Progyny is the leader in managed fertility benefits for large clients like Amazon, Meta, Uber, Google, Microsoft etc.

Missed revenue estimates by 3.5%. Assisted reproductive treatment (ART) cycles rose 12.4% Y/Y. Its 31.6% 3-year revenue compounded annual growth rate (CAGR) compares to 39.1% last quarter and 41.6% 2 quarters ago.

Progyny trades for 16x 2024 EPS and 15x 2024 GAAP operating cash flow (OCF). EPS is expected to grow by 20% Y/Y and GAAP OCF should be down Y/Y as its EBITDA to cash flow conversion rate normalizes from over 100% to 75%.

There were two variables that impacted Q1 growth rates. One was as expected and one was not. First, the treatment mix-shift anomaly we covered last quarter reverted back to normal as expected. The temporary shift led to a $15 million hit to revenue for the quarter, which was in line with assumptions and is now a thing of the past.

Secondly, Progyny cited worsening utilization rates in the month of March as leading to the Q1 miss and the poor Q2 revenue guide. The timing of this weakness coincided perfectly with the Alabama Supreme Court ruling that banned abortions. This ruling created more uncertainty around IVF, as that process involves discarded embryos. That, it thinks, led to some treatment delays and cancellations for concerned mothers.

Since March ended, it has enjoyed a material tick up in utilization, which has been most pronounced in the strictest abortion states. Utilization is not back to record 2023 levels, but it is back above 2022 levels to show there’s no sudden change in appetite for treatment. That trough and geographic pattern both offer more evidence of the Alabama ruling being the true source of the weakness.

A few things here. First, I’m disappointed that the team told us this ruling would be immaterial to results. They were wrong, and the large Q2 revenue guidance miss is the result.

Secondly, after sitting with this report for 24 hours, I don’t think this changes much about the long term prospects of the company. Leaders from the left and right wings have all come out to loudly support IVF and fertility treatment protection. Structural tailwinds like later average age of birth are intact; 34+ year-old birth rates continue to rise and coverage continues to grow. Thirdly, as mentioned, utilization is improving and its selling season momentum remains strong. That points to strong forward-looking demand.

Between a bottoming in utilization and mix-shift normalizing, Progyny expects revenue growth to re-accelerate to 21% Y/Y for Q3 and Q4. This is frustrating to me. I see how things could sharply recover from here and I see how this could be a blip on the radar. If they do deliver those second half expectations, it should be handsomely rewarded. There is no reason to believe this company can’t find its footing very quickly. It’s a market share taker with strong tailwinds. On the other hand, the lack of understanding of how the Alabama ruling would impact its business does reduce the trust and faith I have in this team. It makes me less confident in that Q3-Q4 strength actually playing out. Language during the call did not make it seem like this guide was overly conservative either.

While the first half of 2024 has been poor for Progyny… there are some reasons for optimism. Progyny’s selling season is again going very well. It expects to meet or exceed the number of members and clients that it added from its 2023 selling season, which is its goal every year. Business as usual here. Early win activity, conversion of former “not-nows” to clients and pipeline size are all favorable. The pipeline this year also includes multiple state and local government populations, while its initial federal government client is interested in expanding coverage as expected.

This was disappointing. I don’t appreciate being told that the Alabama ruling is immaterial to results when that turned out to be wrong. I wouldn’t go so far as to say this totally burned my trust in that team… but it certainly diminished it. This is back-to-back quarters of surprise headwinds that make me more hesitant about this investment. Are the issues impacting them their fault? Not really. But it’s not ok that they brushed the court ruling aside and it’s not ok that they didn’t fully grasp how this changed the landscape. These last two quarters cast doubt on how well it can navigate regulatory headwinds.

With that said… we are left with a 15%-20% revenue compounder trading at 15x earnings. It has industry-leading market share, clinical outcomes and scale. It sells a product suite that will be more and more needed by society over time… while that same suite makes Progyny’s clients richer and its members happier.

We are left with clear reasons to believe this could just be a blip on the radar. That’s why I didn’t exit. Regardless, my reduced trust in leadership did lead me to cut 50% of this holding on Friday. It’s now on my do-not-add list while I wait and see if they’re right about the second half of the year. Strike two.

