Wow, what a trip this has been so far.

I picked CrowdStrike (CRWD) as a Potential Multibagger on June 29, 2020, almost six years ago exactly, at $98.10. That means it is almost a 7-bagger. But in typical Potential Multibaggers style, it has been very volatile and, I’m sure, will remain so.

This is how multibaggers go. Everyone wants to celebrate a multibagger, but very few have the stomach to hold on to stocks through the ups and downs.

Don’t be mistaken in thinking that CrowdStrike was an easy hold. It first became a threebagger in a relatively short time and then went back to square 1 in January 2023.

That means the stock was down 65% from the top. Of course, as always, the cynics were ready to chime in: to get back to even, the stock has to almost triple.

There are two problems with that.

The first false assumption is that everyone picked the absolute top. If you picked the absolute bottom, everyone would accuse you of cherry-picking, and they would be right. But if someone cherry-picks negatively, it just passes as if that’s normal. My irritation about this is one of my pet peeves.

Secondly, the percentages make it seem impossible. To be exact, the stock would have to win 186% to get back to the top. Including the stock price, that’s almost a triple. Sounds hard, right? But the stock just has to regain the lost dollar amount. Math is somewhat misleading here. Not factual, of course, but psychological. It makes it sound almost impossible or very hard. But if you look at the bottom, this often happens and usually very quickly.

Just look at what CrowdStrike did from January 2023.

As you can see, the stock is more than a 7-bagger from that point. I looked at when it exceeded its previous top. The poetic beauty of the facts is that it was exactly a year after that bottom.

As long as a company keeps performing fundamentally, the stock return will come. Sometimes it goes swiftly, sometimes you have to exercise years of patience. That’s the entrance ticket for outsized returns.

This is what Charlie Munger said about this.

But enough musings. It’s time for action. And Zack will help me. He will analyze the earnings, although I also contributed a few elements. Even when someone else writes, I still analyze, so I don’t lose touch with the stock.

After the analysis, I take over again for the Selling Rules, the PM Quality Score update and the Valuation to see if CrowdStrike is still attractive at this price, or if it would be wise to sell or trim. Take it away, Zack.

Hi Multis

Leading up to earnings, CrowdStrike went on a generational run, more than doubling from the AI-fear lows set earlier in the year.

The sentiment on X went from “CrowdStrike is going to be replaced by Claude!” to “CrowdStrike is overvalued!” in a matter of months.

CrowdStrike stock run(Fiscal.ai)

So what happened in the past 4 months? Did something fundamental change? Read on to find out.

Headline Numbers

Let’s first dive into the numbers.

Revenue grew to $1.39B, 26% increase year-over-year, exceeding estimates by 1.7%.

Annual Recurring Revenue (’ARR’) grew to $5.51B, growing 24% year-over-year.

As a reminder, for SaaS companies, ARR is often a better indicator than revenue because it more accurately reflects current and future obligations due to the nature of GAAP revenue recognition.

Net New ARR which came in at $256M, up 32% year-over-year indicating continual expansion of contracted revenue with existing and new business. A related note: both SGNL and Seraphic closed in Q1, contributing $7.8M of acquired net new ARR to this quarter.

Charting ARR over the past few quarters, we see the reacceleration of revenue continue after an initial slowdown in the quarters prior:

The growing ARR is also reflected in the increased module adoption that continues to march up and to the right:

ARR and adoption charts(Fiscal.ai)

There’s one more forward-looking number worth paying attention to: RPO or Remaining Performance Obligations. That’s revenue that is already under contract but that can’t be booked as revenue yet because CrowdStrike still has to deliver the services. RPO came in at $8.8B, up 29% year-over-year. That’s growing even faster than ARR and revenue. Probably, that’s a result of the bigger and longer contracts that CrowdStrike can sign.

Subscription Gross Margin came in at 78%, or 81% on a non-GAAP basis. Both were up by 1% compared to their respective quarterly numbers from last year.

Operating Income (Loss) was ($30.6M) compared to ($118.7M) in FY 2026. Non-GAAP income was $325M compared to $201M in FY2026. The biggest contributors to the swing in income were a reduction in expenses related to the July 19th incident (damages from the big outage), which dropped over 50% compared with last year, and reduced SBC (stock-based compensation) as a percentage of revenue.

While operating income is still in the negative on a GAAP basis (mostly due to SBC), we see that Operating Cash Flow continues to grow every quarter, reaching a record high of $591M, growing 54% year-over-year.

Net Income (Loss) was $27.8M compared to ($104.3M) in Q1 FY2026. Non-GAAP net income was $283.4M compared to $184.7M in Q1 FY2026. GAAP net income got an $18M boost from gains on strategic investments. CrowdStrike has a venture fund, the Falcon Fund, and probably one or a few of those investments did very well.

Earnings Per Share (diluted) on a GAAP basis was $0.11 compared to a loss of $0.42 in Q1 FY2026. Non-GAAP Earnings Per Share (diluted) was $1.10 compared to $0.73 in Q1 FY2026.

Free Cash Flow was $468.5M compared to $279.4M in FY2026 while maintaining a stellar 34% free cash flow margin.

Cash and cash equivalents stood at $4.55B. This rock-solid balance sheet continues to provide security and massive optionality via future acquisitions or buybacks.

In Q1, CrowdStrike repurchased $176 million in shares at an average price of $365.63, leaving approximately $1.3 billion remaining under their current authorization. Management noted they will remain opportunistic in returning capital while staying focused on capturing the significant growth opportunities ahead.

CrowdStrike also announced a 4-for-1 stock split, the company’s first as a public company. While stock splits are purely cosmetic, they can increase liquidity for both shares and options. Shares will begin trading on a split-adjusted basis on July 2, 2026.

Guidance

For Q2 FY2027, management guided:

• ARR: $5.793B – $5.795B (24% YoY growth),

• Net new ARR: $284M – $286M (28 – 29% YoY growth)

• Revenue: $1.436B – $1.442B (23% YoY growth)

For the full year FY2027:

• ARR: $6.531B – $6.556B (25% YoY growth); a slight raise.

• Net New ARR growth: raised to 27.7% at the midpoint which is a 520 basis point increase from prior guidance, implying $1.279B – $1.303B of net new ARR. This is a meaningful revision and signals that management sees future business expansion in the pipeline.

• Revenue: $5.915B – $5.959B (23 – 24% YoY growth); a slight raise.

• Free cash flow margin: At least 30% for the full year

Overall, these were incredibly solid numbers across the board, showing clear signs of top-line reacceleration and improving operational leverage as they shake off the final impacts of the July 2024 incident.

Now let’s move on to what CEO George Kurtz referred to as the “Mythos inflection moment”.

The Mythos Moment

First, a quick recap of what transpired over the past few months:

A shift began at the RSA Conference in late March 2026, slightly before Mythos was even announced. Founder and CEO George Kurtz mentions that every meeting he had that week boiled down to the same thing:

Every meeting was literally the same meeting all over. Help us protect these AI workloads that are running on the endpoints. All the developers are running it, marketing is running it, accounting is running it. We heard just crazy stories about AI run amok.

Organizations want to move faster in adopting AI without compromising security.

Then, in April 2026, more fuel was added to the fire with Anthropic releasing a new frontier model referred to as “Mythos,” which demonstrated an ability to identify software vulnerabilities and construct sophisticated cyberattacks at an unprecedented speed and scale.

Claude Mythos(Anthropic)

Source: Anthropic

Now, any reasonably technical person or AI agent can potentially conduct serious cyberattacks against enterprise infrastructure, and cybersecurity’s role in the enterprise has evolved overnight. Founder and CEO George Kurtz:

For the first time in my career, the market’s view of cybersecurity’s role has shifted from being viewed primarily through the lens of risk management, compliance, and protection to being recognized as a strategic accelerator and a critical enabler of AI adoption.

The funny thing is that if you have been following CrowdStrike for a few years, George Kurtz has said this forever. So, it was with pride that he said this. Cybersecurity is now a necessity for enterprises that want to leverage and accelerate AI quickly, as deploying AI across an organization without proper security controls is too risky. Secondly, on the defensive end, frontier AI models (e.g. Mythos) have increased the attack surface and lowered the barrier for adversaries, increasing the security gap enterprises were already facing.

In response to this potential threat, new programs were created: Anthropic’s Project Glasswing and OpenAI’s Trusted Access for Cyber (’TAC’).

CrowdStrike was the only cybersecurity company selected for both, underscoring its leadership in this space. These programs gave enterprise companies early access to frontier models to ensure that necessary cybersecurity guardrails were in place before the models were released to the public.

This quarter, CrowdStrike also took the initiative in launching Project QuiltWorks.

Source: CrowdStrike

This is an industry-wide coalition of the world’s top AI companies, consulting firms, and cyber insurance companies, all under one roof, with the goal of providing auditing services with the CrowdStrike platform to identify vulnerabilities within companies.

As you can imagine, all of this serves as a new marketing and sales pipeline for the business, positioning CrowdStrike as the thought leader and best-of-breed in this space.

It’s ironic how what initially started as a threat to the CrowdStrike business is now a sales generator. I mentioned that in last quarter’s analysis of the “AI Threat” and it looks like it’s playing out exactly as I saw it then:

To flip the script, rather than a threat, AI and the “agentic workforce” represent a massive new market for CrowdStrike. AI adoption means a new attack surface that must be secured. As it grows, CrowdStrike becomes an even more necessary layer of protection for the AI stack. We are already seeing this reflected in the growth of the modules (Identity, Endpoint, AI-DR, etc.) mentioned earlier in this article. CrowdStrike is set to benefit from this AI revolution, not be replaced by it.

This entire pivot was further proof to me of just how much the market is driven entirely by narratives. Especially in an environment with volatile price action, you can clearly see how negative narratives drive down prices, which then fuels an even more negative narrative. The cycle repeats endlessly until the story finally turns. Keep in mind, this whole roller coaster happened despite zero evidence of fundamental weakness.

So the narrative flipped, the fundamentals are stronger than ever, and the stock just doubled in four months. I bought back then, based on the valuation, which is in the paid part below.

Below: the customer behavior that proves how sticky this platform is, the AI giants that are now building on top of CrowdStrike, the exact price I’d buy more of this stock at, and what I’m doing with my position after a 7-bagger.

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Cloudflare (NET) reported its Q1 2026 results on May 7. I didn’t find the time to cover them right away and then I saw that it had its annual Investor Day on June 9. I waited a bit so I could cover both in one article. And here it is.

We’ve owned Cloudflare since I picked it at $39 in 2020, and that definitely helped me to unpack everything and put certain things in perspective.

Let’s walk through the numbers first.

The Numbers

• Revenue: $639.8M, +34% YoY. That’s the same growth as Q4. It beat the consensus of around $622M by about $17M or 2.7%.

• Non-GAAP EPS: $0.25

• Non-GAAP operating income: $73.1M, or 11.4% of revenue, up from $56.0M a year ago.

• Free cash flow: $84.1M, up from $52.9M in Q1 last year.

• Free cash flow margin: 13%

• RPO: $2.543B, +36% YoY. RPO is the remaining performance obligation. That’s revenue already under contract but not yet booked because the service still has to be delivered.

• DBNRR: 1118%. (dollar-based net retention, how much customers Cloudflare had a year ago are spending now, including the churn of customers that stopped).

• Large customers (over $100K a year): 4,416, +25% YoY. This is now 72% of revenue, up from 69% last year, and grew by 38%.

• Very large customers: deals over $1M grew 73% YoY. Cloudflare added as many $5M+ customers in this quarter as it did in all of last year.

Cloudflare has said on multiple occasions that investors should not focus on the DBNRR, but I still read a lot of takes saying it was bearish that DBNRR dropped from 120% in Q4 to 118%.

Cloudflare said that its sales teams focused on new businesses, and not as much on the expansion of existing customers. But still, retention was great.

Founder and CEO Matthew Prince on the call:

Our quarterly gross retention reached its highest level in four years, reinforcing that customers understand Cloudflare is a must-have rather than a nice-to-have.

Gross retention is different from dollar-based net retention. It looks at what you had in revenue from your customers last year and you withdraw all the churn of customers who left, but you don’t count what they spent more. So, the maximum is 100%. The highest gross retention in four years means very few customers are leaving.

The focus on new customers paid off. New business grew at its fastest rate since 2023.

Guidance went up as well. Management raised the full-year guidance to $2.805 billion to $2.813 billion, about 30% growth at the midpoint. For Q2, Cloudflare guided to $664 million to $665 million, also around 30%. I’m pretty confident the real result will be higher.

Also important: network capex is expected to be 14% to 15% of revenue for the year, which is still almost nothing compared to the tens of billions the hyperscalers are investing into data centers. And knowing this team, they’ll probably beat all of it.

The 20% Layoff

On the same day it reported this quarter, Cloudflare also announced it was letting go of about 1,100 people, about 20% of the company. That’s the news that made all the headlines, and I understand why it shocked people.

A company growing 34% laying off a fifth of its employees sounds bad. But when you look at what Cloudflare said about this, and at what it has been doing internally, it’s a very different story.

The cuts hit every function and every part of the world, with one exception: the salespeople who carry a quota and sit in front of customers. Those were barely touched, and management still expects its sales capacity to grow this year. The whole reorganization will cost $140 million to $150 million (about $40 million of that non-cash), mostly in the second quarter, and it should be done by the end of the third. The free cash flow targets for the year didn’t change.

So why do this now, when things seem to be going well? Because Cloudflare has ramped up the use of its own AI tools internally for the last six months. The results convinced management to act.

Cloudflare has been pretty cautious with AI internally, but that changed in November. Since then, people suddenly got much more productive, in some cases two times, ten times, even a hundred times as productive. Matthew Prince described it in his typical colorful language:

It was like going from a manual to an electric screwdriver.

The numbers the company shared were impressive. Cloudflare’s use of AI is up more than 600% in three months. In engineering, 97% of the team now uses AI coding tools, all of them running on Cloudflare’s Workers platform. People in finance, HR, and marketing all use AI intensely. That’s on an internal system the company built and calls Cloudflare OS. On the Investor Day, a few interesting examples were given.

The layoff is the consequence of that. Prince was clear about what it was and wasn’t:

This isn’t a cost-cutting exercise or an assessment of individuals’ performance.

To me, this is a clear signal that the second AI wave has begun. The first wave of the AI boom rewarded the companies that built the data centers, the chipmakers and memory suppliers. A lot of that (but maybe not everything) is now priced in. The next wave will reward the companies that take all that AI and turn it into real earnings by changing how they operate. Cloudflare is one of the first to do that systematically.

It also helps to compare this to the other layoffs we’ve seen this year. Plenty of big technology companies have cut staff, but most did so because they had to. Often, that was to compensate for their enormous data center investments. Cloudflare cut while growing 34% and raising its guidance. That’s a very different situation. And it’s actually a very good thing to do.

The other thing I appreciated was the honesty. Cloudflare paired the layoff with what it called industry-leading severance, and instead of hiding behind the usual corporate language, Prince called it a hard day and said the people leaving will go on to build great things. He also made clear this isn’t a company shrinking. He expects to have more employees in 2027 than at any point in 2026. When an analyst asked why he would do this right after such a strong quarter, he put it like this:

We’re the fittest we’ve ever been, but we’re gonna get even fitter to win the next chapter.

