Market Movers #11
Featuring ATEN, MGM, LRN, DKNG, ANGI, and LMND
Good morning, investors!
Welcome to Market Movers, our coverage of companies making big splashes in the stock market — and in this edition, we’re focusing on 2021 performance.
“Uppers” represent stocks that recently experienced upward price momentum, while “downers” have faced downward price pressures.
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Without further ado…
Uppers
A10 Networks Inc (ATEN) helps companies secure their apps and networks, as well as optimize their traffic. Their solutions help service providers and enterprises maintain business-critical systems by protecting against various issues, such as DDoS attacks and encryption blind spots.
Last year, the average cost of a breach was $4.24 million, which was the highest average in 17 years. So, as you can imagine, cybersecurity is a hot topic — which has been good for A10 Networks.
“We are taking market share.”
That’s a quote from Dhrupad Trivedi, President and CEO of A10 Networks, on the company’s earnings call in late October. Dhrupad and the rest of the A10 team are in the midst of a strategic pivot to more security-led offerings, which are not only increasingly relevant nowadays but also stable from a recurring revenue standpoint.
Relative to 3Q20, revenue increased from $56.6 million to $65.4 million, up 15% year-over-year. Perhaps more importantly, sales of security products grew 18% year-over-year — a sign that A10’s making waves in the cybersecurity space.
ATEN shares appreciated by 68.7% in 2021, but they’re down 12.3% this year as shares closed at $14.15 on Thursday. Only three analysts cover ATEN, but the consensus price target is between $19 and $20 a share.
MGM Resorts International (MGM) is a global hospitality and entertainment company based in Las Vegas, Nevada. If you’re into gambling, chances are you’ve heard of this casino operator.
Naturally, the company benefited from society’s gradual return to normalcy and travel. Through the first nine months of 2021, MGM generated $6.6 billion of revenue — a sizable increase relative to the same period in 2020 ($3.7 billion), when operating results were suppressed due to the pandemic.
But it’s MGM’s digital presence that’s capturing the attention of many investors.
“We expect full-year 2021 net revenues associated with BetMGM will be in excess of $800 million.”
BetMGM, the casino operator’s play into the iGaming and sports-betting worlds, initially rolled out in 2018, but it’s spreading to new markets as states loosen their gaming laws. MGM expects to be live in 20 markets by the end of the first quarter of 2022.
Last year was kind to shares of MGM, which appreciated by 42.5%. This year — not so much, as shares are down 10.7% to $40.62 as of Thursday’s close. Wall Street’s consensus price target for MGM is $56.16.
Stride Inc (LRN) provides online schooling solutions to students, schools, the military, and enterprises in primary, secondary, and post-secondary settings. That includes professional skills training too, particularly in health care and technology.
As you can imagine, online learning is pretty popular nowadays. Stride (formerly K12) has been a major benefactor. Just look at the company’s revenue growth over the last three half-fiscal years. Even with schools reopening across the country, Stride has continued making strides with its business model, growing enrollment in adult education programs by 38% relative to the same prior year period.
Shares of LRN appreciated by 57% in 2021. While they dipped for a bit this year alongside the broader market selloff, they’ve since rebounded thanks to strong Q2 results and a big jump in management’s guidance for FY22.
LRN closed at $33.95 on Thursday; Wall Street’s consensus price target is $46.
Downers
DraftKings Inc (DKNG) is a digital sports betting company that also caters to fantasy sports players. The company dates back to 2012, but it has experienced meteoric growth in the last few years thanks to increased legalization of its trade — letting sports fans bet lines, spreads, stats, fantasy lineups, and more.
Sports betting skyrocketed in 2020, thanks to stimulus checks and people spending way too much time indoors. DraftKings seized the opportunity at the perfect time, going public via a SPAC merger in April 2020. By year’s end, DKNG was up to $46.56 — a monumental 335% gain.
But that momentum didn’t continue into 2021. DraftKings shares were in a slump last year, sinking by 41%.
Arguably the biggest issues are that DraftKings hasn’t even sniffed profitability and it burns through cash pretty quickly. Through the first nine months of 2021, the company generated a net loss of $1.2 billion. About $500 million of that relates to non-cash stock-based compensation — but still. That’s a hefty loss.
Moreover, the company’s operating and investing activities burned through $366 million of cash. Fortunately, the company has plenty of it thanks to its recent IPO and a convertible notes issuance of $1.2 billion last year.
But the growth potential of the online gambling industry — as well as its high barrier to entry — makes DKNG an intriguing long-term play. It’s even dabbling in NFTs, launching DraftKings Marketplace in August. In about a month and a half of trading activity, there were over 120,000 primary and secondary transactions, totaling about $20 million in gross merchandise volume.
Shares closed at $19.39 on Thursday; Wall Street’s price target is $51.81.
Angi Inc (ANGI) connects vetted professionals with homeowners in need of assistance, whether that be fixing a leaky faucet, installing an electrical outlet, or trimming an overgrown tree.
Angi makes most of its money from advertising and connecting contractors with customers — but this revenue source pretty much stagnated through the first nine months of 2021, mustering 1.7% growth year-over-year.
Angi also hasn’t been an incredibly profitable company to date, swinging back and forth between minor losses and minor profits. In turn, investors have tended to react quite extremely to earnings misses. All said and done, shares of ANGI took a beating in 2021, dropping 30% by year’s end.
That said, the company’s Services segment has shown much more potential. Rather than handing homeowners off to contractors, Angi oversees the entire process — including communication, scheduling, and billing. In turn, Angi keeps an undisclosed percentage of the job.
Revenue from Angi Services has already exceeded 2020 totals by 50.7% through nine months of operating results.
Shares of ANGI closed at $7.58 on Thursday; Wall Street targets $14.38 per share.
Lemonade Inc (LMND) is an online insurance startup that leverages AI and a user-friendly interface to offer renters, homeowners, life, pet, and auto policies.
It was a high-flying growth stock, peaking at $182.90 in early 2021. But investors then soured toward Lemonade for a list of reasons.
Growth rates slowed. Customer retention rates remained a concern. Losses widened. Shareholder value diluted.
Of today’s downers, LMND has had the biggest fall from grace, sinking 65.6% in 2021 — a figure that worsens to 77.5% if you include this month’s trading results.
However, Lemonade may still have long-term potential, especially if you focus on its growing customer base and gross earned premiums. As the chart below shows, the company has almost routinely generated double-digit growth rates for these KPIs quarter to quarter.
Lemonade still pales in comparison to insurance giants like Allstate and Progressive, but it’s clearly popular among younger, first-time insurance buyers.
Shares of LMND closed at $27.57 on Thursday; Wall Street’s price targets average out to $55.33.
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