Remaining News of the Week (February 17 - 21, 2025)

Author

Brad Freeman
February 22, 2025 • Estimated Reading Time: 11 minutes

Most of this week’s content was already sent. In case you missed it:

Other reviews sent this earnings season:

Next Week, coverage will include:

  • PayPal Investor Day

  • Hims Earnings Review

  • Cava Earnings Review

  • Lemonade Earnings Review

  • Nvidia Earnings Review

  • Salesforce Earnings Review

  • Snowflake Earnings Review

  • Duolingo Earnings Review

Table of Contents

1. Earnings Snapshots

a. Walmart (WMT)

Demand:

  • Beat revenue estimates by 0.9%.

  • Beat 4.4% Walmart U.S. comparable (comp) store sales growth estimate with 4.6% growth.

Profits, Margins & Returns:

  • Met 23.9% gross profit margin (GPM) estimates.

  • Beat EBIT estimates by 0.7%.

  • Beat $0.65 EPS estimates by $0.01.

  • Missed free cash flow (FCF) estimates by 18%.

Balance Sheet:

  • $9.04B in cash & equivalents.

  • Inventory rose 2.7% Y/Y to $56.4B.

  • $5.7B in total short term debt & borrowings.

  • $33.4B in long-term debt.

  • Diluted share count fell by 0.3%Y/Y.

  • 2024 dividends rose by 13% Y/Y.

Guidance & Valuation:

For Q1, Walmart guided to 3.5% FXN revenue growth. Analysts were looking for 4% overall growth. Considering FX is expected to remain a headwind, this is a miss. Its 2% FXN EBIT growth guide missed 12% growth estimates and its $0.58 adjusted EPS guide missed $0.65 estimates. Results include headwinds from leap year, a small revenue tailwind from VIZIO M&A and a profit headwind of 70 bps from VIZIO. 

For the full year, 3.5% FXN revenue growth and an expected FX headwind missed 4.2% growth estimates. 4.5% FXN EBIT growth guidance missed 8% estimates and $2.55 adjusted EPS guidance missed $2.76 estimates.

Walmart trades for 36x forward EPS. EPS is expected to grow by 5% this year and then compound at a 12% clip over the next two years.

b. Block (XYZ) – Earnings Snapshot

I will publish the full Block review early next week.

  • Missed revenue estimates by 3.7%.

  • Beat gross payment volume (GPV) estimates by 0.9%.

    • Square was stronger than expected; Cash App was a bit weaker than expected.

  • Its 13% 2-year revenue CAGR compares to 15% last quarter and 14.5% 2 quarters ago.

Profits & Margins:

  • Beat 36.7% GAAP GPM estimates by 160 bps.

  • Missed gross profit dollar estimates by 0.9% due to the revenue miss.

  • Beat EBITDA estimates 3.0% & beat guidance by 4.4%.

  • Missed $0.87 EPS estimates by $0.16.

Balance Sheet:

  • $8.08B in cash & equivalents.

  • $403M in investments in short-term debt.

  • $1.11B in loans held for sale vs. $775M Y/Y.

  • $5.3B in long-term debt, including 185M in warehouse debt.

  • Diluted share count rose by 3.6%. It has compounded at a 2-year pace of nearly 5%.

  • Basic share count rose by 1.4% Y/Y. It has compounded at a 2-year pace of 3.2%.

Guidance & Valuation:

Annual gross profit guidance missed estimates by 0.6%. Block trades for 15x 2025 EPS. EPS is expected to grow by 33% this year and by 24% next year. If they meet expectations, this is one of the cheapest names that I cover.

c. Toast (TOST) – Earnings Snapshot

Demand:

Toast beat revenue estimates by 1.5%.

Profits & Margins:

  • Beat subscription services and financial technology solutions gross profit guidance by 0.8%.

  • Beat EBITDA estimates by 11.7% and beat guidance by 16.8%.

  • Missed $0.06 GAAP EPS estimates by $0.01.