I respect this move a lot. I’m sure Cloudflare will take on many more employees once the new system is in place. Right now, there’s overcapacity. But the companies that will win over the long term are those that can leverage the efficiency gains at a larger scale and I think Matthew Prince knows this better than anyone else.

Sales productivity went up year-over-year for the ninth quarter in a row. Hiring of new salespeople grew at its fastest pace since 2023. We already saw that customer bookings grew the fastest since 2023. They also filled the pipeline at the fastest pace in five years and beat their internal plan for the quarter by more than they have in any first quarter since 2021, during that crazy COVID peak.

The customers keep getting bigger, too. Large customers now make up 72% of revenue, up from the high 50s a few years ago.

The Agentic Internet, Cloudflare’s Biggest Tailwind

Below: Cloudflare’s premium role in the agent traffic, why OpenAI and Anthropic both build on Cloudflare, the "Google Zero" problem of the internet and how Cloudflare seems to be the only one working on a solution, why the dropping gross margin is actually good news. And of course much more, like the valuation.

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Kinsale (KNSL) reported its Q1 2026 results quite some weeks ago, but I had not covered them yet. Since the earnings, the stock is down about 13%.

If you zoom out a bit more, you see that Kinsale has the worst drop since it became a public company in July 2016. The stock is down almost 45%.

Last quarter, when premium growth slowed to 1.8%, I made the case that the slowdown was intentional and good. Kinsale was leaving underpriced business, to the competition.

So which is it this time? Is this a disciplined company riding out a soft market, or has the growth story simply ended? That’s an important question, as it means more or less the same as: Is the investment thesis still intact?

The Numbers

Gross Written Premiums: $482.0 million, down 0.5%. Yes, down. As far as I know, it’s the first decline. This is probably the main reason Kinsale’s stock dropped. Let’s part it for now, but obviously, we’ll get back to this.

Net Written Premiums: up 5.6%. Gross down, net up. We get back to that later as well, of course.

Net Earned Premiums: $406.9 million, up 11.2%. Earned premium is the part of written premium that gets “used up” as a policy runs off, and it is the part that shows up as revenue. It lags written premium.

Underwriting Income: $94.5 million, up 40%.

Combined Ratio: 77.4%, down from 82.1% a year ago. The combined ratio is the loss ratio (claims paid out) plus the expense ratio (the cost of running the business). Under 100% is an underwriting profit. So 77.4% means Kinsale kept about $22.60 of every $100 in premium as pure underwriting profit. That’s before a single cent of investment income. This remains very impressive.

Net Income: $112.6 million, or $4.88 per share, up 26.1%.

Net Operating Earnings: $117.8 million, or $5.11 per share, up 37.7%. Operating earnings leaves out the ups and downs of the stock portfolio, so it shows the insurance business more cleanly.

Operating Return on Equity: 24%. The average US insurer sits somewhere in the low teens, so this is still outstanding.

Book Value Per Share: $85.31, up 25.6% in a year. Great result.

Net Investment Income: $55.4 million, up 26.5%.

Float: now $3.3 billion.

Here’s an overview from the earnings slide deck.

So: EPS up almost 38%, a 24% ROE, book value growing at 25%, a combined ratio under 78%. Read these numbers and you wonder why the stock is anywhere near its lows. The top line growth and the quality of the earnings are the reason.

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Datadog (DDOG) reported its Q1 2026 results on my mother’s birthday (May 7), and I had not reviewed the earnings yet. Now that I have, I can say it was potentially the best quarter this company has ever delivered. And the market agreed. The stock is still up 58%, even after the drop in the last few days. It was up 90% just a few days ago. Crazy.

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I keep repeating this, but it’s good to see this live for long-time Multis. Stocks can do nothing for years and then suddenly shoot up like a rocket over a small period of time. As long as the company keeps performing and the fundamentals stay intact, this often happens. But it can take years of patience. Years of nothing and then suddenly everything. That’s the stock market for you.

Datadog’s outstanding quarter also crushed one of the most superficial bear cases I heard about Datadog: that AI is going to eat it. At the end of the article, you’ll understand why this is ridiculous.

The Numbers

Datadog’s Q1 revenue came in at $1.006 billion, up 32% year-over-year. The consensus was $960 million, so this was a $46 million beat, or 4.8%. It was the first time Datadog crossed a billion dollars in a single quarter. A nice milestone.

This was the fourth consecutive quarter of accelerating revenue growth, and not by a bit. Just look at this beautiful climbing line.

It’s impressive that Datadog can do this at this scale.

CFO David Obstler said on the call that ARR (annual recurring revenue) growth accelerated in each month of Q1, and management said the trend continued in April. I think that’s one of the reasons why the market reacted the way it did to these earnings.

Non-GAAP EPS was $0.60, beating the consensus of $0.51 by $0.09. Non-GAAP operating income was $223 million, good for a 22% operating margin. Free cash flow was $289 million with a 29% margin.

Datadog ended Q1 with about 33,200 total customers, up from about 30,500 a year ago.

When you plot this on a chart, which Fiscal can do, of course (get 15% off here), you see something interesting.

Customer growth is not responsible for the revenue acceleration we saw. So, what is? This.

If you wonder why the green lin, with customers with ARR of more than $1M stops a quarter earlier, it’s because Datadog only provides once a year. But you see the trend. It’s big customers that power the growth. There were about 4,550 customers with an ARR of $100,000 or more, up 20.7% from 3,770 a year ago. For the biggest customers, it’s probably even more. Don’t forget that Datadog has usage-based billing and with more AI, that means more usage, as I have always said, long before the market agreed.

Net retention has not moved in a long time. It’s always 120% or a bit higher.

The Core Business Keeps Accelerating

For most of 2025 and until a month ago in 2026, software stocks were beaten to a pulp on the fear that AI was going to disrupt or replace SaaS. The narrative was that LLMs and coding agents would make a lot of cloud software obsolete. Anything that wasn’t directly an AI play looked vulnerable.

And then Datadog reported. It was the turnaround for software, it seems. CEO Olivier Pomel on the call:

Non-AI customer revenue growth accelerated again this quarter to mid-20s percent year-over-year, up from 23% last quarter and 19% in the year ago quarter.

So, the non-AI part of Datadog’s business, the part that the market wrote off, just posted its third consecutive quarter of accelerating growth. From 19% to 23% to mid-20s. Or put differently, traditional SaaS customers accelerated their Datadog spend. SaaS dead? Hahaha.

This is the Anti-Non-AI Bubble I have talked about for months now. The SaaS market is much bigger than everyone seems to factor in now. Founder and CEO Olivier Pomel confirmed how much growth Datadog can still have just by taking market share alone already. From the J.P. Morgan conference two weeks after the earnings:

We’re the leader in observability, we’re #1 there, but we still have only 13.6% of the market according to Gartner. So this tells you how early it is in the market for us, how much opportunity there is ahead of us, even factoring out all of the new developments with AI.

The AI-native cohort, of course, is also growing rapidly. Datadog now has 22 customers spending more than $1 million annually on AI-related work, and 5 spending more than $10 million. And Pomel disclosed at the recent Investor Day in February that AI-native customers represent about 11% of Datadog’s total revenue today, up from 5% in 2024, and just 2% in 2023.

But many seem to forget that the other 89% is everything else, and that part is accelerating faster than it has in years. Datadog is in a premium position. it gets the AI tailwind on 11% of its revenue (and growing fast), and the SaaS tailwind on 89%. What a great double engine!

The Training Reversal

There was something else that caught my ear on the earnings call that I really liked. CEO Olivier Pomel on the call:

Interestingly, last year, when we reported earnings, we said we’re mostly interested in inference workloads and training is not really a market for us yet. Now we actually see training becoming a market.

That’s an important reversal. So, what changed? Pomel explained the mechanism in more detail at the J.P. Morgan conference:

Models went from being mostly pre-trained to being largely post-trained. The post-training was becoming increasingly specialized to different types of verticals. The stacks that are used for post-training also are becoming richer and richer. And we saw instead of having 5 to 10 companies doing that, now there were 50 to 100.

Twelve months ago, training wasn’t a market for Datadog but now it is. How can this change so fast? Olivier Pomel explained at the J.P. Morgan Conference that the kind of training had changed.

Pre-training is the huge, expensive first step in which a model learns from scratch on incredible amounts of internet data. Only 5 to 10 companies worldwide could afford that. Post-training is what comes after: based on the pre-training, you can teach the model to be good at something specific, like coding, or medical questions, or customer support. It’s cheaper and easier, and now 50 to 100 companies are doing it, but that could soon be 500 or 1,000. This is a very interesting development and another reason Datadog looks well-positioned to profit from AI.

In Q1, Datadog brought in two new deals with the AI research divisions of two of the world’s largest tech companies. One was a 7-figure deal, the other even an 8-figure deal. These are hyperscalers with top-notch engineering talent and a strong culture of building everything in-house, but they still came to Datadog. That says a lot.

Olivier Pomel on the earnings call:

Hyperscalers typically have a culture of building everything themselves, and they certainly have the balance sheet and the human capital to support some of that build-out. Like if there was ever a set of companies for whom it makes sense to do it themselves, that would be those companies. And yet, we see that they have the same issues.

Don’t forget that Anthropic also signed a bit contract. We discussed this last quarter.

Below: the rest of the AI story, why every huge AI company uses Datadog, and what I'm doing with the stock right now.

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Celsius Holdings (CELH) reported its Q1 2026 results on May 7, and the stock kept dropping. It’s now 12.4% lower than before the earnings.

Year-to-date, the stock is down 34% and from its 2024 all-time high, it’s down almost 70%.

The real question is, of course, whether the market is wrong and gives us an opportunity to buy, or if the weak stock price is a sign that there’s more.

Let’s look at the numbers first.

The Numbers

• Revenue: $782.6M, up 138% YoY, beating the consensus by $22M or 2.9%.

• Adjusted EPS: $0.41, up 128% YoY, beating the consensus by $0.12 or a whopping 41.4%.

• GAAP EPS: $0.33, up 120% YoY.

• North America revenue: $747.3M, up 144% YoY.

• International revenue: $35.3M, up 55% YoY.

• Brand split: Celsius $348M (+6% YoY), Alani Nu $368M (+60% pro forma YoY), Rockstar $67M.

• Gross margin: 48.3%, down from 52.3% last year in Q1, but better than the 47.4% in Q4 2025.

• GAAP net income: $110.1M, up 148% YoY.

• Adjusted EBITDA: $195.5M, up 181% YoY. EBITDA margin of 25.0%, up from 21.2% last year.

• Buybacks: 700K shares for $24.1M at an average price of $35.39. $236.1M still left of the $300M buyback program.

So on the surface, the results look really strong. Celsius posted substantial beats of the consensus, with better margins. And yet, the market didn’t seem to care. Let’s look into more detail.

The Celsius Brand Problem

I start here because I think the 6% growth for the Celsius brand is why the market doubts the company’s growth story. For the first time, Alani Nu was bigger than Celsius. Revenue for Alani was $368M, compared with $348M for Celsius.

A part of that is seasonality. Celsius is the fitness brand of the portfolio, and apparently, people drink fitness drinks more in spring and summer than in January and February. Alani Nu is more seen as an everyday brand. For full-year 2025, Celsius did $1.46 billion and Alani Nu (acquired in April 2025) did roughly $1 billion. So, on an annual basis, Celsius was still bigger last year. But Alani Nu posted 60% revenue growth versus 6% for the Celsius brand. Is it in trouble? Monster grew more than 20%. That 6% growth for the flagship brand looks very weak.

At the Deutsche Bank conference on June 2, John Fieldly explained what’s going on. Before PepsiCo, Celsius was distributed by more than 300 independents. This is important to know.

To get shelf space at certain retailers, Celsius often did custom flavors. Fieldly gave an example. A convenience chain of 300 stores didn’t believe Celsius would sell, so the company created a Cherry Cola exclusively for them. It worked, and therefore, they could also sell Celsius on the shelves. That flavor only existed for those 300 stores. And there were many flavors like that.

In the PepsiCo system, that approach doesn’t work. If you have national distribution, you need national consistency. So Celsius is removing all regional flavors and focusing on the national flavors. Fieldly:

We want to have a consistent portfolio around the country. As we say internally, we want to keep the fast cars on the track.

Each flavor removal immediately results in lost revenue. That’s a big part of why the Celsius brand grew only 6% this quarter.

The core Celsius 12-oz cans grew 11% in convenience stores. So, that proves Fieldly’s story. The assortment is shrinking, but what remains of the legacy brand is doing well.

Fieldly also said something at the conference you don’t often hear from a CEO:

Especially on Celsius, we should have had more innovation. That would have added more complexity with the integration of Alani and Rockstar, but we should have had more innovation, and we’re cycling over 6 innovations versus last year.”

So Celsius underinvested in flavor innovation on the flagship brand. The reason was the integration of Alani Nu and Rockstar. Understandable. Last year, there were 6 innovations, so that makes the comps tougher. Management will continue to focus on the integration now but go full-in on innovation in 2027.

Alani Nu: Firing On All Cylinders

If the Celsius brand looks weak but is better than it looks at first sight, Alani Nu is firing on all cylinders. I think we can already say now that this was a killer acquisition for Celsius. That it would overtake Celsius in sales so fast was really unexpected.

Revenue was $368M, up about 60% pro forma. Pro forma means this is against Alani Nu’s sales last year, before Celsius bought it. Scanner data, which measures what consumers bought, even showed the brand up 100% YoY.

So consumer demand grew faster than the reported revenue number suggests. That’s important, and it’s worth explaining why the two numbers are quite a bit apart.

The company gave us a breakdown:

Alani Nu sold $230.7M in Q1 2025, the quarter before Celsius bought the company. But not all of that was from the US energy drink market. Take out $32.6M from Canada and from non-energy products like protein bars, and you get $198.1M of U.S. energy drink sales. That’s the right number to compare this quarter with.

From there, scanner data shows U.S. energy drink sales grew 85% YoY, not the 100% I mentioned earlier. The difference is Cherry Bomb, a limited-time flavor that Celsius shipped to stores in Q4 2025. Consumers bought most of those cans in Q1 2026, but the company already booked revenue when the cans shipped, so the revenue was in the Q4 results. Without that distortion, growth would have been 85%.

Apply 85% growth to that $198.1M, and you get about $168M of additional revenue. That’s the white bar.

Then there’s a $ 26.5 M deduction. When Alani Nu was sold directly to retailers like Walmart, Celsius booked the full wholesale price. Now that Alani Nu is being sold through PepsiCo’s DSD (Direct Store Delivery) system (which means Pepsi trucks deliver cans straight to store shelves instead of to a retailer’s warehouse), Celsius sells the cans to Pepsi first, and Pepsi takes a cut before reselling them to retailers. So even if the same number of cans are sold to consumers, the revenue Celsius reports per can is lower.

So the takeaway is: consumer demand for Alani Nu grew by 85%. That’s phenomenal growth. Of course, even if Pepsi takes a part of that, volume is much bigger and on top of that, Celsius also had to pay its previous distributors, but in another way.

