I will be publishing an updated SoFi investment case article in the next few weeks. The next long form piece after that is going to be on Mercado Libre (MELI). After that, Coupang (CPNG). Stay tuned!

During the week, I published Palo Alto & Snowflake earnings reviews, as well as some news on PayPal.

Workday is a cloud-native, enterprise-facing platform that specializes in human resources, financial management, strategic planning and data analytics. At the center of WorkDay is its “intelligent data core.” This has 70 million users and one of the largest revenue bases in enterprise software to more thoroughly train algorithms and products. The data core supports security, privacy, analytics, compliance and workflow frameworks. These frameworks are all borrowed to form its Human Capital Management (HCM) platform and its Financial Services+ (FINS+) platform. It helps companies maximize job applicants, flag problem workers, drive better communication and foster more productive work. It also automates and organizes all core financial management functions for large enterprises.

Workday announced a small shift in its multi-year strategic approach. It will forgo some subscription revenue growth in favor of faster margin expansion and has “identified places to drive efficiency across the business. Still, it sees revenue compounding at a roughly 15% clip over that period vs. expectations of roughly 14.5% compounding. And furthermore, it sees EBIT margin getting to 30% vs. expectations of 29%. I love when companies prioritize margin expansion yet still guide to outperforming revenue growth. Strong.

For the last two years, platform players have reigned in market share growth when compared to disparate point solutions. As we frequently cover, platforms mean vendor consolidation, better product cohesion, easier inter-department collaboration, broader efficiency and lower customer acquisition cost. They allow companies to do “more with less” during a time when that’s especially converted. WorkDay is the de-facto human resources cloud platform and is quickly establishing itself as a leader on the finance side too. It’s right up there with ServiceNow in workflows, Salesforce in customer resource management and CrowdStrike (yes still CrowdStrike) in cybersecurity. This is a cloud platform king, and this quarter simply provided more evidence of how true that is. 

Deal scrutiny and moderating client headcount growth did not improve Q/Q. Considering WorkDay’s growth is tied to seats per client, these are both headwinds and neither is abating. Its outperforming results were in spite of this. Win rates remained very high, full-suite sales momentum remained robust and gross revenue retention remained over 95% as “clients focus on productivity,” which WDAY provides in droves. Why the resilience? Again, it allows companies to “manage the two most fundamental elements of business” (people and money) from one cohesive platform, with a complete set of use cases. That’s the formula. The formula is working.

“Built on Workday” is its product that enables customers to granularly customize WorkDay apps and offerings. Workday “Extend” is the environment where this customization takes place. This bolsters potential utility and product breadth and delivered 75% Y/Y contract value growth this past quarter. Extend Pro, which combines its developer environment and GenAI work, was the largest contributor. As an augmentation of Extend Pro, WDAY introduced the Extend Developer Copilot this quarter. Like other copilots, this helps morph tedious workflows into automated, conversational tasks. It unleashes large language models (LLMs) and diminishes complexity associated with writing new programs through WDAY.

From an AI partnership point of view, the Workday AI Gateway is a fully managed connector of 3rd party developers to its AI products. It added new APIs to this tool during the quarter to enhance ease of integration and use. 

WDAY bought HiredScore last quarter to expand further into AI-powered talent matching. WDAY plans to use its algorithms to greatly enhance the value of its human resources tools for talent optimization, acquisition and management. One quarter in, HiredScore AI for Recruiting and Talent Mobility were both integrated into WDAY’s suite and are now offered as standalone products too. With HiredScore for Talent Mobility, one customer enjoyed a 40% boost in job applicants. That’s notable. GenAI has to actually provide tangible value to be monetizable. This example and a few others, like a 39% reduction in employee turnover, were called out during the call. Workday markets its AI platform as providing superior data scale and apps to power incremental utility. That’s extremely abstract, which is why I love concrete case studies here. WDAY is one of the few software names providing them.