Balance Sheet:

  • $1.41B in cash & equivalents.

  • No debt of any kind.

  • Diluted share count rose by 11% Y/Y; basic share count rose by 5.2% Y/Y.

Guidance & Valuation:

For Q1, subscription services and financial technology solutions gross profit guidance missed by 1.3% while EBITDA guidance beat by 7.1%. For the full year, subscription services and financial technology solutions gross profit guidance missed by 1.6% while EBITDA guidance beat by 5.1%.

Toast trades for 41x forward EBITDA. EBITDA is expected to grow by 41% this year and by 36% next year.

2. Uber (UBER) – Tesla

In an interview this week, Uber CEO Dara Khosrowshahi told the public that Tesla (TSLA) has no interest in partnering with anyone on autonomous vehicles. 

If you listen to Musk, this is not surprising. Uber will continue to partner with everyone else, and as long as there are many winners instead of just Tesla, I strongly believe competition will push Tesla to embrace Uber eventually. Utilization rate optimization matters a lot; routing algorithms matter a lot; storage capacity with high compute capabilities matters a lot; profitability matters a lot. As everyone else partners with Uber and enjoys better unit economics, that will make it hard for the holdout to avoid following suit. Furthermore, the Tesla consumers offering their cars for rides will surely want access to all of the revenue Uber can provide.

And on the risk of there being a monopoly in the space? As recently noted, the bullish Morgan Stanley Tesla analyst has pushed back his Cybercab rollout timelines by a few years. This gives the dozens of competitors trying to win in this space a lot more time to catch up – while the other leader (Waymo) is a close Uber partner. The delay reduces the risk of Uber’s network effect becoming less important, as the market will likely be too fragmented for AV vendors to be indifferent to Uber’s incredible demand aggregation. Zoox is coming; AVride is coming; Mobileye is coming; legacy OEMs are coming; May Mobility is coming; many more are coming. It also means the worst-case scenario here is a material financial threat several years down the road.

There will be many, many headlines that cross on Uber’s AV positioning over the coming quarters and years. While Tesla could remain stubborn, I continue to grow more confident in Uber being the Expedia-like demand aggregator and benefitting from this revolution… regardless of whether or not Tesla participates.

3. Market Headlines

Disney’s ESPN will look to incorporate user-generated content for its consolidated streaming service launching later in the year. It sounds like this will be a premium add-on. ESPN also cut media rights ties with the MLB.

Draftkings raised $500 million in debt as indicated during its recent earnings call.

Alphabet unveiled its “AI co-scientist” as an agentic AI system powered by Gemini 2.0 to expedite research.

Morgan Stanley channel checks point to a strong quarter for CrowdStrike.

4. Macro

Inflation Data:

  • Michigan 1-year inflation expectations for February were 4.3% vs. 4.3% expected and 3.2% last month. 

  • Michigan 5-year inflation expectations for February were 3.5% vs. 3.3% expected and 3.2% last month.

These readings continue to be tightly split by political party.

Output Data:

  • The New York Empire State Manufacturing Index for February came in at 5.7 vs. -1.9 expected and -12.6 last month.

  • Housing Starts for January were 1.366M vs. 1.39M expected and 1.515M last month.

  • The Philly Fed Manufacturing Index for February came in at 18.1 vs. 19.4 expected and 44.3 last month.

  • The Manufacturing Purchasing Managers Index (PMI) for February was 51.6 vs. 51.3 expected and 51.2 last month.

  • The Services PMI for February was 49.7 vs. 53 expected and 52.9 last month.

Consumer & Employment Data:

  • Initial Jobless Claims were 219,000 vs. 215,000 expected and 214,000 last report.

  • Existing Home Sales for January came in at 4.08M vs. 4.13M expected and 4.29M last month.

  • Michigan Consumer Expectations for February came in at 64 vs. 67.3 expected and 67.3 last month.

  • Michigan Consumer Sentiment for February came in at 64.7 vs. 67.8 expected and 71.1 last month.

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