At the Deutsche Bank conference, Celsius shared that Alani Nu’s availability in convenience stores went from 65% in January to 91% in May. That’s a sea change.

Normally, when a brand expands distribution that fast, sales per store go down. The new stores are usually lower quality and it takes time for shoppers to find the product. With Alani Nu, sales per store actually went up over those five months.

The bear case on Alani Nu is that it’s a flavor brand, riding LTOs (Limited Time Offers), like Cherry Bomb and Lime Slush, that are fashionable for a few months and then disappear.

The fear is that once the LTO cycle slows, the brand fades. But the data shows the opposite. The brand is reaching more stores and the consumer is buying more per store, not less. That’s a really strong indicator that the brand has staying power.

There’s a related concern: that Alani Nu is just stealing sales from Celsius. Fieldly was asked this directly at the conference. His answer was that there’s some overlap, but Alani Nu is also reaching consumers that Celsius wasn’t. I think he’s right, and the proof is in the share number. If Alani Nu were just stealing Celsius’s sales, then the core Celsius brand wouldn’t have grown by double digits on a normalized basis (see above for that).

The market got the two big numbers wrong. The question is whether it’s also wrong about the rest, the margins, the Costco threat, and the current stock price. Below are my answers.

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It’s not always easy in this overheated market to find opportunities, but I think this is one. Patient investors can now buy this stock at the cheapest valuation it has ever been, despite 33% revenue growth.

The company has no debt, a ton of cash and high free cash flow and it’s totally under the radar of most investors.

There are two headlines that may screen ugly if you don’t know the company’s context but that actually show strength.

And a negative catalyst on GAAP earnings just stopped and the company did an interesting acquisition. It also showed how AI already adds value. Not with big words, as many do, but with concrete numbers.

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The poll I launched on Slack showed that you were looking most forward to the Tempus and SEA earnings analysis and you got those two first. The number three was Hims & Hers. So, here’s that one.

I wrote in my previous earnings analysis that this is by far the most volatile stock I’ve ever covered, and nothing has changed. Right now, the stock is down 55% over the last year.

If you want a Fiscal subscription, you get 15% off with this link.

So, is this a moment to buy or should we be cautious? Let’s find out.

The Numbers

• Revenue: $608M, up 4% YoY.

• US revenue: $530M, down 8% YoY.

• International: $78M, up 969% YoY.

• Subscribers: 2.58M, +9% YoY. Personalized: ~1.7M, +20% YoY.

• Monthly ARPU: $80, down from $85 a year ago.

• Gross margin: 65%, down from 73%.

• Adjusted EBITDA: $44M, a 7% margin, down from $91M and 16% in Q1 2025.

• GAAP net income: −$92M, versus +$49M last year.

• Free cash flow: $53M.

• Guidance Q2: revenue $680–700M (+25 to 28% YoY), adjusted EBITDA $35–55M.

• Guidance FY2026: revenue raised to $2.8 to 3.0B, above the consensus of $2.71B.

• 2030 target: reaffirmed $6.5B+ revenue and $1.3B+ adjusted EBITDA.

Those numbers don’t look great, do they? So, I understand the questions and FUD (fear, uncertainty and doubt) around HIMS.

Until Q1 2025, everything seemed to go well. Revenue was up a lot every quarter and ARPU (average revenue per user) peaked in Q1 2025.

Right now, in Q1 2026, revenue was down QoQ and up only 4% YoY, margins were down, and it posted the first GAAP loss since Q4 2023. Add a miss of $8.75M for revenue and a miss of $0.03 for EPS and it’s not too crazy to think the company is falling apart before your eyes.

I’m going over a few things, though, that could put things in a different light.

The Revenue & EPS Miss

Let’s take the revenue first.

In March, the company stopped advertising compounded GLP-1s and shift to branded weight-loss products, mainly Novo Nordisk’s (NVO) Wegovy pen and Wegovy pill, although Eli Lilly’s Mounjaro is also possible.

I wrote about the mess that came before that decision: the $49 compounded pill that lasted just 48 hours before the FDA, the DOJ and the SEC came knocking and it was withdrawn. The branded pivot is the cleanup of that mess. It took the GLP-1 risk off the table.

But it changes how the money comes in. The compounded business sent out medication in longer cycles, while branded GLP-1s go out monthly. That means there is less upfront recognition. It’s a bit similar to a software company switching from upfront software sales to a SaaS model. So, it’s often the same dollar amount (or even more), but recognized over more periods instead of all at once. In accounting, that looks like a revenue decline.

CFO Yemi Okupe was very clear about this:

These dynamics affect only the timing of revenue recognition and not customer demand or engagement.

That timing change removed about $65 million from Q1 revenue. If you add it back, the quarter would have come in at $673 million, quite a bit higher than the $652 million consensus. So the revenue “miss” wasn’t really a miss. Of course, if revenue is lower, EPS will be lower as well. So, that “miss” had the same cause.

And don’t forget the comparison. Q1 of last year was the best quarter in the company’s history, as I already showed on the chart. GLP-1s had just started on the platform and sold like crazy. So, while the 4% YoY growth looks very weak, it’s not really how you should look at this quarter. On a comparable basis, revenue would have been up about 15%. That may not be a number that excites you, but it’s not as depressing as that 4% revenue growth, right?

US revenue fell about 8% to roughly $530 million, but it would have been up 4% YoY on a comparable basis. Again, not something that will make you jump around in joy, but still a lot better than what you think on first sight.

International revenue jumped almost 10x to $78 million. Of course, this is on a small basis, but still, it’s important. You can see the opposite movements in this chart.

The $92 Million GAAP Loss

Now the GAAP net income loss. I saw this scared quite some investors. After all, the company had been GAAP profitable in every quarter since Q4 2023.

The company gave us the full breakdown, so let’s use it. It’s in the appendix of the earnings call slides. Most will probably never look at that, but we do. I see many takes against adjusted numbers vs. GAAP and to a certain level, I understand that. But adjusted numbers can sometimes give you insights that GAAP earnings can’t. That was definitely the case this time.

After stock-based compensation, which is a quarterly item and hasn’t moved much, the biggest piece is restructuring: about $33 million, of which $28 million is in write-downs related to the compounded GLP-1 supply chain. If you build infrastructure for a business and then you decide to leave it, you write it off. That’s a one-off cost. Take it out, and the gross margin was about 70%, right in line with where Hims & Hers has always been.

And there are other one-offs and non-cash items. There’s a ‘loss’ of $17.6M that’s a provision because Hims & Hers expects that the acquisitions will have higher earn-outs. That’s exactly what you want. Maybe you know this from the contingent payments Topicus and Constellation have. There are certain milestones. You take a base case for your accounting, but if the companies do better than expected, the same percentage of earnings is a higher number. Or because you cross certain expectations, that percentage can even be higher. In other words, that’s something to celebrate, even if this is seen as a “loss” in accounting.

There was also $13.4 million in M&A costs. Hims & Hers has bought quite a few companies: Eucalyptus, YourBio, ZAVA and Livewell. The acquisition process produces costs (think of legal, for example) and the integration process as well.

Then there’s something we saw earlier this quarter from Shopify and Tempus, for example. There’s $9.7 million in losses because some of the investments Hims holds have dropped in value on paper, even though the company hasn’t realized them.

If you look for other numbers, you can look at $89.5 million operating cash flow and $59.5 million in free cash flow this quarter. I think that shows better how Hims & Hers did this quarter. Even if you want to deduct stock-based compensation, you get $22.7M in FCF-SBC. That shows that the GAAP loss is mostly accounting.

Novo Nordisk GLP-1

So why did Hims & Hers do this? The change to branded GLP-1 provides the company (and its investors!) with much greater regulatory certainty. There’s no more Novo Nordisk litigation, and the company goes out of the way of the FDA and the SEC.

And it’s working. Within six weeks of putting Novo’s products on the platform, Hims & Hers fulfilled more than 125,000 Wegovy shipments. Founder and CEO Andrew Dudum on the conference call:

We see it in the scale of new customers coming in the door today, which is larger than as Yemi said, any spikes we saw even during the most important seasonal campaigns such as New Year’s and Super Bowl campaigns.

The New Year and the Super Bowl campaigns are the two most important campaigns for the company. Now, the new ‘normal’ pace after the Novo Nordisk deal is bigger than those peaks. That’s not in the numbers yet, but it’s an important data point. Management says it’s on track to add more than 100,000 weight-loss subscribers per month.

If the company can keep up that pace, subscriber growth would probably land somewhere in the low 30s a year from now.

Subscriber growth looks slow right now, but that is mostly because these new subscribers are just starting to come in. We should see acceleration in the next quarters. The early engagement numbers look good as well. Nearly 90% of these new subscribers download the app, and, on average, they speak with a doctor or nurse from the Hims & Hers care team three times in the first month. That tells me these subscribers are engaged and that makes them more likely to stay.

On the economics, CFO Yemi Okupe said branded and compounded are “roughly comparable” on a dollar basis. The branded GLP-1 has a higher price but a lower margin, and the compounded was the other way around, so they more or less even out. So the company gave up a high-margin product that carried a lot of legal risk and replaced it with a fully legal one at a lower margin that brings in more people. I think that makes sense. It takes away a major risk while still driving growth.

I find it ironic. In the US, Hims & Hers and Novo Nordisk now sell Wegovy through a partnership. That is the company that tore up the first deal and accused them of “illegal sham compounding” last year. Providers on the platform can also send prescriptions to Eli Lilly’s LillyDirect. And then last week, Hims launched generic semaglutide in Canada at C$149 a month, undercutting everyone, on the same molecule Novo uses. It’s important to know that Novo Nordisk’s patent in Canada has expired.

There’s a second irony. While Hims & Hers reduced a major legal risk by partnering with Novo Nordisk, it also introduced a new risk. The partnership already broke before. But right now, Novo Nordisk’s Wegovy is a big revenue growth driver. If the relation gets troubled again, this might have serious consequences for Hims & Hers. But that risk is worth taking more than the legal troubles that the company might have faced otherwise.

Not A GLP-1 Company

I didn’t buy this stock for the GLP-1s. I’ve written that many times before. If this were a GLP-1 company, I would never have been interested. The GLP-1s may be 30% of revenue or less this quarter, given the accounting change we saw earlier. But people keep staring at that one part of the business and completely ignore the rest of the platform, which accounts for 70% or more of the revenue.

That platform is an attempt to bring personalized, proactive, data-driven healthcare. Peter Attia writes about this in his book Outlive, and calls it medicine 3.0. Hims & Hers not only wants personalized healthcare but is also on a mission to make it affordable for everyone. Right now, that kind of care costs the wealthy tens of thousands of dollars a year. Founder and CEO Andrew Dudum put it like this on the call:

Netflix and Spotify reshaped how people could access not only a broader range of content, but also the best the industry has to offer. Health care must evolve towards that same consumer-oriented distribution model.

This quarter, some things pointed to this again. Take testosterone, for example. Tens of thousands of men now already take it, and the early results are strong. Andrew Dudum:

More than 95% of individuals utilizing a testosterone support offering experienced an increase in testosterone levels within the first 2 months of treatment, with an average increase of over 80%.

Most men never even know they have low testosterone levels. They just feel tired and blame it on their age, stress or something else. With Hims, they can take an at-home blood test, get treated, and then retest to see if it worked. That is a Medicine 3.0 example, because you find the problem before the patient even knows to look for it.

Then there is Labs. You take a blood test at home, and the app reads out more than 130 biomarkers for you, with AI helping to explain them. Andrew Dudum on the call:

On the Labs side, also, it’s just providing people data that, frankly, used to cost somewhere between $5,000 or $10,000... And then from there, 70% of those people are identifying an area of concern and an area of clinical risk that the platform can actually help treat.

So seven out of ten people who run Labs tests find something they should treat and they can find the treatment on the same platform that just identified the problem. That is great for cross-selling, of course. It’s the kind of preventative care I want to see. And it makes Labs a great entry point to everything Hims & Hers does and sells.

Sexual health and hair loss each took three to four years to cross $100 million in annual revenue. Weight loss did it in seven months.

Andrew Dudum thinks testosterone, menopause and Labs can each get there soon as well.

The GLP-1 noise is the easy part. The hard question is whether there's a real moat underneath, and that's exactly what comes next, along with my verdict on the stock.

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Two weeks ago, Tempus AI (TEM) reported its Q1 2026 results. The stock fell about 12% in the days that followed, and it’s now down about 55% from its October high of around $103.

Tempus was the most requested earnings analysis in our community. Your wish is my command!

I want to start with a contradiction. CEO Eric Lefkofsky opened the call by saying, “We had a great quarter,” and the press release talks about accelerating demand. But what if you read this? Revenue down sequentially, EBITDA negative, hereditary growth collapsing, profitability out the window. That sounds pretty bad, doesn’t it?

The difficulty is that both things are true and that can be confusing. So, this is a quarter where you have to know the context before you judge and that’s what I will try to provide in this article.

But first, a quick reminder of what this company is, as it’s not one that many really understand.

What Tempus Does

Many see Tempus as a diagnostics company and they are. But the tests are just the start of the story. The real business is using those tests to collect enormous amounts of patient data, DNA, RNA, imaging, and clinical records, and then structuring that messy data with AI and licensing it to pharmaceutical companies that can’t get it anywhere else. The confusing part is that this business currently accounts for only about 25% of the company’s revenue. 75% is still the tests.

Of course, the data business has much higher margins. And there’s a flywheel. The more data comes in through the tests, the better the tests become, which sells more tests, which generates more data and so on. Almost no one else in the industry has both parts of the ecosystem.

The whole idea behind the company is on one slide from the earnings call deck.

The next slide completes the story.

The Numbers

Revenue: $348.1M, +36.1% YoY, beating the consensus of about $345.4M.

Gross profit: $222.0M, +43.1% YoY, growing faster than revenue.

Non-GAAP EPS: -$0.13, a $0.07 beat, improved from -$0.24 a year ago.

GAAP net loss: -$125.9M, versus -$68.0M a year ago and -$54.2M last quarter.

Adjusted EBITDA: -$2.8M, versus -$16.2M a year ago, down from +$12.9M in Q4.

Diagnostics revenue: $261.1M, +34.7% YoY, on oncology volume growth of 28%.

Data and Applications revenue: $87.0M, +40.5% YoY, with Insights (data licensing and modeling) up 44.1%.

Guidance: raised to $1.59–1.60B for the year (25% growth), adjusted EBITDA guidance kept at about $65M.

Some numbers evolve in opposite directions, and that’s puzzling. Gross profit grew 43% and revenue grew 36%, so the company became more profitable at the gross level. But the net losses almost doubled. Both are true. I’ll get to that later in the article.

What The Market Didn’t Like

I have recently started looking at this before my analysis. The reason is that it forces me to look into the negative story first and if I feel that it sounds convincing, it can influence the rest of my article and even the long-term thesis evaluation. If you first look at the information and then only at the end to the bearish story, it’s hard to rewrite the full article from a new perspective if you think bears have a valid point. That’s the great thing about investing and the investing process: you can always keep learning.

