What is up Cruisers?!
We hope everyone had a great week and we could not be more excited for this week’s issue! Tired of reading? Just click on the play button above and you can hear CEO Alan read this week’s newsletter to you!
Let us jump right in!
🔍SPOTLIGHT
The Callaway Way!🏌️♂️🏌️♂️🏌️♂️
💰Earnings
“We got a few really big weeks ahead of us!! It’s earnings season, kid.” - Vince Vaughn, Wedding Crashers.
While we substituted the word “earnings” for “weddings,” the sentiment from this all-time classic remains the same. We are very excited for this time of year.
Our darling stock Callaway Golf $ELY (up over 100% since being added to the portfolio) just released their earnings. The often shortsighted Mr. Market thought the earnings were rough as $ELY dropped 10%. The long-term Cruising Altitude minds think that they were very encouraging. Check out the numbers:
Q4 Revenue: $375 million (2020) vs. $312 million (2019)
A 20% increase from 2019 to 2020
Q4 adjusted EBITDA (think profitability): $-12 million (2020) vs. $-6 million (2019)
A 100% decrease from 2010 to 2020
🔑Key Takeaway: Revenue increased significantly but profit decreased significantly
🚀Huge Growth
Callaway saw “unprecedented demand” for their products including:
+48.5% growth in golf club sales
+14.3% growth in golf ball sales
+8.7% growth in apparel sales
📜Quotes
At CA, we get that our fellow Cruisers lead busy and exciting lives. Maybe you don’t have time for earnings calls. No worries. We gathered some of the most telling quotes from the transcript of the call, so you understand the basic energy Chip brought.
“This increase (in sales) reflects continued unprecedented demand in our golf equipment business.”
“We anticipate that our continued brand momentum, increased demand for golf equipment… will continue into 2021.” (For long-term investors, it is always good news that the future is bright!)
“Post-COVID, we continue to expect our apparel soft goods segment to grow faster than our golf equipment business, and with that growth to deliver operating leverage enhanced profitability.”
Maybe now you can see why we are so excited about the future!
🙋But What About Profitability?
Alright, CA Nation. What about profitability?
We hear you. Don’t worry. The profitability double bogey has an explanation.
Don’t know if you heard but the world was hit with a crazy pandemic called COVID-19. Companies were forced to make some big changes to survive and Callaway Golf was no exception.
Here are the three reasons that profitability decreased:
Increased operational costs due to COVID
Significant increase in costs of shipping containers and air shipments to meet demand
Proactive inventory reductions
The nice thing is these are all directly correlated to COVID. After 2021, the company is confident these increased costs will go away as the vaccines come our way!
🗒️Final Note
The Callaway long thesis still stands. One important factor to keep in mind is the stock is up over 100% in just a few months. A lot of upside is already baked into the company’s future.
Want more in-depth analysis on Callaway and if it is a little “hot” in the short run? Check out this thread by Cruising Altitude CEO Alan on Twitter- Click here.
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “ Some Concerns”
🟥Red= “ Big Concerns”
As always, for live updates click here!
📸WE ARE FAMOUS!
7Investing & CEO Alan!
This week, CEO Alan hopped on 7Investing Now- an investment show with one of the fastest growing professional investment services in the country! On the show, Alan defended portfolio pick ViacomCBS $VIAC and defended the bullish thesis!
Click here for the full show!
📰STUFF YOU SHOULD KNOW
This Week
General News
🏦 🚫 What Was the Biggest Mistake You’ve Ever Made? Whatever it was, we’re 99% sure it wasn’t as bad as the one made by Citigroup $C. Employees at Citi accidently wired nearly $900 million to lenders instead of making (much smaller) interest payments. While it has recovered about $385 million of that money, a federal judge ruled this week that other recipients of the money don’t have to pay the remaining $500 million back to Citi.
📉 Speaking of Losing Money… Jeff Bezos reclaimed his spot as the richest man in the world after Elon Musk lost about $4.5 billion in paper net worth. Since most of Musk’s wealth is tied to Tesla $TSLA stock, its drop in price this week led to a drop down the billionaire’s list for Musk.
🎤 When He Talks, We Listen. Even though he’s 90 years old, people still listen to Warren Buffett when he talks. Shares of Verizon Communications $VZ and Chevron Corp. $CVX rose this week after Buffett’s Berkshire Hathaway $BRK-B announced it had invested multiple billions of dollars in each of the companies.
📺 The Magic of Disney. In just a short period of time, Disney’s $DIS Disney+ streaming service has amassed 95 million subscribers, almost half that of Netflix $NFLX. In total, between Disney+, ESPN+, and Hulu (all owned by Disney), the company's subscribers are at a whopping 146 million.
📕LEARN
What is Liquidity?
Put simply, liquidity is a measure of how easy it is to convert an asset to cash without affecting its market price. There are two types of liquidity: market and accounting.
Market Liquidity
Market liquidity refers to how transparent and stable the price of an asset is on the open market. For example, the stock market has relatively high liquidity because, for most stocks, it is easy to find a buyer (if you’re selling) or seller (if you’re buying) at an agreed upon price. This is because there is a high volume of trading.
Alternatively, a rare piece of art that is worth millions of dollars would be less liquid because there is not a set marketplace or market price for the asset. So, it would take longer to get cash by selling the piece of art than a stock, therefore stocks are more liquid than art.
Accounting Liquidity
Accounting liquidity refers to the ability of a company to pay off its debts with liquid assets. Two main components of this are cash and cash equivalents, and available revolver. Cash and cash equivalents refers to, as the name suggests, the amount of cash and other highly liquid assets, like short-term government bonds and marketable securities, that a company owns.
You can think of a revolver as a credit card for a company--it is the amount of money available to a company for a short-term loan. Since this amount is pre-approved and can be accessed at almost any time, a revolver is considered a source of liquidity.
Bottom line, the more liquid a company is, the less ‘at risk’ they are of defaulting on their financial obligations.
💯Insightful Quote
Fore!!!!!! Here Comes $ELY!