✈️$ELY- The Ball That Keeps Flying🏌️‍♂️

This week we share analysis on our biggest winner and their Q1!

👋Welcome!

What is up Cruisers?!

This week’s newsletter recording is back!

🎧To listen on Apple Podcasts CLICK HERE!

🎧To listen on Spotify CLICK HERE!

What is Inside?

  • 📕 Chart of The Week | 😂Meme of the Week

  • 💸Portfolio Update | 📰Portfolio Moves

  • 🔍Spotlight: $ELY|✈️🎙️Final Thoughts

Showtime!


📈Chart Of The Week

Check out this awesome chart provided by Antenna that breaks down both the percentage breakdown of each streaming service compared to one another (on the left) and which company owns them (on the right)!

This past week there was big news that WarnerMedia (owns HBO Max) and Discovery (owns Discovery+) would be merging together and likely forming a new, combined streaming service (yes! more change!).

People have been asking us at CA how we think this impacts $VIAC and our answer is not much at all! We are confident in $VIAC’s ability to compete in the Streaming Wars. Why? Check out our write up from last week where you can find here!

(Of course after reading this week’s!)


🤣Meme Of The Week

This is not a meme just an awesome picture that we wanted to share!

We are told another road to the moon is through Callaway Golf, ViacomCBS, and the other CA Portfolio Picks!


💸Portfolio Update


📰Portfolio Moves

Two weeks ago, we were very very busy in the market changing up our portfolio. As promised, we will start sharing our thought process on the moves that we made.

One of the main principles that influenced this restructuring is the fact that Alan and the CA Team know A TON about ViacomCBS, Callaway Golf, and Sprouts Farmers Market- three of our favorite picks. As we kept on liking more stocks, we added them to the portfolio. Our portfolio got bigger and our top picks got less concentrated and that is not what we want.

At CA we believe in knowing what you own and believing in what you own. $VIAC, $ELY, $SFM we know A TON (as mentioned above!) and have serious conviction. This is one of the reasons why we started trimming the portfolio so we could let our best picks shine!

Behind the scenes footage of CEO Alan talking to the CA Team and sharing his thoughts on what he wants the Cruising Altitude Portfolio to symbolize

🎮Trivia Night!

A question you shouldn't know the answer to but will serve as a fun way to learn more about the portfolio picks or the Spotlight company.

Question:

Why is Callaway Golf’s stock symbol $ELY?

a. Acronym for Everyone Loves You

b. Founder of Callaway Golf’s name was ELY

c. Alternative Name for a “Hole in One” is called an “ELY”

Answer: B Ely Callaway founded Callaway Golf in 1982! Again, C is totally made up so the CA team would not recommend spreading that tid bit.


🔍Spotlight: $ELY

Introduction

  1. Net Income- is a profitability metric that helps investors evaluate a company and represents sales minus ALL expenses. It is the ultimate bottom line and shows how much money a company made or lost. Sometimes this number can be slightly misleading, however, as sometimes weird accounting laws and principles end up skewing the number. That is why many top notch investors prefer metrics like EBITDA or Free Cash Flow (we have defined EBITDA & FCF in the past! If you would like a reminder feel free to DM us or shoot us an email for a reminder)

👏Golf & Expectations

Many things in life do not live up to expectations. One area for me where I see this stark contrast between expectations and reality is in my relationship with Golf. Here I am earlier today (writing this on Sunday) absolutely ecstatic about going to the driving range.

I imagine a beautiful course, sun shining, me buying a Callaway Golf hat to support my company, and not trying to do too much with every swing. It could have not gone any differently.

Blister on my right middle finger (I want to give this blister the middle finger), back pain, dehydration, humidity to the moon, and overthinking every single part of my swing. It absolutely sucked (I told my parents I had a good time cuz it is just easier that way but after reading this they will know the truth. Mom & Dad- I only lie to you guys when its good for you and about things that don’t matter. Maybe…)

The craziest part about my golf experience is I cannot wait to get back out there again (after taking a few days off). That pure bliss feeling of striking the ball well and the idea of spending time with family and friends on the links is worth trying to give this thing another shot (pun)!

Today, we breakdown Callaway Golf’s Q1 earnings and unlike my golf shots, they absolutely crushed it. I look forward to sharing some highlights from the companies Q1 call! Without further ado, let us kick things off!

💸Earnings: Birdie or Bogey? 