As far as I can see, there were four things the market didn’t like.

• The sequential revenue decline, from roughly $367M in Q4 to $348M in Q1.

• The negative EBITDA. A year ago, management made a real moment of crossing into positive adjusted EBITDA, and Q1 went back into the red.

• Hereditary growth: the headline says 54%, but Tempus bought Ambry in February 2025, so most of that growth comes from Ambry. Real growth was just 7%.

• What I would call ‘the gap.‘ I mean that there’s a big gap between gross profits up so much and GAAP losses down so much.

Let’s go into them one by one.

Below, for paying Multis: the full breakdown of all four worries, the data business and the upside that nobody's pricing in, my five new Selling Rules, the Quality Score, the valuation, and my Buy-Hold-Sell call.

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A few hours ago, I launched a poll in the community. The question was which earnings analysis I should do next.

SEA Ltd (SE) was number two. That was great, as Zack had promised the SEA analysis for Friday, but he was early and already sent it this morning. Awesome, Zack!

So, even if Sea was only number two in the poll (you can still vote if you are in the community for the next one you want me to tackle!), the SEA analysis is the first to be published. But, I’ll clear the floor for Zack. I’ll see you back for the Selling Rules, the Quality Score update and the valuation. At the end of the article, you should know if SEA is a BUY.

But to know that, we need top-notch information on the earnings. Take it away, Zack!

Hi Multis

It’s been a tough earnings quarter for multiple Potential Multibaggers stocks in terms of post-earnings price reactions. In the private chat group, I made a tongue-in-cheek comment the day before Sea Limited’s earnings:

I was generally right with the metrics, except for the price reaction:

A 10%+ earnings reaction made me think the sell-off streak might be broken, but a few days later it was reversed, and we’re pretty much back where we started.

It’s another testament to how random stock price reactions to earnings can be. There’s a lot of noise and just a bit of signal. To separate both better, we have to analyze the earnings. Let’s jump into the results to find out.

Sea Limited Group Results

First, we look at the results of the whole group.

Source: Sea Limited

Revenue came in at $7.1B, growing 47% year-over-year, beating estimates by a whopping 11%. I already want to stress that right now, at the stage Sea is at, this is the most important metric to look at. The company is investing heavily and this 47% revenue growth shows that the investments are working. The majority of revenue growth came from Shopee and Monee; we’ll dive into each segment in detail later, of course.

Gross profit was $3.1B, growing 40.7% year-over-year.

Gross margins were 44% versus 46% the previous year. Investments in Shopee continued to pressure margins.

Operating Income was $593M, growing 30% year-over-year.

Adjusted EBITDA increased to $1B, growing 9.3% year-over-year.

For Sea Limited, we primarily use Adjusted EBITDA as the core profitability metric to remove accounting distortions that don’t reflect the true growth of the business, specifically Bookings (more on that in the Garena section).

Single-digit EBITDA growth doesn’t sound like much, but the fact that the company grows its profitability despite the big investments is great.

The largest contributor to Adjusted EBITDA was Garena, which had a standout quarter. You can see that in the graphic below with my annotated year-over-year growth:

Source: Sea Limited

Net Income was $438M, growing 6.7% year-over-year which led to an EPS of $0.70. Again, good to see that despite the big investments, Sea remains solidly profitable.

Additionally, Sea repurchased 1.8M shares for $168.4M this quarter under its $1B share repurchase program.

The limited FY 2026 Guidance was reiterated: GMV growth of 25% year-over-year and adjusted EBITDA no lower than 2025 in absolute dollar terms. Sea has a history of often general, loose guidance, so this is no surprise.

Overall, the top-level business metrics looked great, but the individual segment metrics tell the real story.

Shopee

Gross Merchandise Volume (GMV) was $37B, 30.2% growth year-over-year.

Orders came in at 4B, 29.3% growth year-over-year.

Gross Merchandise Volume (GMV) was $37B, up 30.2% year-over-year, while orders came in at 4B, representing 29.3% year-over-year growth.

Source: Sea Limited

Investment continues to drive higher volume and more purchases:

• Monthly active buyers increased 16% year-over-year

• Monthly average purchase frequency grew 12% year-over-year.

• Fulfillment order volumes grew 25% quarter-over-quarter

Shopee VIP membership continues to boom, reaching over 10M members (up 40% quarter-over-quarter) with program retention averaging 80%. Keep in mind, it had only 1M members just one year ago. That’s 10x growth in twelve months!

VIP is Shopee’s higher-tier membership subscription (think Amazon Prime or Coupang WOW) offering perks such as free shipping with no minimum spend.

Source: Shopee Indonesia

Unsurprisingly, VIP members spend more, with a double-digit uplift of 30% to 40% in some markets. VIP members currently contribute around 20% of GMV across Asia, and the program just expanded to Brazil in April.

On the AI front, innovation continues to drive efficiency and growth for Shopee:

• AI-enhanced search/recommendation algorithms for buyers and AI-generated content tools for sellers led to a 14% improvement in purchase conversion rates year-over-year.

• 80% of customer queries are now handled by AI chatbots, helping reduce cost-per-contact by 30%.

• AI-driven personalization and targeting contributed to the strong ad growth

Moving on, Shopee Revenue grew to $5.1B, 45% year-over year:

Source: Sea Limited

Breaking out the Shopee revenue segments further:

Core Marketplace Revenue grew 60% year-over-year to $3.8B. Marketplace revenue consists primarily of transaction fees and advertising revenue.

Product Revenue grew 50% year-over-year to $612M. These are first-party products that Sea sells itself rather than relying on third-party merchants. It comes at much lower single-digit gross margins (4% this quarter), but management believes this is worth the cost to improve the buyer experience, expand selection, and ensure prices remain competitive.

Value-added Services Revenue was down 5.9% year-over-year to $692M. This drop was due to shipping subsidies as they build out better delivery and fulfillment services. Despite that, we’re seeing those investments pay off. From CEO Forrest Li:

With greater economies of scale, we are seeing lower delivery costs per order for these faster services compared to last year. For example, in Indonesia, our instant delivery service can deliver orders in as little as two hours in urban areas. Order volumes for this service grew over 35% in the first quarter, with cost per order reducing by around 20% year-over-year.

The overall Take Rate increased sequentially to 13.7%. That’s largely due to ads, which grew 80% year-over-year, and to an increase in ad take-rate of more than 90 bps year-over-year.

Source: Sea Limited

Despite that, Adjusted EBITDA was still down 15% year-over year at $223.2M

Shopee’s Adjusted EBITDA margin continues to track lower than in previous years, but as management has reiterated multiple times, the company is in an investment cycle. Management’s medium- to long-term target is to achieve an Adjusted EBITDA margin of 2% to 3%, up from currently 0.6%, as you can see. That said, the longer this goes on, the more critics will point to it as a persistent, structural defensive posture due to rising competition. The rising take rate is a counterargument.

Fred Liu of Hayden Capital had an insightful comment related to this in his most recent investor letter:

For example, China is the most competitive ecommerce market in the world with four large ecommerce companies all competing heavily. Despite this, all the companies are making ~2% EBITDA / GMV – 3x higher than Shopee’s current 0.7%. I think China clearly illustrates that relative competition and absolute market share isn’t necessarily correlated with lower terminal margins.

Source

It seems more than plausible for Shopee to increase its EBITDA margin to its target goal once this investment cycle scales out, despite competitive forces.

Competition

Some new data came out this past quarter on the e-commerce landscape in Southeast Asia. Below is a chart I made aggregating data from a report:

Source: Momentum Works

TikTok Shop is indeed gaining GMV share, some at the expense of Shopee, but also other players, which aren’t depicted here. More importantly, Shopee still gained market share in the biggest market (Indonesia) and retains a dominant share over the region overall:

Source: Momentum Works

Some of this data may elicit some fear regarding competition. Even I had questions, but I also found alternative third-party data depicting TikTok Shop’s GMV decelerating, not accelerating:

Source: X

So what data should we trust? Below is a recent interaction I had with Fred Liu on the topic:

Source: X

That looks better for Shopee, doesn’t it? It was a good reminder of the wide range of conclusions one can draw depending on where data is sourced. It’s on us as investors to aggregate information and make our best educated guess. Third-party data is merely one data point among direct earnings reports. One piece of data should not be the end-all, be-all.

Personally, I see rising Shopee GMV, orders, revenue, and take-rates over the past few quarters. Management also commented on the competitive environment in Q4 2025:

Regarding your question on the competitive landscape, I think what we observed is relatively stable competitive landscapes across most of the market. Yeah, I think that we didn’t observe anything very different from what we see from last quarters.

TikTok Shop has grown in the region but so far has not adversely affected Shopee. In addition, there is no proof that they can’t co-exist. TikTok Shop targets a spontaneous, discovery-led “shoppertainment” audience buying low-cost items like fashion and cosmetics.

Shopee, on the other hand, captures high-intent, utility commerce where buyers proactively search for goods, including consumer electronics and everyday household products. More importantly, they have a comprehensive platform to nurture existing customers and drive repeat purchases, rather than relying on one-time, impulse-driven relationships.

If anything, Shopee is encroaching on TikTok’s territory with its expanding partnerships with YouTube and Meta as confirmed by CEO Forrest Li:

Our content ecosystem continues to grow healthily. In the first quarter, orders from live streaming and short-form video grew more than 50% year-on-year.

These orders accounted for more than 25% of total physical goods orders in Southeast Asia. To further strengthen our content ecosystem, we continue to deepen our content partnerships.

Orders driven by YouTube more than doubled year-on-year. Our collaboration with Meta is scaling well with over 4.5 million affiliates across our market, up nearly 30% quarter-on-quarter. In Indonesia, we have extended our Meta collaboration to enable seamless product promotion and checkout, not just on Facebook, but also on Instagram.

That was Shopee, next we move to the fintech segment of Sea Limited.

Monee

Revenue was $1.2B, up 58% year-over-year.

Adjusted EBITDA was $275M, up 14% year-over-year.

Source: Sea Limited

While topline revenue growth has held strong, Adjusted EBITDA growth continues to slow due to two reasons:

1. Provisions for credit losses are increasing due to expansion of the credit book.

2. Sales and Marketing expenses continue to grow significantly (up 142% year-over-year this quarter).

Similar to MercadoLibre and Nu Holdings, Sea Limited is capitalizing on the opportunity to expand its lending services aggressively to capture market share. Just last quarter, they opened up their SPayLater (buy now, pay later) application to all users, and that momentum is continuing:

Source: Sea Limited

Loans Outstanding grew 71% year-over year to $9.9B

First-time borrowers this quarter were 4.9 million with 38 million active credit users, up more than 35% year-over-year.

Despite continued credit expansion, non-performing loans (NPLs) remained steady at 1.1%. As Kris mentioned in previous articles, NPLs can be artificially held down when a loan book grows this fast; there are simply more “good” new loans, outnumbering the bad, before the most recent cohorts have had time to season or default. In the future, it is completely normal to see NPLs rise slightly.

Sea has also been actively expanding credit to Brazil:

• The Brazil loan book crossed $1B, growing more than 250% year-over-year.

• SPayLater GMV penetration on Shopee Brazil is at 10%, well below mature Asian markets, indicating a massive runway.

• They obtained the SCFI license, which will allow Monee to broaden the scope of financial services offered.

Sea also continues to expand credit use cases to offline settings (Off-Shopee SPayLater). This past quarter, Off-Shopee SPayLater loans in Thailand and Indonesia exceeded 20% of the total portfolio. On-Shopee lending now accounts for less than half of their total fintech business. CFO Tony Hou noted:

This proves that we’re not only able to drive our SPayLater or in general, lending in the Shopee ecosystem, but also we successfully drive this in the off-Shopee ecosystem.

Critics argue that the fintech arm was only successful because it was piggybacking on Shopee’s massive user base. With Off-Shopee expanding past On-Shopee lending, that argument is convincingly refuted. Monee has evolved into a standalone financial solution.

The last point to highlight is the growth of on-book versus off-book loans:

Source: Sea Limited

Taking another look at this graphic, we see that off-book loans have stagnated for a while. In the past two quarters, however, we have seen some growth again, albeit just 10% sequentially. Off-book loans are loans funded without the use of Sea’s balance sheet, allowing it to obtain revenue from financial fees while offloading the risk to other institutions. This is a part of a bigger thesis I have regarding Monee, but more on that at the end of this article.

Moving on to the final segment of Sea Limited, its gaming division, Garena.

Garena

Q1 2026 came in stronger than expected, marking the best-performing quarter since the pandemic-fueled peak of 2021:

Bookings for the quarter came in at $931M, 20% growth year-over-year.

As a reminder, we choose to emphasize bookings over GAAP revenue due to revenue recognition rules. When Garena users buy in-game credits, it isn’t recognized as revenue until it is actually spent in-game.

While a 20% growth number doesn’t seem mind-blowing on the surface, zooming out reveals it was built on a very high base. Q1 2025 had a massive 51% year-over-year growth thanks to the Naruto Shippuden campaign. Stacking 20% growth on top of that is incredibly impressive at the maturity Garena is.

This quarter’s boost can be attributed to Free Fire’s collaboration with Jujutsu Kaisen, which generated over 700 million official content views.

Source: Free Fire

Unsurprisingly, the bookings boost lifted profitability, monetization, and engagement across the board:

Source: Sea Limited

Adjusted EBITDA came in at $574M, 25% growth year-over-year with a strong 61.6% margin.

Source: Sea Limited

Quarterly Active Users were 666 million.

Paying Active Users were 73 million.

Average Revenue (Booking) Per Paying User was $12.8

Quarterly Paying User Ratio increased significantly to 10.9% which means a higher percentage of active players are converting to paying users.

To close out this section, let’s take a look at the quarterly bookings chart again:

With this link, you get a 15% discount for Fiscal AI, so you can make these great charts yourself. Or use their top-notch screener. Or listen to the earnings calls, or… So much more.

After a slow period in 2023 and 2024, the quarters from 2025 onward prove that Garena can generate bookings acceleration almost on demand through high-impact partnerships with global IPs (Naruto, Squid Game, Jujutsu Kaisen). How sustainable this is in the long term remains to be seen, but I am very optimistic after seeing how significant these partnerships have been in driving bookings lately.

The Future: What Sea Limited is Building

This quarter was fantastic, with all business segments showing strong momentum. Let’s zoom out for a moment to gain perspective on what management is building for the long term.

As we saw in the Momentum Works report, Shopee is the undisputed #1 e-commerce player by GMV in Southeast Asia. Instead of just chasing raw user growth, they are deepening existing relationships through logistics investments and the VIP program. 10M VIP members against a backdrop of roughly 400M active buyers means penetration is only about 2.5%. Compare that to Amazon Prime or Coupang WOW, which exceed 50% penetration, and you see the massive runway ahead.

Additionally, continual improvement of customer experience leads to an increase in mindshare among buyers; they no longer consider comparing prices with other competing platforms, even if there may potentially be lower prices elsewhere.

CFO Tony Hou from the 2025 Q3 earnings call:

And Shopee remains consistently regarded as the e-commerce platform offering the most price-competitive products in both our Asian markets and Brazil, based on Qualtrics surveys.