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Nu Holdings reports earnings next week. The data should be excellent. Structural tailwinds are firmly in place and cyclical tailwinds are beginning to ramp as Brazil and others cut rates. What will the stock do? If this earnings season has been any indication… who the heck knows. I’ll focus on the data.

This week, Nu crossed 100 million total users compared to 93.9 million as of the end of 2023. It’s worth noting that this includes about 1 month's contribution from calendar Q2, but this is still encouraging. The 6.1 million net adds, when excluding the implied Q2 impact, remained at consistently strong levels. But more encouragingly, Mexico added 1.8 million consumers to reach 7 million as of this press release. That’s 2x the 900,000 customer adds it saw there last quarter; this marks a roughly 50% acceleration in monthly adds without the Q2 contribution. The high yield savings product, since broadly launching last year, is clearly thriving.

Nu is now the largest consumer banking platform outside of Asia by customer count. Its net promoter score (NPS) is also 3x higher than incumbents. I always take this subjectively calculated metric with a grain of salt, but still worth noting. Nu is powering broader financial inclusion in Latin America… delivering explosive, increasingly profitable growth… and pricing risk effectively across cycles. It’s winning, and I expect that winning to continue in a few days when it reports.

In other news, S&P Global upgraded Nu’s credit to BB globally and brAAA in Brazil. This brings it up to par with the highest quality incumbent banks there and should help grow the already tangible cost of capital lead vs. the pack. The deep dive will be published after this earnings report. It is ready to go, but I wanted to update it with more current financial data.

CrowdStrike and Google Cloud are deepening an already strong relationship to “transform AI-native security.” CrowdStrike’s threat hunting team will now run Mandiant’s (owned by Google) Managed Detection and Response (MDR) offering. It will lean on CrowdStrike’s bread-and-butter Endpoint Detection and Response (EDR) as well as its budding identity security tools. This is expected to bolster shared-client protection within Google Cloud’s Security Operations.

So this marks strengthening Google, Amazon and Tata partnerships for CrowdStrike in the past two weeks… but there was perhaps an even more interesting announcement to dissect. CrowdStrike announced Falcon for Microsoft Defender this week. Falcon for Defender will deploy next-gen Extended Detection and Response (XDR) (basically more holistic EDR) in parallel to Defender. Microsoft’s multi-agent, multi-console, multi-license setup leads to frequent breaches, poor protection and soaring client costs. While Microsoft’s enterprise software bundle is the best in the world, its endpoint security product is not.

This will help those Microsoft clients enjoy the same visibility that has given Falcon its best-in-class reputation. The release also includes cross-domain threat hunting for Azure clients and what CrowdStrike calls its Cloud Detection and Response (CDR) product. CDR is similar to EDR and XDR, but for cloud workloads. Falcon CDR’s zero-trust make-up should limit the common Microsoft Defender issue of a hacker breaching the most vulnerable part of its environment and then freely moving throughout it thereafter. Falcon ensures these adversaries are constantly verified and that any suspicious behavior is expediently flagged.

CrowdStrike is likely doing this on their own, rather than Microsoft asking for it. They’re fierce competitors in endpoint security, so that’s the only thing that makes sense. Still, this not only should be a source of revenue, but also a source of generating leads. It will let CrowdStrike more directly show clients how much better Falcon works vs. Defender. Microsoft is still the big boy in this sector, and continuing to take business from the big boy (and everyone else) remains a large, large opportunity.

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In cloud security, CrowdStrike announced a new Application Security Posture Management (ASPM) integration within its overarching Cloud Native Application Protection Platform (CNAPP).

This makes CrowdStrike an even more powerful vendor consolidator within cloud and overall endpoint security. A more overarching platform means better communication and data sharing between use cases, faster incident response and superior overall visibility. This platform cohesion is where Palo Alto struggles just a bit and where Falcon stands out. Falcon products all natively work well together; trying to stitch together a dozen point solutions to emulate this interoperability is tough and costly.

