correlating terabytes of data at machine speed and also makes SentinelOne more competitive against SIEM tactics for data correlation and response.

Here is the advantage of DataSet when comparing to the competition, as stated in the call: “And I think that a lot of the large enterprises out there are looking at that because otherwise, if they're going with a different EDR vendor, they suddenly need to figure how are they going to retain data on the back of maybe a different platform. And that's sometimes going to be just incredibly costly. With us, it comes on the back of a single platform.”

Attivo Acquisition

SentinelOne extends the definition of XDR beyond “endpoint’ to include other data points on a network, such as containers, cloud-native applications, and even email or messaging. With the Attivo acquisition, the company will have more in-network and identity detection in the event a hacker is mimicking an employee or authorized user. This is especially important given the recent SolarWinds hack.

Attivo Networks specializes in Active Directory, which helps IT departments connect users to Windows-based IT systems. This means it could help SentinelOne’s cross-sell into more traditional enterprises, which was alluded to on the call. There were many questions on the Attivo acquisition, but ultimately management stated it would be accretive on gross margin and accretive on operating margin (whew – you could feel the collective sigh of relief on the call – we do not want those margins going in the wrong direction right now).

“So obviously, we have stated that [Attivo] accretive to our gross margin. From an operating margin standpoint, I think this current year, while we take into account our expected integration costs, the margin profile will be very similar to ours. If you take out those costs on a go-forward basis, it would be accretive to ours on an operating margin basis. And we'll have that guidance, obviously, when we specifically guide next quarter.”

Attivo’s specialization with Active Directory lends the acquisition to a post-SolarWinds world. Active Directory is the widely-used authentication system that was leveraged by hackers in the SolarWinds hack.

SolarWinds is known to be the “largest and most sophisticated operation that [Microsoft] has seen” with over 1,000 skilled engineers likely working on the operation. Although Crowdstrike was not infiltrated due to not using Microsoft’s email client, the cybersecurity company also did not detect the abnormal API calls until after FireEye disclosed their breach. The blog published by Crowdstrike said that they later discovered “abnormal calls to Microsoft cloud APIs during a 17-hour period several months ago.” In response, Crowdstrike released a reporting tool to manage permissions for Azure AD environments.

Crowdstrike has cited issues with the authentication architecture with Active Directory on Windows and Azure Active Directory, which was exploited to move laterally in the SolarWinds hack. The CEO of Crowdstrike called Microsoft’s Active Directory “antiquated.”

It may be a boon for SentinelOne that Crowdstrike is throwing shade on Microsoft as a large percentage of the Fortune 500 are committed to Microsoft. Notably, SentinelOne specifically stated in the past it covers email and will now cover Active Directory with best-of-breed identity threat detection and lateral movement prevention, which was used in SolarWinds.

The acquisition price is $617 million in cash and stock contributing $40 million in revenue for the full year. Attivo has ARR growth of 50% with primarily large enterprises making up the customer base with an analyst pointing out that ARR per customer for Attivo is double Sentinel.

Q4 Earnings Overview

SentinelOne leads their earnings calls with ARR growth as the top key metric for the company. In Q4, ARR growth was 123% and revenue growth was 120% year-over-year for total revenue of $65.6 million.

Total ARR is nearing $300 million while annual revenue for the upcoming fiscal year 2023 is guided at $368 million, with ARR suggesting this guide could be easily met over the next four quarters. Most importantly, customers over the $100K range are growing at a rate that is double overall customer growth at 137% and 70%, respectively.

The overall customer growth represents a slowdown from 79% YoY to 70% YoY while larger account growth was fairly flat at 141% in Q3 to 137% in Q4.

The company guided for Q1 revenue of $74.5 million, compared to revenue in Q4 of $65.6 million. This is important because management has stated in the past, Q1 revenue was down sequentially by 20% to 25%. “Our revenue guidance for Q1 implies that we should be at or better than typical Q1 net new ARR seasonality, which has been down between 25% to 35% sequentially in the past 2 years.”

Notably, the I/O Fund is unable to track where the ARR was down “for the past 2 years” but the sequential growth is headed in the right direction. The numbers we have show Q1 FY2021, net new ARR declined 37% QoQ to $8 million yet in Q1 FY2022 it grew +8% QoQ to $30 million. This year, the sequential growth will be +13.5%.

Higher ARR sequentially for the upcoming Q1 is likely driven by the record number of 100,000-plus deal and a record number of million-dollar plus deals. International is another area of strength as the company saw revenue grow 140%. This represents 31% of revenue – so something to watch closely as a near-term driver.

Net retention is higher at SentinelOne at 129% down from 130% compared to Crowdstrike in the 121-123% range.

In the current macro climate, across all growth stocks, the top line is battling the bottom line. On one hand, the market is trying to price in a slowing growth environment, and on the other hand, the market wants a perfect bottom line. Rarely do these two things coexist – strong growth in a slowing growth environment with a great bottom line. We are tech growth investors so we want to be careful of demanding that tech growth stops acting like tech growth.

What we are looking for at I/O Fund is what companies can maintain growth with an improving bottom line.an improving bottom line. We think to dump resilient growth in a slowing growth environment isn’t necessarily the correct answer. Obviously, we are well diversified with top holdings that have strong bottom lines (AMD, NVDA) but we are also not dismissive of growth-oriented business models.

With that said, SentinelOne has adjusted operating losses of ($63) million. The company has GAAP-operating losses of 109% or ($71) million. The margins noted include a 12% improvement to gross margin and a 38% improvement to operating margin.

It would be easy to discount the company based on the losses and to look at Crowdstrike with positive free cash flow and believe it’s the better stock. In this fierce debate, we are siding with SentinelOne primarily for its ability to run automated security from the data lake, as well as next-gen EDR/endpoints.

SentinelOne’s forward guidance is for 80% growth in FY2023 for $368 million in revenue and 99% growth for the first fiscal quarter ending in April for $74.5 million in revenue. The company is guiding for “high 60% gross margins by year-end” on a Non-GAAP adjusted basis and operating margins of negative (57.5%) operating margin by year-end for an improvement of 25%. The company’s long-term target is EBIT margin of 20%-plus.

Sales and marketing costs are improving over time with S&M trending closer to 100% of revenue in the past to 65% of revenue. Usually if an incumbent has strong margins like Crowdstrike, it serves as a model to help alleviate concerns of profitability long-term. Crowdstrike became profitable around the $200 million quarterly mark in July of 2020 so that could put us around H2 CY2023 for SentinelOne. Bradley goes into more depth below.

Notably, Crowdstrike had a rocky road with the stock being down 50% during the Q3 2019 selloff and then a total of 68% from peak to trough during March 2020. However, even if an investor had terrible timing and bought at IPO, the stock is now up 251% following yet another major selloff of Q1 2022. At its most recent peak, the returns were 390% if you had bought at IPO.

I’m sure you can see the parallel I’m drawing with SentinelOne and some of our more recent buys – which are at/near the low. In the fierce debate between Crowdstrike and SentinelOne, the only thing that matters to us is whether SentinelOne’s product can potentially carry the newly public company on a similar path in terms of price action. We believe it can.

Comments on SentinelOne’s margin relative to CrowdStrike’s

By Bradley Cipriano

SentinelOne and CrowdStrike are peers, so it makes sense to compare the two. However, CrowdStrike’s financials are much stronger than SentinelOne’s largely because CrowdStrike has significant scale (CrowdStrike is at nearly 6x the revenue run rate as SentinelOne). To account for the differences in scale, I compared SentinelOne’s latest results to CrowdStrike’s results when it was at a similar revenue run rate. As I’ll discuss below, SentinelOne’s results appear in-line with CrowdStrike’s but there are important differences in accounting treatment that impact the comparison.

SentinelOne’s Q4 FY2022 sales of $65 million are about equal to CrowdStrike’s Q3 FY2019 sales of $66 million. I use Q3 FY2019 for my base period for CrowdStrike, but also make comparisons to Q4 FY2019 to better account for seasonality.

At this stage, SentinelOne is similar to CrowdStrike based on both sales growth and gross margins. For instance, SentinelOne grew sales 17% QoQ in Q4 FY2022 vs CrowdStrike’s 19% QoQ growth in Q3 FY2019. SentinelOne’s gross margin was 63%, which was slightly below CrowdStrike’s gross margin of 66% in Q3 FY20219.

An area where SentinelOne is showing leverage is sales efficiency. SentinelOne’s Q4 FY2022 Sales and marketing expense was 64% of sales, which compares favorably to CrowdStrike’s 70% S&M margin (as of Q3 FY2019). However, Q4 tends to be a seasonally strong quarter for Enterprise, and relative to CrowdStrike’s Q4 FY2019 S&M margin of 61%, SentinelOne was slightly above that metric.

Further down the income statement, the differences grow between the two peers. SentinelOne’s R&D and G&A margins were much higher than CrowdStrike’s at this stage. For instance, SentinelOne’s R&D margin was 65% vs 39% for CrowdStrike, and its G&A margin was 42%, or double CrowdStrike’s 21% margin at a similar revenue run rate. As a result, SentinelOne’s operating margin of -108% as of Q4 FY2022 compares unfavorably to CrowdStrike’s -63% and -39% operating margin as of Q3 and Q4 FY20219, respectively.

However, there are important differences in accounting that impact this comparison. For instance, SentinelOne has accrued much more expenses than CrowdStrike at this stage, which essentially pulls forward expenses. For instance, SentinelOne’s accrued expenses increased 252% YoY to $84 million, which represented 61% of quarterly operating expenses. A rise in accrued expenses leads to a concurrent rise in operating expenses on the income statement, and is a sign of conservative accounting.

It appears that SentinelOne has more conservative accounting than CrowdStrike did at a similar run rate. For instance, in Q4 FY2019, CrowdStrike’s accrued expenses were 46% of total operating expenses. Had SentinelOne’s accrued expense profile been similar to CrowdStrike’s, it would have reported ~$20 million less in quarterly expenses. Stated differently, SentinelOne’s operating margin would have been closer to -78% in Q4 had it not ramped the accrual of expenses, which compares more favorably to CrowdStrike’s operating margin at a similar run rate.

Another important concept to consider is the capital intensity of both business models. If a company capitalizes more expenses to the balance sheet, its earnings will look relatively stronger. It is noteworthy that SentinelOne has just $25 million in net PP&E while at a $65 million quarterly revenue run rate, while CrowdStrike had $74 million in PP&E, or nearly 3x as much, at a similar run rate. During the latest quarter, SentinelOne capitalized just $1 million of expenses to the balance sheet, versus $15 million for CrowdStrike in Q4 FY2019. This $14 million delta impacts comparisons between the two.

Taken altogether, SentinelOne recognized ~$20 million more in accrued expenses, and CrowdStrike capitalized ~$14 million more in expenses while at similar revenue run rates. If we adjust SentinelOne’s earnings for this $35 million delta, its Q4 operating margin would be closer to -55%, which compares more favorably to CrowdStrike’s -39% operating margin as of Q4 FY2019 and -63% operating margin in Q3 FY2019.

To summarize, SentinelOne is at a similar run rate as CrowdStrike in Q3 FY2019. Sequential revenue growth is about even and gross margins are comparable. SentinelOne has moderately stronger sales leverage but has much higher R&D and G&A expense. However, SentinelOne has more conservative accounting, as it has expensed more costs to the income statement rather than to the balance sheet relative to CrowdStrike. For instance, had SentinelOne accrued expenses at a similar rate as CrowdStrike, its quarterly operating expenses would be ~$20 million lower. Furthermore, CrowdStrike has capitalized more expenses than SentinelOne has at a similar run rate, which added a further ~$14 million delta between the two. By accounting for these timing differences, SentinelOne’s operating margin appears more in-line with CrowdStrike’s at a similar run rate.

Finally, SentinelOne guided for 80% topline growth for FY2023, which is slightly above CrowdStrike’s guide for 74% topline growth for FY2020. SentinelOne is expected to grow slightly faster than CrowdStrike did at a similar run rate. The faster growth rate will front load more expenses, and also contributes to a lower margin profile. In all, SentinelOne’s margins appear relatively in-line with CrowdStrike’s after considering accounting differences and projected growth rates.

Marvell Technology, Inc. Update: Q4 FY2022

Posted on March 25, 2022June 30, 2026 by io-fund

Marvell reported strong Q4 results and is on the precipice of ramping demand from 5G and cloud infrastructure spending heading into FY2023. We have discussed throughout our coverage of Marvell and Inphi that the combined company is well positioned to benefit from these two trends.

Beth had outlined that “the growth opportunity for Marvell (and the reason I am investing) is for the lead Marvell currently has in 5G”, adding that datacenter will also be a strong tailwind for the company. With 5G ramping and datacenter growth expected to surge in the upcoming quarter, Marvell is well-positioned to benefit from these two secular trends. Importantly, Marvell has the inventory on hand to meet the rising demand, a trend that deserves a premium in today’s supply-constrained economy.

We expect that our thesis around 5G and datacenter growth will be realized in the first half of 2022, leading to outsized growth. Marvell’s financials have also been improving and the company will likely resume share repurchases later this year. While the outlook for Marvell is strong, we will be monitoring the back half of the year for a potential slowdown in growth as the 5G ramp peaks. However, this should be offset by strong demand from datacenters and edge computing tailwinds. I discuss Marvell’s latest results and drivers of demand in more detail below.

Marvell: Q4 Earnings Review and Outlook

In the latest quarter, sales increased 68% YoY to $1.3 billion, an acceleration from the 61% YoY growth rate in Q3 and beating estimates by 1%. During the year, Marvell merged with Inphi in a $10 billion transaction in Q1, and then also purchased Innovium for $1 billion in October. The recent M&A activity has skewed results, but on a Pro-forma basis, 2021 sales growth accelerated to 26% YoY, up from the prior year Pro-forma growth rate of 22%.

Sales were driven by strong growth in Datacenter and Carrier infrastructure (5G). Datacenter growth increased 113% YoY (15% QoQ) to $574 million or 43% of Q4 sales. On the Q4 call management explained that “the majority of the growth was from cloud, driven by robust demand from hyperscale customers.”

Carrier infrastructure increased 45% YoY to $241 million (18% of sales), and also accelerated on a sequential basis, growing 12% QoQ, up from 9% QoQ in the prior quarter. The strong growth was driven by Marvell’s 5G business, which grew sequentially by over 30% and exceeded management’s initial guide. On the call, management explained that it benefitted from the broader roll out of 5G technologies, and expects growth to continue into Q1 FY2023. I outline expectations for 5G spending in more detail below.

A rising trend for Marvell is its Enterprise Networking, which grew sales 64% YoY to $263 million. Management explained on the Q4 call that this end market was “going through an inflection” as hybrid work environments are driving demand for an “extended period of refreshing [enterprise] infrastructure”. This includes increasing bandwidth and improving security. To be complete, automotive increased 134% YoY to $79 million and Consumer increased 11% YoY to $185 million.