I live in the US and I can resonate with this feeling as a frequent shopper of both Amazon and Costco.

When I go to purchase an item at either place, I can rest assured that I will most likely have paid close to the best possible price. Even if it isn’t, it’s not worth the effort to look elsewhere to save a bit more; the customer experience for members (e.g. perks, shipping, returns) more than makes up for it.

The large, high-engaged Shopee base serves as a zero-acquisition-cost funnel for Monee. When a Shopee buyer checks out, they are offered SPayLater:

Source: YouTube

Sea underwrites these loans using proprietary internal transaction histories, a massive data advantage over traditional banks in underbanked regions. Once a user builds a clean repayment history, Monee cross-sells them higher-value, off-Shopee financial products.

Combining these two businesses together creates the flywheel effect:

Source: Google Gemini

In the Monee section, I also mentioned off-book loans offering additional optionality. The shift toward an off-book model is the ultimate scaling mechanism. Actively utilizing partner capital allows Monee to act as a lending marketplace, taking high-margin origination fees while avoiding balance-sheet risk. This can unlock immense operating leverage.

What’s even better is that this model can be replicated across other developing countries that are underpenetrated in both e-commerce and financial services. We see that happening within Latin America (Brazil):

Brazil was the fastest-growing market in the past two quarters, and the investment is just getting started. In Q1 2026, SEA opened up three new fulfillment centers, bringing the total to five. The VIP program just launched this past April, and the loan book grew 250% year-over-year.

If you can’t tell already, Sea is successfully running the same playbook from Asia now in Brazil, and there’s nothing stopping them from applying it to other developing countries.

Here is the playbook summarized below.

Phase 1: Launch Shopee in the target country with aggressive, cash-burning market-share play, e.g., free shipping vouchers, discounts, low take rates. Subsidize with cash from other countries and Garena.

Phase 2: Once an active user base is established, transition from third-party to building out a proprietary logistics network (SPX Express) to drive down per-order delivery costs, speed up fulfillment, and establish a logistics moat.

Phase 3: Leverage Shopee customers to cross-sell low-risk fintech services such as a digital wallet for payments, but once credit history is established, start opening applications for SPayLater loans.

Phase 4: Lock-in engaged customers with higher-value services such as Shopee VIP, Off-Shopee loans, insurance, and wealth management services. Profit from long-term lifetime value from customers.

Taking a step back, we can clearly see Sea Limited executing this playbook masterfully. To realize it, you just have to look past the short-term price action and see the forest (or I guess Forrest?) from the trees. Shopee is solidifying its moat through a high-barrier logistics network and a sticky membership ecosystem; Monee is aggressively expanding its user base into a legitimate regional financial powerhouse; and Garena continues to serve as the ultimate cash cow, efficiently funding the entire enterprise.

So was the muted earnings reaction deserved? I think after reading this, you probably know the answer. But I’ll let Kris officially answer that with his upcoming parts of this article.

If you enjoyed this analysis and want to read more of what I have to say, you can find me on X @ZackStacksKap. Thanks for reading! Back to Kris.

Thanks, Zack. Fantastic work as always.

So that’s the quarter, and it was a strong one across all three segments. The question Zack kept pointing at is the one that matters: was the muted price reaction deserved, and is SEA a buy here?

That’s my part, and it’s for paying Multis.

Below the paywall:

The Selling Rules for SEA, the lines that would make me trim or sell.

The full Quality Score update.

My full valuation and where SEA lands in my QPI (Quality-Price Index), and what I’m doing with my own position in the Forever portfolio.

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Read more

Last Wednesday after the close, Nu Holdings (NU) reported its Q1 2026 results. The stock dropped more than 6% the next day but it had already dropped before and that means it’s now down 35% since its high in January of this year, just a few months ago.

Within minutes, the bear narrative was circling on X: provisions are surging, NIMs (Net interest margins) are compressing, asset quality is deteriorating, and the growth model hit its limits. Wow, that was fast! But was it correct?

If you are a shareholder, no matter how well you know the company, this will always sound convincing to some extent, even if it’s pure noise. But what is signal and what is noise? The company should help us, shareholders, to make that distinction and fortunately, Nu Holdings is generous in that regard.

This was one of the most informative earnings releases I’ve seen in a long time. Management analyzed almost every line item that the bears pointed out. I want to thank Nu’s management for making my job a ton easier.

It’s funny to see how two Latin American companies (NU & MELI) beat a large majority of American companies in providing detailed information to their shareholders.

Let me walk through what the market hated, what the data actually shows, and then everything else that matters for the next ten years of this company.

The Numbers

Let’s first look at the numbers. (FXN= FX-neutral, the business growth without currency impact.)

• Revenue: $5.32B, +53% YoY, beating the consensus of $5.06B by $260M.

• EPS (GAAP): $0.18, missing consensus by $0.01.

• Net income: $871M, +41% YoY FXN, down 5% QoQ from $895M.

• Adjusted net income: $937M, beating the consensus of $928M.

• Gross profit: $1.88B, +27% YoY FXN, down 7% QoQ, mostly because of elevated CLA (credit loss allowance), more on that later.

• Gross profit margin: 43.8%, missed by 8.5 pp

• Customers: 135M, +14% YoY. 4 million net adds in the quarter.

• ROE (return on equity): 29%. Adjusted 31%.

• Total credit portfolio: $37.2B, +40% YoY FXN, +7% QoQ.

• Deposits: $42.4B, +22% YoY FXN.

• NIM: 21.1% (from 19.5% in Q4 2025).

• Risk-Adjusted NIM (net interest margin): 9.5% (from 10.5% in Q4 2025).

First, a quick note on the EPS miss. Nu introduced a new P&L (profit & loss) framework in Q4 2025. Many have not yet used this new model. On top of that, the consensus is a mix of IFRS and adjusted numbers and you will sometimes even see a miss on revenue because of that confusion. So, I wouldn’t worry about the EPS “miss” too much. IR officer Guilherme Souto opened the call by pointing this out immediately:

We are aware that consensus estimates across the sell side reflect the mix of IFRS and managerial frameworks, and we encourage everyone to use the reconciliation report as a reference point for aligning models going forward.

I love it when a CFO points analysts to this directly. I think the estimates will be more accurate going forward.

What The Market Didn’t Like

Let’s start here, as I always try to understand the negativity to assess whether it’s warranted or not. I think three numbers and one extra element drove the (limited) selloff after the earnings and the bigger 35% drop since the all-time high.

The first is the 15-90 day NPL (Non-Performing Loan) ratio, which jumped from 4.11% to 5.00% QoQ. An 89-basis-point move in just a quarter is the largest in over a year. Read in isolation, that’s an ugly headline.

The second is the CLA (Credit Loss Allowance, the money Nu sets aside on its balance sheet for expected losses on its credit book), which jumped to $1.79B, +33% QoQ. That doesn’t look great either, does it?

The third one is risk-adjusted NIM. NIM, or net interest margin, is what a bank earns on its lending after subtracting its funding costs. Risk-adjusted NIM goes one step further by subtracting credit losses. That makes it a better measure of the credit book’s actual profitability. It dropped from 10.5% in Q4 2025 to 9.5% in Q1 2026.

Some, obviously people who want to feel sophisticated, point out the macro economy in Brazil and point out that 44% of Brazilians defaulted on their credit, so the loan market should absolutely be avoided at all cost.

Out of those four factors, you can build any bear case you want and that’s what I see happening quite widely.

And probably, if you are a shareholder, at least one of them, probably multiple, or all of them sound convincing. But none of them mean what you think. That’s quite a statement, I know. But if you have read this article, please let me know if your worries have decreased or increased.

Let me walk through the first three factors one by one. The macro thing comes later.

The NPL Bridge

For the first time, as far as I know, Nu broke down the 89 bp NPL jump into its drivers.

So, about two-thirds of the deterioration is simple seasonality. Every Q1 in Brazil looks like this. Just compare the last three Q1 numbers: 5.1% in 2024, 4.8% in 2025, 5.0% in 2026. You see the same pattern every year.

The 90+ NPL ratio, which is what turns into write-offs and losses, came down slowly from 6.6% in Q4 2025 to 6.5% in Q1 2026. That’s well below the 7.0% peak from Q3 2024.

So the headline that scared everyone is doing what it always does in Q1. But this time, because of the headline consensus misses (which came from quite some analysts using an old model in their estimates). That’s why the NPLs were singled out more, ignoring the seasonality.

CFO Guilherme Marques do Lago put it well. But before I quote him, I want to explain what NPVs are. It stands for Net Present Value, the value of all future profits from the loan book after costs.

The goal of our credit operations, it’s not to minimize NPLs at a point in time. Instead, it is to optimize for resilient NPVs. NPLs only capture the cost side of the equation. They say nothing about the revenues we generated from the customers who perform.

This matters and it’s also how I think. Banks that obsess over keeping NPLs low only lend to the safest customers, at the lowest spreads, with mediocre returns as a result. Nu price risk into the spread and accept that some customers won’t pay, and that makes it grow into much wider customer bases at much higher returns. The first is the incumbent model. Nu does the second.

The CLA Surge

The same logic can be applied to provisions. Just as a reminder. Credit Loss Allowance is the money on the balance sheet for expected losses on the credit book. It went from $5.30B at the end of 2025 to $6.10B at the end of Q1, an $800M increase. Management gave us the explanation again.

Growth and seasonality together explain $690M of the $800M, or 86%. Credit quality contributed almost nothing.

There’s an accounting rule that I also mentioned in the context of Mercado Libre. When a bank originates a new loan, it has to set aside the entire expected lifetime loss on that loan immediately, before earning a single dollar of interest. So if you’re growing fast, you front-load losses into today’s earnings while the offsetting interest income shows up over the coming quarters. That makes things look much worse than they actually are. That’s the ‘growth’ component, by far the biggest contributor.

Nu’s total exposure grew 44% YoY FXN to $70.7B. Total exposure is the credit card limits Nu has given its customers plus the money actually borrowed, so it’s much bigger than the drawn credit portfolio. Every dollar of that exposure gets a provisioning charge upfront, whether the customer ever uses the limit or not.

Look at the mix on the right side. In Q1’26, credit cards were 73% of the new exposure, and unsecured lending was 25%. That’s 98% combined. A year ago, credit cards were 60% and unsecured 28%, or 88% combined. Secured lending declined from 12% to just 2% over the last year, due to regulatory changes to the FGTS product at the end of 2025. FGTS (Fundo de Garantia do Tempo de Serviço) is a Brazilian employment-savings fund used to secure consumer loans.

Cards and unsecured loans have a higher expected loss than secured loans. They also yield much more, but the provision rises as more credit cards and unsecured loans are issued.

In short, the same dollar in loans now has a higher yield but also higher provisions than six months ago. That’s not because customers are of lower quality but because the yield is higher.

The NIM Drop

Now the risk-adjusted NIM. Yes, 9.5% is lower than 10.5%. But the overall NIM moved the other way. NIM, that’s before credit losses, went from 19.5% in Q4 to 21.1% in Q1, up 160 bps. As the risk-adjusted NIM went -100 bps, as we just saw, that means that the gap widened by 260 bps in one quarter. That sounds ugly, right?

But it’s simple. That gap is the same accounting requirement at work. The yield on the new originations shows up in NIM but the expected losses on those same originations show up in CLA (Credit Loss Allowance) right away. This is a way you can look at: the real losses will arrive over the coming quarters, but they are already in the books. At the same time, interest income continues coming in every quarter. By Q3-Q4 of this year, the two lines should meet back up. CFO Guilherme Marques do Lago:

We expect risk-adjusted NIM to move back towards the level we operated at during the second half of 2025 as the dynamics of first quarter normalize over the coming quarters.

So the compression is probably just a quarter of seasonality, not a structural break.

The Cohort Economics

Even if seasonality explains the Q1 rise, the loss rates Nu shows for some cohorts appear high in absolute terms. 22% in losses on unsecured lending and a whopping 33% in losses on Mexican credit cards. Aren’t those scary numbers?

Here, Nu’s most interesting new disclosure comes in. They gave us the full unit economics of the three biggest unsecured franchises, with every component broken out.

• Brazil unsecured lending: 62.2% in interest revenues, -12.2% in funding costs, -22% in losses = 28% net lending margin. That leads to a cohort ROA (Return on Assets) of 15.8% for a loan book with a 7-month duration. Do you already see what is happening here?

• Brazil credit card: 28.3% net interest revenue + 8.5% non-interest revenue, -0.3% funding, -16.6% losses = 19.9% net margin. Cohort ROA of 8.9% on a 3-month duration.

• Mexico credit card: 46.1% interest revenue + 21.5% non-interest revenue, -6.3% funding, -33.3% losses = 28% net margin. Cohort ROA of 14.1% on a 2-month duration.

For context: global bank credit card portfolios typically earn ROAs of 3-5%. Of course, that’s a different context. The best Brazilian incumbents earn 8-14% on cards, with much lower loss rates because they only lend to the top tier of customers. Nu is in a completely different league, and three things make that possible:

• Brazil’s policy rate (the Selic) is at 14.5%, which means lending spreads are structurally enormous.

• Nu’s cost to serve is $1.00 per active customer per month, an order of magnitude below that of the incumbent banks.

• A short-duration credit book that lets management react fast when something changes.

Just look at those durations again. Brazil credit card: 3 months. Brazil unsecured: 7 months. Mexico credit card: 2 months. Traditional Latin American banks operate with durations measured in years. Mortgage-heavy banks are in the high single digits in duration.

CFO Guilherme Marques:

We are not a loan book lender waiting quarters and quarters to see the impact of a credit policy change. We see it in days, and we act on it immediately.

Nu uses duration as a risk-management instrument. That’s why they can underwrite cohorts with high loss rates and still earn returns that don’t exist anywhere else in banking. You saw that in the numbers. In other words, that’s not risk-taking, it’s pricing risk at the correct premium.

Float

The credit story took all the attention this quarter, but something else caught my eye.

Look at this graph.

As you can see, float made up 41%. Float is the interest Nu earns on customer deposits that aren’t lent out as loans. With $42.4B in deposits and only $22.8B in net credit portfolio, that’s a loan-to-deposit ratio of 53.8%. So, for every $1 of deposits Nu has, only about 54 cents is currently lent out. Or put differently: Nu has a big pile of unloaned deposits sitting on the balance sheet, earning the local risk-free rate. Deposits compound faster than loans, which means that float income grows with them.

In Q1, the contribution of credit also dropped because CLA was higher, as we saw earlier. That part is seasonal and will largely reverse in the rest of the year. If you take a step back, you see that gross profit is becoming more diversified across credit, fees, and float. And that’s a good thing. It’s making Nu stronger.

This is the final proof. If you thought that Nu was a one-trick credit card pony, this quarter shows you are wrong. Fees and float together now make up two-thirds of gross profit.

Two Tailwinds In Brazil

In the Q&A, CFO Guilherme Marques do Lago mentioned two structural Brazilian tailwinds.

The first is the new Brazilian income tax exemption for monthly earnings up to BRL 5,000 (about $1,000). There are even partial reductions up to BRL 7,400 (about $1,500). That means that most ordinary people with a job will profit and those people are exactly More income means more loaning capacity and lower expected loss rates on the cohorts already on the book.

