HireQuest had quarterly revenues of $9.4 million, up 1.5% YoY, returning to yearly growth. Topline appears to be fairly stagnant since 2022, but d…

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Burford reported capital provision income of $204M, which declined 37% yearly, mostly related to YPF’s outsized contribution during 2023. …

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Meli’s revenue came in at a new quarterly record of $5.31 billion, more than 35% over the comparable quarter. It must be observed that the change in how sh…

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Zoetis reported revenues of 2.38 billion dollars, representing an 11% increase yearly. The companion animal segment continues carrying the business forw…

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Quarterly revenues were a record high of $65.58 billion, growing 16% yearly and slightly sequentially. Out of the t…

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The company reported record revenue, topping last year’s fourth quarter. Alphabet had sales of 88.2 billi…

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Tesla reported revenues of 25.18 billion d…

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During …

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ASML reported results on Wednesday before the markets opened. The press release, as you may have seen, was leaked the day before. In this article, I’ll go over the company’s quarterly results, management’s commentary, and outlook. At the end, I’ll share my take on it, especially on their update on guidance.

The company reported record quarterly revenue of 7.46 billion Euros, increasing almost 12% on a yearly basis. System sales amounted to 5.92 billion, growing 11.6% and representing 79% of total. Revenue from installed base management was 1.54bn, which was up 12.9% yearly.  

Note: All numbers and charts are computed in Euros.

ASML reported gross profit of 3.79 billion, implying a margin of 50.8%, which was down 100bps yearly. Operating income came in at 2.44 billion, exhibiting a 32.7% margin, which was flat yearly. Lastly, ASML generated 2.07bn in profit. The net profit margin for the quarter was 27.8%, down from last year’s 28.4%.

During the quarter, ASML brought in 949 million Euros in cash from operating activities, down almost 200 million from the comparable quarter. Capital expenditures, on the other hand, were 415M, leaving free cash flow at 534 million.

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As a first note, management efforts on Burford becoming a US domestic issuer paid off. When analyzed in June of this year, it was found that Burford had finally crossed the 50% threshold on US-based ownership and will therefore become a US domestic issuer. This will come into effect in January of next year.

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The company reported record revenues of 2.36 billion dollars, representing a yearly increase of 8.3%. This was mostly driven by companion animal products, with Simparica Trio, Apoquel, and Librela especially contributing. I’ll dive into each shortly hereafter.  

Zoetis reported 1.69 billion dollars in gross profit, with a 71.7% margin, which experienced a 50bps decline YoY. Operating income came in at 906M, implying a 38.4% margin, up 50bps YoY. Lastly, Zoetis generated 624 million in profit. The net profit margin declined 440bps YoY to 26.4%. The decline is mostly attributed to the sale of Zoetis’ stake in Pumpkin Insurance Services last year, on which the company recorded a 101M pre-tax gain.

Operating cash flow during the quarter amounted to 502 million dollars, up materially YoY, though last year the company was building up their Librela inventory. Capital expenditure was 132 million, in line with the past couple of years. It is interesting to note that CapEx as a percentage of revenue is falling faster than management seem to have expected in their Investor Day, which occurred in May of last year.

Management has been keen in returning capital to shareholders. Over the past quarter, 167 million dollars were distributed in the form of dividends, or $0.43 per common share. At the same time, a record 533M were utilized in repurchasing stock, at $167 average price per share. Out of the $3.5 billion program authorized in 2021, 623M were left as of June. The board authorized a new multi-year $6 billion program.

As noted at the beginning, companion animal sales are driving most of Zoetis’ growth and keep gaining share of total sales. These recorded revenue of 1.65 billion dollars, up 10.7% YoY and exhibiting a 15.6% 5yr CAGR. On the other hand, livestock sales increased 3.4% YoY to 694M.

The following table provides a brief overview as to how each category of products is faring. Pain and sedation products grew sales by 52% YoY. More importantly, the OA pain mAb franchise, namely Librela and Solensia, reported revenues of 149 million dollars, growing 117% YoY. Librela had sales of 116M globally, up 142% YoY, after a successful launch in the US late last year. Solensia sales were 34M, growing 62% YoY. Lastly, the diagnostics business returned to healthy growth after the channel strategy change in Q1.

