The transcript for The Trade Desk has not yet been released on the services that I use. The call just became available for replay, but these calls are always extremely dense. I need to read through it to make sure I don’t miss anything. I also wanted to get these to you all before the middle of the night. For now, I included a brief overview of The Trade Desk’s report along with these full Uber and Shopify reviews. Tomorrow, I will publish the rest of this review, an Airbnb review and a Duolingo review.

One more note — I know this earnings season has been no fun. I know we’ve had very few positive reactions to enjoy. I know it seems like every good report is being inexplicably punished. I know there’s been a lot of “get excited about better risk/reward” lately with little “get excited about positions becoming worth more.” While indexes are near ATHs, I know there have been some sizable pullbacks for many individual names. I know… you know… we all know.

And it sucks… for now.

It is during very moments that staying the course becomes most important. This is when the uninformed retail investor panics and capitulates and when you generate your alpha. This is when we exhale, smile at Mr. Market’s madness and carefully take advantage. A calm mind amid the frustration and constant noise is an edge. If the last century+ is any indication, focusing on pace of profitable compounding at a fair price is what will win out eventually. Focus. On. The. Data. Hold your companies responsible if they deliver poor results… but don’t blame them for their stock not moving higher after a strong report. If anything, that is an opportunity to carefully lean in. And I have.

There will be fun days in the future. There will be more not so fun days too. It’s an inevitable part of participating in the greatest wealth builder of all time. This earnings season has been frustrating, but this frustration too shall pass.

Uber needs no introduction.

The headlines stemming from the media were “Uber disappoints on profitability” or “surprise losses.” While that does make for excellent clickbait, it’s a half-truth. You’ll notice that all non-GAAP profit metrics were comfortably ahead of expectations, while GAAP was not. This was related to $527 million in legal charges incurred (for GAAP EBIT and net income) and $721 million in mark-to-market equity investment losses (impacting only net income). Without these charges, both metrics would have been comfortably ahead of expectations. Considering the legal issues are now resolved and the equity item is irrelevant to operations, these misses didn’t bother me in the least. And as you know, I would bluntly tell you if it did bother me. More context is usually needed. That’s what I’m here for.

Second quarter bookings guidance missed estimates by 0.3%, while EBITDA guidance met expectations. Argentina is driving incremental FX headwinds, which is why demand guidance was slightly, slightly weak. Furthermore, it delayed some marketing spend from Q1 to Q2 due to better expected returns. EBITDA would have been ahead of expectations had it not made this decision.

Uber also reiterated its multi-year targets offered at its February investor day. That means it reiterated roughly $10 billion in 2026 FCF (if I bake pessimism into its guidance ranges). This represents a 2 year FCF compounded annual growth rate (CAGR) of about 35%. Uber trades for 27x 2024 FCF.

Uber continues to briskly grow its driver count to 7.1 million vs. 6.8 million last quarter and 6.5 million 2 quarters ago. Mobility drivers specifically rose by 29% Y/Y as India became its 3rd market to reach 1 million. Despite cutting incentives for drivers, earnings rose by 24% Y/Y FXN as Uber’s consumer network and broader product suite foster more opportunity for earning vs. others. Demand across the platform remains “robust” to support continued earnings strength for these drivers. Happier and more abundant drivers mean lower surcharge rates, shorter wait times and happier customers. This spins a compelling flywheel.

To ensure this flywheel is as durable as it can be, Uber continues to drive a higher proportion of volume to its Uber One subscription. It now makes up 32% of total mobility and delivery bookings vs. 30% Y/Y; the subscription also enjoyed a 2 point improvement in Y/Y retention as annual plan adoption grew in popularity. It also debuted “member welcome quests,” which motivate free trial customers to convert to paid with Uber Cash offers. Overall, Uber One subscription revenue crossed $1 billion annually, while members continued to spend 3.4x per month compared to non-members. The firm is now working on making Uber Cash usage more intuitive and some “member exclusives” to facilitate more Uber One delight.