Gross margin declined YoY from 53% to 50%, which was driven by a step-up valuation in inventory and other non-cash charges following the M&A activity during the year. Non-GAAP gross margin increased 160 bps YoY to 65%, which is high relative to peers. Following the rise in non-cash expenses, operating margin fell YoY from 5% to 3% while non-GAAP operating margin expanded 860 bps YoY to 36%. GAAP earnings were $0.01/share, which missed estimates by a penny while non-GAAP EPS of $0.50 beat estimates by $0.02 and grew 72% YoY.

Cashflows from operations were $346 million and net leverage was reduced to 2.3x. Management explained on the call that they are on track to reach their targeted leverage ratio of 2x by the end of Q2, at which time they expect to restart share repurchases. This is a favorable trend and could support a higher share price, all else equal. Prior to the Inphi merger, nearly 100% of free cash flow was directed towards share buybacks. Utilizing Management’s long-term guide for 32% FCF margins, Marvell has capacity to lower its share count by about 4% per year, which will accelerate EPS growth.

Looking forward, sales are expected to accelerate and grow 71% YoY (6% QoQ) to $1.425 billion. Datacenter sales are expected to grow over 100% YoY in Q1 and in the mid single digits on a sequential basis, while Carrier infrastructure sales are expected to grow over 40% YoY and in the low-single digits on a QoQ basis. Enterprise networking sales are expected to accelerate and grow in the mid-teens on a QoQ basis while Automotive is also expected to remain strong and grow QoQ in the high-single digits. Finally, Consumer is expected to be flat QoQ. Non-GAAP EPS growth is expected to accelerate and rise 76% YoY to $0.51. I discuss the core drivers of Marvell’s demand in more detail next.

Update on 5G infrastructure

As outlined in our initial analysis, Marvell has a leading position as a 5G supplier and supplies the components for 5G base stations to customers such as Nokia and Samsung. We expected that Marvell would take a commanding lead in 5G infrastructure in 2021, a trend that we can see has finally arrived, as Marvell’s 5G sales increased 30% QoQ in the latest quarter.

Marvell’s 5G customers include Nokia and Samsung, which partner with carriers such as T-mobile, Verizon and AT&T to build out their 5G infrastructure. As a result, looking at capex plans from these telecoms can provide insight into the expected ramp in 5G spending going forward. As I’ll highlight below, the big three American carriers expect to ramp spending on 5G deployments by about $10 billion in 2022, which will drive demand for Marvell’s products.

Verizon explained on their Q4 call that they expect incremental capex related to the 5G upgrade cycle to peak this year and then start to normalize. Specifically, Verizon CFO Matt Ellis explained that Verizon had guided for “incremental [5G CapEx of] $10 billion over five years. We're going to see the biggest part of that come through this year”. In the chart below, Verizon highlights that its C-Band overlay spending will ramp in 2022. C-band is the wavelength that Verizon is using in its 5G deployments. Importantly, the accelerated $10 billion in 5G spending is expected to conclude in 2023, so the 5G ramp will be a quick, but significant trend for Marvell.

Verizon Outlook for Capital Expenditures

Source

AT&T also guided that its capital expenditures are expected to ramp in 2022 and 2023. AT&T’s CEO stated during the company’s 2022 investor (03/11/2022) day that “it's a race to the home and to deploy 5G across the country. Our capital investment will be elevated over the next few years as we aggressively build a next-generation network with fiber and 5G”. AT&T’s guide for CapEx is expected to rise to $5 billion in both 2022 and 2023, driven by 5G deployments (shown below).

AT&T Outlook for Capital Expenditures Capex guide

Source

Finally, T-mobile recently increased its capex guide for 2022 to maintain the company’s position in 5G. T-Mobile’s capex has grown from $6 billion in 2019 to over $12 billion in 2021. Looking forward, T-mobile expects its capex to continue to rise to another $2 billion and reach around $14 billion in 2022 as it pulls forward 5G spending.

In aggregate, Verizon, AT&T and T-mobile are guiding for a ~$10 billion (~16%) rise in capital expenditures in 2022, mostly driven by the deployment of 5G infrastructure. Nokia, which is a significant customer of Marvell’s, explained during its Q4 earnings call that spending plans from American telecoms is a favorable trend. Specifically, management stated that “listening to the CapEx plans of the key [telecom] customers in America that is of course a reason for optimization”.

We expect that 2022 will be a peak year for 5G spending, directly benefitting Marvell. However, trends in datacenter are long-term secular trends that should sustain topline growth beyond 2022. I discuss this in more detail next.

Update on datacenter

With 5G ramping and likely peaking this year, Marvell will also be benefitting from another trend that is just now beginning to ramp: COLORZ II. We had outlined COLORZ in our Inphi analysis, explaining that “Inphi’s COLORZ silicon photonics technology allows data centers in the same metropolitan region to function like a mega data center. This facilitates faster edge computing within an 80/120 km distance for 30-megawatt data centers as they will be linked together and function like a 120-megawatt data center … When the COLORZ ZR 400G launches, it has the ability to become a critical supplier for data center interconnects and the converged edge of telecom and cloud connections.”

The time has arrived for the ramp in COLORZ 400G ZR. Management explained on the Q4 call that it expects datacenter revenue (its largest segment) to increase more than 100% YoY driven by the “strong ramp” in its 400-gig ZR datacenter interconnect products, which is termed COLORZ II.

CEO Matt Murphy added that the first iteration of COLORZ peaked at a $100 million run rate, which was driven primarily by one customer (Microsoft). In the upcoming iteration of COLORZ II, revenues will surpass the prior peak of $100 million in Q1 and will continue to grow from there. This is because the 400ZR is being adopted by multiple hyperscale customers, so revenues will be more substantial.

To get a sense of the cadence of topline growth we can expect from COLORZ II, we can use Inphi’s prior financials to provide a guide. COLORZ first shipped in volume in 2017 and Inphi recorded $59 million in sales from COLORZ in 2017, which then grew into $89 million in sales by 2020 and eventually peaked at a $100 million run rate, or nearly doubling overtime. CEO Murphy is saying that COLORZ II will start at the $100 million run rate and continue to grow thereafter. Considering COLORZ II has multiple customers, the ramp should be even more robust than the first iteration and COLORZ II sales could more than double overtime.

Since Marvell is directly tied to datacenter infrastructure spending, a decent proxy for demand is trends in CapEx from leading cloud providers such amazon AWS, Google Cloud and Microsoft Azure. As shown below, AWS, Azure and Google Cloud have ramped spending, and this spending is expected to continue to grow.

Specifically, Amazon stated during its Q4 call that “Just under 40% of that CapEx is going into infrastructure, most of it’s feeding AWS … If I look to the future, we’re still working through some of our plans 2022, but it’s coming into focus a bit. We see the CapEx for infrastructure [AWS] going up. We still have a very fast-growing business thats growing globally, and we’re adding regions and capacity to handle usage that still exceeds revenue growth in that business”

Google stated during its Q4 call that “In 2022, we expect a meaningful increase in CapEx.” And Microsoft added that it expects capex will be up YoY in the upcoming quarter. The increased capital expenditures from cloud providers is a favorable trend that will benefit Marvell’s topline going forward.

Marvell has the inventory to meet demand but there are risks

Given the expected ramp in Datacenter and Carrier infrastructure sales, which collectively accounted for over 60% of Q4 sales, it is important that Marvell has the necessary inventory to supply this demand. Marvell’s inventory levels have increased sharply recently, and rose 169% YoY to $720 million, outpacing the 68% YoY rise in quarterly sales. Moreover, since Marvell has the inventory on hand, it backs up management’s statements that they expect a significant ramp in revenue in the near term.

However, having excess inventory is typically an unfavorable trend, since the technology can quickly become obsolete which leads to lower prices, impacting earnings. This concern is somewhat offset by the scenario outlined above about ramping demand from both 5G and datacenters, suggesting that the build-up of inventory is appropriate. Furthermore, Marvell’s inventory composition is relatively healthy and is not loaded with idle finished goods inventory, which is at a higher risk of being written off. As shown below, finished goods were just 20% of total inventory, well below the five-year average of 31%.

A key risk that should be noted is the way Marvell sells its inventory. Marvell does not have agreements in place that guarantee sale to its customers. Marvell explained in its 10K that it must maintain large inventory balances because the “semiconductor industry is characterized by short lead time orders and quick delivery schedules”. If demand for its products declines, Marvell will be left with a very large inventory balance that will likely need to be discounted to turnover.

Another risk is that Marvell has now had to enter into manufacturing supply capacity reservation agreements with foundries to secure supply. This means that Marvell now has to prepay for inventory (unfavorable) and also must pay a fee to cancel its reserved capacity. Marvell has $2 billion of supply commitments signed through 2032 and prepaying for future supply increases Marvell’s risk of taking on too much inventory, which could pressure margins in the future. This is a relatively new development and is a direct result of the current supply chain shortage. However, this is broader trend in the semiconductor industry and is not isolated to just Marvell. Furthermore, securing supply in a tight market should be awarded a premium.

The key takeaway is that elevated inventory can be a concerning trend, but we think it is actually a favorable trend given the expectations for surging demand in the near term and supply-constrained environment. Furthermore, inventory composition is healthy with low levels of idle finished goods. We should expect to see Marvell’s inventory balance normalize going forward as the 5G and COLOR II ramp get underway.

Trends on the horizon: DPUs and customization

With datacenter and 5G taking center stage in 2022, there is a new trend gaining momentum that promises to be a significant driver of growth going forward that should offset the eventual decline in 5G spending. The rising trend is ‘customization’, which is being driven by hyperscale customers that are increasingly developing their own custom, optimized silicon for the cloud environment.

Marvell’s recent acquisition of Innovium was driven to improve the company’s reach in the cloud-optimized market. Innovium developed a leading cloud-optimized switching technology that is used in cloud data centers. Innovium is expected to report $150 million in sales in FY2023 after being selected as a supplier for a Tier 1 cloud customer. Marvell also disclosed that it has a strong pipeline of cloud-optimized silicon, with $400 million of contract wins in the pipeline that will turn into revenue in FY2024 which is expected to double to $800 million by FY2025.

Since the cloud environment is inherently different than the legacy on-prem environment, prior architectures developed long before the cloud was around are outdated and are not optimized for the cloud. It makes sense that new silicon solutions will be optimized specifically for the cloud, and Marvell is positioning itself to benefit from this rising trend.

For instance, Marvell disclosed in its 10K that it is transitioning its product offering “from standard server processors to the broad server market to focus only on customized server processors for a few targeted customers”, adding that “the demand for optimized solutions has been increasing as our customers seek greater customization and differentiation for their products and services”.

Customized silicon for the cloud will be a material contributor to Marvell’s topline in a few years, and will help offset the expected decline in 5G spending after the ramp in 2022. During the year, Marvell won “over a dozen cloud optimized programs across multiple Tier 1 cloud customers. A significant number of these designs are for custom DPU implementations, reflecting the increase in the attach rate of DPUs inside cloud data centers”. We had mentioned that DPUs would be a tailwind for Marvell, stating that Marvell will be a major player here and this trend will be a future bull thesis for Marvell.

Marvell is well-positioned to benefit from the rise in edge computing driven by 5G and datacenter growth, and new trends such as custom, cloud-optimized silicon. We expect to hold onto Marvell through the concurrent ramp in 5G and datacenter spending but will monitor the company closely heading into H2 2022 for a possible lull in growth as spending peaks. however, we expect datacenter, edge computing and AI tailwinds to drive topline growth for the foreseeable future.

Valuation and conclusion

Marvell trades at a 10x forward P/S multiple, down from its peak multiple of 17x in December 2021, but a premium to peers such as Broadcom (8x), AMD (7x), Qualcomm (4x) and Cisco (4x). Marvell also trades at a 30x forward PE multiple, down from its peak of 57x in December 2021 but also above the peer median of 17x. Importantly, Marvell’s Q4 earnings grew 72% YoY and are expected to accelerate to 76% YoY growth in the upcoming quarter. The company’s long-term guide for 40% operating margins going forward, coupled with its LT guide for ~25% topline growth, highlights that earnings growth will be significant going forward, a trend that supports a premium PE multiple. While Marvell trades at a premium relative to semiconductor peers, the company is well-positioned to benefit from strong secular tailwinds such as 5G, datacenter, AI and customized silicon, which warrants a premium multiple.

We believe that the upcoming year will be a breakout year for Marvell’s top and bottom-line as both 5G and COLORZ II are ramping this year. Marvell also has the inventory on hand to meet this demand and is positioning itself to benefit from new trends such as customized silicon. While we believe that Marvell will be strong, we will be monitoring growth expectations closely heading into H2 2022 as sales growth may slow as 5G spending peaks. however, we expect this to be a temporary trend that will be offset from the secular tailwinds from datacenter and edge computing infrastructure spending.

Additional Reading:

Disclosure: Bradley Cipriano and the I/O Fund own shares in Marvell and have no plans to change their respective positions within the next 72 hours. You can access the I/O Fund’s positions here. The above article expresses the opinions of the author, and the author did not receive compensation from any of the discussed companies.Disclosure: Bradley Cipriano and the I/O Fund own shares in Marvell and have no plans to change their respective positions within the next 72 hours. You can access the I/O Fund’s positions herehere. The above article expresses the opinions of the author, and the author did not receive compensation from any of the discussed companies.

The Teflon Market: Why the 12-Year Bull Will Bounce Back

Posted on March 25, 2022June 30, 2026 by io-fund

Last week, we discussed how negative sentiment is often the catalyst that takes a market to new highs even in light of an ongoing negative news cycle. In fact, we are beginning to see broad indexes and key stocks make their first series of higher highs after going through the longest correction we’ve seen since 2018.

The S&P 500 (SPX) corrected more than 14% from the recent top, while the NASDAQ100 corrected more than 20%. Regarding the S&P 500, this depth of a correction has only happened four other times since 2009, so it's quite rare to see a drawdown of this size.

Each time we've seen this type of cyclical bear/deep correction (2011, 2016, 2019, 2020) the belief of a secular bear market starting up (again) is usually quite high. Maybe this time is different, but secular bears historically coincide with recessions and are not led by the equity markets.

If we are not heading towards a recession in 2022, the unwinding of this bearish sentiment would be what drives this next move higher, and I believe we are starting to see evidence of this. In fact, since Russia invaded Ukraine, the SPX is up over 450 points, the 10-year yield is up +70 bps, crude oil is comfortably over $100, and many high beta tech names are leading the current move up in equities.

The reason the news cycle is rarely in line with the market is because markets are always forward-looking, and news is always a lagging report. Below, I review some important factors for tech investors to consider and also statistics around bear markets that are conveniently forgotten when bear market warnings are issued.

The two single most important factors a tech investor needs to know:

What is my risk tolerance? Or, what level of risk am I willing to take and still be able to sleep at night? Most investors play lip service to this until they experience a large drawdown.
“What is my time horizon” is an essential question. Again, most investors will say +3-5 years; however, when they see their portfolio decrease with the markets, emotions tend to force bad decisions and they will suddenly sell right now.
Notably, many financial advisors will advise their clients to not buy stocks (at all) if the money is needed in a 1-2 year time frame, and yet a four-month drawdown is enough to cause many with “long-term horizons” to fold their hands, which defeats the purpose of buying a stock, which is to not be in a position to where one must sell.