The two categories that are responsible of a large part of Zoetis’ past years growth are parasiticides and dermatology. The former reported record sales of 600 million dollars during the quarter, up 6% YoY. Simparica franchise generated 384 million, with Trio doing 299 million, growing 19% YoY. On the other hand, key dermatology products reported sales of 414 million, up 18% yearly.

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During the past quarter, sales exceeded 5 billion dollars, growing 41% on a yearly basis. It is to be observed that an update was made as to how the logistics business is reported. This change contributed 14pps to growth in revenues.

“The final update relates to Mercado Envios, where a change to our terms & conditions shifts our role to "Principal" in a majority of shipping transactions. Shipping revenues in such transactions are booked on a gross basis, with associated expenses booked in cost of revenue (rather than netted against revenue when acting as "Agent"). This had a positive impact of $293mn on net revenue and a negative impact of $308mn on cost of revenue” Extract from the first quarter’s letter to shareholders.” Q1 2024

Mercado Libre had gross profit of 2.36 billion dollars, with margin of 46.6%, flat sequentially. Operating income came in at 726M, implying a margin of 14.3%, declining from 18.7% last year, but up 210bps QoQ. The change in shipping revenues had a 1.5pp impact on the operating margin. Lastly, Meli generated 531M in profit, with a net profit margin of 10.5%, up 320bps YoY.

Operating cash flow during the quarter was 1.88 billion dollars, up 33% YoY, although a large part of it is due to a 1.3bn increase in funds payable to customers. This puts TTM cash from operations at 6.26 billion. On the other hand, the company had 183M in CapEx.

Mercado Libre’s commerce business, consistent of the marketplace, generated revenues of 2.97 billion dollars. Although sales increased by 53% YoY, a large portion is due to the update on shipping income. Notwithstanding this, growth has continuously accelerated since 2022.

Gross merchandise value increased 20% yearly to 12.6 billion dollars. The commerce take rate expanded by 510bps YoY, though the shipping update represented 4.1pp of the total, with half of the remainder coming from ads revenue.

During the quarter, items sold through the platform were a record 421 million. This represented a 30% yearly increase and over 10% sequentially. Of the total, same and next day shipments were also a record 127.3M, increasing 15% YoY. In addition to this, unique active buyers reached a record high of 56.6 million, growing 19% YoY.

Mercado Libre’s fintech business grew its topline by 28% on a yearly basis to 2.1 billion dollars. 1.21 billion were generated by financial services and income, which grew 16% YoY. Meli’s credit business, on the other hand, generated 875M in sales, up 46% YoY.

Mercado Pago had 46.3 billion dollars in total payment volume, the vast majority of which occurred off platform. TPV increased 35% YoY and 13% sequentially. On the first quarter, the company updated how TPV is reported, which severely impacted reported TPV. Q1 and Q2 of 2023 have been recasted accordingly, and so have 2024’s. The second half of last year has not been recasted yet.

Fintech MAUs increased 36.8% yearly to 52 million. Total payment transactions increased 54% YoY to 2.67 billion. Furthermore, assets under management almost doubled yearly to 6.6 billion at the end of this past quarter. Mercado Libre’s credit portfolio also materially increased, now being at 4.9 billion dollars. Credit originated through credit cards increased 145% YoY, mostly driving the credit portfolio upward by itself.

Management Commentary and Outlook

Management opened the call with a great tone of optimism, for, on Friday, Mercado Libre would celebrate its 25^th anniversary. A quarter of a century. The company’s focus and investments in Latin America for over two decades really started paying off in the last 5-8 years. Coincidentally, and naturally as well, it is after a big shift occurred in how Marcos sees things. Logistics and a seamless ecosystem started being priorities. Most cash flow was heavily reinvested and the company 10x in size. Now Mercado Libre serves tens of millions of customers and is in an undebatable position of strength.

Meli’s commerce business accelerated sequentially and is performing fantastically. The company is gaining share in all countries wherein it operates. The team was even surprised by their continuous performance in Brazil. Mercado Libre is at a very large scale and is still outgrowing the market.

Fintech services have also done phenomenally, with MAUs surpassing 50 million for the first time, while user engagement metrics on Mercado Pago show encouraging signs. Credit has taken a larger share of this business and management seems to be pleased by it, for it boosts the whole ecosystem and has great synergies with the e-commerce side.  At the same time, 1.6 million credit cards were issued during the quarter, with TPV growing 3x from this source.

