Betting Big On Cricut, Inc
We like Cricut, Inc (NASDAQ: CRCT) so we are not surprised to see a major shareholder accumulating shares. What we are surprised about is the scope of that accumulation and what it may mean for future share prices. What we’re talking about are systematic, periodic purchases by Abdieal Capital Management that have pushed inside ownership to over 20% and total institutional ownership to over 68%.
The inside activity in Cricut, Inc has been mixed but is overwhelmingly bullish on balance. The 0.390 million shares sold by execs and directors pales in comparison to the 6.236 million shares purchased by Abdiel Capital Management during the same time. Who is Abdieal Capital Management? This is what we found on their website ….
“Abdiel generally invests in publicly traded companies that are likely to gain market share over long time periods. We prefer businesses that have recurring revenue and that are managed by people with a large share of their net worth in the stock. Our ten largest investments frequently comprise more than 75% of invested capital. We started in 2006.” Sounds like they see a winning opportunity in Cricut, they own more than 11 million shares or 5% of total shares and 30% of the float.
As for the institutions, institutional activity has been strong regardless of Abdiel Capital Management’s purchases. Prominent names in the SEC filings include UBS, RBC, Morgan Stanley, BNY Mellon, and Credit Suisse. Total activity, net of Abdiel’s purchases, is running near $500 million over the last year or about 10% of the market cap with shares trading near $20.
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Lackluster Results Weigh On Cricut Sentiment
Lackluster results in the last reporting period are weighing on share prices. The company produced nearly 25% YOY growth but missed the consensus target but take that with a grain of salt. There are only 5 analysts covering the stock and the range of estimates was quite wide. The takeaways from the report we want to focus on are that user growth is on the rise, device sales are positive, inventory was robust, and a re-stocking cycle was anticipated for the Q4/early 2022 time frame.
In our view, this has the company set up for a robust Q4 but the target set by Wall Street may be hard to beat. The consensus is for revenue to jump 56% sequentially to $407.5 million on strength in both domestic and international markets. The international business is a small portion of total revenue and a billion-dollar growth opportunity for the company over the long term.
The Technical Outlook: Short-Sellers Push Cricut To New Lows
While there are legitimate reasons for Cricut to have sold off from their post-IPO highs most of the decline can be attributed to short-sellers. The short-interest on Cricut topped 18% of the float at the end of December 2021 which is quite a weight for the market to beat. This weight may keep pressure on price action in the near term but we see it fueling a rebound and rally fairly soon. Assuming the company is able to meet or even come close to its Q4 targets we see short-covering begin and the start of consolidation, base-building, and eventual reversal. If the company is able to outperform or give some news on international expansion the short-covering could become a short squeeze that pushes price action up 20% or 30% in a matter of days.
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