Japanese traction is accelerating as recent foundational investments are paying off. It added new partners there to continue the momentum. In Australia, it was “accepted to the government's Digital Transformation Agency Software Marketplace for ERP, opening new opportunities with federal agencies.” Finally, deal scrutiny remains especially elevated in Europe. Its go-to-market team overcame this by delivering an acceleration in large deal volume.

This is more of the wonderfully boring, drama-less execution we’ve come to expect from WDAY. It’s a cloud king with a massive runway and a team capable of capturing it. More compounding, leverage, cash printing and successful product debuts. Another good quarter.

Intuit owns TurboTax, Credit Karma, QuickBooks and Mailchimp.

Tax season heavily influences quarterly revenue generation for INTU. It gets a massive fiscal Q3 bounce every year.

For fiscal year 2025: 

For next quarter, 5.5% Y/Y growth guidance sharply missed 13.3% estimates. Its profit guidance was in line. The quarterly revenue miss is less concerning given the slight annual outperformance. That hints at the miss being a matter of timing.

Intuit trades for 26x forward EPS guidance. EPS is expected to grow by 14% Y/Y this year and by 15.5% Y/Y next year.

For next year:

For next quarter, revenue, EBIT and net income guidance were all well ahead.

Read my Cava (& Sweetgreen) Deep Dive here.

Crushed 7.6% same store sales estimates with 14.4% Y/Y same store sales growth. That is a massive, massive beat.

b. Profits & Margins

Cava’s restaurant level margin was much better than expected. The vast outperformance in same store sales growth results and new restaurant strength were the determining factors here. Its steak launch (more later) was expected to be a margin headwind, but revenue overcame it. The steak launch happened in July, so there will be an extra month of impact next quarter. That was configured in its updated guidance discussed in the next section.

“We believe our strong balance sheet and ability to self-fund growth allow us to continue to grow market share in this uncertain economic environment.” – CEO Brett Schulman 

Store guidance represents 18% Y/Y growth. When pairing this with 9.0% Y/Y same store sales growth, its 27.0% Y/Y revenue growth guide is well ahead of 24.0% Y/Y estimates.

After a likely series of upward profit estimate revisions, Cava will trade for roughly 290x this year’s EPS and 125x EBITDA. EBITDA is expected to compound at a 37% clip for the next two years. EPS is expected to fall Y/Y this year, before compounding at a roughly 33% clip over the next two years.

9.5% Y/Y traffic growth needs more context. Most of its closest competitors during the quarter struggled just to maintain any positive profit growth. 9.5% is fantastic. And? The guidance raise implies Q3 and Q4 traffic growth will also be fantastic. So why are they faring so much better than everyone else? I think it goes back to this elite team. 

Everything they do is obsessively tested and slowly rolled out. Every decision they make; every ingredient they introduce; every loyalty program feature they implement. Everything. They do not guess. They split test until they know exactly what will and won’t work. They operate with the kind of precise data analytics and strategy that you’d expect to see in high quality software names or a world-class heart surgeon. Luck is what happens when preparation meets opportunity. The opportunity is our nation wanting more Mediterranean food. The “luck” seen in these results, driven by value, convenience and quality, is a byproduct of elite preparation. Leadership cited a few other factors driving its vast outperformance. Full service chains are “struggling to deliver compelling value while conventional fast food has raised prices quickly.” 

“We are positioned at the nexus of guests trading down from traditional full-service and trade over from legacy fast casual players.”

CEO Brett Schulman

On the other hand, Cava has worked hard to avoid menu inflation. It absorbed the California minimum wage hike laws, rather than passing those expenses onto its consumers. It’s things like these that have helped it maintain fantastic traffic trends. This is also why it hasn’t participated in the recent “wave of price discounting” seen from other QSR chains like Wendy’s, Starbucks and McDonald’s.

Aside from this, its steak launch went extremely well and again points to how intentional Cava is with rolling out anything new. This launch was two years in the making, and is off to a great start. Ordering rates are “far surpassing expectations,” with volumes well ahead of the initial test stores. This is expected to be highly incremental to overall sales and frequency, as it plugs a red meat gap on Cava’s menu. Aside from taste reviews being great, it also marketed this product highly efficiently, which was credited for the launches outperformance as well. 