The team extensively spoke about how they are scaling Mercado Libre’s logistics network in a cost efficient manner. In fact, penetration keeps rising, same and next day deliveries increased, and free shipping as well. All this is achieved with expanding margins, which is starting to show the power of economies of scale. Furthermore, Meli is heavily reinvesting in this part of the business, which has become its core competitive advantage. As an example, they are beginning to utilize robots to collaborate with human workforce, optimizing processing time by 20% on occasions. Total storage capacity is estimated to potentially increase by almost 15% per square meter as the usage of robots is scaled. Robots save a lot of time and resources.

Finally, management transmitted their ongoing mission of giving back as much as they can to customers. Meli+ is presumably gaining lots of traction and driving engagement. Moreover, Mercado Libre’s first party business is helping with customer satisfaction, about which Meli’s Commerce President mentioned:

“we are getting more and more obsessed with our price competitiveness”

My Take

Mercado Libre’s quarter was fantastic, as it has been for the past couple of years. Very high growth at scale, operating leverage, market share gains across markets, and an ecosystem that gets increasingly more settled in people’s lives. They are utilizing a proven playbook, with some unique twists, and are sharing their efficiency gains with customers in numerous ways.

I came back to Argentina two months ago and I’m impressed with Mercado Libre’s progress, in all fronts. I believe it’ll be useful for me to share my personal experience with the company. It really helped me and hope it does the same for you.

On the commerce side, I started a business with a relative, selling golf items, some of which are made by this person. Although it is on a small scale at the moment, I suspect it is a good bet and should get larger as years go by. Anyhow, Meli’s experience as a seller is fantastic. They have a pretty high take rate, but it ends up being worth it since they solve everything. I tried Ads as well, fantastic results. On the other hand, as a buyer, it’s a great experience. Items arrive in 24-48 hours.

On the fintech side, Mercado Pago is absolutely everywhere, or at least here in Buenos Aires, the capital. You’ll find Meli’s PoS hardware in the most remote parts of the city. Furthermore, I ordered Mercado Pago’s debit card. Simple and free process. I received it in only a few days. Additionally, I noticed how they are cross-selling multiple services, like insurance. The team has commented that Meli’s insuretech business is growing rapidly, with active policies doubling YoY, probably in the mid to high couple of millions already.

Mercado Libre has been in the portfolio since inception and I don’t suspect I’ll be making any changes anytime soon. It currently holds a 10.2% position. The last time I added was on April of this year, which I communicated in the previous earnings review.

Disclaimer: This is not financial advice.

Microsoft reported record sales during the last quarter of their fiscal year, coming in at 64.7 billion dollars and growing 15% yearly. For the full year, Microsoft’s revenue was 245 billion, up 16% YoY. More importantly, during the past quarter, services’ revenue dramatically outpaced that of product revenue. Recurring revenue as a percentage of total increased 8pps QoQ, getting to 80%.

Gross profit increased 14.4% yearly to 45 billion dollars, implying a 69.5% gross profit margin, which slightly declined. The company reported 27.92bn in operating income, with a margin of 43.1%. Net income generated was 22bn during the quarter, with a net profit margin of 34%, declining 170bps YoY.

Microsoft brought in a record 37.19 billion dollars in cash from operating activities, representing a 29% yearly increase. On the other hand, capital expenditures amounted to 13.87bn, materially up yearly and sequentially. Hyperscalers are incurring massive CapEx related to infrastructure building. The race for cloud dominance is very real.

Prior to diving into each segment’s particular performance, a general overview. It’s interesting to note that intelligent cloud keeps gaining share of total sales, while more personal computing’s decreases. During the quarter, Productivity and Business Processes generated 31.4% of total sales, while Intelligent Cloud and MPC, 44% and 24.6% respectively.

Operating income contribution is relatively similar. However, due to IC and P&BP’s superior margins, their share of total operating income is higher than their share of total sales. Intelligent cloud contributed 46% of total operating income, while Productivity & Business Processes and More Personal Computing, 36% and 18% respectively.

During the quarter, productivity and business processes had sales of 20.31 billion dollars, up 10% yearly. Moreover, it operated at a 50% margin, generating 10.1 billion in operating income. The segment’s operating margin was flat yearly and down 190bps sequentially.

Management’s Commentary on P&BP:

• Copilot customers increased 60% quarter-over-quarter.

