February 10, 2021

Lyft (LYFT) reported Q4 2020 earnings after the close yesterday and the results were better than expected even though the numbers look just terrible (thanks pandemic!). Revenue fell 44% to $570 million (but beat expectations by $9 million) while adjusted EPS was -$0.58, $0.05 less than the year ago quarter. We knew getting into this stock that the numbers would be bad and that we were looking to buy into a recovery before it gained too much momentum. That thesis appears to be playing out.

Revenue was up 14% from the prior quarter (Q3 2020) as recovery trends continued on a quarterly basis, despite a surge in Covid-19 cases late in Q4. Active riders in the quarter was down roughly in line with year-over-year revenue, to 12.55 million, but revenue per active rider was up 2.3% to $45.40 as management’s cost reduction initiatives kicked in. Across the entire company, costs were slashed by $360 million in Q4, which was more than 20% over the prior year Q4. Many of those cost cutting measures should hold which means Lyft will emerge from this as a much more efficient company (at least, until the next spending spree).

We don’t typically love companies with a “slash costs to achieve profitability” story but clearly in this case there are temporary factors (pandemic) in play. We are expecting a summer rebound in business and should that occur, Lyft will not only see huge topline growth in the back half of 2021 but maybe even turn an EBITDA profit in Q3.

The bottom line here is that, provided Covid-19 cases continue their downward trajectory and most people get vaccinated by the end of summer we should see a meaningful recovery in this business. It could even be huge if travel takes off due to pent up demand (a rational expectation) AND management plays its cards right. We haven’t dug too much into specifics of management’s growth initiatives because we’re not at that phase of the recovery yet. If and when we get there (likely mid- to late 2021) we’ll get into all that. For now, this stock is working and you can buy into the strength. BUY

Moving Lawson Products (LAWS) To SELL

We jumped into Lawson Products (LAWS) in December as we began to hunt for recovery plays and stocks that we could jump into for low risk, quick profits. With the stock jumping to near multi-week highs at 54 yesterday, where it has hit resistance for the third time, it looks like a good time to step aside for a modest profit of around 7%. While there is surely more upside here, earnings aren’t due out for a couple of weeks and I think it makes sense to take the gain while it’s there. SELL

TFFP Pharmaceuticals (TFFP) Moves to SELL

We’ve had TFFP Pharmaceuticals (TFFP) since last August and are up over 45%. It’s an exciting company with big potential technology to turn more molecules into inhalable therapies so they are easier to deliver into patients and with fewer side effects. The current strategy is to work on molecules that have already been approved by the FDA as safe and effective (i.e. the 505(b)(2) regulatory pathway). The biggest catch here is that the pipeline is relatively early-stage; the most advanced molecules, TFF VORI (Invasive Pulmonary Aspergillosis) and TFF TAC-LAC (inhalable tacrolimus for prevention of rejection of organ transplant) are only in Phase 1 trials. Three other compounds, including one for asthma/COPD, are just entering preclinical trials. Today, TFFP is trading just under 20, which is less than 10% off its all-time high of 21, and right around a level at which shares have previously retreated -20% to -34%. With a longish timeline to potential FDA approval and a somewhat thinly traded microcap trading near all-time highs, and our ongoing work to try to pull in the number of positions in our portfolio, the timing looks enticing to lock in our gain here. This may easily be the wrong decision and TFFP could break out and go on a huge run. You may wish to simply hold on. But at the moment, I’m personally willing to be a little conservative and take the gain to avoid the potential of another retreat. TFFP will go back on my watch list as I think we’ll get another enticing entry point before treatments are brought to market. SELL

Varonis (VRNS) Taps the Market – Look to Buy a Dip

After a great Q4 report on Monday Varonis (VRNS) announced it would launch a $400 million secondary yesterday. I expect there could be some modest weakness in the stock as we await pricing, and potentially afterward (my best guess is pricing will be around 185 but that’s a total guess). Contrary to what happened years ago, these days growth companies that complete secondary offerings are often being rewarded with higher share prices (after an initial dip). The reasoning is sound: they aren’t raising cash to keep the lights on but to fund acquisitions, product development, marketing initiatives and other growthy projects that typically have a much higher return than the cost/dilution of the capital raised. My suggestion is to average into the weakness as I think VRNS will bounce back and trade higher in 2021. BUY