Cava will soon open its 3rd location in Chicago. Last quarter, it told us that the strong debut was leading it to rethink how many stores can work there. This quarter was more of the same positive commentary, with Schulman calling Chicago the “strongest market entrance to date.” It’s now in 25 states and Washington D.C.

New store openings are all “exceeding expectations,” helping drive faster EBITDA contributions and boosting the AUV ceiling. And? Like everywhere else, Cava’s real estate team is focused and executing. They launched several stores ahead of schedule and continue to feel comfortable with 15% annual unit growth guidance through 2025.

Cava’s new loyalty program will be rolled out nationally in October ahead of schedule (noticing a theme?). Tests are yielding a high degree of confidence in this program driving more volume and retention for Cava. It will start off with a simple bankable points model and expand from there. Cava is determined to unleash the power of its newly organized data architecture to build customer profiles and create more personal experiences. The loyalty program is the centerpiece of this push. Many more features will be introduced in the years ahead.

Project Soul is Cava’s initiative to create a warmer in-store ambiance. 64% of its volume is from physical ordering, so optimizing the look and feel of these stores does matter. In a Fort Worth, Texas test, the changes are yielding a strong guest response. It’s going through a (you guessed it) slow, detailed, “iterative process to finalize the go-forward later this year.”

The “Connected Kitchen Initiative” is where it plans to leverage its new, unified data architecture to perfect workflows. It’s using AI partners to observe ingredient depletion and nudge employees to prep more in real time. It also continues to work on perfecting allocation of labor hours. It sees more opportunities for efficiency gains here – especially in lower volume stores.

This continues to be a case of flawless execution, an elite team… and a ridiculous earnings multiple. I love everything about the company except its valuation. I hope to one day own shares if we ever do get significant multiple contraction. And if not? Oh well. I refuse to chase. For now, congratulations to shareholders on fantastic returns and another masterpiece quarter.

Uber and GM’s Cruise (autonomous driving car division) announced a multi-year strategic partnership this week. As part of it, GM will add its fleets to Uber’s app. Cruise also has its own planned ride-sharing app, but will use Uber to maximize reach. GM joins Toyota, Volvo, BYD, Waymo and Arora as key strategic partners for Uber early on. In the reveal, CEO Dara Khosrowshahi told us that there is “more to come.” He said something similar on the earnings call a few weeks ago too. The ridesharing giant has been very vocal about its approach here. It has no interest in building out the driverless hardware on its own. It will use its unparalleled consumer & merchant network effect to let these commercial fleets maximize car utilization rates. It will also provide its expertise in throughput management, ride-matching algorithms, but the network effects are really where I see the sticky value. It’s nice to be a ubiquitous verb.

Some think this network is irrelevant. That stems from two places. One mindset is that Tesla will own the entire market and so will have an even better network effect. I candidly find that unrealistic. Waymo is ahead, Zoox is pushing hard and many more private vendors are coming. GenAI is vastly lowering the cost of training autonomous models, and lower cost means lower barrier to entry. The other mindset is that Waymo is first, makes more money on its own, and so there’s no reason for it or others to use Uber. Again, I disagree.

Without optimal fleet utilization rates, driverless cars will incinerate cash. Uber represents 156 million monthly active consumers across the globe and millions of merchants. It is the premier mobility demand aggregator on the planet.  It offers an unparalleled suite of products all neatly tied into the Uber One subscription to juice lifetime value and rationally offer discounts that others can’t match. This creates stickiness and loyalty to add to the size advantage. Its loyalty program keeps growing as a % of total revenue.

Uber simply needs to provide more incremental volume/revenue than it takes as part of these relationships with autonomous vendors. Management is exceedingly confident in that being easy to do, and I agree. If that formula is intact, it would be irrational for fleets to forgo plugging into Uber. That’s probably why Uber and Waymo just extended their partnership from rides-only to rides and eats.