The second is about what I mentioned as a part of the bear case: macro. Yes, credit default numbers in Brazil are simply insane if you are used to the West. That 44% default number is correct.

But the problem is that bears make it sound as if this came out of the blue and now it’s an incredible, unprecedented time in Brazil, which is simply not the case. The default rate has been around 40% for a very long time already and yes, it went up slightly. Well, slightly, from give or take 40% to 44% is still a lot, as it’s up 10% but it’s not as if this is a new situation in Brazil. Don’t forget that this is the environment has operated in for years and it has thrived by pricing loans very correctly. We’ll see later in this article why they have even become better at this. Hint: AI.

On top of that, the government also knows this and it launched something they hope can help.

But back to the government initiative. Desenrola 2.0, the second round of a Brazilian federal debt renegotiation program. The first round (in 2023-2024) helped about 15 million Brazilians with defaulted debts renegotiate them at steep discounts, clear their names from the credit bureau blacklist, and rejoin the credit system.

Desenrola 2.0 is expected to launch in Q2 and Q3 2026 and should bring millions more newly bankable consumers into the system. Nu, as the dominant brand in Brazil, is well positioned to capture them as new customers. CFO Guilherme Marques do Lago called the program “either neutral or positive” for Nu.

Efficiency

Now to the efficiency ratio. The efficiency ratio measures how much a bank spends in operating costs to earn one dollar of revenue. The lower, the better. You may know this from your favorite insurance company.

A traditional Brazilian incumbent typically runs at 40-50%, meaning they spend 40-50 cents to earn one dollar. Nu came in at 17.6% this quarter. That’s about 18 cents to earn one dollar, which is less than half of an incumbent. Pretty impressive.

But it’s even better. Nu makes investments in three things that other banks are not doing: bringing employees back to the office, expanding internationally (to the US), and building out its AI infrastructure. If you strip those out, the “core” efficiency ratio is 16.6%. With just $16.6, the company can earn $100. That’s great. A year ago, the efficiency ratio was 21.4%, so this is a big improvement. The operating leverage is doing its work.

NU CFO Guilherme Lago told us not to extrapolate, though:

The first quarter came in better than expected for 2 reasons working together.

Number one, revenues accelerated faster than we anticipated, driven by both ARPAC outperformance and continued portfolio growth.

Second, OpEx came in below plan...

Roughly 1/3 reflects structural efficiency gains that are durable and compounding, mainly AI-driven improvements in operations and collections, software platform consolidation and hiring discipline. Now the remaining 2/3 reflect timing items that will normalize in the next quarters.

He gave us the full-year guidance: roughly 20% efficiency for 2026, in line with where 2025 ended, but including all the strategic investments. The core efficiency ratio (the trend excluding those investments) continues to go down, which is great to see.

ARPAC & Cohorts: No Plateau In Sight

Monthly ARPAC (Average Revenue Per Active Customer, remember that, as I will use it multiple times) for Q1 2026 was $15.9, +23% YoY FXN, up from $15.0 in Q4.

That’s the average across all customers. Mature customers, those who’ve been with Nu for 96 months (8 years), generate $30.8 in monthly ARPAC, nearly double the company average. And it keeps going up year after year.

Look at the cohort progression. It looks linear and so far, there is no plateau in sight.

Now think of the customer base. Nu has added more than 65 million customers over the last three to four years.

Just insane. But that entire cohort is still in the stage of the low ARPAC in the graph. If they do ever remotely do as well as the older cohorts, the revenue growth from existing customers alone will be huge. And that’s before Nu adds new customers, launches new products, or starts in another country.

Monthly costs to serve customers are around $1.00 per active customer. The ARPAC of $15.9 against $1.00 of cost, that’s phenomenal operational leverage.

The cost to serve is up 19% YoY, which is faster than historically, but still extremely low. ARPAC is up 23%, so the gap is still broadening. I expect the cost to serve to increase if the company focuses more on small- and medium-sized businesses and the wealthier segment of the population. But of course, in that case, the ARPAC should also rise.

Mexico: The First Quarter Of Profitability

It was great to hear that Mexico has already seen its first profit in this quarter. And not on some adjusted or managerial measure, but on an IFRS basis (International Financial Reporting Standards, comparable to GAAP).

That was even faster than management had foreseen. CEO David Velez:

In Mexico, we have moved from a $30 million quarterly loss to our first quarter of IFRS profitability, a milestone that arrived ahead of our own internal plan.

And again, management gave us an interesting slide full of information.

The number of customers rose from 2 million to 15 million over four years, while ARPAC nearly doubled from $6.5 to $12.4. The efficiency ratio dove from 120% to 42%. That’s incredibly strong and another testament to how well the company is doing. And as we already saw, the cohort ROA on credit cards in Mexico is 14.1% on a duration of just 2 months.

Mexico is no longer the experiment. Nu is already the third-largest financial institution in Mexico by customer base. The playbook that management applied in Brazil is working in Mexico.

The Mexican population is around 130 million, so there is still a lot of room to grow from the 15 million customers Nu has now. If Mexico grew to the same size as Brazil, you could expect more than 80 million customers. I’m not saying they will do that but that’s the potential. And management is not shy to show the opportunity.

Nu’s gross profit market share in Mexico is below 1%, in a $43B annual pool that’s expected to grow by 15% per year. Compare that to Brazil, where Nu has a 7% share of a $100B pool growing at 8%. The Brazilian pool is bigger and Nu’s share is much bigger, but the Mexican pool is growing almost twice as fast and Nu’s share is tiny. Over the next decade, Mexico could very well compound faster in absolute terms than Brazil.

Colombia is the third country where Nu is scaling. The customer base is approaching 5 million now and the country is still in investment mode, just like Mexico was from 2020 to 2025. Nu is now intentionally operating at a loss there to build out the brand. It’s that same playbook again

The US Opportunity

In previous articles, I already mentioned multiple times that Nu received conditional approval from the OCC (the Office of the Comptroller of the Currency, the US national bank regulator) for a national bank charter in January. Management has confirmed the seriousness of the move but has not shared the go-to-market strategy or any other details so far. But co-founder Cristina Junqueira, Chief Growth Officer, has relocated to the US and is now the CEO of NU there.

Again, management wanted to be very clear about this expansion. For competitive reasons, it doesn’t want to share its approach, which I think is fair, but it was clear to shareholders what this would cost.

CEO David Velez:

To be precise, the maximum OpEx headwind we expect from US investment in each of 2026 and 2027 is less than 100 basis points on our consolidated efficiency ratio. And this is inside the 20% efficiency ratio level Lago mentioned before. For a company at our scale, that is quite affordable.

Beyond that, any additional investment is explicitly contingent on clear evidence of product market fit and a credible path to profitable scalability.

This is how companies should take bets. The downside is capped and restricted in time. The upside is asymmetrically high if Nu finds product-market fit. If they don’t, the worst case is less than 100 bps of drag on the efficiency ratio for two years, and the core business doesn’t feel it. But if they succeed, Nu enters a whole new era in the world’s largest retail banking market.

Velez has been calling these expansions “call options” since Mexico was the new market. The Mexico call option has already turned out to be worth several billion dollars. Colombia is still vesting but looking promising. The US is a much harder market with stronger digital competition, but with that asymmetry comes huge potential upside.

There was an interesting question on the earnings call in this context. The question was why Brazilian investors are more constructive on the Nu story, including the US thesis, while foreign investors are very skeptical. It also hit home because when I talk about this potential expansion with Americans, they are either very enthusiastic (a minority) or very skeptical. CEO David Velez:

Every time we’ve launched a new country, the locals have been skeptical. When we launched in Brazil, the locals were very skeptical. When we launched in Mexico, the locals were very skeptical... if you’re a local by definition, it’s very hard for you to reimagine how things can happen differently. You are too consumed by the status quo.

That’s a very interesting answer on several levels. As NU is an innovator, the typical consensus is that they do not stand a chance. “Not here, not in this market.” That’s what most locals think. If you are American, maybe that’s what you think right now. And I understand that for sure. If Nu were to expand to Belgium, I might have the same reaction. It’s also why incumbents in any market consistently underestimate what a new player, with a new model, can do. It’s basically a summary of the Nu story for thirteen years already.

Small And Medium-Sized Enterprises

One analyst asked about SMEs. David Vélez:

I actually think this is probably one of the most underappreciated opportunities we have at Nu. We should be speaking more about it, but we’re not. The reality is we’ve kind of silently have built the largest SME base in Brazil with our 5 million SME customers effectively built with 0 customer acquisition cost.

5 million SME (Small and Medium Enterprise) customers. At zero customer acquisition cost. That’s crazy. Nu built this by cross-selling its small-business products to its existing personal-banking customers, since a large share of Brazil’s working population also runs a small business. Today, there are over 2 million Nubank SME credit cards in circulation, plus a growing range of secured and unsecured credit lines (some of them using Brazilian government guarantee programs).

In a country where small businesses employ around 70% of the workforce, this is a very interesting option.

AI: From Talking To Doing

Every company is talking about AI right now. A lot of it is theater, buzzword bingo. But Nu’s AI commentary was very specific, and we can check the numbers.

The first phase, AI Assistance, is largely complete now. AI tools have been rolled out to roughly 100% of employees. Engineering throughput is up 50% YoY, weekly token consumption is up around 10x since January and testing cycles are 90% faster. I love that level of detail!

The second phase, Workflow Reinvention, is in progress. AI executes the routine work and humans hold the judgment.

The most concrete example is Pix with AI, which already has more than 10 million MAU (Monthly Active Users). Pix is Brazil’s instant payment system, launched by the central bank in 2020. It is now used by virtually every Brazilian, for everything from paying for a coffee to paying rent. Nu’s AI layer on top of Pix lets customers do things like pay a friend by simply describing in plain language what they want to do, instead of typing in account numbers. That may sound small, but features like this can encourage people to use their Nubank app more.

The third phase is the AI-Native Bank, which is still in its early stages. The AI Private Banker gives customers financial insights, payment guidance, credit advice, and debt resolution, and it’s already at 15M+ MAUs.

Nu’s proprietary foundation models, branded nuFormer, are live for credit card decisioning in Brazil and Mexico, and for unsecured lending in Brazil. CEO David Velez:

We’re now able to use real-time AI valuation for every personal loan request, priced and approved individually based on its predictive net present value in under 1 second.

Let’s go back to where we started: why the stock dropped. The unsecured and credit card lending book is growing 53% YoY, with high ROAs, despite the big losses some love to accentuate.

And now we know how Nu does this. For every loan application, the AI runs the math on what the loan should yield, what the customer is likely to lose, and whether the loan’s lifetime profit is positive. In less than a second. So when you hear bearish takes that Nu takes on riskier customers to grow the book, it’s because Nu is pricing risk more precisely than anyone else in the industry.

The AI productivity is also showing up on the cost side. Remember that CFO Guilherme Marques do Lago said that about a third of Q1’s efficiency outperformance came directly from AI: improvements in customer operations, debt collection, software consolidation, and more disciplined hiring.

In other words, NU uses AI in its core operations, which is extremely important for its positioning.

Below the paywall:

My five new Selling Rules for Nu. I didn’t have any yet, so I built them from scratch. One of them puts a hard number on management’s promise that risk-adjusted NIM goes back up by Q4. If they miss it, I want to know.

The full Quality Score update. Including the one metric where Nu just knocked Adyen off the top spot after years. I didn’t expect that.

My valuation. You can’t value Nu like a bank and you can’t value it like a normal growth stock either. So I built something else for it

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Last Thursday, Mercado Libre (MELI) reported its Q1 2026 earnings. On Friday, the stock dropped close to 13%. Right now, MELI is down more than 40% from its 2025 high.

So, the market hated the earnings. Let me tell you up front: I loved them. And I love the market’s hate.

I’m going to explain why in this article. If you are a long-term investor and I do my job well, you will probably love it as well.

Let’s go through the numbers first.

The Numbers

• Revenue: $8.85B, +49% YoY in USD, +46% FX-neutral, beating estimates by $530M

• EPS: $8.23, missing estimates by $0.24

• Net income: $417M (-16% YoY)

• Operating margin: 6.9%, down 600 bps YoY

• Adjusted free cash flow: -$56M

I’m sure you are not impressed with some things here, like the FCF, for example, or net income down 16% YoY, margins down from 12.9% to 6.9%. And that’s already an important part of what the market hated about this quarter. Much more about this later and why I love it. Let’s first look at the different segments.

Marketplace:

• GMV: $19.0B, +42% YoY, +36% FX-neutral

• Items sold: 722M, +47% YoY

• Unique active buyers: 84.1M, +26% YoY, a record addition of 17 million in a single year

• Same- and next-day shipments: +39% YoY, accelerating from +29% in Q4

Mercado Pago:

• Monthly active users: 82.9M, +29% YoY

• Assets under management: $19.9B, +77% YoY

• Credit portfolio: $14.6B (+87% YoY, the largest nominal quarterly increase ever)

• Credit cards issued in Q1: 2.7 million

• Credit card portfolio: $6.6B, +104% YoY

Advertising: +73% YoY in USD, +63% FX-neutral

To summarize the numbers, this is the overview from the earnings call slide deck.

What The Market Didn’t Like

The market doesn’t like that the operating margin dropped from 12.9% a year ago to 6.9% in Q1. I already pointed that out shortly.

The market doesn’t like that EPS was down for the fourth quarter in a row.

And the market really doesn’t like that NIMAL (net interest margin after losses) compressed from 22.7% to 17.8%, which makes the bearish “the credit book is getting riskier” crowd start typing furiously. And it sounds informed, of course, as most people already have no idea what NIMAL is exactly, let alone what a good or bad NIMAL is. We'll come back to this.

Here is the evolution of margins and net income.

That already looks bad, right? But the margin compression is not a weakness. Management had announced it properly and they broke it down in detail. That breakdown shows the entire compression is the direct, predictable result of investment decisions that are working. In other words, this is not weakness, it’s deliberate investing.

Look at the operating margin waterfall:

The two big red candles are COGS (cost of goods sold) and bad debt.

The two big hits are COGS (cost of goods sold) and bad debt. The COGS went up because of more free shipping in Brazil and the rapid growth of the 1P business (first-party, meaning the products Mercado Libre buys and sells itself, as opposed to the 3P marketplace business where merchants sell on the platform). Both are very deliberate investments.

The bad debt was up because the credit portfolio grew 87% YoY, and management explained in detail how this works. When Mercado Libre writes a new loan, accounting rules require it to immediately provision for the full expected lifetime loss on that loan, before it has collected a single dollar in interest.

Two thirds of the 3.9 percentage points of bad-debt compression comes from this requirement. If your credit book is growing so fast, that accounting rule alone will compress margins, and it tells you absolutely nothing about whether credit quality is deteriorating or not.

The other third of the margin compression has a different explanation. Management extended the duration of personal loans in Brazil from 5 months to 8 months. They also broadened the reach of consumer credit.

Again, both decisions require taking higher provisions upfront. But this is not management being reckless. As Fintech President Osvaldo Giménez explained on the call, the goal is to reach customers who were offered a credit line in the past and didn’t take it. By lowering the spread and extending the duration, MELI can activate this group. The early signs are encouraging.

Two parts of the income statement improved this quarter. Product Development expenses dropped from 9.3% of revenue to 7.9%, mostly thanks to AI productivity gains. G&A (general and administrative expenses) also came down as a percentage of revenue, for the same reason.

In other words, there is no “weakness” here. Every single basis point of margin compression came from deliberate investment decisions, not from anything that’s getting worse in the underlying business. To the contrary.

I can’t stress enough how important that is. Margin erosion is a problem if it’s not announced or not deliberate. Mercado Libre has gone through multiple investment cycles before. Don’t forget that it didn’t have a distribution arm first, but over the last decade, it built by far the best delivery network in LatAm, beating Amazon at its own game. If you were already following the company a decade ago, the negative comments you hear now must sound very familiar.

Brazil Is On Fire

Last quarter, I wrote about how the lowering of the free shipping threshold in Brazil from R$79 to R$19 was working. This quarter, it’s working even better than last quarter.

Let’s look at the last four quarters of the growth of items sold in Brazil:

• Q2 2025: 26%

• Q3 2025: 42%

• Q4 2025: 45%

• Q1 2026: 56%

Four quarters of incredible acceleration. The growth rate has more than doubled from the level before the shipping fee change.

Total GMV in Brazil grew 38% FX-neutral, also accelerating. Unique buyer growth accelerated to 32% YoY, the fastest pace since the pandemic.

On top of that, the economics keep getting better, not worse. Unit shipping costs in Brazil dropped 17%, accelerating from the 11% decline we already saw in Q4.

Even better, roughly half of the profitability hit MELI took when it lowered the free shipping threshold has already been recovered. How? Through scale, productivity gains, efficiency improvements, and some smart pricing adjustments. Several categories below R$79 are now breaking even on a unit basis, less than a year after the change. That’s much faster than expected and once more a testament to the relentless execution of this company.

I want to show you a quote from CEO Ariel Szarfsztejn that I think captures what’s really happening here. I love that first sentence.

Free shipping has always been a long-term investment in user behavior, not a short-term promotional tool.

When we launched it in 2016, it took time for unit economics to improve enough to offset the investment but the compounding impact on engagement and scale validated the decision.

Today, like in 2016, the signals we see give us confidence: user behavior is responding as we expected, and unit shipping costs are falling faster than we had anticipated.

Mercado Libre has done this before. They have the experience and they know what metrics to look at. Does that sound like a company crushed by competition that has to give up margins? Not to me. You can’t have it more deliberate than this.

The buyers who have joined since the shipping fee threshold change are buying more items across more categories with higher retention than the cohorts that came before. Daily active users are growing faster than monthly active users, which means users use Mercado Libre much more often.

Conversion, frequency, retention, and NPS (net promoter score, how satisfied customers are) are all at record highs. Tell me: does this sound like a victim or a winner?

If you see the small slide in the items sold per unique users QoQ, that’s seasonality from Q4 to Q1. It’s really impressive that items sold per unique active buyer don’t slide more and are up YoY, as the company added a record number of new customers, and usually, new customers have fewer orders. Another sign of strenght.

By the way, this is happening in a market where Sea’s Shopee is also accelerating. Some bears love to say that Shopee is going to eat MELI’s lunch in Brazil. As you know, I’m a long-term shareholder of both companies and I think both can do very well.

Latin America is still in the very early days of e-commerce adoption, and as the market continues to grow, there is more than enough room for multiple strong players.

Just look at this chart that MELI has on its website. LatAm is literally at half the e-commerce penetration of the US and at 38.5% of that of China.

Also important: MELI’s conversion rate in Brazil is up 1 percentage point YoY. Conversion rate is the percentage of visitors who actually end up buying something on the platform. A 1% improvement may sound small until you consider the size of the platform. If MELI has, say, 100 million visitors a month, that 1 % extra conversion improvement means 1 million additional buyers per month.

The Logistics Moat Keeps Deepening

I want to underline two numbers that I think don’t get enough attention.

The first is 95.5%. That’s the share of all Mercado Libre’s deliveries that now go through its own logistics network. In other words, when you order something on MELI, there’s a 95% chance the package is moving through MELI’s own infrastructure at some point on the way to your door. The other 4.5% goes through external delivery services.

The second number is 55%. That’s the share of shipments that come from Mercado Libre’s own fulfillment centers, meaning warehouses where MELI is storing the seller’s inventory, similar to Amazon’s FBA. The remaining 45% ships from the seller’s own (ware)house, but still moves through MELI’s logistics network from there.

Think about what these two facts combined mean. When you control 95% of your own delivery infrastructure and your unit shipping cost drops 17% in a single year while your shipment volume shoots up like a rocket, that is devastating for competitors that are paying third-party logistics rates.

Each additional package Mercado Libre handles makes its network cheaper to operate. Each additional package a smaller competitor ships through a third-party logistics network costs them about the same as the previous one. And, as Mercado Libre is the biggest by far, all competitors are smaller.

Same- and next-day shipments accelerated to +39% YoY, after running in the high 20s for four straight quarters. The customer experience is getting visibly faster at the same time that volume is exploding.

The company is also building a new 100,000 m² (more than 1 million sq ft) fulfillment center in Argentina, the largest in its network. It will open in late 2026. You see that management is still investing in its infrastructure investments as well.

Mercado Pago: The Real Story Of The Quarter

If you want to understand why this quarter matters, you have to understand Mercado Pago. The fintech segment grew 54% FX-neutral. AUM hit $19.9 billion. Monthly active users came in at almost 83 million, with MELI adding nearly 20 million users in a year. That’s about the population of Chile and more than that of many countries.

I want to expand a bit on the credit portfolio because that triggered a lot of headlines. The portfolio grew 87% YoY to $14.6 billion, and management noted this was the largest nominal quarterly increase ever. Of that $14.6 billion, $6.6 billion comes from the credit card book, now up 104% YoY. It now accounts for 46% of the total portfolio, up from 42% a year ago. The company issued 2.7 million new credit cards in Q1 alone. Pretty impressive numbers.

Here’s how CEO Ariel Szarfsztejn framed it in the shareholder letter:

Investing in our credit card is as pivotal for Mercado Pago as the launch of our managed logistics network was for our marketplace ten years ago. Just as fulfillment was a critical element of achieving market leadership in Commerce, the credit card is central to our ambition of being the region’s largest digital bank.

That’s a big claim but I take it seriously.

Older credit card cohorts in Brazil have been profitable on a NIMAL basis for some time, and they’re now generating enough profits to offset the dilution from the massive new cohorts being added.

In Mexico, where the credit card was launched about two years ago, the cohorts are performing even better than in Brazil at the same time. In Argentina, where MELI launched cards in mid-2025, the early data looks very promising as well, in line with the data in Brazil at the same time after launch.

This is the cross-sell working very well. If someone has a Mercado Pago credit card, it increases the marketplace conversion, the GMV per user, and the number of transactions in MELI’s ecosystem.

Even better, the 15-90 day NPL ratio (non-performing loans) for the credit card book actually fell 80 basis points YoY. So while the book more than doubled in size, the asset quality got better, not worse. That’s impressive!

The credit card also has the shortest duration of any product in the portfolio at just 2.7 months on average, which means MELI can adjust quickly if the macro conditions change. That’s important. If conditions deteriorate, MELI can stop issuing new cards, and within just a few months, the existing loan book will be largely paid off. With long-duration loans, you’re stuck with the credit risk on your balance sheet for years. The short duration of credit cards is a built-in safety mechanism that many bears don’t seem to understand.

Now about that NIMAL compression. Quick reminder: NIMAL stands for Net Interest Margin After Losses, which is essentially the profitability of the lending business after accounting for credit losses.

For comparison, Itaú, the largest traditional bank in Brazil, has an NIMAL of 6%. So even after this quarter’s compression, MELI’s 17.8% NIMAL is roughly three times that of a traditional bank. Boom! As it’s AL (after losses) that means the risk is already taken out.

The drop from 22.7% to 17.8% YoY looks scary at first glance, and many have pointed to it as a major issue. It’s not, as we already saw. Two thirds comes from the regulatory provisions, a third from the extension of loans from 5 to 8 months and lower spreads for better-quality customers.

Fintech President Osvaldo Giménez on the call:

We’re not trying to seek out riskier folks. We’re reaching out to customers who had a line of credit in the past and they were not taking it. So we are lowering the spread to see if we entice them to start trying our personal loan products.

And the asset quality data backs this up. The 15-90-day NPL remained at 8.0%, broadly stable YoY. Provision coverage stands at 103% for 15+ days past due and 149% for 90+ days past due.

In Argentina, where the broader financial system is seeing rising delinquency, MELI’s 15-90 day NPL actually fell QoQ while spreads increased. That’s not how a credit book under stress looks like, to the contrary.

Do you remember that I mentioned last quarter that MELI was sitting on close to $19 billion in AUM but wasn’t yet using those deposits to fund its lending? Well, AUM is now $19.9 billion and growing 77% YoY, faster than MAU growth (29%). That means existing users are keeping more money with MELI, not just that new users are signing up. This remains a competitive advantage Mercado Libre chooses not to use yet, but I’m sure they will do it one day.

Mexico, Argentina, And The 1P Milestone

Mexico’s items sold grew 34% and FX-neutral GMV grew 28%, still ahead of the market but slowing QoQ because of a tax reform for small and medium sellers. Argentina delivered 41% FX-neutral GMV growth on top of a very tough comp, with items sold up 35%. Chile delivered 40% FX-neutral GMV growth.

TPV (total payment volume) grew 41% FX-neutral in total, with Brazil at +26%, Mexico at +46%, Argentina at +55%, and Chile at +69%. Mercado Pago is taking market share in every market and growing like weeds. Tap to Phone, which is growing by triple digits in Brazil, just launched in Mexico.

There’s another milestone worth highlighting: the 1P business. Quick reminder: 1P is when Mercado Libre buys inventory itself and sells it directly to customers (as opposed to 3P, where merchants sell on the platform). It’s how Amazon started and still accounts for a big part of its revenue. Mercado Libre does this in categories where there’s not enough competition to drive prices down.

Last quarter, I mentioned that 1P had reached positive direct contribution in 2024. That means that for every product MELI buys and sells through 1P, the revenue from that sale covers all the direct costs tied to it (the cost of the product itself, shipping, handling, payment processing, and so on). In other words, each individual 1P sale was finally making money on its own, before any allocation of broader company overhead.

This quarter, management said that some of the categories MELI entered first with 1P are already fully profitable after less than two years. It means 1P is no longer just a margin drag, but is becoming a contributor to profits in mature categories. The rest of the categories should follow as they scale up too.

The numbers are getting really impressive. 1P grew 69% FX-neutral and now generates almost $5 billion in GMV (gross merchandise volume, the total value of goods sold on the platform). An example. Three years ago, MELI had just a 12% share of the cellphone market in Brazil. Today, MELI is the market leader with roughly three times that share. In three years, MELI tripled its share in a category it was barely competing in. That is the power of 1P used well.

The Ads Engine

Advertising grew 73% YoY in USD and 63% FX-neutral. MELI doesn’t break out advertising as a standalone revenue contributor, but TTM ad revenue is now estimated to be about $1.7 billion, up from around $1.55 billion at the end of 2025. This is the highest-margin business in the entire company, and it grew four times faster than the LatAm ad market in 2025.

There’s a structural story behind this that’s worth understanding. Traditional offline channels still account for roughly half of the Latin American ad market, versus about a quarter in the US. As those budgets shift to digital, Mercado Libre is capturing a huge share of the growth, because nobody else in the region has its combination of huge audience, deep first-party data and strong performance attribution.

eMarketer projects LatAm retail media spending to more than double from $2.5B in 2025 to $6.0B by 2029, and even at that level, retail media’s penetration of digital advertising in LatAm will be just 16.4%, versus a 22% global average today.

But it goes much faster than eMarketer thought just two years ago. Then it saw a $2 billion market in 2026. And guess who’s got the biggest market share by far, with over 50%? You guessed it.

As you can see, Mercado Libre has actively taken market share from Amazon in something seen as one of Amazon’s core competencies: advertising. Impressive.

The new AI-powered search that MELI launched in Q1 will play an important role for advertising. MELI already saw the shift from keyword to LLM search improve both organic conversion and the click-through rate for sponsored listings. The ad engine got more fuel, as it were.

On Agentic Commerce And AI

Speaking of AI, there is a question that keeps coming up: won’t AI agents disintermediate marketplaces?

I’d suggest reading the piece that MELI’s CMO, Sean Summers, published in March in the IR newsletter. His view, which I agree with, is that agentic commerce as currently pitched won’t scale. AI will compress and accelerate the shopping funnel, but consumers want to keep agency over their purchases.

The Amazon Rufus data illustrates this: 40% of holiday sessions used Rufus, and it drove 66% of sales, but Rufus is acting as a really good co-pilot, not an autonomous agent. The conclusion is simple: AI commerce will happen inside existing platforms with the deepest catalogs, richest data, the best AI recommendations, the best fulfillment, and the most trust. That’s exactly what MELI is in LatAm.

If you are still skeptical, talk with someone who uses AI every day, as I did in Omaha. They will tell you how much of the internet is closing down for bots. Scraping has become much harder and that means that internal agents will be much more valuable.

Internally, the AI productivity gains are showing up in MELI’s numbers as well. Tech headcount grew 8% YoY, but productivity KPIs are growing 7 to 10 times faster. Senior engineers who used to spend most of their time reviewing code are now building again, because the AI tools have made review materially less expensive. Code rollbacks are materially lower YoY. Mercado Libre has rolled out Claude Cowork to 31,000 employees, making it one of the earliest large-scale enterprise adopters globally.

And we’re already seeing the impact in the numbers. Remember when I said earlier that Product Development expenses dropped from 9.3% of revenue to 7.9%? That 140 basis points of leverage is MELI doing more with the same engineers, thanks to AI. It’s already a real, measurable contributor to the operating margin.

The AI Assistant in Brazil is also worth a mention. It now identifies funds held at other banks (via Open Finance) that could earn a higher yield with Mercado Pago and can act on those opportunities within seconds, moving balances between accounts. The Seller Assistant’s daily active users grew more than 40% month-over-month in March.

Below the paywall: my updated PMQS score, my valuation work, the updated Selling Rules, my Buy-Hold-Sell call. If you want this premium content, feel free to subscribe!

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Shopify (SHOP) reported its earnings last week, just like so many Potential Multibaggers. And just like many Potential Multibaggers, the stock is down a lot.

Ok, compared to that 85% drop in 2022, that 46.7% drop doesn’t look too dramatic. But it’s still a big drop.

It’s also a lesson, as this is one of my best investments ever. It’s an 11-bagger since I first picked it in May 2017, but it was a 20-bagger already twice. That volatility is just what you have to be able to endure if you want long-term winners.

So, the question you and I have is: “Is this a buying opportunity or not?” Let’s find out together. Zack was happy to do the first part, the earnings analysis. I see you back for the Selling Rules, the Quality Score and the Valuation.