A Famous study led by mathematical psychologist Amos Tversky and Nobel Prize winner Daniel Kahneman discovered that “Investors feel the pain of a loss twice as much as the joy of an equivalent gain”

In fact, they found that the feeling from a win tends to flatten after a certain percentage gain. In other words, the feeling an investor gets from a 100% gain is roughly the same as an investor gets from a 200% gain. However, the study found that there is no limit to the feeling that we experience as humans from an ongoing loss. What makes this even more interesting is that losses are capped at 100% while wins can extend to +1,000% or even +10,000%. Therefore, wins should be exponentially celebrated and yet the human psyche does not allow positive emotions to compound. Instead, investors feel negative emotions more deeply and the fear of unrealistic outcomes (such as a stock going to $0) catalyzes selling at the low.

Without a plan to rationally counter the emotional side of investing, investors are prone to buy at the top, and sell at the bottom, and/or forget their time horizon.

Considering that right now the market is registering extreme levels of fear, we thought it would be good to provide more context as to how previous markets have performed following this level of negative emotion.

Pictured above: The AAII Sentiment Survey which shows the spread between bulls and bears. Recently, the spread was more bearish than at the Covid low of March 2020. Source: Ycharts

S&P 500 below its 50/200 Simple Moving Average

One of the arguments I frequently see is that the S&P 500 has closed for multiple days below the 50-day moving average (MA) and the 200-day MA. However, it’s important to look back at what happened every time SPX closed three days below these moving averages.

Since 1980, the S&P 500 has closed 3 days below its 50-day and 200-day MA a total of 25 times. Only four of these times resulted in a secular bear market.

Regarding the other 21 times, from the moment the index broke the 50/200 day MA, we saw new highs within 3.5 months, on average.
The four times that resulted in a secular bear market, we saw ATHs, on average, within 3.6 years from the moment that we broke the 50/200 day MA.

Daily RSI 22

The relative strength index (RSI) is a popular way to measure momentum in an advancing trend. If the RSI is making lower highs while price is making higher highs, it can signal that the trend is getting weaker.

The RSI is also used to measure oversold and overbought conditions, considering it is an oscillator that moves between 100 and 0.

Since 2002, the daily RSI on the S&P 500 has only gone below a reading of 23 a total of seven times. Six months after this reading of <23, the market was positive every time, ranging between +3% after the October 2008 reading, and as high as 25% after the 2011 low.

Interestingly, six out of the seven times this reading happened, we saw another low in the market before a bottom was struck. On Jan. 27 we saw a reading of 23 on the S&P 500 daily RSI, followed by a new low.

Apple in 2000

We continuously hear the current bull market being compared to 2000. This argument has been made too-often and especially since 2015. Yet, from the start of 2015, the NASDAQ100 is up +220%, including the current drawdown in 2022. Investors had to weather an average annual drawdown of 17.8% in order to capture this return. It is no surprise that volatility goes hand-in-hand with tech investing, as most accept this reality. But, what about during a secular bear market.

The big fear is walking into a secular bear market that is led by tech, just like in 2000. We hear examples of QCOM and CSCO going down over 80%, and how it took QCOM 20 years to reclaim its highs and CSCO has never reclaimed its high. These are catastrophic losses that can destroy a portfolio without an exit strategy and position sizing strategy.

Yet, few talk about Apple reclaiming its 2000 high in just over 4.5 years, or how Apple reclaimed it 2007 high in under 2 years. The same can be said about Google, Amazon and Salesforce. Google reclaimed its 2007 high in just under 5 years, AMZN made new highs just over 2 years from its high, while Salesforce made new highs in less than 2 years. Keep in mind, these were devastating secular bear markets. The 2008 bear market was so harsh that it has been dubbed the Great Recession.

It's unlikely most would hold these high beta stocks in a clear secular bear market. However, if one did have a +5 year time horizon, a buy and hold on the right tech stocks would have been quite rewarding.

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So, what’s the difference between Apple, Google, Amazon, Salesforce and Cisco and Qualcomm? In one word – microtrends. Apple was right in the middle of the personal computer microtrend in the early 2000s, and beginning to disrupt the music industry with its iPod, while releasing the first iPhone in 2007. Google and Amazon were setting themselves up to capture the internet/mobile microtrend and Amazon was trailblazing a path for the e-commerce microtrend while quietly building cloud IaaS in the background. Salesforce was also growing rapidly as one of the first software-as-a-service companies on the market that helped enterprises organize their sales and marketing departments.

We are invested in companies that are in the middle of powerful tech microtrends. These are companies that have superior products, and are growing revenues by mid to high double digits and raising guidance, mostly. If the company has a miss, we closely track the macro headwinds and make strategic bets on when those headwinds will clear (supply chains, for example).

These are companies that we thoroughly vet on product, fundamentals and technical. Our time horizon is TRULY +5 years, and behind our various and robust risk management protocols, there are specific stocks that we do not plan to sell based on our research and the magnitude of microtrends just starting.

This doesn’t mean we are inflexible. When Zoom Video guided for one of the lowest growth rates across cloud – and subsequently missed this guide, we closed the position. We will gladly revisit Zoom as the product grows and the management team decides which market and TAM it wants to tackle next. Meanwhile, in contrast to closing Zoom, we believe ad-tech is seeing temporary headwinds and have been building positions here.

The Path we are Following

The only way that I know how to truly measure sentiment in a robust and mechanical way is through technical analysis. We see the exact same technical patterns and Fibonacci ratios in play in the mid-late 19th century in the Dow Jones Industrial Average, long before anyone knew to map price patterns. Human sentiment is quantifiable, and measurable, which is why I use technical analysis.

It is true, this time is different, just like every other event that caused a fear driven drawdown. What has not changed is human emotion, and how the measurement of this force manifests when funneled into a market.

I’ve showed our Premium Members a variation of this chart since late 2020. As of now, the current correction falls directly into the minor 4th wave targets outlined in blue, with room to go, if a bottom hasn’t been struck. As long as we can hold the 4300 break out, the odds will start to build towards a low being in.

I believe that with sentiment as low as it is, the level of bearish bets as well as the economy not being as abysmal as most think, we are setting up for a multi-month uptrend that should take us +5000 SPX.

In conclusion, the same Teflon market that shrugged off countless bear market events over the last 12 years, appears to be alive and well today.

Can it let go and crash? Of course; no one knows for certain. However, if we let history, market patterns and sentiment guide us, giving this bull market the benefit of the doubt has paid off for 12 years. We remain flexible at all times, yet we side with the bulls that this market could give us at least one more all-time high.

The I/O Fund is a team of analysts who share their research publicly as they build a portfolio of 20 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.by clicking here or sign up for our free newsletter here.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Magnite Update and Q4 Earnings

Posted on March 21, 2022June 30, 2026 by io-fund

Magnite Intro:

Magnite offers an opportunity to have exposure to a higher mix of CTV ads from an independent SSP than what is currently on the market. What is most interesting about Magnite as of late is the company’s programmatic strategy for Live TV and also programmatic SSP products for bids on CTV ad inventory. We discuss this more below.

Similar to Roku, The Trade Desk, PubMatic and other ad-tech companies, Magnite faces the double whammy of enduring eight quarters of high Covid comps at a time when macro headwinds are affecting the ad industry. Magnite has even more whammies, which is being a small cap during a historic small cap selloff, and having financials that are tough to analyze due to a string of acquisitions/mergers.

Bradley wrote about the financials in the Q2 earnings write-up: “While the SpotX acquisition positions the company to succeed in the CTV ad market, it also unfortunately complicates MGNI’s accounting. For example, SpotX recognizes sales on a gross basis, while MGNI had previously recognized most of its sales on a net basis (net of TAC). As a result, the company has reported an adjusted pro-forma growth rate to help investors better gauge MGNI true topline growth rate.

Moreover, since SpotX recognizes sales on a gross basis, this can artificially dampen MGNI’s reported gross margins, as the topline is inflated while gross profit remains static. As well, accounts receivables are accrued on a gross basis, which makes MGNI receivables balance appear severely outsized relative to sales. A ballooning receivables balance can signal that a company is pulling forward sales, which is a negative trend and something investors tend to avoid. We suspect that MGNI’s complex accounting is having a temporary negative impact on MGNI share price, due to a subdued gross margin and an inflated receivables balance. However, these concerns will likely dissipate as MGNI’s results start to annualize and the Street gains a better understanding of MGNI’s future growth prospects. At the moment, the Street is dependent on management’s adjusted, pro-forma metrics.”

To illustrate that SpotX was a merger and not really an acquisition, consider that Magnite paid $1.2 billion for the company meanwhile Magnite reported $221 million in revenue in 2020, around the time the acquisition was announced. This acquisition combined two CTV players to create scale and efficiencies. Magnite has stated the company expects to realize $35 million in annualized cost savings from its mergers and acquisitions: "We expect some of those increases to be offset by cost saving activities that began in the second quarter of 2021 and continue to be in process. We are targeting in excess of $35 million in run-rate operating cost synergies over a two year period. As of December 31, 2021, we have achieved more than half of our cost synergy target on a run-rate basis.” However, Magnite also reported $20 million in interest and so the high debt levels are technically a risk.

We see softer growth in Q4 compared to Q3 but it would be tough to say this is reflective of the company. The next few guides on Q2 and Q3 are more important for Magnite than what we’ve seen during the winter months. This is because ad spend is expected to rebound in H2 and by Q3 the company will be fully past the one-year mark for the SpotX acquisition (which was almost more of a merger), which will help normalize the year-over-year comparisons.

On the earnings call, management discussed a product that can help differentiate Magnite, which is Live Stream Acceleration (LSA). The product was announced in February and has been tested with Sling by serving programmatic ads for five weeks to help increase fill rates. Live sports are expected to account for 22% of ad spend and this product helps publishers deal with large spikes in traffic, sporadic time-outs or play reviews by referees by lowering the throttle and increasing fill. LSA helped Sling see a 47% lift in ad conversions during the trial period by filling ad slots that would have normally timed out.

The company also launched BidLink to help publishers improve ad rates and yield by creating a real-time auction. The programmatic features of link to 22 SSPs to increase bids regardless of what ad server publishers use. This is key because Magnite is going to full leverage the Telaria and SpotX acquisitions to potentially help drive publishers to its platform. By using CTV as the anchor, Magnite can expand its footprint and leverage its positioning as the largest independent SSP by being full-featured and competitive in its product R&D. We’ve seen a slew of announcements on Magnite being chosen as a preferred SSP and/or omnichannel partnerships, including from Fubo/Molotov, Samsung Ads, Plex, CH Media and GroupM.

That is a lot of product and partnership movement for a small cap with a seasoned management team although currently the forward revenue guide isn’t reflecting this with “more than 20% revenue growth this year” (see below). I think it’s clear to see Magnite is not a momentum play for us in terms of top line growth, rather it’s a strong choice for those who think CTV ads are going to rip over the next few years (I am in this group).

We also covered private marketplaces in the past and why CTV inventory is unique in terms of how many SSPs a publisher will work with. These newer products help differentiate the private marketplace deals and also any upfront contracts that Magnite might see with more tools for Live TV publishers. Essentially, private marketplace inventory is more premium and this helps edge a (marginal) defense for Magnite against other independent ad-tech companies. Magnite must still compete against heavyweights like FreeWheel and Roku, especially for upfront contracts, yet medium-sized publishers who see working with these two as cannibalistic will likely prefer Magnite.

On the call, the company discussed The Trade Desk’s OpenPath product which is attempting to pull more direct publishers to the DSP. The announcement came with a list of media companies that plan to utilize OpenPath, such as The New York Times, Conde Nast, etcetera. This does not prevent those media companies from also working with a SSP to procure higher bids and so TTD will need to be competitive with SSPs in order for this to succeed. Magnite argues in the earnings call it may not drive higher ad rates for publishers who will prefer to stay with a SSP because the tools are more optimized for publishers.

“In the end, most publishers find it insufficient to rely solely on a direct connection versus the breadth and depth of what a full-featured SSP like Magnite offers. I'm not just talking about capabilities like yield management, inventory curation, ad quality tools, billing and reconciliation or access to seasoned monetization experts, though, all of that is critical. Magnite also facilitates demand for publishers across all formats, in many cases, directly from brands and agencies.”

The company is stating it may be more advantageous in the long run if advertisers to go direct to SSPs: “For select publishers that want a direct connection to buyers, the approach can be additive to the unified auction, potentially lifting of publishers revenue. Demand Manager, our header bidding software based on prebid, makes it easy for publishers to activate direct connections to buyers such as the Trade Desk.”

The management also stated The Trade Desk moving away from Google’s Open Bid was a slight tailwind for them: “But I'm also going to move outside that action with a direct connection and compete against those auctions, sometimes compete against ourselves. And a publisher's way of thinking is that could just be increased bid density and it could lift yield. And so therefore, the only reason why I wouldn't want to do it is if Trade Desk came in and said, "I don't want to participate in a unified auction. I want to be put as a tag in the server, and I want to be first look on everything and then everyone else gets to look at everything." That's the world of nonheader-bidding that used to exist in the SSP world.

And so publishers have spoken. They want it as part of a unified process. Interestingly enough, a lot of publishers, as you know, through our Demand Manager product don't have the wherewithal to even manage a unified auction in prebid. And so in — weird way economically Trade Desk moving outside of moving as another source of demand in the head helps us economically from Demand Manager, because, as you know, we get paid on every successful auction, whether it's a Magnite auction or not. And so if it's more demand inside the header and it's going through Demand Manager, it actually — it works out well for us.And so in — weird way economically Trade Desk moving outside of moving as another source of demand in the head helps us economically from Demand Manager, because, as you know, we get paid on every successful auction, whether it's a Magnite auction or not. And so if it's more demand inside the header and it's going through Demand Manager, it actually — it works out well for us.

Typically, if publishers go direct to the demand side successfully, it’s because the DSP has some kind of rich first-party data that the publishers can gain from (Facebook/Audience Network, Google/AdMob). I’m not sure The Trade Desk has enough leverage in terms of data for this strategy to successfully recruit publishers in terms of offering an advantage on higher ad rates for publishers, but let’s see/monitor this. Instead, it could be a defensive move from The Trade Desk in terms of third-party data becoming weaker. I suspect Google is not going to work with Universal Ad ID 2.0 as there is little incentive to invite a new ID after getting rid of cookies. My educated guess is Google will want to protect their properties. I’ll try to write more about Google’s changes on Android as it unfolds in a separate analysis.

You’ve probably heard the term walled garden. Well, we are now going to have fortified stone walled gardens in terms of Google protecting their properties and data and not allowing cookies/IDs. Apple is doing the same. This is under the guise of privacy but given that Google sells fire alarms that spy on people in their personal residence, I doubt ethics or privacy is driving the decision.