Regardless of whether I’m correct or not, the shift to autonomous driving vehicles won’t matter for at least a couple of years. And as this shift takes place, manned vehicles will remain a key part of the ecosystem for years. Waymo and company can’t just build out massive fleets to service peak demand tomorrow; doing so would mean low occupancy rates during all other parts of the day and massive deadweight loss. They’ll have to slowly add autonomous capacity and, in the meantime, use drivers (like those on Uber).

Still, Waymo, Amazon and Tesla are far more legitimate competitors and more numerous than just Lyft in North America. While I do think Uber will hold its own, I also think its monopoly power in the U.S. could wane a bit; its growth engine could temporarily slow while this change is digested for a year or two. Furthermore, I am sitting on triple digit returns in under two years, and Uber is now my second largest position… ahead of Meta.

I remain confident in this name, but I also want to respect the complete uncertainty that coincides with new technology like this. I’m no expert in autonomous vehicle revolutions… because… well… this hasn’t ever happened before. I’m considering cutting this 9% position down to 6% of holdings to hedge against the risk of me being wrong about the autonomous revolution. No decision has been made. It may just be time to right-size this to be something smaller than Amazon and Meta. I’ll update Max subs with any decisions as always.

Wells Fargo upgraded SentinelOne to overweight. Among other things, they believe SentinelOne is taking incremental market share from CrowdStrike. That makes sense. I think CrowdStrike is too sticky and (still) well-regarded for this to lead to a lot of customer churn. At the same time, I also find it highly likely that this is giving SentinelOne a leg up in competing for new business. Add that to the large pile of fundamental tailwinds to be enthusiastic about here. An explosive profit inflection, repairing go-to-market, continued rapid growth, successful product expansion, a massive runway and now your closest public market competitor stubbing its toe. 

I’m confident that CrowdStrike will eventually recover and re-find its groove after a few quarters of competitors enjoying the fruits of its misstep. Its efficacy is fantastic (this incident wasn't a security breach), its go-to-market is world-class and its team handled the debacle very well. For now, almost everyone is expecting a good SentinelOne quarter and a material guidance cut from CrowdStrike when the two report next week. I’ll have both of those reviews sent to you (alongside Nvidia) on Wednesday night.

CEO Andy Jassy announced some pretty exciting news about its GenAI AWS coding companion called Q. Amazon added this app to its architecture and has already saved “4,500 developer years of work,” with nearly 80% of the created code accepted and deployed without edits. All in all, this is driving $260 million in annual Amazon savings. That’s a massive bottom line boost from a single application. That value creation should also be portable for AWS’s clients; value creation inspires the ability to monetize. Many complain that Jassy isn’t charismatic or captivating enough on earnings calls. Maybe that’s true, but I don’t really care. I care about the marketplace’s sharp margin turnaround, the needed re-acceleration in AWS growth and continued pursuit of promising new bets like Zoox and Kuiper. His job is to maximize long term shareholder value, not pump his stock every three months.

Celsius delivered16% Y/Y volume growth for the month of July. Macro & Y/Y comps remain wildly difficult. The latter headwind begins to ease this fall.

Citi Bank expects Lululemon to cut its guidance next week. To be fair, I think everyone in the world expects Lululemon to cut guidance next week. If it was going to keep compounding like everything was fine and dandy, it would not be 50% off of all time highs and at decade lows for valuation.

Disney’s ABC named company veteran Almin Karamehmedovic as its new president.

Powell gave a short speech in Jackson Hole this past week. In it, he explicitly said that “the time has come to adjust policy.” Rates will be cut at the September meeting. Cooling inflation… plus comfortably full employment… plus resilient economic growth… plus monetary accommodation. Not the worst setup. The pace and number of cuts will, as always, depend on incoming data. While there are many factors and variables that go into determining the course of a stock price, rate cuts do generally have positive impacts on the following types of firms: