All about Investing

1 Growth Stock That Crushed Earnings, and 1 That Missed Expectations

Related categories

It has been a roller-coaster earnings season, and these two stocks fell on opposite sides of investor sentiment.

Many publicly traded companies delivered their full-year 2021 earnings reports in February, with mixed results. Reactions by investors have been somewhat distorted because of macroeconomic headwinds pushing back the broader market, like tensions in Europe and rising interest rates.

But even still, it's hard to suppress strong results, and payments giant Block (SQ -3.33%) certainly delivered a positive surprise. But smart-lock tech company Latch (LTCH -3.08%) wasn't so upbeat, providing forward guidance for 2022 that missed expectations. Let's explore the details.

Image source: Getty Images.

1. Block soars

Block reported earnings after hours on Feb. 24 and received an overwhelmingly positive reception from investors the next trading day, sending the stock 26% higher. At Tuesday's close, it was still down 55% from its all-time highs, but the company has made some significant moves over the past year that should generate plenty of long-term value.

In January, Block officially closed its $29 billion blockbuster deal with global buy now, pay later leader Afterpay. Block will make Afterpay available to its Square sellers, who can offer financing to their customers. It will also introduce integrations with its Cash App ecosystem to help consumers fund small-scale online purchases. Cash App serves as an alternative to traditional banking, with the ability to hold funds, process instant payments, and even trade stocks, and it now serves over 44 million monthly active users.

But from a revenue perspective, it was cryptocurrency Bitcoin that fired up the Block party in 2021. Block customers made $10 billion worth of Bitcoin transactions throughout the year, accounting for 56% of total revenue, but with a slim gross margin of just 2%, the segment only represented 5% of overall gross profit.

The company's total 2021 revenue of $17.6 billion was an increase of 85% compared to 2020, and it delivered earnings of $0.33 per share. That was less than the $0.44 per share in the prior year, because of disproportionate increases in some expense items and a $71 million loss on its Bitcoin inventory.

But overall, the company's continued growth in core businesses outside of Bitcoin transactions, like its seller segment and Cash App, make it an enticing bet for the future, especially with the addition of Afterpay, since buy now, pay later options tend to increase conversion and entice consumers to spend more, which should boost Block's entire ecosystem. 

Image source: Getty Images.

2. Latch missed big on 2022 guidance

Innovative building-security company Latch is in the midst of a major growth phase. It provides both hardware and software solutions to high-rise commercial and residential buildings, changing everything from the way they manage guests to how they control temperature. The company is growing rapidly, and is now responsible for securing 30% of all new residential apartment buildings across the U.S.

Latch's Smart Access technology allows users to unlock their doors through its smartphone app, in addition to conventional means, and its Smart Home system offers central control of temperature and lighting through a recurring software subscription. Plus, building managers can opt for sensors that detect water leaks for preventative maintenance.

At the close of 2021, Latch had $360 million in total bookings, which it expects will convert to revenue once its customers complete construction of their various projects. Going forward, Latch will cease reporting total bookings and instead introduce a new metric called Spaces, which will represent the number of units generating software and services revenue for the company. The change is designed to shift investors' focus to what's happening in the present, rather than an ambiguous point in the future. But for now, 2022 is set to be the year those bookings conversions really ramp up.

Latch generated $41 million in revenue during 2021, representing 129% growth compared to 2020. And this year, it estimates it will deliver $75 million to $100 million in revenue, which is a significant increase over 2021, but it's far less than the $148 million analysts were predicting. That's primarily what triggered Latch stock to crash 24% on the day of its earnings release.

It's not a great result for investors, who have now watched Latch stock decline by 77% from its all-time high a little over a year ago. But the company is still growing rapidly, and Wall Street analysts maintain a consensus overweight rating on the stock with an average price target of $6.75, representing 68% upside from where it trades today. 

For investors with an appetite for risk, Latch could become a portfolio supercharger over the long term if it successfully executes on its strategy.

Leave your comment
Name
E-mail
Comment