• 400+ healthcare organizations have purchased DAX Copilot to date, up over 40% QoQ.

• Dynamics 365 now generates 90% of Dynamics’ total sales.

• Microsoft Teams saw YoY usage growth, with Teams Premium surpassing 3M seats, up 400% YoY.

• LinkedIn members grew and the platform had record engagement.

Office 365 commercial seats increased 7% yearly, which continued decelerating; whereas consumer subscriptions grew 10% to 82.5 million. LinkedIn’s growth, on the other hand, kept stable at 10% yearly. Over the past 12 months, LinkedIn reported revenues of 16.3 billion dollars, up 9.2% YoY. Lastly, Dynamics generated sales of 6.5 billion dollars, up 19% YoY. During the quarter, Dynamics and cloud services grew 16% YoY, while Dynamics 365 grew 19%.

Intelligent Cloud reported revenues of 28.5 billion dollars, growing 18.8% yearly. The segment operated at a 45.1% margin, which was up yearly but down sequentially, having operating income of 12.85bn.

Azure’s growth decelerated sequentially to reporting 29% on a yearly basis. It is very interesting to observe that Azure’s AI Services, namely those acquired and offered mostly based on OpenAI, contributed 8 points of the 29. Over the past couple of quarters, AI Services have contributed significantly to Azure’s topline. On the other hand, server products and cloud services’ sales increased 21% yearly.

Management’s commentary on intelligent cloud:

• Arc customers surpassed 36,000, up 90% YoY.

• Azure AI customers grew 60% YoY, exceeding 60,000. Average spending per customer keeps increasing.

• Microsoft Fabric’s customers increased 20% QoQ to 14,000.

• GitHub Copilot’s customers grew 180% YoY, surpassing 77,000.

• GitHub is at a 2 billion dollars run rate.

• Power Platform MAUs increased 40% YoY, crossing 48 million.

• Defender for Cloud, Microsoft’s cloud security solution, had over a billion in TTM sales.

Lastly, more personal computing generated revenues of 15.89 billion dollars, growing 14% on a yearly basis. The segment’s operating margin was 31% during the quarter, declining 300 bps YoY and slightly sequentially.

Over the past twelve months, Microsoft’s gaming offerings increased sales by 44% yearly. It is to be observed that Activision contributed 48pps. On the other hand, Windows generated 23.2 billion in revenue, growing 8% YoY, after a double-digit decline in 2023 (FY). Lastly, sales derived from search and news ads increased slightly yearly, to 12.57bn.

Management’s commentary on MPC:

• Bing and Edge took share.

• Microsoft’s gaming offerings have now over 500 MAUs across platforms.

Management Commentary and Outlook

Satya opened the call by mentioning the momentum that’s immersed in the whole ecosystem. Cloud and software offerings are gaining traction, and most products keep increasing their market share. On the other hand, other businesses like LinkedIn and Nuance are excelling with no signs of them running out of fuel.

The latter two are interesting to remark, for both are showing how AI can enhance almost all of Microsoft’s software offerings. Copilot within Nuance and AI-powered LinkedIn premium are appealing to lots of users and, in the case of Nuance, healthcare organizations.

Azure is Microsoft’s heart. All cloud-based offerings are powered by it and its infrastructure services have escalated immensely over the past 5 years. Nonetheless, AI Services are keeping Azure’s growth from decelerating. During the quarter, the business took share, with demand for AI services being in excess of available capacity. Commercial bookings increased 17% YoY, with numerous 10M+ and 100M+ dollars contracts for Azure. Remaining performance obligations, on the other hand, increased 20% to 269 billion dollars.

To support the underlying demand Azure is experiencing, the company is committed to substantial investments. Almost the completeness of capital expenditures are destined to continue building datacenters and the required infrastructure to support the coming decade(s) demand.

For the next quarter, management expects:

• An increase in CapEx.

• P&BP revenue to grow 10.5% YoY to 20.45 billion dollars at the midpoint of guidance. Microsoft 365 subscriptions are expected to keep driving Office sales, LinkedIn’s growth is expected to be high single digits, and Dynamics to grow low to mid-teens.

• IC Sales are expected to grow 19% YoY to 28.75 billion at the midpoint. Azure’s sales are expected to grow 28.5%.

• MPC revenue is expected to grow 10.5% YoY to 15.1 billion at the midpoint.