Callaway Golf had their Q1 earnings call on May 10 and they absolutely killed it, but don’t just take my word for it, let's check out the numbers:

  • Revenue - $651.621 Million (actual) vs. $561.556 Million (projected)

    • This was a good surprise (16.04%)

  • Net Income - $76.624 Million (actual) vs. $16.133 Million (projected)

    • This was an even better surprise (374.94%)

  • EPS (Adj) - $0.62 (actual) vs. $0.136 (projected)

    • This was an INCREDIBLE surprise (357.38%)

So, did $ELY hit a Birdie or a Bogey? Considering all those surprises were good surprises, we think it hit a hole in one! But lets not just consider the past, lets look at why we think Callaway could continue to break par for years to come.

Topgolf and Toptracer

Callaway announced it was buying golf entertainment superstar Topgolf in October for around $2.6 Billion. Topgolf is one of the most exciting things to happen to the sport in a long time because it has renewed the publics interest during a bit of a rough (pun) patch. Unless you live under a rock, you have probably heard a lot of the hype from friends, but here is why investors are salivating at the opportunity in front of $ELY:

  • Topgolf produced $1.1 Billion in revenue in 2019 and attracted more than 23 million customers in 63 locations across the globe

    • This is about $17.5 Million in revenue per location and they are on track to add 8 new locations this year

  • Covid-19 saw all locations shut down in 2020, but they are recovering faster than expected with all locations now open and seeing increased traffic (seriously, try to reserve a bay… its not easy)

    • Although this is a transitional year due to Callaway’s new ownership, they said 2021 results should exceed 2019 revenues with the new locations and rollbacks of pandemic guidelines

  • A survey showed 99% of Topgolf guests say they will return and 75% of non-golfers say they are interested in playing golf on a course

    • Now this is what we like to see! I am not sure who that 1% is that does not want to go back, but these are exciting numbers for a sport that saw declines in participation over the previous decade. The second half of that is also really great news for other parts of Callaway’s business.

Now that you understand the excitement around Topgolf, there is even better news. One of the most fun aspects of going to Topgolf is the ability to use their technology to track your hits. This awesome tech component of their business model is called Toptracer and we want to show you why we think its a long term winner for $ELY:

  • Despite Covid difficulties, Toptracer installed 1,533 bays in Q1, which is a new record and brings the total number of installations to over 10,000

    • They are on track to install at least 8,000 bays in 2021!

  • Toptracer currently brings in $15 Million in annual revenue (up 230% since 2017!), is licensed to 140+ TV broadcasts, and is active in over 7,500 bays globally

    • Callaway wants to take Toptracer to the big leagues and increase revenue from $15 Million to $200 Million by continuing to license and install the technology

  • Toptracer currently tracks 2.5 million shots every single day

    • This might not show increased revenues, but it is just a cool fact we thought we would share

Whether you like Topgolf or not, Toptracer is some really impressive tech that could prove to be one of the most lucrative supplements to Callaway’s acquisition… and it might even improve your swing.

Clarification on Toptracer technology: This golf shot would not be trackable by Toptracer as the golf ball was not hit. We are told Toptracer does not track how far this golfer fell going into the water.

🐺Golf and so much more…

Topgolf might be Callaway’s new sexy acquisition, but there is a lot to be excited about outside of that, too. Lets take a look at some other key drivers (it’s too easy) of their historical success and the potential for growth in the future.

  • Golf equipment has been the backbone of this company since its founding in 1982 and has seen an awesome jump in demand during the lockdowns

    • Sales of golf equipment in the US were up 72% compared to Q1 2020 and this is the highest Q1 on record! Rounds of golf played in the US were also up 24% in the same time frame.

  • Investment in E-commerce has payed off in Callaway’s apparel segment

    • $ELY acquired high-end golf apparel brand TravisMathew in 2017 and has seen some great returns since then with Q1 e-commerce sales up 145% versus Q1 2020

    • Another apparel brand that $ELY owns is the European version of The North Face called Jack Wolfskin and they have also been killing the e-commerce game despite restrictive EU lockdowns

🎁Wrapping It Up

Whether it is TopGolf, Toptracer, or the legacy Callaway business, this thing is hotter than Tiger Woods on a Sunday in his prime.

Even though our initial investment has appreciated by over 100% since adding it to the portfolio, for obvious reasons we think the company is just getting started.


✈️Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox!
- Alan & The Cruising Altitude Team

Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion. Members of Cruising Altitude might have positions in the equities in the Cruising Altitude Portfolio or mentioned in the newsletter.