Regardless of what Big Tech’s motivation is, I believe there is alpha in some of our ad-tech stocks because this shift is so little understood. The reason Snap and Facebook’s earnings were important for us is that it provided a nod that we are on the right track – as the publisher (Snap) is guiding strong while the third-party data exchange (Facebook) is expecting top line erosion in ads. Given the opaque backdrop on macro/supply chain, this at least provided a glimpse of the longer-term picture, which should become clearer when macro/supply chain clears up. I think I’ve been pretty clear that my money is on first-party data and on the publisher/supply side. I do want to emphasize that I don’t expect the first-party data thesis to materialize overnight, the shift will be gradual. However, despite the shift being gradual, I believe it will be permanent and that’s most important to us investors in terms of a material change to the advertising industry.

Review of Q4 Earnings Report

By Bradley Cipriano

Magnite reported revenue of $142.1 million for proforma growth of 10% and revenue ex-TAC growth of 76%. CTV revenue growth continues to be a strength, up 23% proforma and up 252% on an ex-Tac basis to $54 million.

The adjusted EBITDA was $68 million during the quarter, or 48% of ex-TAC revenues, which was an improvement from the 37% EBITDA margin in the year-ago quarter, driven by the SpotX acquisition and organic growth. This led to EPS of $0.26 in Q4 and operating cash flow of $60 million.

In 2021, Magnite reported total revenue of $416 million. CTV revenue grew 52% on a proforma basis and accounted for roughly 40% of revenue. Magnite stated they reach 80 million households every month (similar to Roku) and they estimate this to be 20% market share. The company’s mobile revenue was low at 6% growth and desktop was very thin at 1% growth.

The company is guiding for ex-TAC revenue of “well above $500 million” for 2022, or at least 20% growth. The first quarter ex-TAC revenue is expected to be $107.5 million, at the midpoint. The company expects CTV revenue growth to be similar to Q4 although a lower amount at $41 million due to the seasonality of Q1. Management stated that Q1 adjusted EBITDA margin will be in the low 20s on a percentage basis primarily due to the timing of annual raises, which were pulled forward from April to January, general increase in wages to improve retention and increased costs related to returning to the office. As a result, the path to 35% to 40% adjusted EBITDA margins has been extended, but management nonetheless reiterated the guide. CFO David Day stated during the Q4 call that “we don't see any changes in the long-term trajectory to our 35% to 40% [adjusted EBITDA] margin targets”.

The company’s current mix is 38% CTV / 36% mobile / 26% desktop. This is up from a mix of 19% CTV exposure in Q4 2020, highlighting the rapid repositioning Magnite has made in one year.

Adjusted EBITDA margin for the year was 35.7% with adjusted EPS of $0.55. The company has $230 million in cash and $720 million in long-term debt, or about $500 million in net debt. With $148 million in annual adjusted EBITDA, Magnite’s net leverage ratio is 3.3x as of Q4, down from 4.1x as of Q2 2021 and management explained on the Q4 call that they aim to reduce their leverage to 2x over time. The company’s strong cash flows will help reduce debt, and Magnite guided that its free cash flow (defined by the company as Adj. EBITDA less capex less intertest expense) will be over $100 million during the year, and will grow faster than adjusted EBITDA over time. The company is currently in compliance with its debt covenants as well.

Additional Reading:

Magnite: CTV Ads and First-Party Publisher Data
LTBH Webinar: Magnite and Roku
Q3 2021 Earnings: Roku and Magnite
Roku, Magnite and Vuzix: Earnings Reviews

Magnite Update and Q4 Earnings

Posted on March 21, 2022June 30, 2026 by io-fund

Magnite Intro:

Review of Q4 Earnings Report

By Bradley Cipriano

The company’s current mix is 38% CTV / 36% mobile / 26% desktop. This is up from a mix of 19% CTV exposure in Q4 2020, highlighting the rapid repositioning Magnite has made in one year.

Additional Reading:

Magnite: CTV Ads and First-Party Publisher Data
LTBH Webinar: Magnite and Roku
Q3 2021 Earnings: Roku and Magnite
Roku, Magnite and Vuzix: Earnings Reviews

Levels to Watch for SPX: The Market Got Too Bearish Too Soon

Posted on March 18, 2022June 30, 2026 by io-fund

We are in a market where the macro environment is front and center.

The S&P500 is comfortably below its 50-day and 200-day moving average (MA), growth has reversed much of the gains from 2020 and energy is the only sector positive for the year. Inflation is at 40-year highs, oil went from $90- $129 in less than a month, as the FOMC arguably waited too long into this cycle to begin raising rates.

The FOMC is now boxed and must either abandon inflation concerns or growth concerns. Consumer sentiment is trending into recessionary levels, which means if the FED doesn’t address inflation, the consumer will do this for them. As if that’s not enough, the current war is potentially leading to a global sanction war that would all but guarantee a global recession.

Regardless, I still think the odds are higher that we see +5000 SPX before we see 3500 SPX, and the reason for this is due to the single most powerful force in equity markets – sentiment.

I know many will claim this time really is different, but many forget that similar excessive bearishness was present during Brexit, Grexit, the near collapse of the Euro zone, downgrading US debt, China collapses 1 and 2, double dip recession fears in 2012, as well as the 2016 global slowdown and political shift that brought about cries of a 50% drawdown. In fact, it really was different in 2009 as well as 2020, yet the market marched higher and never looked back, regardless of the data and extreme bearishness.

For the first time since 2020, we have sentiment depressed enough to propel us higher, and it is only from such states of despair that deep corrections find bottoms and begin to march higher. If you have ever said to yourself, “this market makes zero sense,” then you indirectly understand that fundamentals do not always drive market moves. I believe the time will come soon, that many will be saying the same phrase as we begin to march higher in light of the ongoing negative news cycle.

Bear Market or Correction?

The debate is whether this is a correction or the start of a secular bear market. If this is the start of a secular bear market, it will be the first one in history that the equity market sees before the bond market. Yes, the yield curve is flattening, but it has not indicated that the FED has made a catastrophic mistake that would all but insure a recession. The equity market has historically and consistently been the final market to wake up to the macro picture, with the bond market usually being the first.

As of today, the 30-year yield is making a new high. Unlike the short end of the curve, the longer out you go, the more rates are controlled by growth/inflation. The 30-year has been in a prolonged downtrend, until recently, suggesting that inflation AND growth do not warrant a coming recession, yet.

The spread between the 10/2 year is the flattest we’ve seen since October of 2018. This is not ideal, and this trend is moving towards an inversion. However, we have not inverted, yet.

What history has shown us is that once the yield curve inverts, the economy falls into recession, on average, between 9-24 months from the first inversion. Also, surprisingly, some of the best gains within a bull market happen in that final +1 year period after inversion.

Also, this would be the first bear market that triggers while the economy is still expanding, and earnings are surprising to the upside. In fact, over 75% of the stocks in the S&P 500 provided upward surprises, as many talked about raising their prices and increasing production to meet the demand in the global economy.

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Though the Rate of Change is starting to slow in the high frequency economic data, we are still expanding. We appeared to have reached peak growth in mid 2021, as the Rate of Change (RoC) continues to move towards a contraction.

However, the above chart is measuring Rate of Change, and though we are seeing the RoC decelerate, we are still expanding. In fact, the last two rounds of global PMI data showed numerous surprises to the upside in both manufacturing and services, and not just in the US. Historically, this is not the environment that we see large, prolonged drawdowns.

If we look at the US PMI data, anything above 50 is signifying an expansion, while below 50 signals a contraction. It’s not until we get that sub-50 reading that we see the equity markets at their most volatile. Note in the below chart how the PMI moving sub-50 tends to coincide with either the largest leg of a drawdown, or close to the start of a large drawdown. As of today, the PMI reading is at 58.

Furthermore, we are seeing Business Development Companies (BDCs) reporting strong demand, as many have raised their dividends and increased guidance for 2022. It’s important to monitor the sources of borrowing for small to medium sized businesses, which BDC’s service. This is further backed by the upward trending loan growth in commercial banks in the US.

I am not arguing that the current economy is ripe for growth. In fact, it’s important to understand where we are in the business cycle as well as earnings cycle. What I am saying is that sentiment in the markets have gotten too bearish, too quickly. This, more times than not, leads to an unwind which I believe could take SPX +5000 before we see 3500.

Next week, I will discuss statistics around bear markets and what has historically preceded a bear market and what has historically led to new highs. You might be surprised.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Asana Q4 Review: Stronger Yet Cheaper

Posted on March 16, 2022June 30, 2026 by io-fund

Asana and Monday.com were both penalized by the market in Q4 likely due to a rise in costs and concerns that the WFH trend may be waning as employees return to the office. We believe that these concerns are largely overblown, but we decided to reduce our exposure to the space until the dust settles.

Nevertheless, Asana is a much stronger company today than it was a year ago, yet trades at a steep 30% discount relative to its valuation last year. For instance, annual sales growth has accelerated, and the company’s forecasted growth rate is higher than it was last year. Gross margin continues to improve and enterprise customer growth has outpaced sales growth. The market may be concerned about rising competition in the work productivity space, but Asana’s strength with enterprise customers should lead to long-term sustainable growth. We believe that the market is fixated on near-term headwinds from rising costs and is overlooking the long-term strength in Asana’s performance.

Q4 results and outlook

In Q4, Asana’s sales increased 64% YoY to $112 million, which beat estimates by 6%. For the year, Asana’s 2021 sales increased 67% YoY to $378 million. Looking forward, sales growth is expected to slow to 50% YoY growth in Q1, yet this was still 4% higher than initial estimates, and total sales for FY2023 are expected to grow 40% for the year. Despite guiding for 40% growth, which is very strong, it is likely that Asana’s guide is conservative. For example, last year, Asana guided for FY2022 sales to grow 37%, which was well below the actual growth rate of 67%.

Even if Asana’s 40% guide is conservative, it is still a top-ranking cloud stock in terms of growth. Asana also trades at a relatively steep discount compared to its valuation one year ago, which is odd considering Asana is much stronger than it was a year ago. For instance, FY2022 sales grew 8% faster than in FY2021 and management’s guide for FY2023 sales growth was 3% faster than this year’s guide for FY2022 (shown below). Despite the improvement in Asana’s growth, Asana’s forward P/S multiple has declined 29% YoY from 17x down to 12x. This may be due to a few reasons, such as rising competition and lower operating margins in a rising rate environment. I discuss these trends in more detail below.

Continuing down the income statement, Q4 gross profit increased 67% YoY to $100 million and gross margin improved 200 bps YoY to 90%, leading most cloud stocks and above Monday’s gross margin of 87%, its closest competitor. There are also signs of leverage, as sales and marketing (S&M) expense increased 66% YoY, or slightly slower than the YoY rise in gross profit. In fact, S&M expense relative to gross profit declined 40 bps YoY, marking the fourth consecutive quarter of improvement in sales leverage. On a TTM basis, S&M expense declined to 83% of gross profit. The chart below highlights the downward trend in this metric, which means that for each dollar of S&M expense that Asana spends, it leads to relatively more gross profits dollars, highlighting the sustainability in Asana’s sales growth. However, S&M expense did rise on a sequential basis, which appears to be a seasonal trend.

The above trend is important, as investors are likely concerned about rising competition in the work management space. It is notable that Monday.com’s TTM S&M expense-to-gross profit metric was 100%, meaning that all of Monday.com’s gross profit was recycled into S&M expense over the last twelve months. We believe that Asana’s S&M expense leverage relative to peers points to the company’s success with enterprise customers, which are stickier and have larger budgets. I discuss this trend in more detail below.

R&D expense increased 53% YoY to $61 million, G&A expense increased 112% YoY to $38 million. We need the 10K to fully understand the outsized increase in G&A, but note that the growth in the account will likely normalize in the near term, benefitting future earnings growth.

Operating loss was $87 million during the quarter, or -78% of sales, which was down from -75% of sales in the year-ago quarter. Non-GAAP operating loss improved YoY from -51% to -39%, but the difference was driven by stock-based compensation which is still a cost to shareholders.

GAAP loss per share was -$0.48, which missed estimates of -$0.40 and non-GAAP loss per share was -$0.25 which beat estimates of -$0.27. Looking forward, Q1 loss per share is expected to be -$0.35, which was steeper than the -$0.26 loss per share that analyst had originally expected. Investors were likely spooked by the unexpected rise in expenses, a trend I discuss in more detail next.

Rising expenses spooks investors

As mentioned above, Asana beat on the top and bottom-line, its sales guide came in above expectations, but its guidance for earnings disappointed. The rising expenses was top of mind during the Q4 call and when asked about what the company is investing in, CEO-founder Dustin Moskovitz explained that the company is focusing on two key areas: R&D and go-to-market.

The focus of Asana’s R&D investments are building out its work graph product, which helps it stay competitive with enterprises. Beth discussed Asana’s products in more depth here. CEO Moskovitz added that the company’s R&D investments are focused on “improving on and expanding functionality required by the largest and the most complex organizations” he explained further that “we're also investing in all the other things important for large enterprises, such things like making Asana accessible to all employees, improving our compliance capabilities and adding integrations for data loss prevention and e-discovery and scalability to really be able to serve these very large deployments with tens of thousands of people working together in one instance”.

Asana is investing heavily in R&D to land enterprise customers, a trend that we believe supports sustainable, long-term growth. Asana’s R&D investments are also paying off, evident in the strength with enterprise customers. For instance, customers paying >$50,000 increased 125% YoY to 894, outpacing the 64% YoY rise in sales and higher than the 92% YoY growth rate reported in the year-ago quarter. Furthermore, dollar-based net retention rate (DBNRR) for >$50,000 customers was 145% for the third consecutive quarter and was up YoY from 140%. Enterprise customers are growing faster than they were a year ago and they are spending more.

On the call, management added that there were 340 customers spending $100,000 or more on the platform and the company has been closing seven-figure deals recently, highlighting how not all >$50,000 customers are the same. As shown below, sales are increasingly being driven by business and enterprise customers (>$5k), highlighting Asana’s focus on larger customers, which requires more investments in product R&D.

The company’s billings were also strong, which are driven primarily by enterprise customers paying upfront. Billings increased 56% YoY to $131 million, or 117% of three-month sales. This was an improvement from the prior-quarter metric of 115% of sales and suggests that there is relatively more cash support for sales. However, the metric did decline YoY from 123% of sales. Nevertheless, a billings-to-sales metric above 100% signals that future sales will increase, a favorable trend.

The other area of investment is the company’s go-to-market strategy. Asana is ramping hiring to build its sales pipeline and increasing account marketing and customer engagement programs. The company added that they are also investing in customer success programs post-sales, which helps improve its retention metric, which was at a high of 145% in the current quarter for enterprise customers. Given the company’s strength in enterprise, investments in S&M are likely sustainable since enterprise customers are stickier, leading to better ROI relative to smaller customers.

As mentioned above, Asana has demonstrated it has leverage with S&M expense, which has improved relative to gross profit dollars over the last twelve months. Another measure of sales efficiency is the SaaS magic number, which looks at the annualized sequential change in revenue divided by the prior quarter S&M expense. The metric averaged .71 throughout FY2022, up from 0.63 during FY2021. The improvement in this metric suggests that the payback on Asana’s S&M spending is improving, albeit there is still room for continued improvement as the metric declined in the most recent quarter.