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TI generated revenues of 3.82 billion dollars, representing a decline of 15.6% on a yearly basis. Nonetheless, revenue grew 4.4% sequentially and management’s guidance suggests continued sequential growth. This implies the company’s sales may be bottoming out as the industry works its way through the cycle.

During the quarter, Texas Instruments had gross profit of 2.21 billion dollars, down from last year’s 2.9bn, with a 57.8% margin, which declined 430bps YoY but increased 60bps QoQ. Operating income was 1.24bn, implying a margin of 32.6%, down 900bps yearly and 250bps sequentially. Lastly, TI generated 1.12bn in profit, with the net profit margin being at 29.5%, the lowest level in the past couple of years.

Texas Instruments brought in 1.57 billion dollars in cash from operating activities, up 12% yearly, mostly due to the swing in inventories and an increase in depreciation. As of last year, the company was still fully focused on building up their inventory level. Capital expenditures were 1.06bn during the quarter, in line with management’s guidance of 5bn per year.

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Google had a period where it became uncertain if it’d return to growth or not. After several quarters of acceleration, yearly growth may be stabilizing. Revenue reached 84.74 billion dollars, increasing 14% on a yearly basis and more than doubling over the past 5 years. Almost all segments contributed to this.

Alphabet reported gross profit of 49.2 billion dollars, implying a margin of 58.1%, which expanded 90 bps yearly. Operating income came in at 27.42bn, substantially up from last year’s 21.83bn, and with a margin of 32.4%. Net income generated was 23.61bn, with the net profit margin increasing 330bps YoY to 27.9%

During the quarter, Google brought in 26.64 billion dollars from operating activities, down yearly mostly due to a previous deferral of income taxes, which was paid now. Otherwise, net income increase would provide a decent proxy of how things went. On the other hand, capital expenditures almost doubled YoY to 13.18 billion. Management had spoken about this occurring. This puts free cash flow at 13.4 billion.

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In spite of a persistently tough environment for the automotive business, Tesla’s revenue hit a record high of 25.5 billion dollars, increasing 2.4% yearly and meaningfully compared to last quarter. The energy and services segments contributed significantly to this occurrence.

Tesla recorded gross profit of 4.57bn during the quarter, implying a margin of 17.9%, declining 30bps YoY and up 50bps QoQ. Operating income was 1.6bn, down yearly and with a margin of 6.3%, declining 330bps yearly but also up sequentially. Lastly, net income amounted to 1.47bn, down from 2.7bn last year. The net profit margin declined 510bps YoY to 5.8%.

Cash from operations increased materially YoY, to 3.61bn, and normalized compared to last quarter’s 242 million. On the other hand, Tesla had previously announced its commitment to several projects, all of which consume most cash flow. Capital expenditures amounted to 2.27bn, out of which 0.6 billion were destined to AI infrastructure.

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With this company in particular, I find that lightly looking at the income statement is somewhat misleading. Therefore, the procedure for these earnings reviews is different from others. For instance, revenue includes fair value adjustments. Since last year Burford had very strong FV adjustments mostly due to YPF, revenue dropped 92% YoY in this one.

Overall, there was not much activity, typical of a first quarter and the business’ financials volatility. The group’s portfolio was fairly stable, finishing the period at 7.1 billion dollars, slightly down from last year’s end.

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The company had revenues of 4.33 billion dollars, growing 36% on a yearly basis, decelerating from last Q’s 42%. It’s interesting to note how well is the company sustaining these levels while being at a 16bn run rate. I will dive into sales’ components after a general financial analysis.

Meli’s gross profit amounted to 2.02bn during the quarter, implying a margin of 46.7%, which was down 400bps. The company generated 528M in operating income, with a margin of 12.1%, down 100bps from last year. Finally, Mercado Libre had a net profit margin of 7.9%, increasing 160bps YoY, and generating 344M in net income.

After the pandemic, Meli’s cash flow has risen dramatically. During the last quarter, Mercado Libre brought in 1.51 billion dollars in cash from operating activities, up from 859M in the comparable quarter. It is to be observed that a large portion of the increase is explainable by changes in working capital. On the other hand, capital expenditures amounted to 146M.

Prior to diving into segment specifics, I find the following table very illustrative to get a broad perspective. The ecosystem is growing on every single dimension, acquiring more users on both the commerce and fintech side.

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