Mobility enjoyed 26% Y/Y FXN growth, which was powered by 17% user growth and trip frequency, rather than price hikes. Note that selling off assets from its Careem acquisition lowered growth rates here by 100 bps during the quarter. Airport demand was especially strong, as travel remained healthy. Back to work is also returning with a vengeance with workday session growth outpacing all other common use cases. This helped drive 40% Y/Y growth in Uber for Business; 50% of these Uber for Business customers continue to opt into premium, higher margin mobility products.

New bets within Mobility enjoyed 80% Y/Y growth and attracted 20% of Uber’s total new users. moto and shared sides (6x Y/Y growth from a small base) were the two product standouts for the quarter. For shared rides specifically, it upgraded the interface to offer better expectations on ride matching timelines.

Uber announced a new partnership with Instacart. Going forward, Uber Eats will run Instacart’s restaurant delivery service. This gives Uber more demand for itself and for its merchants, while also giving it significantly more room to grow advertising load. Instacart should give Uber a shot in the arm in terms of non-urban volume and momentum. That’s a key focus area for Uber, as it already dominates in cities. This partnership is using the same integration that was leaned on to add Uber Eats to the main Uber app. Because of this, Uber sees a seamless ability to add more channel partners here in the near future.

This new relationship changes nothing about Uber’s view of the grocery and retail delivery opportunity. It continues to add more merchants and tweak processes to drive better experiences and profitability. Furthemore, 15% of delivery customers now use grocery or retail vs. 12% Y/Y. It expects sustainably rapid growth and progress towards EBITDA breakeven from this newer delivery category.

Finally, the team teased some news coming about the grocery business in the coming weeks.

Delivery bookings growth was stable at 17% Y/Y FXN. Like for mobility, growth was driven by new users and order frequency rather than higher prices. Importantly, MAPC growth accelerated across important markets like the USA, Canada and Mexico, with order frequency reaching an all time high too. Uber added better location sharing tools to expedite handoffs and materially expanded the roster of Domino’s stores on its network.

The freight market remains highly challenged, as expected. Uber is committed to staying the course through the tough part of this cycle as competition quickly exits. This should foster stronger market share and pricing power when the freight sector invariably bounces back.

Uber introduced its “creative hub” during the quarter, with more targeting and campaign design tools for its largest buyers. For mobility ads, it’s expanding “Journey Ads” to 12 more countries and now has in-car placements across 50 cities. Coors was named as a large brand now using its journey and post-checkout placements.

The Waymo partnership expanded to Uber Eats following a successful mobility launch in Phoenix. Uber remains adamant that it will carve out a large stake in AV mobility and delivery. It has by far the largest consumer network to allow fleets to enjoy the best unit economics. And it will probably function as a sort of Expedia-like (where Uber’s CEO came from) demand aggregator across all integrated fleets. It also has the best routing processes, regulatory prowess and a giant base of merchants for these fleets to cater to. Some think AV will be the death of Uber. Some think they can be cut out of the question. I disagree, but it is a longer term risk. For now, the evolution to fully autonomous, unmanned vehicles will likely be a several years-long process. I see some loose similarities to how people assumed card networks would kill PayPal. Instead, card networks partnered with the titan to take advantage of its massive scale and brand awareness.

Seattle seems to be set to walk back new regulations on gig-workers and contractors. Its changes led to 50% longer wait times for couriers and 30% of active drivers leaving the platforms in that market. Seattle is very small for Uber, so a positive development here wouldn’t be material for its overall results. Still, Seattle’s city council sees how poorly its own regulatory decisions have gone; that should make other cities less eager to get stricter themselves. Uber has already been able to absorb all new regulation in its business model across Seattle and other cities like New York. This would just be some small upside.

What was disappointing here? Was it the continued profitable compounding? The successful product launches and category expansion? The rapid advertising proliferation? The engagement acceleration across all key markets? How about the continued FCF explosion unfolding before our eyes?

All kidding aside, the only disappointing thing about this report was the number of “huge miss on earnings” headlines I read from respected media outlets. That is intellectually dishonest clickbait and laziness. I’m not going to punish Uber for missing a demand midpoint by less than 1% while profitability outperforms. I’m not going to call this a bad quarter because of the stock reaction. This was more of the same wonderfully boring execution I’ve come to expect from this leadership team. I added to my stake this afternoon and significantly raised my average cost base in doing so.

Shopify is a web-builder on steroids. It automates the creation of slick, powerful store design. It provides ubiquitous channel integrations and offers several other products to round out its niche as a merchant’s “commerce operating system.” Its goal is to remove the headaches associated with building a business and to allow merchants to focus on growth rather than system maintenance. It gives businesses of all sizes the tools previously reserved for the largest enterprises in the world – and calls many Fortune 500 brands its customers too. If you’d like to learn more about this firm, my deep dive can be found here.

Total take rate rose from 3.04% to 3.06% Y/Y. The rise is despite a material headwind from selling its logistics business. This is something I found pleasantly surprising, given the challenging comp item.

Price hikes and hosting efficiencies both helped gross margin during the quarter. Selling the logistics business also greatly helped gross margin. Conversely, less non-cash revenue from strategic partnerships hurt margins; that revenue segment is essentially pure profit. GAAP operating expenses (OpEx) fell by 4% Y/Y to $871 million. This was in line with Shopify’s guidance.

Shopify’s outlook bakes in resilient North American spending (as that’s what it’s seeing), sharper FX headwinds and some weakness in European consumer spending.

Shopify sees high teens revenue growth vs. 19.5% Y/Y growth expected by analysts. This is technically a miss. If we assume “high teens” = 18% Y/Y growth, it’s a 1.0% miss vs. consensus, although Shopify does love to consistently sandbag every single quarter. Growth is expected to be in the low-to-mid 20% range excluding the sale of its fulfillment business.

All of the estimate data out there is for non-GAAP EBIT. Shopify guides to non-GAAP GPM, but GAAP operating expense growth, which makes it difficult to determine beats or misses. We’ll do the best we can:

It sees a 50.9% non-GAAP gross margin vs. 51.0% expected. It sees GAAP operating expenses as a percent of revenue falling to 45%-46% of sales. Guidance includes its first in-person Summit event since 2018. These events usually cost about a few million.

Shopify trades for 60x next 12 month FCF expectations (very similar for EPS). There was a lot of talk today about Shopify’s valuation and it being overpriced. I wanted to address that and why I’m ok holding a pricey stock like this one. I see Shopify compounding FCF at a 41% clip for the next 2 years (very similar for EPS) after small upward revisions likely play out after this report. This is slightly ahead of sell-side consensus, but by a much smaller margin than the FCF beats Shopify has been delivering. Is Shopify cheap? No, no it is not. But a 1.5x growth multiple using either FCF or net income… for a name like this… with its category position, runway, growth expectations and team… is not at all unreasonable in my view. As consistent readers know, I had been trimming through 2023 and into the new year as the PEG got closer to 2x. At 1.5x, I resumed accumulating this afternoon.

Shopify remains committed to minimizing cost wherever possible while continuing to compound at a lofty clip. AI is a big piece of this, and thus far, applications here have centered around “tools to simplify operations and productivity” for both Shopify and its merchants. For example, AI is now automating more than 50% of its customer support interactions and is allowing the company to add 8 new languages to its 24/7 live support. AI is also being used to automate product catalogs and simplify store design for its merchants. AI is in inning one of making Shopify more efficient and its merchant base’s success more intense.

From a marketing point of view, GenAI advancements in targeting algorithms are giving it significantly more opportunity to productively spend. Within performance marketing, Shopify raised ad load by 130% Q/Q while staying under its fixed payback period requirement of 18 months. From Q3 2022 (when it got serious about cost control) to today, its merchant acquisition pace has doubled while its customer acquisition cost has fallen by 60%. That is AI concretely helping operations… right here and right now. It has a plethora of incremental opportunities to advertise to new merchants with strong return on ad spend (ROAS).

The payments suite now represents 60% of total volume vs. 58% Y/Y. This is a gross margin headwind, but not an EBIT margin headwind, as OpEx intensity is much lower compared to its subscription business. Shopify sees momentum continuing as it localizes its payments suite across the globe and as every single product in this bucket resonates. Another piece of this expected payments proliferation is Commerce Components by Shopify (CCS). This is its large merchant bundle that allows massive brands to select products individually. This freedom led to Coach signing with Shopify to use Shop Pay (its checkout accelerator) across all North American stores. Speaking of Shop Pay, volume rose by an impressive 56% Y/Y to $14 billion to reach 39% of total GPV.

For its offline point of sale (POS) hardware and POS Pro subscription, momentum is equally strong. New tools like deeper receipt customization are helping here as its planned accelerated marketing spend is working well. Overall, offline growth was 32% Y/Y while growth in POS merchants with 20+ locations rose 52% Y/Y.

GMV for this channel rose by a whopping 130% Y/Y. Volume within the easy self-serve ordering flow for a B2B merchant’s customers rose by 7x Y/Y. The traction makes sense considering the product allows buyers to take advantage of shedding a large portion of manual order processes. This is giving them more time to focus on growth, rather than maintaining relationships. 

Shopify recently updated the onboarding process for B2B merchants to make adding this tool as easy as clicking a button (like its other channels). All of this helped it gain recognition from Forrester as a B2B commerce leader for the very first time.

Shopify Cash (rewards program for consumers/marketing program for merchants) and buy now, pay later (BNPL) were cited as the two segment standouts.

For Shopify’s subscriptions segment, standard tier price increases in Q2 2023 helped growth a bit, along with general strength in new merchant additions. The Shopify Plus price hike didn’t impact growth materially this quarter. Merchants had until the end of last month to commit to 3-year contracts at the lower price. Most of them did so, which means the impact of this price hike will be smaller than the standard tier hike. That was the goal here as the team pounded their chests about the conversion rate. The main benefit will be better revenue visibility, although there will be some revenue help during the second half of the year for new merchants paying the higher price.

Good quarter. The guide could have been better, but the in-line-to-slightly-weak outlook comes from a team that has shown you that they intentionally under-promise every quarter. I fully expect Shopify’s actual Q2 results to be above what they just forecasted, and I fully expect more of the same profitable compounding for this market leader in a giant category.

I will continue to approach Shopify as I have since starting the position in August 2022. This thing chops around like crazy and its forward multiples do too. I will keep taking advantage. As a loose idea, I will continue to trim as the aforementioned PEG ratio approaches 2x and will continue to lean back in as it approaches 1.5x. It’s right around 1.5x… so added for the first time in a few quarters.

The hecklers will heckle (what would we do without them) and people will create reasons to explain the selloff that are just disconnected from reality. See my Twitter feed comments (fair warning, some of them are pretty ~special~) for examples of what I’m talking about. A stock falling 20% in a day is never fun, but in this case, and from my point of view, it’s an opportunity.

The transcript has not yet been released on the services that I use. The call just became available for replay, but these calls are often extremely dense. I need to read through it to make sure I don’t miss anything. For now, here is a brief overview. Tomorrow, I will publish the rest of this review, an Airbnb review and a Duolingo review.

The Trade Desk beat revenue estimates by 2.3% & beat guidance by 2.8%. Its 30.7% 3-year revenue CAGR compares to 23.7% last quarter and 31.7% 2 quarters ago. Gross revenue retention (GRR) has been over 95% for 10 years.

Please note that founder awards for CEO Jeff Green are greatly impacting the GAAP margin comps. Best to focus on EBITDA and non-GAAP net income while this unfolds.

Coming tomorrow. Spoiler alert: The overall takeaway will be quite positive.