Despite the improvements in sales leverage and signs that R&D is leading to stronger enterprise lands, the market has favored companies with rising earnings today, and is discounting earnings growth in the future more heavilytoday, and is discounting earnings growth in the future more heavily. While this has likely contributed to the pressure in Asana’s valuation recently, the company is focused on long-term growth rather than near-term profitability, which we believe is the best strategy given the relatively early stages in the work productivity trend (shown below).

Thoughts on valuation, risks and conclusion

As mentioned above, Asana reported accelerating growth in FY2022 and is also guiding for stronger growth going forward than it did last year, yet the company’s forward sales multiple is down 29% YoY. Looking forward, Asana trades at 12x FY2023 sales or 29% below its 17x forward P/S multiple last year. Asana is guiding for 40% topline growth, which is robust and ranks in the top 10 of all leading cloud stocks. Importantly, this growth is entirely organic. Asana’s gross margin was 90%, which ranks top for cloud and highlights the premium that Asana’s products are priced at.

While the topline and gross profit metrics appear healthy, the company’s bottom-line may have spooked investors. Losses are expected to rise in the near term, and competition has been rising. For instance, both Monday and Asana reported that S&M expense had increased QoQ as a percentage of sales, potentially signaling that work productivity growth is getting more expensive. This is a trend we will be monitoring, but note that both companies are operating in a largely unpenetrated market (Monday stated on its Q4 call that 70% of sales had no competition). We reduced our exposure to both Asana and Monday largely due to this near term headwind, but believe that work productivity and WFH is a secular tailwind and we expect that growth will remain robust for the foreseeable future. In other words, we are likely early.

Another risk to Asana is the trend of workers returning to the office, which has led to a sentiment shift away from companies that benefitted from the WFH trend. However, we believe that hybrid work is here to stay and that there has been a fundamental change in how corporations operate as enterprises have increasingly become more digital. Even if employees return to the office, management explained that they do not expect a change in engagement.

CEO-founder Moskovitz explained on the Q4 call that “I wouldn't expect to see a change [as employees return to the office] because work management was something that was a rising category even before remote work hits. And we really see Asana as an essential platform to use, whether you're working in a distributed way or from an office. And even when you're working from an office, you're often also working in a distributed way because a lot of our customers work across many offices”

We expect the work productivity trend to continue to grow, benefitting from the structural change of an increasingly digital world. However, we have reduced exposure to this space following signs of rising competition and expenses but we may increase our exposure as sentiment improves. Importantly, we expect that the hybrid work trend will persist and that growth will remain robust for the category. We like both Asana and Monday.com, but believe that Asana is better positioned with Enterprise customers which is why we have kept exposure here.

Roku Update and Q4 Earnings

Posted on March 15, 2022June 30, 2026 by io-fund

The market has been brutal to ad-tech over the past few months. It’s certainly been a roller coaster over the last few years for this industry as covid created a one-time event that kept people indoors and resulted in a spike of streaming. After this, there’s been supply chain issues affecting advertisers at the exact time that these companies had high covid comps to clear. In the middle was Apple’s IDFA changes which threw an additional wrench into the mix.

I personally can’t imagine giving up on ad-tech companies because of the double whammy of a high growth hurdle combined with low macro ad spend, but that’s for each investor to determine for themselves.

Roku has been a strong and steady performer in terms of revenue growth and improvement in the bottom line since going public. In six years, Roku has been able to grow its revenue 850% from $398 million in 2016 to an estimated $3.72 billion for FY2022. The Trade Desk will have grown 687% on a lower revenue base while trading 3X higher.

Critics might point out that player revenue is included there, but Roku does pull in around $700 million per quarter on the platform. Critics will also point out that TTD has a much better operating margin – but time will tell if Roku has chosen the correct strategy to own the real estate. To me, this is arguably the better business model considering the average consumer owns their connected TV for seven years.

Unlike Zoom, which guided for some of the lowest growth in the cloud category – and then subsequently missed the guide – Roku is guiding for growth in the top decile of its category. Despite seeing headwinds in Q1, the company reiterated its already-strong guidance for FY2022. The reason mid-30s is considered strong is because the industry is going through two years of tough comps to clear; it shows resiliency to be at the top of your class. Only Snap is in the lead in terms of forward growth right now across ad-tech. Despite the market’s elevator drop following Roku’s earnings report, the company has leverage in its business model and the bottom line has been steadily improving – even with the return to a more aggressive, investment stance with cashthe company has leverage in its business model and the bottom line has been steadily improving – even with the return to a more aggressive, investment stance with cash. We dissect this and more below.

Before I continue, and while I have your full attention given we are in the intro of the analysis, I want to say the real risk to Roku is a lack of account growth. I want to isolate the account growth because the market will throw a lot of darts at a company and it’s hard to keep track of what the real concern is as we go through various growth stages for a single company. This is why management shrugged off Wall Street’s pressure for a perfect bottom line and took a hit on player margin. We revisit this from our Q3 analysis below. Moving into 2022, the management plans to continue to leverage their cash for account growth.

CTV Ads Overview:

I want to state a few reminders as to why the connected TV advertising model is in earlier stages than Netflix’s subscription model. I previously covered this here in an editorial.

Connected TV ads are at 18% penetration compared to 42% viewing hours and we will one day see 100% viewing hours on connected TV once cord cutters reach a tipping point.
Roku generates $3 billion in revenue, roughly the size of revenue Netflix did in 2011. Interesting enough, this lines up with the exact number of years SVOD was out compared to AVOD for Roku (roughly 4 years into the market – 2007 for SVOD and late 2017/early 2018 for AVOD).
Roku has determined that localized originals is the best way to break into a global market, such as Mexico and Brazil. The company is intent on taking Latam with originals. My takeaway from the call is they have enough visibility into the monetization and ARPU to believe this is the best global strategy. The market is beating up the stock price on this, yet this is the very reason Netflix is the powerhouse it is today.
Leveraging first party data (Roku) to become an ad exchange (OneView) across other properties and channels is a strong business model in the market. If you listen to TTD’s most recent earnings call, you’ll see that having the leading pureplay here isn’t a terrible strategy considering the migration of budgets and ad spend expected to continue to migrate. Our position in Roku is due to the first-party data the company can leverage to continue to participate directly and 100% in this market rather than diversified on markets with lower growth, like desktop or mobile. Here’s a quote from the most recent Roku earnings call: “2022 is a big year for OneView as well. We’ve made good progress with selling OneView into agency holding companies and lots of other advertisers. And I think it will be a breakout year for us. We just last week announced Nielsen DAR guarantees in OneView. This will enable an advertiser to use our data and our ad stack to optimize the age, gender goals when buying from programmers in the Roku ecosystem. We have sold that product with our own media for years. We’re extending it now in what’s an industry first to all impressions on the Roku platform.2022 is a big year for OneView as well. We’ve made good progress with selling OneView into agency holding companies and lots of other advertisers. And I think it will be a breakout year for us. We just last week announced Nielsen DAR guarantees in OneView. This will enable an advertiser to use our data and our ad stack to optimize the age, gender goals when buying from programmers in the Roku ecosystem. We have sold that product with our own media for years. We’re extending it now in what’s an industry first to all impressions on the Roku platform.” My comment: Nice one on timing – when mobile is going through a massive shift.

Roku: Q4 Earnings Review and Why the Stock Sold Off

The company reported revenue of $865 million compared to $894 million expected, for revenue growth of 33% YoY. This is a deceleration from 51% revenue growth in the third quarter and 81% revenue growth in the second quarter. The company guided for revenue of $720 million compared to analyst consensus of $748.5 million. EBITDA was also a miss with company guiding for $55 million compared to the consensus for $79.2 million in the upcoming Q1 quarter.

Despite lower growth in Q1, Roku reiterated full year 2022 growth in the mid-30s. I think that’s important to pay attention to as it confirms management believes the supply constraints are temporary. Going into the report, analysts were expecting 36% annual growth. The guide on EBITDA is for $150 million for FY2022.

Gross margin improved which helps to show business model leverage. In Q4, gross margin of 60% grew 24% year-over-year to $380 million. With that said, GM was down sequentially by 4.5 points due to a greater mix of video advertising. The company estimates without supply chain issues on the players, GM would be higher by 4 points, which offsets the sequential decline. The guide on gross margin next quarter is lower at 50%.

In Q4, player revenue declined 9% year-over-year and was up 7% compared to Q4 2019. In the Q3 earnings analysis referenced below, we had stated this was expected as management is (wisely) growing user accounts while Smart TVs are unable to ship. Player unit sales were flat year-over-year and down 4% overall for 2021.

The ad platform also missed analyst expectations at $703 million, up 49% year-over-year, compared to $732 expected. In Q3, the platform grew 82% in the third quarter. Due to video advertising, the gross margin was lower in Q4 at 60.5% compared to 65% in Q3. However, it would be tough to say the platform didn’t have a great year as it grew 80% YoY to help drive the overall revenue growth of 55%.

The EPS is negative at ($0.92) for FY2022 and Bradley discusses this more below in his notes as to what’s weighing on EPS. Notably, ROKU is expected to be profitable by FY2023.

The issue with Roku is not the miss on revenue but the miss on EBITDA. You will see below that operating expenses is the key thing the market is grappling with as the company plans to spend $1 billion on operations. The concern is whether this investment will make it back to the top line. Management states they are increasing headcount yet producing original content also can weigh on operations. We expand on this below in the last section.

Q4 Revenue Miss and Soft Guide:

The company stated the softer than expected revenue was from the “impact of supply chain disruptions on advertising spend.” Rather than dissect an event that is out of the company’s control, I’ll keep this section brief to say we believe this will clear up in time. Roku has been strong on revenue growth since launching the ad platform circa 2017.

As discussed on the call, ad-tech is going through an extraordinary period where advertising spend dropped off significantly in Q2 2020, then made up for it in Q4, which created a tough hurdle to clear in Q4 2021 alongside supply issues. I don’t think there’s much more to expand on here.

Regarding account growth, it was better than expected at 3.7 million, compared to 8.9 million for the year. Total active accounts were 60.1 million, up 17% YoY and higher than the 59.5 million expected. I’ve stated before that there will be quarters where Roku misses on active accounts yet beats on revenue. The reason why this won’t concern us – yet will concern Wall Street – is that Roku can monetize outside of its own audience through One View. We discussed OneView here.

Q4 Negative Player Margin:

After Q3 earnings, we wrote a detailed analysis about Roku’s plan to keep player costs low while smart TVs are delayed in shipments. This strategy was clearly seen in the higher player unit sales that exceeded pre-covid-19 levels despite a supply shortage. This strategy is what helped drive the beat on active accounts — which was to expand while competitors are incrementally weaker.

Below is an excerpt from: Analysis on Q3 2021 Earnings

Here’s one way Roku is seizing the supply shortage: “As mentioned earlier, we chose to insulate our consumers from increased component and logistics costs, resulting in player gross margin decreasing to negative 15% in Q3.”

In addition, the company plans to keep dongles stocked so that if smart TVs sell-out or are too expensive for consumers, they can upgrade their current television with a Roku player.

Here's a question from Laura Martin on the call that is important to understand why Roku could come out ahead in light of supply issues: “But if you're going to sell out of those [dongles] anyway because TVs are running out why would you cut price [of the dongles]? Why wouldn't you double price and still sell out and just and still add as many subs, but at a higher price because you've got dongles in stock when all the TVs smart TVs are running out of inventory at the retail level?”

Here was the answer: “So the supply chain — in the case of players we're not — our goal wasn't to not sell out. We are paying more for expedited shipping for — to get chips get in front of the line for chips.

So, the results of all that is our costs are going up. But we haven't sold out yet. We've just been paying for air shipping and we've been spending money to insulate the retailer and the end customer from pricing issues and supply issues. So far we've been doing that relatively effectively.”. We've just been paying for air shipping and we've been spending money to insulate the retailer and the end customer from pricing issues and supply issues. So far we've been doing that relatively effectively.”

The translation is that they can air ship boxes of dongles and keep them on the shelves because of their small size while TVs sell-out and/or are cost prohibitive for consumers with average of 42% increase in price. “That [TV sales] is down. The market is down 31% year-over-year in part because pricing on U.S. TVs on average is up 42%. And the U.S. TV market is actually down below pre-COVID levels in the corresponding period in 2019.”

When asked why they aren’t doubling the price given the supply constraints (i.e., and appeasing Wall Street on the margins), the answer is that they are actually going to take a hit on the players at about (15%) because they want to keep costs low, which in turn, will grow active accounts. This goes back to the $40 ARPU. Once someone is a Roku user, there are high switching costs and Roku’s advertising flywheel can make up for the loss on hardware.

-END EXCERPT FROM Q3 ANALYSIS

So, Roku missed on player revenue for the reasons we discussed last quarter and this was not a surprise or a concern.

Increased OpEx and EBITDA Miss:

The increase in operating expenses is where the market is grappling with Roku’s long-term story as it could change a signal to the company’s story if producing originals weighs on margins. The management stated it was due to expanding head count yet I’m not sure the market fully accepts this answer in light of the originals being produced.

As stated above, forward-looking EBITDA came in lower with company guiding for $55 million compared to the consensus for $79.2 million in the upcoming Q1 quarter. The guide for FY2022 EBITDA is $150 million. Wall Street analysts were modeling for increased profits given the top line growth. Roku is deciding to go in the opposite direction by investing aggressively. Perhaps Roku management should have tempered expectations a few quarters back about their plans to ramp spending.

The company worded the EBITDA miss like this: “For full year 2022, we plan to maintain adjusted EBITDA roughly in line with 2020 levels on an absolute basis as we continue to invest against a significant opportunity and drive continued innovation on the platform.” Yet, the analyst on the call pointed out that it’s actually not in line with 2020 levels as it’ll be double and closer to $1 billion in operating expenses.

Here is what was asked by Michael Morris of Guggenheim. If I could have timed the moment when Roku went from being down 10% after hours to 30% after hours, I’m pretty sure it was during his question:

“And my second question, I really want to come back to this spending growth next year. By my math, it looks like your spending is going to almost double to well over $1 billion, just using your revenue and EBITDA guide. I mean, it’s a pretty huge number. And Steve, I think you just said kind of goes back to pre-COVID levels or behaviors, but it’s multiples of what you were spending at that time. Now you’re obviously a much bigger company now, but I think this is a really big deal coming out of the call. So, I want to take one more opportunity to ask sort of in more detail what you’re spending on? Like which areas do you think this is going to power? And when we should expect to see the return — the top line on this incremental spend? Thanks.”