CrowdStrike also announced new integrations for Charlotte AI and its SIEM product (already defined). Charlotte AI is its GenAI security assistant, which it’s infusing into its suite for more up-selling opportunities. Charlotte AI automates a large chunk of tedious security analyst work and up-levels them from beginner to expert. As part of this, CRWD debuted promptbooks. These offer SIEM workflow templates to cover popular use cases. Anything CrowdStrike can do to drive ease of use within these complex products is a positive; Charlotte AI is a large piece of this, but is far from the only piece.

Board member and former Morgan Stanley CEO James Gorman bought about $2 million worth of Disney stock this week. He’s extremely wealthy, but this is still a small piece of positive news.

Disney is fully embracing the bundle for its streaming business. And if you think about it, that makes perfect sense. Streaming is fantastic for boosting advertising impression value thanks to more granular targeting. What isn’t it fantastic with? Aggregated distribution. Disney and others had relied on Comcast and Spectrum to help with distribution and traffic, but that help goes away as the cord is cut. This is how it will plug that hole. A few weeks ago, Disney announced that Fox and Warner Bros. would combine live sports content with ESPN as that service moves to direct-to-consumer over the coming 18 months. Combining that with the rumored NFL/Disney partnership would give these players more muscle to sustainably win live sports rights as mega-caps enter the conversation. Pooling assets like this is a must if Disney isn’t going to sell an ESPN stake to Amazon or Google like I want them to.

This week, Disney took bundling a step further by announcing a Disney+, Hulu, ESPN and Max (owned by Warner Brothers) bundle. More bundling means better retention, lower marketing intensity, higher quality revenue and more content to compete with Netflix’s best-in-class scripted (not live) library. Good decision.

Robinhood reiterated annual expense guidance for the year. It does not offer additional guidance.

Robinhood trades for 19x 2024 earnings. Earnings are expected to grow by 82% Y/Y in 2024, but then fall 9% Y/Y in 2025. This is a cyclical business model, although it is rounding out the product suite as we speak to help buffer the cyclicality.

Celsius doesn’t offer formal guidance.

Celsius trades for 75x GAAP EPS. It doesn’t make non-GAAP adjustments to EPS. EPS is expected to compound at a 33.5% clip for the next two years. It also trades for about 45x 2024 EBITDA. EBITDA is expected to compound at a 30.5% clip for the next two years.

Free cash flow (FCF) is lumpy on a quarterly basis.

Axon trades for 49x EBITDA and 68x 2024 EPS. EBITDA is expected to compound at a forward 2 year clip of 23%, while EPS is expected to compound at a forward 2 year clip of 22.6%.

Balance Sheet:

Guidance & Valuation:

Confluent is currently inflecting to positive EBITDA, EBIT, net income and free cash flow, while still a ways away from GAAP net income profitability. It trades for about 11x 2024 gross profit.

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Apple rumors are swirling that it will be using its own chips for data centers and some high performance compute (HPC) AI applications.

TikTok is suing the U.S. government as a response to the forced sale passed by congress. Good luck.

I sold nearly half of my Progyny position this week for reasons already mentioned. Those funds were added to: Shopify, Nu, Amazon, Lemonade, PayPal and SentinelOne in roughly equal amounts.

I’ve also included updated returns vs. major benchmarks in this edition. Please note that this graphic is as of the Thursday close; the data hadn’t been updated by the time I published this. If it had been updated, my compounded annual leads vs. benchmarks would be about 0.6% smaller following an ugly Friday session. As you can see, I’ve given back a chunk of outperformance over the last two weeks due to 8 poor earnings reactions from holdings. My goal is to outperform all relevant benchmarks (SPY & QQQ mainly) over the long haul as I’ve done to date. But? The journey will come with periods of underperformance that I’ve seen this earnings season. My portfolio is relatively high beta, and returns are never linear. This is simply something that I have to accept if I want to continue taking this approach… and I do. I will focus on the data, embrace Peter Lynch’s growth multiple framework and ride the waves. Finally, the return CAGR is almost certainly going to fall from 46%. This was an easy start date & I can say with certainty that the 46% figure is not sustainable.