Earnings Update: Dropbox, Airbnb, Coinbase, Virgin Galactic, and Portillo's

Good morning!

Earnings season is in full swing last week there were five Asymmetric Universe stocks that reported. After going through earnings and listening to every conference call, these are my thoughts through the lens of a long-term asymmetric investor.

Dropbox Q2 2023 Update

I mentioned in the Dropbox spotlight that this won’t be a company that knocks your socks off quarter-to-quarter. But a decade from now it may have a combination of growth and share buybacks that drive a 10x return. The second quarter was slow and steady progress in that direction.

• Growth: Revenue was up 8.7% and 11.2% on a constant currency basis to $622.5 million.

• AI: In June, Dropbox introduced Dash, an AI-powered universal search, and Dropbox AI. This was discussed at length in the conference call and the broad takeaway is that management hopes AI will make it easier to pull information and “communicate” with your files and data. It’ll be a few quarters before there’s meaningful impact on the business, but this could be a differentiator for Dropbox.

• Buybacks: Cash and equivalents to end the quarter were $1.23 billion. Management bought back $154.2 million of stock in the quarter and has $1.619 billion in buybacks authorized, inclusive of a new $1.2 billion authorization.

• Optionality: The optionality I see is Dropbox becoming a data hub for businesses and individuals. Imagine putting all of a company’s SEC filings into a folder and just typing “Make a chart of MRR since Dropbox went public.” Conversational questions like this will be possible within Dropbox.

It’s hard not to like what Dropbox is doing operationally. It’s not flashy, but Dropbox is growing at a steady rate, adding value with new products, and buying back shares at a discount to most cloud rivals. I am happy with the execution by management and the market see the value in this company, eventually.

Airbnb Q2 2023 Update

If you haven’t listened to Airbnb CEO Brian Chesky speak, the second quarter conference call is a good discussion to listen to. It shows how clearly a founder can speak about a business and where it’s going long term. My highlights are:

• Revenue Growth: $2.5 billion, up 18% year over year. It’s hard to argue with the growth Airbnb is showing right now and everything from long stays of 28 nights or more (18% of nights booked) to cross-border travel (45% of nights booked) saw strength.

• Host Health: Active listings increased 19% year-over-year and the word “host” was mentioned 46 times in the conference call, so clearly it’s a focus of management. Chesky mentioned improved tools for hosts to see revenue and adjust pricing for longer stays. Airbnb is also pushing for more “room” style listings, trying to grow the lower price point as guests have pushed to higher prices in recent years.

• Free Cash Flow: $900 million, up 13% year over year. In the last twelve months, Airbnb has generated $3.9 billion in free cash flow and a 43% FCF margin. This is the kind of operating leverage I love to see.

• What’s Next: There have been veiled comments about “expanding beyond the core” without quite nailing down what that means. There was a direct question about that and Chesky spent a few minutes…deflecting. Something about new services for hosts and guests. “Stay tuned” was my takeaway.

• The Cash Story: $10.4 billion in cash and equivalents pulse $9.1 billion of customer deposits. That’s an incredible balance sheet and drove interest income of $191 million in the quarter. There should be more opportunity to grow that interest revenue as short-term interest rates rise.

• $500 million of stock was repurchased in the quarter, offsetting dilution from employee stock programs.

Overall, I love what I’m seeing from Airbnb’s operations. There are a lot of ways the company can grow from growth in underpenetrated geographies to new product categories like experiences.

What’s not to like about a company that’s a noun and a verb?

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