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Feb 28, 2022

Opportunity Equity Update for Week Ended 2/25/22

Christina Siegel Malbon

Farfetch Gains on Strong Topline Growth While Herbalife Falls After Earnings Miss

Last week, the Opportunity Equity strategy fell -0.83%, underperforming the S&P 500’s 0.84% gain. (Exhibit 1). The strategy ended the week down -8.39% YTD, 59 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 2/25/221

Time Period Opportunity Equity S&P 500
Last Week (2/18 - 2/25) -0.83% 0.84%
MTD -2.54% -2.77%
QTD -8.39% -7.80%
YTD -8.39% -7.80%
Inception (annualized since 6/26/00) 7.75% 7.27%

Source: Bloomberg, Miller Value Partners

Farfetch Ltd (FTCH) rose after reporting quarterly adjusted EBITDA profitability for the second consecutive fourth quarter. Digital GMV was up 22% y/y, ahead of consensus expectations for 21% growth. Revenue rose 23% y/y to $665.7M, slightly behind expectations of $672.6M. Adjusted EBITDA rose 248% y/y to $36.1M. The company guided for Digital GMV growth of 28-32% in 2022 beating consensus expectations for 29% growth. The company plans for adjusted EBITDA margin to come in at 1-2% vs the 3% expected due to some one-time investments. Earlier in the week, the company announced that New Guard Group will be Reebok’s operating partner in Europe following ABG’s acquisition of the brand later this year.  Tivity Health Inc (TVTY) reported 4Q21 revs of $126.8M, slightly ahead of consensus expectations of $126.6M with adjusted EBITDA of $34.9M missing expectations of $35.3M due to higher per visit expense during the quarter. The company expects 2022 revenue of $540-580M ahead of expectations for $537M with EBITDA guidance also beating at $161-166M vs $162M expected. Free cash flow guidance for 2022 came in a bit light at $77-87M vs consensus of $87M due to a $5M increase in CAPEX for the year. Splunk Inc (SPLK) rose above the 50-day moving average. There was limited news on Alphabet Inc (GOOGL).

Exhibit 2: Significant Contributors to Performance, 2/18/22 - 2/25/22

Name Type Return
Farfetch Ltd Equity 27.8%
*New Security* Equity 12.6%
Splunk Inc Equity 5.5%
Tivity Health Inc Equity 4.3%
Alphabet Inc Equity 3.1%

Source: Miller Value Partners

Herbalife Nutrition Ltd (HLF) fell through the 50 and 100-day moving averages after reporting Q4 adj. EPS of $0.57 vs. consensus expectations $0.64 on revenues that fell -6.5% y/y vs. consensus of -3.5%. The company repurchased $102 mm worth of shares in Q4, representing 2.2% of shares outstanding. Despite the miss on the quarter, the company issued 2022 guidance that surprised on the topline but missed on the bottom line. Revenue is expected to grow 0-6% y/y (vs expectations for 0.5%), adjusted EBITDA will be in the range of $785-845M (vs $865M expected) and adjusted EPS will come in at $4.25-4.75 (vs $4.63 expected). The guidance assumes the repurchase of $200M worth of shares during the year, representing 5% of the shares outstanding at current prices. Alibaba Group Holding Ltd. (BABA) reported FY3Q results that missed consensus on the topline but beat on profitability. Total revenue of ¥242.6B (+10% y/y) was below consensus expectations of ¥245.4B, with adjusted EBITA of ¥44.8B ahead of consensus of ¥42.5B leading to EPS of ¥16.87 topping expectations ¥16.20. Alibaba continues to provide support for merchants through incentives and reduced fees, resulting in a -1% y/y decline in Customer Management revenue vs consensus expectations of +1% y/y). Cloud revenue grew +20% y/y to ¥19.5B versus consensus of +26% y/y blaming the shortfall on the slowdown in the internet sector. Norwegian Cruise Line Holdings Ltd. (NCLH) reported adjusted 4Q21 EPS of -$1.95, below consensus expectations of -$1.66. Revenue missed consensus as well coming in at $487M vs $548M expected. The company ended the year at 70% capacity, below their original 75% guidance due to omicron-related delays. The company expects to reach 85% capacity by the end of 1Q22, with the full fleet back in the early part of 2Q22. On a cash burn basis, the company expects to turn operating cash flow positive in 2Q22 while delivering positive adjusted Net Income for the second half of 2022. Coinbase Global Inc Ordinary Shares (COIN) reported strong Q4 results. Revenue of $2.49B exceeded expectations of $1.94B while adjusted EBITDA of $1.21B came in well ahead of consensus of $813.2M with EPS of $3.32 well ahead of the Street at $1.85. COIN reported a record number of monthly transacting users (MTUs) at 11.4M, 54% higher than Q3 and 4x above Q4 2020 levels, helping the company to hit a record level of trading volumes. Despite the strong quarter, shares traded down after the company gave expense guidance that was higher than anticipated. Tech & Development and G&A expenses are forecasted at $4.25B-$5.25B vs consensus estimates of $2.36B due to COIN's plan to continue to invest ahead of growth by looking to hire around 6,000 employees in 2022 (about 260% increase y/y). While the crypto market can be unpredictable, management will be focused on managing to the bottom-line making sure that adjusted EBITDA does not fall below -$500M. Green Thumb Industries (GTBIF) fell below the 50-day moving average on limited news.

Exhibit 3: Significant Detractors from Performance, 2/18/22 - 2/25/22

Name Type Return
Herbalife Nutrition Ltd Equity -15.3%
Green Thumb Industries Inc. Equity -10.7%
Alibaba Group Holding Ltd. ADS Equity -9.3%
Norwegian Cruise Line Holdings Ltd. Equity -7.3%
Coinbase Global Inc Ordinary Shares Equity -6.5%

-Source: Miller Value Partners

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1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy's weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners. Portfolio composition is shown as of a point in time and is subject to change without notice.

©2022 Miller Value Partners, LLC