The answer management provides to this question is long but can be summarized by these key points:

Increased headcount and wages as the company plans to expand the team: “In terms of how we usually invest, the main source of investment is people-based. And so, that headcount expense is the largest single line item on our OpEx.”
The Roku Channel: “The Roku Channel is growing much faster than the platform overall […] Really the scale of The Roku Channel and that growth trajectory is allowing us to invest more in the content. And it’s a combination of licensing. We’ve got 200-plus licensing partners there. But also in 2021, we basically came out with the Roku original side of the house, which we kickstarted with the acquisition of Quibi’s content distribution rights, but we’ve done a lot on that front as wellRoku original side of the house, which we kickstarted with the acquisition of Quibi’s content distribution rights, but we’ve done a lot on that front as well.”
The Roku TV Program: “And Roku is the leading operating system in the United States right now. We’re making great progress in other countries as well. And we’re just extremely well positioned to keep investing in that leadership position and grow that leadership position as consolidation continues to happen in the TV — in the platform spaceRoku is the leading operating system in the United States right now. We’re making great progress in other countries as well. And we’re just extremely well positioned to keep investing in that leadership position and grow that leadership position as consolidation continues to happen in the TV — in the platform space.”
After management answered, here was the final answer from Anthony Wood: “But the main driver is we just keep hiring a lot more people as we expand each of these key areas. Just one small example, we didn’t use to make originals. Now we have a whole team working on Roku Originals. We didn’t use to sell TVs in Brazil. Now, we’re building more and more models for Brazil. So those are places — those are examples of places where we increase our headcount.”

Producing originals worked for Netflix, and Roku will not need to do nearly the level of originals as Netflix as it’s only 1 of 4 ways that Roku monetizes. However, the main issue is that Roku isn’t providing too much insight into the budget that will be needed.

If we widen our view, we will see that 2020 was the first year Roku was EBITDA positive and the company is expected to remain EBITDA positive this year. Most importantly, Roku has leverage with a gross profit of $1.4 billion and they are choosing to spend for top line growth.

Overall, Roku is a more complex product story because the strategy is to conquer from many angles. It’s an ad exchange, it’s a content channel, it’s an operating system and it’s a hardware player. It also owns the best first-party data available on CTV ads and I tend to stick with the data in terms of ad-tech. So, that’s primarily the reason we own Roku and continue to own Roku.

A Few More Notes on Roku’s Q4 Earnings

By Bradley Cipriano

The $1 billion in expenses is not overly concerning although an adjustment in expectations as the Street may have believed that Roku’s earnings were quickly scaling, but this was impacted by a slowdown in expenses during covid, and now those expenses need to ramp in the upcoming year to remain competitive.

It looks like the ramp in costs going forward will be driven by headcount and content creation as the company scales. As a comparison, Netflix's operating expenses ramped nearly $1B YoY when it passed $3B in revenues in 2011, which Roku is nearing. Viewed differently, the expected revenue growth in FY2022 of $830 million will be accompanied by a $1B rise in expenses, meaning that each $1 of expenses will drive just $0.76 of revenue, which is the lowest value in Roku's history. This suggests that growth is much more expensive than in prior years.

However, this is likely due to the slowdown in investments made during 2020 and 2021, and the three-year average for the above metric is 1.08x (including FY2022), meaning that each $1 of expenses resulted in $1.08 in revenues. This is above the prior three-year average of 1.04x (2019-2017), highlighting that over a longer time frame, Roku is in fact demonstrating leverage, albeit it is lumpy. FY2021 and FY2022 also includes the Player gross loss headwind that wasn't the case in prior years, the three-year average would be even higher. My takeaway is that the rise in expenses seems in-line with historical trends once we account for COVID.

The lower EPS this year is a headwind to the company's valuation, but it is expected to be profitable in FY2023. The company should be cashflow positive in FY2022 and with $2.1B in cash on balance, likely should not need to dilute shareholders despite the losses. There is also some leverage to improve earnings as there were $82m in one-time expenses during the most recent year.

Below are some one-time expenses included in EPS:

The $96 million swing in player gross profit, due to lower volumes and higher costs. This was a material impact to the bottom-line during the year. Assuming that they can get player sales back to breakeven, then that’s a $0.37 EPS tailwind going forward. Management states it does not expect player losses to persist indefinitely but will likely persist into H1 FY2022.
There was $28 million in legal expenses during the year, $10 million of which related to patent infringement issues – this has been a lingering issue with ROKU and may be a lingering issue going forward as there are 14 more patent cases in court from UEIC v Roku. Assuming the $28m is one-time, then this was a $0.19 EPS headwind, but can be a tailwind going forward if the expenses do not repeat.
$8m in cost from the expansion of office space, likely mostly one-time = $0.06 EPS headwind.
Revenues accrued from changes in accounting estimates increased $15 million YoY, which is a one-time benefit to earnings and should offset the above one-time expense items.
In total, $67 million in net one-time expenses (or $0.47 per share impact) pressured earnings during the year. Going forward, there is leverage for earnings improvement if these costs do not repeat.

Regarding Roku’s revenue miss, Q4 was the first-time management had missed their topline guide, and they missed it by $28 million, or 3%. In the prior quarter, they beat by $1 million. The key takeaway is that modeling supply chain issues has been difficult across the board. Roku had previously done a good job of this but was impacted by events that are mostly one-off (shortage of autos and TVs likely hard to predict).

There is a rise in legal expenses including a patent case on the company that cost $10 million, which has been discussed previously on the forum a few quarters back. According to UEIC’s CEO, there are two separate cases against Roku that allege a total of 14 patent infringements.

Due to supply issues, days sales outstanding, which measure how long it takes Roku to collect on its sales, increased to 72 days, well above the average of 60 days. The extension of payment terms may have boosted Q4 sales by ~5%, which is inherently a one-time trend. Unbilled sales are up materially YoY and are high risk sales because they signal that sales were accrued before being invoiced. However, the balance declined slightly QoQ, which reduces the risk that sales have been manipulated. Lastly, Roku recognized $29 million of sales from prior performance obligations due changes in estimates. This is up from $14 million in 2020. While this is not material to sales (<1% of 2021 sales), the $15 million rise in sales from changes in estimates provided a $0.10 benefit to earnings during the year.

In summary, there are puts and takes related to Roku’s 2021 results. Earnings were impacted by numerous one-time trends, but there were also some one-time benefits. Sales are expected to grow strongly going forward, but Roku is taking longer to collect on its sales. We expect to see an improvement in these trends going forward as supply chain issues improve and the ad market normalizes.

Additional Reading:

Roku and Magnite 1-Hour Webinar
The Difference between Netflix and Roku
2021 Earnings Update: Roku and others
Roku 2019 Analysis
Roku Q2 2021 Earnings

Snowflake: Q4 Earnings Were Strong but the Market Wanted Perfection

Posted on March 10, 2022June 30, 2026 by io-fund

With Q4 earnings drawing to a close, many high-performing technology stocks have been penalized despite reporting excellent results. With macro headwinds taking center stage, many investors are simply tossing high performers aside as they look to de-risk.

At the I/O Fund, we track numerous earnings reports from hyper-growth technology companies, and we believe that Snowflake’s most recent results position the company as a premier software firm. While there were some blemishes in the Q4 print that impacted near-term growth, the long-term story remains very much intact. In fact, key forward-looking metrics improved during the quarter, providing support for future sales and improving the quality of recently reported resultsquality of recently reported results.

However, there remains a difference between great businesses and great investments. Snowflake is a great business, but does its premium multiple pose a risk? In the discussion below, I outline Snowflake’s most recent results and what likely led to the recent the sell-off, followed by a discussion of key metrics that warrant Snowflake a premium multiple. Given the recent market volatility, I believe that there is upside in Snowflake’s valuation given a longer time horizon.

Snowflake’s Q4 Results and What to Look For in FY2022

The I/O Fund’s lead Tech Analyst Beth Kindig had previously released a deep dive on Snowflake’s product for free here. At this point, most would agree Snowflake is a solid tech product that promises to disrupt data warehouses by decoupling compute and storage, which reduces costs. Rather than focus on product in this discussion, I will instead focus on the company’s most recent financial results and its outlook going forward.

The key takeaway is that sales growth remains robust and high quality, however, the company’s consumption billing model can make growth lumpy in the near term. This is unique from subscription models in cloud because growth from consumption billings is non-linear: growth oscillates more than subscription models. Importantly, consumption billing is uncapped and can lead to stronger growth over the long term as customers find new uses for Snowflake’s platform and continue to ramp spending over time.

In the latest quarter, Snowflake’s Q4 product sales increased 102% YoY to $360 million, after increasing 116% YoY in the year-ago quarter. For the year, FY2022 product sales increased 106% YoY to over $1.1 billion. Despite the triple-digit revenue growth during the quarter, this represented the slowest pace of quarterly YoY growth since Snowflake went public. Considering Snowflake’s premium multiple (discussed in more detail below), the market was likely disappointed at a lack of acceleration in sales growth, which may have contributed to the recent sell-off.

Moreover, analysts had anticipated a slow-down in sales during the quarter and Snowflake still beat topline estimates by $10 million. Yet, this represented the smallest beat on record and was half of the $25 million beat reported in the prior quarter. As I’ll discuss in more detail below, management could have reported a larger beat by delaying product improvements and/or by liquidating RPO and deferred revenue. I believe that management’s approach to prioritizing long-term growth over beating near-term expectations should be applauded, and speaks to the quality of managementquality of management.

Looking forward, the company’s guide also came in largely as expected. In FY2023, product revenue is expected to grow 66% YoY to $1.9 billion, which was near the Street’s initial estimate of 67% growth. Since cloud is known for surpassing expectations, the in-line guide was likely viewed as a disappointment, contributing to the recent sell off.

The lackluster guide was due to customer-friendly product improvements instituted in the new year which lowered the costs of using Snowflake’s platform, but also lowered near-term topline growth expectations.

Importantly, the soft guide was not due to a lack of strong demand. Rather, management instituted customer improvements that are expected to be a near-term topline headwind (by lowering prices) but will ultimately lead to stronger growth over time as customers move more of their data onto Snowflake’s platform.

Essentially, the cost savings (which are crucial in the cloud, where data volumes grow exponentially) will lead to more volumes over time, leading to stronger growth in the long run. During the Q4 call, management explained that the process improvements made during the year are expected to reduce costs for customers, which is also expected to reduce FY2023 revenues by about ~$100 million.

Specifically, CFO Mike Scarpelli stated on the Q4 call that “throughout this year, we are rolling out platform improvements within our cloud deployments. No two customers are the same, but our initial testing has shown performance improvements ranging on average from 10% to 20%. We have assumed an approximately $97 million revenue impact in our full year forecast, but there is still uncertainty around the full impact these improvements can have.”

SVP of Product Christian Kleinerman added that “The more improving the economics of the platform, the more use cases come to Snowflake. So we’re looking at this with a very long-term view” and CEO Frank Slootman explained further that the change is expected to stimulate more demand and that “we’ve done this over-and-over and it does stimulate demand but it doesn’t do it in real time, there’s a lag involved in this processand it does stimulate demand but it doesn’t do it in real time, there’s a lag involved in this process”

Had management not made these process improvements, then its FY2023 sales guide would likely have been $97 million higher, and its guide of 66% YoY growth would have instead been close to 74% YoY, besting initial estimates. As mentioned above, these impacts are expected to be only a temporary headwind and will lead to stronger demand in the future. As I’ll discuss in more detail further below, the company’s forward-looking metrics support management’s claims that demand will remain strong going forward.

Continuing down the income statement, Snowflake’s Q4 adjusted product gross margin increased 500 bps YoY to 75%, while non-GAAP operating margin improved YoY from -24% to 5%. For the year, FY2022 adjusted product gross margin was 74% and non-GAAP operating margin was a loss of -3%. Looking forward, management expects FY2023 adjusted product gross margin to increase 50 bps YoY 74.5% in FY2023 and for adjusted operating margins to be positive at 1%. The market tends to award companies that are profitable with premium multiples, and Snowflake’s guide for 66% topline growth coupled with positive earnings warrants a premium multiple, in our view.

The company remains on track to meet its long-term guide for $10 billion in annual sales by FY2029 with 15% free cash flow margins. In fact, the company guided for 15% free cash flow margins in FY2023, driven by strong bookings. It is notable that Snowflake’s Q4 cash flows improved by $59 million YoY while stock-based compensation increased YoY by just $2 million during the quarter. Snowflake has kept its shareholder dilution under control and its fully diluted share count is expected to increase less than 1% in FY2023.

Despite the recent volatility in Snowflake’s valuation, we continue to believe that the company deserves a premium multiple. For instance, Snowflake’s growth is outsized relative to peers, adjusted earnings are expected to turn positive in FY2023 and cash flow growth is robust and is being driven by increased bookings, rather than excessive amounts of stock-based compensation. In the next section, I highlight a few more metrics that warrant Snowflake a premium multiple.

Trends That Support a Premium Multiple

As noted above, management is focusing on long-term growth by reducing costs for customers in order to attract more volumes. This process improvement led to a slight miss on the company’s guidance, and the company has been penalized for this decision. However, I suspect that the market is too fixated on near term growth and has largely ignored Snowflake’s high quality forward-looking metrics, which improved during the quarter and outweighed the near-term growth headwinds.

Below I outline key metrics that improved that I believe support a premium multiple for Snowflake:

Snowflake’s improving net retention ratio (NRR), which remains world-class;
Snowflake’s strength with enterprise customers, which are low-churn with large budgets;
Snowflake’s ramp in RPO bookings, which supports strong growth going forward;
Snowflake’s cash support for future sales, which improves the quality of its recent bookings and;
Snowflake’s demonstrated leverage, as sales and marketing expense continues to decline relative to revenues.

Snowflake’s customer metrics continued to improve:

Snowflake’s net retention ratio (NRR), which measures how much existing customers are increasing their spending on the platform, net of attrition, increased to a record high of 178%. Importantly, Snowflake states that customer spending ramps over time once they start using the platform, implying that there is a long runway of growth ahead of the company.

Looking forward, management stated that its NRR will likely normalize in the near term, but will remain above 150% in FY2023. On the Call, CFO Scaprelli explained that six of Snowflake’s largest 10 customers grew faster than the company’s overall growth rate, highlighting how customer spending is largely uncapped (unlike a subscription model). The company’s NRR metric is one of the strongest in its peer group, which supports a premium multiple.

Coupled with the strong growth in NRR, Snowflake’s enterprise customers’ growth accelerated, and grew 139% YoY, above the 128% YoY growth rate in Q3. Highlighting the strength in enterprise customer growth, CFO Scarpelli explained that the company closed seven deals at or above $30 million during the quarter, up from just one in the year-ago quarter, demonstrating how the below chart includes some very large customers.

The significant contractual commitments highlight the large budgets migrating towards Snowflake’s platform, suggesting that customer consumption will continue to grow in the future. Enterprise customers generally have low churn and have large budgets, and generally pay a portion of their contracts upfront. Snowflake’s strength with enterprise customers supports a premium multiple.

Increasing support for future sales:

Adding further support to the company’s growth going forward is the rapid rise in contractual agreements for future sales. Remaining performance obligations (RPO) represent contracted sales that will turn into revenue in the future. RPO bookings, which is the sequential change in RPO plus quarterly product sales, materially accelerated during the quarter. As shown below, RPO bookings surged by $616 million during the quarter to $1.2 billion, more than doubling quarter-over-quarter. The surge in RPO bookings provides contractual support for future sales, providing more visibility into future sales. Increased visibility into the future lowers uncertainty, and coupled with strong topline growth, supports a premium multiple.

