CS DISCO (LAW) Spins Through Q2
The quarter was just what we wanted see. Revenue grew by 87.9% to $29.5 million, slightly ahead of consensus for $29.1 million (which was based on S-1 filling guidance). Operating margin was roughly a percentage point above expectations (-6.8%). Full-year 2021 guidance of $103.5 - $104.3 million is ahead of consensus of $100 million and implies growth of 51% to 52% versus the 46% rate embedded in prior consensus. Given the trends, wise management team and status as a new IPO we should view this guidance as conservative.
There’s not too much more to say about the business since I just covered it yesterday. But there were parts of the conference call that were terrific. Around the 40-minute mark founder and CEO Kiwi Camara riffs on the benefits of DISCO’s cloud-based solution as compared to the antiquated on-prem. offerings out there. I’m not sure how much he speaks off the cuff or if he had scripts for answers to questions, but either way the way he phrases the opportunity is just great, not only for DISCO but also for the future of cloud-based software in general. If you have an hour to kill (pop in the earbuds and go for a walk!) I suggest listening. If time is short just cut to around minute 40. Link to webcast here.
In the wake of the call analysts are bumping up price targets, many going to around 70 from the 55 – 60 range. This is good. The stock was indicated to open higher in early-hours trading but has opened down. This is also good. After a roughly 7% rally yesterday we want to see some “sell the news” weakness so we can add to positions.
Ultimately, this is a long-term investment for us and given that LAW is a relatively strong IPO (but not crazy, shares only up 28% on the first day) we should fully expect pullbacks in the early going here. If not today then certainly in the coming weeks/months. Maybe that won’t happen, but if it doesn’t LAW would be the exception among strong IPO stocks, not the rule. Just keep that in mind.
I am keeping at buy, ideally below 60, and looking/hoping for an opportunity to formally fill the second half of our position considerably lower. We’ll see. In many ways LAW is to the legal market what BILL is to back office operations automation and AVLR is to sales tax automation. I think it’s a long-term winner. BUY