Another important trend to watch is upfront cash payments for future revenue. Cash is king and being paid upfront is a sign of strength and highlights the strong demand for Snowflake’s products. Furthermore, being paid upfront improves the quality of bookings because receiving cash from customers is a sign that they are committing to the contract, which reduces the risk of cancellations.

We can proxy upfront cash payments by observing trends in deferred revenue. As shown below, deferred revenue has increased in-line with the growth in remaining performance obligations. Stated differently, the cash support for RPO implies that the recently reported surge in bookings isn’t just “fluff”, rather customers are committing cash to Snowflake’s platform for future services. Since it is better to have cash today than it is in the future, being paid upfront for future revenue improves the quality of future growth, which warrants a premium multiplequality of future growth, which warrants a premium multiple.

It is also noteworthy that RPO growth accelerated from 94% YoY growth in Q3 to 100% YoY growth in Q4, and deferred revenue growth also accelerated during the quarter. As mentioned above, Snowflake’s sales could have been more robust had management pulled from RPO and/or deferred revenue during the quarter. The acceleration in RPO and deferred revenue offsets the deacceleration in sales, to a degree.

Revenues have outpaced sales and marketing expense:

The last trend that I will highlight that supports a premium multiple is Snowflake’s demonstrated leverage. For instance, Snowflake’s sales & marketing (S&M) expense has declined relative to sales throughout FY2022. Management highlighted that its sales cycle with its customers can be very long, spanning up to three-years, and that customer spending usually needs time to fully ramp. Despite the long sales cycle and lag until customers have fully ramped spending, Snowflake’s S&M expense margin has improved throughout FY2022. Trends in S&M expense continue to demonstrate leverage, highlighting the sustainability of Snowflake’s growth, which warrants a premium multiple.

Discussion on Snowflake’s premium multiple

We have discussed several reasons why Snowflake is warranted a premium multiple. The company has grown sales over 100% in the current year, and growth is expected to be robust going forward. Furthermore, Snowflake has strong customer trends, has reported an acceleration in forward-looking metrics along with cash support, and has demonstrated sales leverage despite having an elongated sales cycle.

The market sell-off following Snowflake’s relatively strong results is likely the result of the company’s premium multiple being too high in the current environment. The market is likely simply rerating the multiples it assigns hyper-growth cloud stocks. Looking ahead, Snowflake trades at 30x forward sales, which is similar to other leading cloud platforms such as Datadog (29x), Zscaler (28x) and Cloudflare (33x). However, Snowflake is expected to report strong growth for the foreseeable future and its sales multiple based on FY2024 sales expectations is 19x, which is slightly below the peer median of 21x.

While there is uncertainty related to the cadence of Snowflake’s growth, management has provided a long-term framework that they expect to grow at a 36% CAGR through FY2029 and reach $10 billion in annual sales with 15% free cash flow margins. This guide should be discounted but does provide the Street with a baseline on how to model the long-term growth of the company. The market pays a premium for companies that it can easily model. It is also noteworthy that Snowflake is already guiding for 15% free cash flow margins in FY2023, well ahead of its FY2029 guide.

While Snowflake’s valuation has been volatile in FY2022, the key metrics outlined above support a premium multiple. The company trades in-line with its peers and starts to trade at a discount the further you expand your time horizon. We believe that Snowflake remains a premier company with a strong product and improving financials. If growth remains on track to management's long-term guide going forward, we would expect the company's valuation to recover going forward.

Conclusion

Snowflake reported strong results but there were a couple of small blemishes that impacted near-term growth. Long-term, the story remains intact and forward-looking metrics suggest that growth will remain robust going forward. The company is also expected to be profitable on an adjusted basis next year, cash flows are positive and the growth in cash flows is being driven by sustainable trends (and not just stock-based compensation).

The recent volatility in the company’s shares is likely due to its premium multiple coupled with a slight deacceleration in near-term growth. However, if management can continue to execute, then there is upside to its valuation over the long term. Forward-looking metrics such as RPO, RPO bookings, upfront cash receipts and enterprise customer strength (coupled with rising NRR), highlight the strong position Snowflake is in. Given the company’s product strength and positioning with large enterprise customers, I believe that Snowflake has been excessively penalized by the market.

Disclaimer: The I/O Fund owns shares in Snowflake and has no plans to change their respective positions within the next 72 hours. The above article expresses the opinions of the author, and the author did not receive compensation from any of the discussed companies.

AMD: Strong ER from a Strong Competitor

Posted on March 7, 2022June 30, 2026 by io-fund

In the packed 6-week calendar of earnings reports that comes from our tech universe, we like to note to our Members which ones we think are the strongest. To those who are new to our site, we don’t do news cycle-level earnings coverage as we are building positions rather than feeding a content machine. We think there is too much information coming at investors and it creates information overload. Therefore, this analysis is to say – “hey, you might want to take the time to look at AMD’s report because we think it was pretty special” – and we track dozens of earnings reports before we determine this.

AMD’s report was impressive on many accounts. Primarily, it’s because management is laying a solid foundation by leveraging general-purpose computing success for a workload specific product road map. AMD refers to this as compute differentiation and also adaptive computing in their decks, where the software defines the hardware’s workload rather than the other way around.

The company is optimizing CPUs and GPUs for cloud computing separately from technical computing workloads, for example. This means not only is AMD maximizing the large footprint of data centers right now but is looking at where data centers will be in the next 5-10 years, which will be optimized workloads, with CPUs and GPUs that are optimized to best serve cloud computing, high performance computing (HPC), gaming/Metaverse, and machine learning as unique workloads and by expanding AMD’s already strong product line in general-purpose CPUs and GPUs.

The $8 billion buyback is great news as it’s $4 billion higher than what the market had priced in. However, as Bradley discusses below, the Xilinx acquisition is a $35 billion all-stock transaction. He discusses what both mean for the stock in the near term and he also provides a health check on the financials.

I’m going to focus on how AMD continued to take server market share in this update as we haven’t revisited this for about six months and quite a bit has changed in favor of AMD investors. I’ll try to keep this analysis enjoyable as semis can sometimes be weighed down in technical jargon.

Regarding Xilinx, this company is a critical pillar to AMD’s future strategy so we will get to this in our next AMD update likely at the start of H2. Our goal with AMD is to figure out how big of a position the company can hold in our portfolio this year and in subsequent years. The Xilinx deal will play a big part in how we determine our allocation in future years as it has the potential to drive incremental gains in many segments, especially automotive/Embedded, plus perhaps 5G. Keep an eye out for that report in a few months. If you don’t want to wait that long, you can read what I wrote when the acquisition was first announced here.

A Trip Down Memory Lane …

How did AMD get here? I highly recommend every Member listen to our AMD webinar from July as we discuss the story of AMD’s “EPYC” comeback.

AMD Webinar: July 2021

I’ll briefly summarize some of what was discussed in the webinar before we go into the current generation of the Zen architecture and the specific workloads that AMD plans to introduce to potentially take more market share from Intel and to also nibble at Nvidia’s near-monopoly in GPUs (I’m not worried about Nvidia, hence the word “nibble”).

The Zen architecture was introduced under Lisa Su in 2017. These processors are chipset free and fully integrated. Communication between CPUs is done through Infinity Fabric protocols. The result of the new architecture was more energy efficiency and the ability to execute more instructions per cycle. The Zen 1 architecture had 32 cores and 64 processing threads so more cores than Intel. There are 128 lanes of I/O for storage, networking and PCIe expansion. When you add two CPUs, Infinity Fabric is used as an interconnect to increase connectivity speed. In this case, there are 64 cores.

The first generation of the Zen architecture helped prove AMD still had a pulse and a heartbeat (however faint with 2% CPU market share) but it was between 2019-2020 when the company found its wings again and catapulted to 8% of the CPU market share. Today, it’s market share stands at an estimated 12%. The company is unlikely to 6X again but can it take the lead someday, is the question. We think it’s a possibility if management’s execution continues.

The company released the second generation of its Zen architecture and this is when AMD started to clearly outpace Intel in terms of computing power, memory and energy use – all at a lower cost. This was due to multi-chip modules that combine a 7nm with a 14nm to use the most advanced technology when and where it’s needed most by leveraging the more mature process node. The L1 cache and L2 cache locations in the core and across the core also helped the company beat Intel on memory bandwidth.

Intel was still producing a 14nm chip with a 10nm supposedly on the way. Essentially, AMD leapfrogged the incumbent with a product that is more power efficient and allows for more cores per chip. Because 7nm are twice as dense as 14nm, AMD was able to release a 64-core server chip and 128 threads rather than AMD’s previous 32-core server chip. Up until early 2019, Intel’s offering had been a 28-core server chip and 64 threads.

AMD’s products at the time were the EPYC Rome processors and the 7nm Radeon Instinct MI60 and MI50 accelerators that are built around the Zen-2 CPU microarchitecture. Here's the main thing about that point in time — Intel was expected to catch-up with a comparable 10nm release planned for Q2 or Q3 2020 called the Ice Lake Xeon Scalable. About four months before Intel’s expected release was when the I/O Fund covered AMD during the height of the pandemic sell-off. The company was “the one that got away” in 2019 and March of 2020 allowed us to revisit this.

If technical jargon around chips isn’t your thing, then this is probably the most important line from our original analysis in terms of AMD’s competitive prowess: “It’s estimated that for every $1.00 in Rome chip sales, Intel loses $2.25 on average in Intel Xeon SP sales. The savings are then deployed to buy more Rome chips, which can further depress Intel’s revenue.”$1.00 in Rome chip sales, Intel loses $2.25 on average in Intel Xeon SP sales. The savings are then deployed to buy more Rome chips, which can further depress Intel’s revenue.”

Going into July of 2020 earnings, we reminded our Members to watch for a AMD beat and an Intel miss, asthat would be the lynchpin that sets into motion the lead for AMD on product. This was not an earnings call, rather a “be alert” message as we were putting into place leading semiconductor allocations at that time. This was based off a few clues in Nokia’s earnings report that stated they were delayed due to a chip supplier. We knew they were referring to Intel. Two weeks later, we got exactly that –Intel stumbled by pushing out delivery on Ice Lake and AMD seized the moment by releasing Milan.

Image Source: 2021 Webinar, Guess Which Car is Intel? 🙂

The gains we have seen over the next past few years were put into motion with Intel and AMD’s Q2 2020 reports as it’s proven quite difficult for Intel to catchup from this delay as AMD answered by speeding up its product release cycle. The projections provided by management at AMD at the time we first covered the stock was for $14 billion in annual revenue by 2023. Instead, we will see $21.5 billion in revenue if we factor in the 31% revenue guide that was provided in the most recent earnings call – plus margins are expanding.

This is from product strength and that’s important to remember, there is nothing in the financials that could have predicted the nearly $6 billion beat on the top line over a four-year period. Arguably, Covid was a tailwind but we are likely to see the data center double on a quarterly basis this year for a much larger revenue contribution (in terms of dollar amount) than years prior.

Reviewing AMD in 2021

The Milan EPYC Series announced in August of 2020 was officially launched in March of 2021. The Milan is built on 7nm technology and has up to 64 cores and 128 threads with increased clocks compared to the Rome series. At the time of launch, Milan had a 100% advantage over Intel’s Sky Lake on server processor scores, according to Geekbench. The launch that was in question during the Milan release from Intel is called Ice Lake, and as the car race picture shows above, Intel drove into a brick wall as this release was two years delayed. Ice Lake would eventually launch with 40 cores up from 28 cores while AMD had 68 cores.

When it was finally released, here’s what an unbiased analyst stated:

“We won’t rehash the delay, denial, and begrudging admittance cycle that is Ice-SP’s gestation, just be aware that it was a 2019 CPU and is now a mid-2021 CPU. We know it launches today and Intel is officially claiming, “We have shipped over 200,000 Ice Lake CPUs for revenue” and the shipping parts are the D-2 stepping. Since volume production started in mid-January and the throughput is 4-5 months, these parts are likely wafers pulled mid-production and restarted, real production volume is set for May delivery. Don’t take our word for it though, the largest OEM out there thinks so too.the largest OEM out there thinks so too.

As an aside lets do the math and assume those 200K Ice-SPs shipped in three months or about 66K CPUs/month. If the server market is about 30M CPUs/year, lets call it 32M for the sake of round numbers, that would be 8M/quarter for normal production. 200,000/32,000,000 = .025 or about 2.28 days worth of production. This is not a figure I would be mentioning in public if I was aiming to boost confidence.”

In my world, that throwdown by SemiAccurate is like a good Hollywood roast session.

In terms of how third-generation EPYC performed against third-generation Xeon processors, there are debates there. I mentioned in the webinar that Intel likely has a very large marketing department that can help make sure headlines are in its favor — although it is true that Ice Lake does boost performance for AI, high-performance computing and cloud workloads with eight channels of DDR-3200 memory per socket and 64 lanes of PCIe, up from six channels of DDR4-2933 and 48 lanes PCI Gen3.

The core count of the Milan Series is higher despite any transistor density improvements that Intel may have had from Ice Lake. Hyperscale cloud customers likely prefer AMD for adding more capacity and also due to virtual CPUs from AMD helping to drive down costs for the hyperscalers. Technically, there is a performance imbalance between AMD and Intel skewed in AMD’s favor.

In this case we don’t have to wade through a public relations campaign to figure out where Ice Lake stands like we did in 2020 as we now have the benefit of hindsight. We can clearly see AMD taking market share in server CPUs although losing ground in desktops and laptops (our thesis is server market share so that’s less important to us). Notably, overall CPU market share for AMD is up.

Source: Tom Hardware and Mercury Research

Most importantly, look at where AMD was when it launched the second generation of Zen (roughly 2%) to today (roughly 11%) market share – or nearly 6X from this major design win. Moving forward, Intel will need to deliver a 7nm chip – but by then Lisa Su will already be releasing a 5nm design. As the analysis points out, Intel needs to make up for lost time, meanwhile, Lisa Su is unlikely to allow that now that AMD has clawed its way back from a near-zero.

Here was what the company said on the earnings call:

“Turning to our overall data center business. We made outstanding progress in the last year. We exited 2021 with data center revenue contributing a mid-20 percentage of overall revenue, and we expect 2022 to be another year of significant growth based on the strong customer demand signals for our current and next-generation products.”we expect 2022 to be another year of significant growth based on the strong customer demand signals for our current and next-generation products.”

The management also said this which pretty much sums up AMD’s level of confidence:

“Yes, Vivek. So look, we always expect the competitive environment to be very strong and very aggressive. And that's the way we plan our business. That being the case, I think we're very happy with the growth that we've seen in the business sort of last year.

And as we look forward, we see opportunities in both cloud and enterprise. On the cloud side, we're in 10 of the largest hyperscalers in the world are using AMD. As they get familiar with us over multiple generations, they're expanding the workloads that they're using AMD on. So we see that across internal and external workloads.On the cloud side, we're in 10 of the largest hyperscalers in the world are using AMD. As they get familiar with us over multiple generations, they're expanding the workloads that they're using AMD on. So we see that across internal and external workloads.

In the Enterprise segment, we doubled year-over-year here in 2021. We continue to add more field support to have more people get familiar with our architecture. We have very strong OEM relationships. So I feel very good about our server trajectory. And yes, it's very competitive out there. But we think the data center business is a secular growth business. And within that, we can grow significantly faster than the market.”And yes, it's very competitive out there. But we think the data center business is a secular growth business. And within that, we can grow significantly faster than the market.”

Notably, these comments are likely priced in at the moment as the 31% guide outpaces overall data center revenue growth in 2022, expected to be 11%. However, it helps to have context in terms of AMD’s confidence level right now.

Q4 Update and What to Look for in 2022

As discussed, AMD had a breakout year in terms of its position in the data center which helped drive top line growth in 2021 of 68% revenue growth for a record $16.4 billion. This was the company’s sixth consecutive quarter of 45%+ year-over-year growth. Mind you, this is not a $2 billion company putting up these growth numbers.

Q4 revenue grew 49% year-over-year and was up 12% sequentially to $4.8 billion.

With all the profitability concerns in the market, Lisa Su came out swinging on the bottom line, partially driven by higher average sales price (ASP) given the supply shortage. The company doubled operating income, net income and EPS over the past year and also recently announced $8 billion in buybacks. Operating cash flow was up 239% year-over-year. Cash flow was up 314% year-over-year for $3.2 billion. There is $3.6 billion on the balance sheet. One important caveat – as stated some of this is driven by higher average sales price (ASP) due to supply constraints which Bradley dissects below.

Q4 gross margin expanded 5% to a 50% GM and operating income doubled year-over-year. Operating income doubled to $1.3 billion, operating cash flow was up 48% year-over-year, and free cash flow was up 53% year-over-year. EPS was up 105% YoY on a GAAP basis and 77% on an adjusted basis to $0.92. (Again, big bottom line growth but will be tempered when supply shortages ease).

First quarter 2022 revenue is expected to be $5 billion, for an increase of 45% year-over-year. The sequential growth is expected to be driven by higher server and client revenue. Adjusted gross margin is expected to be 50.5%.

For FY2022, revenue is expected to be $21.5 billion, for an increase of 31% YoY with an adjusted gross margin of 51%. The company provided a statement at the Analyst Day that server will grow to contribute 30% of total revenue by 2023, implying increased market share.

We are primarily interested in the Data Center and this is bridged between two revenue segments – Computing and Graphics for GPUs, and Enterprise, Embedded and Semi-Custom for EPYC processors. Data center EPYC CPUs help drive AMD’s leading growth category, Enterprise, Embedded and Semi-Custom which was up 75% in revenue and up 17% sequentially. This segment’s operating income was up 213% YoY and up 40.5% sequentially.

GPUs helped drive the Computing and Graphics segment, which was up 32% YoY to $2.6 billion in revenue in Q4. This

includes more consumer facing products such as desktop and laptop processors. The company is focusing on more consumer-facing GPU products, such as the Radeon 6000 which grew double-digits sequentially, and will have the RDNA 2 to architecture powering gaming consoles and PCs. The company is also releasing a new mobile GPU and GPUs for lightweight gaming notebooks.

Regarding GPUs at the data center level, The Instinct MI200 accelerators power high-performance computing (HPC) and this helped drive data center graphics. The new Instinct accelerator outperforms the M100 with 383 TFLOPs compared to 185 TFLOPs. This is accomplished by coupling two CDNA2 dies with Infinity Fabric interconnects. AMD is starting to go more head-to-head with Nvidia on the A100 in terms of artificial intelligence applications and benchmarks.

Combined, data center EPYC CPUs and Instinct GPUs helped AMD cross the $1 billion revenue mark per quarter last year for data center revenue, and this could reach $1.5 billion per quarter by Q1 and may reach $2.3 billion per quarter by the end of this year. There are Trento EPYC CPUs and Aldebaran Instinct GPUs that are used in Frontier supercomputers but not as meaningful as the more commercial lines. Estimated revenue for HPC accelerators are in the $250 million range, per semiconductor analysts.

According to management, “revenue doubled year-over-year in this category and increased double-digits sequentially.” This is where AMD is gaining ground against Intel and is the primary growth we watch. The company was able to grow more than 100% year-over-year driven by cloud capex from companies such as AWS, Alibaba, Google, IBM and Microsoft Azure. Looking forward, Facebook is now a major customer for EPYC processors for their Metaverse workloads and new data center buildouts with Facebook also building data centers with Nvidia’s A100 GPUs.

Diversified Computing:

Milan-X EPYC with 3D V-Cache = Technical Computing

EPYC processors will get the boost that Ryzen gaming chips got last year from 3D stacked memory. The product is called “AMD 3D V-Cache” and will add cache capabilities in a vertical stack increasing the memory capacity from 256 MB to 768 MB by adding an additional 512 MB vertically. According to one report, the L3 cache (which boosts performance) can have up to four cache stacks per chip. According to AMD, this offers a "50 percent average uplift” across targeted workloads by offering 15X density increase, 200X interconnect density increase over 2D chiplets, and 3X energy efficiency. Ultimately, this means lower latency and improved performance.

Note: we covered 3D Stacking for Memory here in our Lam Reportcovered 3D Stacking for Memory here in our Lam Report

Microsoft published a report that showed 50% to 80% higher performance on complex simulations and workloads, such as electronic design automation (chip design), computational fluid dynamics and finite element analysis (FEA). The study also showed 42% to 51% lower memory latency compared to the previous generation of Milan with an amplification effect of up to 1.8X for effective memory bandwidth due to the workload performing as if it were being fed a higher bandwidth from DRAM.

Here's what AMD said on the call:

“Microsoft Azure previewed a new HPC instance, powered by our third-gen EPYC processors with 3D stack memory that delivers up to 80% more performance than currently available instances. Our differentiated 3D stacking technology further extends the leadership performance of EPYC processors and technical computing workloads like EDA, fluid dynamics, and complex simulations. We started volume production of EPYC processors with 3D stacked memory earlier this quarter in advance of OEM platform launches with all our major server partners.”

Genoa Series Shipping in 2022, Cloud-Native Specific Bergamo Close Behind in H1 2023

The fourth-generation of Zen architecture is the Genoa EPYC processors with 96 cores which will deliver the highest performing general-purpose compute. The Zen 4c core is made for cloud-native workloads due to its thread density and will be featured in the Bergamo server roadmap for the first half of 2023. This powerful combination of Zen 4 cores and power-efficient CPUs are tailored for cloud workloads. The Bergamo release will have up to 128 cores, an increase from the 96 cores in the 2022 Genoa series.

As we stated during Intel’s stumble, it’s likely we see a 5nm chip come from AMD in this time frame, and that’s exactly what the company plans to do with the Zen 4 and Zen 4c platform. The “c” stands for cloud computing. The Ryzen desktop processors will also leverage a 5nm Zen 4 core with the new AM5 socket; this was discussed at the CES 2022 presentation with expected launch in H2 2022.

Here is what the company said in the call about the upcoming lineup of Milan-X and Bergamo:

Chris CasoChris Caso

Yes. Thank you. Good evening. First question is, if you could give some indication of the strategy behind some of the processor variants that have come out, most recently Milan-X and Bergamo coming up. Do those variants represent incremental revenue to AMD? What's the strategy behind it? How does that help you, help the product line?First question is, if you could give some indication of the strategy behind some of the processor variants that have come out, most recently Milan-X and Bergamo coming up. Do those variants represent incremental revenue to AMD? What's the strategy behind it? How does that help you, help the product line?

Lisa SuLisa Su

Sure, Chris. Well, I think the strategy is, as we have gotten more scale in the business, we can invest more and we see ways to further differentiate our product portfolio. So I mean, I think Milan-X is really sort of the highest of the highest end. And we see that for technical computing and some of these EDA workloads that, that does give us a very differentiated product. And then we have the regular Milan product line. We'll have Genoa. And Bergamo is really optimized for cloud.

So I do believe it gives us more opportunity to expand from a market share and a footprint standpoint. And I think the broader statement, Chris, is that, the data center is so large. There are so many different workloads that you can optimize. Like, by doing these variants, we will actually get a better solution for the customer, give them better total cost of ownership and, hopefully, give us a larger footprint in that workload as well.So I do believe it gives us more opportunity to expand from a market share and a footprint standpoint. And I think the broader statement, Chris, is that, the data center is so large. There are so many different workloads that you can optimize. Like, by doing these variants, we will actually get a better solution for the customer, give them better total cost of ownership and, hopefully, give us a larger footprint in that workload as well.

Discussion on Average Selling Prices, Supply and Dilution Impact of Xilinx Acquisiton

By Bradley Cipriano

As mentioned above, Q4 sales increased 49% YoY to $4.8 billion while FY2021 sales increased 68% YoY to $16.4 billion. During the year, AMD’s largest segment, Compute and Graphics (57% of 2021 sales) increased 45% YoY to $9.4 billion. The rise in Compute sales was driven by a 57% YoY surge in average selling prices (ASP), offset with an 8% decline in volumes. AMD explained in its 10K that the rise in ASP was driven by the company’s focus on higher-end products, and a greater mix of its Ryzen, Radeon and AMD Instinct products. AMD further explained that the lower volumes were driven by its focus on premium products and a tight supply environment. The tight supply market also likely contributed to the ramp in selling prices.

It is noteworthy that 2021 was a unique year, and investors should expect that ASPs will likely normalize in the future. While we do not believe that ASPs will rise by 50%+ again in 2022, we do believe that volumes will rebound and supply chain constraints will ease. As shown in the chart below, AMD’s raw materials inventory balance is at multi-year lows, highlighting the limited supply of input materials in the current environment. On an absolute basis, Q4 raw materials declined 12% YoY to $82 million, a three-year low and inventory balances relative to sales were also at a five-year low in the most recent quarter. The low inventory levels highlight the strong demand for AMD's products, but may be a near term headwind to growth if raw materials inventories do not rebound.

Fab capacity is also constrained, and multiple companies such as TSMC, Texas Instruments and Intel have announced new fab constructions recently. To address this capacity issue, AMD has prepaid nearly $1 billion for long-term supply agreements (shown below). Lisu Su explained on the Q4 call that the firm’s focus is on securing long-term supply, rather than raising prices. However, she explained that prices will likely continue to rise given the strong demand in the current environment. This trend could lead to strong earnings and cash flows in the near future.

Picture 1. AMD Secures Long-Term Supply Capacity

While Computing volumes declined, Enterprise, Embedded and Semi-Custom sales surged 113% YoY to $7.1 billion, primarily due to higher volumes of EPYC server processors. As mentioned above, the growth in EPYC server processors is a secular tailwind that we expect will continue as AMD captures more data center market share.

AMD’s focus on premium products and its ramp in ASP and volumes led to strong growth in margins. Gross margins increased 300 bps YoY in 2021 to 48%, driven by a richer mix of EPYC, Radeon and Ryzen processor sales. However, margins may come under pressure going forward as ASPs ease following a normalization in supply chain constraints. Fortunately, this will likely be offset with a rise in volumes as inventories increase. AMD has secured long-term supply capacity which will help it meet the robust demand for its products, allowing it to continue to capture market share and grow earnings going forward. However, we will be closely monitoring the supply situation as semiconductors have historically been a cyclical industry (but that trend may be changing as well).

Near-term Impact of Xilinx Acquisition

In October 2020, AMD announced its intention to purchase Xilinx for $35 billion in an all-stock deal. Xilinx had 252 million in diluted shares before the acquisition closed on 2/14/22 and AMD issued 1.7234 shares per Xilinx shares, which resulted in ~430 million shares of AMD being issued. On the closing date of the transaction, AMD shares traded at $114.27, giving the transaction a value of about $50 billion. There may be some near term headwinds to AMD's stock price as holders of Xilinx sell AMD shares, however we do not expect a material impact to dilution for a couple of reasons. For one, outside of a few independent instances for non-employee Board of Director members, there was not an acceleration in the vesting of shares, so insider selling should not be expected to accelerate following the close of the transaction. AMD disclosed that “the [Xilinx share] awards generally remain subject to the same vesting and other terms and conditions that applied to the awards immediately prior to the [acquisition date]”. Importantly, insiders will not be selling 100% of their newly acquired AMD shares either. For example, Former Xilinx CEO Victor Peng will join AMD as president of the newly formed Adaptive and Embedded Computing Group. Mr. Peng owned 192,000 Xilinx shares, or about 1% of XLNX's float.

Further helping to offset the dilution is the announcement of an $8 billion share buyback on 2/24/22. This is on top of $1.2 billion of remaining buyback capacity after the close of the year. AMD will be able to purchase around 88 million shares at current prices, which reduces the potential dilution by ~20%. So long as insider selling is not above 20% over the next year, then we shouldn’t expect a material impact on the shares from the stock deal. Finally, AMD has capacity to ramp share repurchase going forward. The combined company should be producing north of $4 billion in annual FCF, with close to $6B in cash on the balance sheet, net of debt. AMD expects about $300 million in cost synergies as well following the deal, which should improve the capacity for share repurchases even further.

Conclusion:

By Beth Kindig

During the height of the high beta bubble (SPACs) and also when hypergrowth was in favor, it was counterintuitive to build a position in a semiconductor company. It can also be tough to rely on product over financials with semis, which is why we see fund managers still pushing Intel and analysts here.

However, from this stance on product, it will be easier for AMD to take market share from its current position than when it was at a 2% penetration. This is partly because Intel’s stumble came during *maybe* the most critical time for hyperscalers to expand due to “digital transformation.”

For the conclusion, I’m going to take a direct quote from CEO Lisa Su on the earnings call as to why I believe AMD can continue its lead in the data center and across other segments as she says it better than I can:

“And I think what you're seeing is growth in the model from the standpoint that we've always kind of said we're underrepresented in the business. When you look even today with all of our growth, we're still underrepresented in the business, whether you're talking about the server business or the PC business. And so we believe that our product strength and our customer engagements are such that we can grow significantly in this environment.”

The “underrepresented” she refers to in her comment is why I’ve called AMD “The Dark Horse” – which means an unexpected contender. We will need to rename AMD someday after the market is fully onto the product story as it was more fitting at 2% than at 11% market share and it certainly won’t apply if AMD continues on this trajectory.

Additional Reading:

AMD: 2020 Analysis

AMD-Xilinx acquisition Analysis

Q2 2020 Semis Earnings Update

July Convictions Update Blog

Semiconductors H2 2020 Premium PDF

AI Accelerator and 5G Chips: Connecting the Dots

Disclosure: The I/O Fund owns shares in AMD and has no plans to change their respective position within the next 72 hours. You can access the I/O Fund’s positions here. The above article expresses the opinions of the author, and the author did not receive compensation from any of the discussed companies.Disclosure: The I/O Fund owns shares in AMD and has no plans to change their respective position within the next 72 hours. You can access the I/O Fund’s positions herehere. The above article expresses the opinions of the author, and the author did not receive compensation from any of the discussed companies.

*Note: This article was last updated 03/10/22