Hi Multis!

Zack here, excited to kick off my Q1 2026 earnings season with Shopify.

Selling off software continues to be in vogue this quarter, with Shopify taking a significant ~20% drop after earnings, followed by a slight recovery since.

What happened? Is Shopify continuing to execute despite the prevailing AI narrative? Read on to find out.

The Numbers

Total Revenue for Q1 came in at $3.17B, growing 34% year-over-year, beating estimates by 2.7%. This is a strong follow-up after their first-ever $3B+ quarter in Q4 2025. Don’t forget that usually, Q4 is by far the best quarter for an e-commerce company and Q1 is seasonally weaker. An e-commerce business that does more in Q1 than Q4 is showing outstanding growth.

Revenue Breakdown

Merchant Solutions Revenue continues to drive the majority of revenue, growing 39% year-over-year to $2.42B. This was largely driven by a 41% increase in Gross Merchandise Volume (GMV) processed through Shopify Payments.

Subscription Solutions Revenue: Grew 21% year-over-year to $750M. This was fueled by more merchants joining the platform and a higher mix of merchants opting for the high-value Shopify Plus plans.

Monthly Recurring Revenue (MRR): Reached $212M, a 16% YoY increase. While the growth rate is a step down from the 20%+ growth seen last year due to pricing hikes, the absolute dollar growth remains a solid directional indicator for future subscription health, and it actually had a slightly higher growth rate than last quarter.

Volume Metrics

Gross Merchandise Volume (GMV): For the first time ever, Shopify cleared $100B in the first quarter, hitting $100.7B (up 35% YoY).

Gross Payments Volume (GPV): Payments through Shopify’s own rails reached $67B, representing a 67% penetration rate of total GMV. Adoption remains high, even as the platform scales into more diverse geographies and larger enterprise brands.

Attach Rate (aka Take Rate) is another helpful indicator that tells us how much revenue Shopify is extracting from the growth in GMV. Kris has used it for a long time in the Selling Rules. It came in at 3.15%, almost matching the highest level set a few quarters back.

As merchants sell more, Shopify is benefiting more as that piece of the pie increases.

Let’s step back for a second here and look at the topline metrics’ growth over the past few years:

After a growth slowdown a few years ago with the COVID backlash, Shopify is clearly showing reacceleration across the board. Selling more products (GMV), processing more payments (GMV), all while growing revenue at an impressive rate. Very strong!

But are they just buying their growth or are they doing it profitably? Let’s take a look.

Gross Profit: Increased 32% YoY to $1.55B.

Gross Margin: Held steady at 48.8%.

Some may be fooled by the growth of payment solutions, which carry a lower gross profit margin (~40%) compared with subscription solutions (~80%), and assume the margin is being held down by a less efficient part of the business. However, payments are asset-light and scale effortlessly due to lower operational costs once the initial “cost of goods” is covered. We can see the efficiency reflected in the next point.

Operating Income: came in at $382M, a 88% increase over Q1 2025 and operating leverage continues to improve every quarter as we can see by this illustration below:

Source: Shopify

Net Loss was -$581M for the quarter.

Earnings per Share was -$0.45 compared with -$0.53 last year.

Both bottom-line numbers are not relevant due to equity investments and miscellaneous other items, which make them pretty meaningless in gauging business performance. To remind you, Shopify has investments in Affirm, Global-e and Klaviyo. The Affirm investment went down from $1.5B to $930, the Global-e investment from $868M to $682M. Shopify has not sold these, so the losses are unrealized but under accounting rules, this is a loss. In total, there was a “loss” of more than $1B in investments. Net income excluding equity investments came in at $360M, up 59% YoY.

Free Cash Flow: Came in at $476M, representing 31% year-over-year growth with a 15% margin. This matches last year’s margin but represents significantly higher absolute cash generation.

President Harley Finkelstein summarized Shopify’s strong streak:

That means we’ve now put up four straight quarters of 30% or more revenue and GMV growth alongside mid to high teens free cash flow margins every single quarter. There are very few publicly traded companies today that are able to make that claim at anything like this scale. It is a very small club, and that is something we are very proud of.

Out of curiosity, I went ahead and input that exact parameter into an LLM and received this response:

Source: Google Gemini

As a disclaimer, I did not fact-check, but I found it interesting that 3 of the 4 are Potential Multibaggers (I personally own all 4).

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During Q1, Shopify also repurchased $514M of its own shares, with $1.5B still remaining in the authorized program. This is the first quarter of significant buybacks:

With a fortress balance sheet of over $5.7B in cash and marketable securities and no debt, Shopify is returning capital to shareholders while maintaining aggressive growth.

Q2 2026 guidance

Management expects Revenue growth in the “high-twenties” on a year-over-year basis, a noticeable step down from the 35% revenue growth in this quarter. Jeff Hoffmeister states some of this deceleration has to do with the reduction in favorable FX tailwinds next quarter.

Business Highlights

Do I even need to say it? Of course, the conversation was dominated by AI. As Harley Finkelstein noted:

In 2026, AI is now Shopify’s native language. We bet early on AI and forced its adoption. It’s embedded in everything we do, the products we build, the channels we power, the way every single person on the team operates.

I mentioned in the Q4 2025 earnings article that Shopify is the e-commerce platform best positioned for the AI wave, and the metrics are confirming exactly that which Finkelstein highlighted:

In the first quarter, AI-driven traffic to Shopify stores has grown 8x year-over-year, while orders from AI-powered searches have increased nearly 13x. Within this, new buyer orders are occurring at nearly twice the rate of other channels.

Some of that success can be attributed to Shopify Catalog, which structures and standardizes merchants’ products, making them more readable and understandable by AI Models in real time.

This structured data has provided a noticeable performance edge with traffic originating from Catalog-powered AI searches converting 2x better than traffic from general AI searches, and orders from AI search have grown 15x since early 2025 (keeping in mind this is growing from a small base).

Source: Shopify

AI is also leveraged to help merchants. Sidekick is Shopify’s AI-powered “co-founder” designed to assist with a wide range of operational tasks via a conversation interface. During the call, management reported monthly active usage of 4x year-over-year. Nearly half of the Shopify Flows (automated workflows) in Q1 were built through Sidekick and theme edits through the tool grew by 1,000% during the same period.

Source: YouTube

Beyond conversion, Shopify is developing tools for demand generation, specifically to help small businesses that lack the resources to manage massive multi-platform campaigns.

Shop Campaigns provides merchants with a more turnkey solution to acquire new customers. With Campaigns, merchants only have to enter a few parameters, and the tool will do the rest, enabling merchants to advertise their products across multiple surfaces: Shop App, Shop Product Network, and other popular ad platforms (Facebook, Google, Instagram, etc.).)

Source: Shopify

In Q1, the number of merchants with a live campaign was up 3x year-over-year and for some of the merchants, Shop Campaigns is contributing as much as a quarter of their total GMV.

Shop App GMV rose 70% year-over-year, showcasing its growth as a destination for online commerce. The engagement metrics further highlight this momentum, with monthly active users growing more than 40%, and unique buyers increasing over 50% compared with the same period last year. These results show an increasing number of shoppers are now discovering and buying from brands directly within the Shop ecosystem rather than just navigating to sites from external sources.

The continual rate of product innovation and improvement demonstrates that Shopify continues to do everything possible to help its clients win, because when they win, Shopify wins.

Here’s where the free part ends. If you want to know if Shopify is a BUY now, and you want the Best Buys Now stocks of tomorrow and sooo much more, consider upgrading your subscription to paid.

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If you’re going to do anything new or innovative, you have to be willing to be misunderstood. If you cannot afford to be misunderstood, then for goodness’ sake, don’t do anything new or innovative.

Jeff Bezos, interview with Mathias Döpfner, 2018

Hi Multis

You could already read it in the Overview Of The Week, TransMedics’ (TMDX) stock dropped by about 39% in the last two weeks. Most of that came after Q1 2026 earnings on May 5.

This is the 4th time in 5 years that TransMedics is down more than 60%. So, like a real Potential Multibagger, this is a very volatile stock. Despite the big drop now, it still outperforms the S&P 500 and Nasdaq over the same period.

So, why did the stock drop so much and is the thesis intact or not? Let’s dive in.

The Numbers

These are the results TransMedics posted in Q1 2026:

• Revenue: $173.9 million, +21.2% YoY, +8.2% QoQ. That’s a slight miss of about $128K versus the consensus, so basically in line.

• Adjusted EPS: $0.30, missing consensus of $0.62 by 52%. Down 59% YoY from $0.74.

• GAAP EPS: $0.20 versus $0.70 a year ago. Down 71%.

• Gross margin: 58.2%, down 3.3pp YoY from 61.5%, but up 1pp QoQ.

• Adjusted operating margin: 10.4%, down 10.3pp YoY from 20.7% and down 3.4pp from Q4 2025.

• Adjusted operating income: $18.1 million, down 39% YoY from $29.8 million.

• Guidance: $727-757M for 2026, 20-25% growth. Reiterated, not raised.

TransMedics summarizes it in their earnings call slide deck.

Revenue growth is not great, but OK and I think the market dumped the stock for everything below revenue. Margins were awful and the reason is simple. Adjusted R&D was up 45%, adjusted SG&A up 41%, adjusted total operating expenses up 42.1% versus revenue growth of 21%. So, costs grew about twice as fast as revenue. That’s the opposite of operating leverage.

Is This A Broken Thesis, Or An Investment Phase?

This is the real question, of course. Let me give the bearish argument first. Margin compression of this magnitude, with management refusing to provide specifics (”I’d rather not go into those levels of detail now“ - Gerardo Hernandez, CFO), could suggest that TransMedics doesn’t know exactly what it’s doing. Or, put differently, that the company does not have control over its own model. The CFO did say to expect the adjusted operating margin to be “up to around 250 basis points below“ 2025 levels.

The FY2025 adjusted operating margin last year was 17.9%. If you subtract 250 bps, you get roughly 15.5% for the year. Q1 came in at 10.4%. But compare this to previous years. It’s not that this is a setback to the stone age for the company.

And to be honest, I don’t see much more for the bear case. Yes, margins will be under pressure this year, but it’s a deliberate choice. Founder and CEO Waleed Hassanein opened the call confirming this:

Specifically, I want to highlight that this is a strategic and proactive decision, and we fully expect that our financial performance over the next several quarters will reflect these necessary investments in people, infrastructure and technology development as we capitalize on the opportunities in front of us.

In other words: yes, the margins will be lower for a while but this is on purpose and the company knows what it’s doing. You can either trust that or not. To help with that judgment, you have to look at what they’re actually spending on.

Five Investments

There are four growth initiatives and another investment running at the same time right now. And that’s why costs are up so much, twice as much as revenue. Let’s look at them one by one.

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The numbers from Celsius have been out now for a while and in a few weeks, probably around May 11, the company will release its Q1 2026 earnings. But the stock has come down substantially and that’s why I have asked David to have a look at the previous earnings.

As always, I have added and adapted to David’s output, so you can see this as a collab article.

The key numbers

Q4 2025 revenue came in at $721.6 million, up 117% year-over-year and beating analyst expectations by over 10%.

Year-over-year growth was primarily driven by the addition of Alani Nu, of course, but still, a beat by 10% is very strong.

Full-year 2025 revenue reached $2.52 billion, an 86% increase versus 2024.

That growth was largely driven by North America, where revenue increased 89.1% year-over-year. $1B came from Alani Nu. The other acquisition, Rockstar Energy, added $55.6 million, while the core Celsius brand grew 7.5% to $1.46 billion.

Source

Q4 gross profit came in at $341.8 million, up year-over-year but down sequentially versus Q2 and Q3 but that’s not unusual, as there is some seasonality for energy drinks and, therefore, for gross profits.

If you don’t want to miss all the great Fiscal AI data, get 15% off here.

Full-year gross profit increased by $587 million to $1.27 billion, up from $680 million in 2024, up 86.7%.

The stock dropped after the earnings were released, but this was also the period when everything went down. The geopolitical tensions between the United States and Iran were starting.

Multi-brand portfolio

Looking at the full-year market share, we can still see that Red Bull and Monster are on top of the market, but Ceclius remains strong in a third place. Alani Nu and Rockstar Energy maintained their Q3 positions into Q4, with market share remaining stable. Altogether, the combined portfolio controls just under 20% of the U.S. energy drink market.

Celsius remains well-positioned, expanding strategically without overextending. While it’s unlikely that Celsius will overtake Red Bull or Monster in the near term, it holds a unique advantage with its multi-brand portfolio.

Having a multi-branded portfolio has both advantages and disadvantages. Celsius must execute multiple marketing strategies, as each brand targets a distinct consumer segment.

While all products fall under the energy drink category, each brand targets a different demographic. On the other hand, the risk of becoming obsolete diminishes significantly with diversification.

Think here of the next new fad we see every year, that slowly fades into obscurity. Celsius can simply move within its product offering, ride the entire wave of new fads, and remove the old products from its lineup.

Not so for Red Bull and Monster; both have their flagship products and occasionally play with other varietuies.

Celsius has three different product lines to work with. Celsius itself is focused on a younger core of customers who are conscious about their health.

Alani Nu focuses on a female audience, with a strong emphasis on lifestyle and wellness.

And lastly, Rockstar, which focuses on a male audience, using high-energy, high-performance slogans. Psychology here is one of the extreme sports.

Having these three different lines can increase the overall marketing costs. This is something which is visible in the numbers.

Marketing and selling expenses increased by $200.6 million, driven by diverse campaigns totaling $76.6 million (notably “Live. Fit. Go”) and marketing focused on Alani Nu totaling $65 million.

Source

Celsius wants to prioritize differentiation, which, in turn, increases costs because packaging must remain fresh and maintain its uniqueness and appeal.

I don’t see its marketing costs going down anytime soon. Developing brand awareness through marketing initiatives and expanding abroad will both need a big marketing push.

Combine this with different marketing campaigns for all the products in its portfolio, and the costs can only become higher in the near future.

The chart above highlights how the top three brands are currently competing in the market.

MULO (Multi-Outlet) includes channels such as grocery stores, mass retailers, and drugstores. It also includes convenience stores. Think of 7-Eleven, gas stations, and similar retail formats. Monster and Red Bull remain the category leaders, but Celsius (across its full portfolio) is steadily gaining share, as you can see.

Competition

Recently, Celsius stock went down after Costco Wholesale introduced Kirkland Signature energy drinks.

Nothing new under the sun, we might say. there are plenty of competitors. However this time it is slightly different. Costco is a US-based retailer that sells bulk goods at lower prices. Here, it is the same: Costco sells a lot of products under its private label, Kirkland Signature.

As you can see, Kirkland Signature energy drink has the same look as Celsius: white with colored banners featuring fruit images. The flavors? Similar to Celsius’s popular flavors. But the drink is much cheaper than Celsius.

But does it all matter? We often see new energy drink brands coming onto the market. It is not an easy market, and gaining traction often takes considerable time and investment.

I think it is too early to tell whether the new offering impacts Celsius’s top line. Celsius generated about 11% of its sales within Costco in 2025, a large number, but let’s not exaggerate. Implementing a new product does not mean it is doomed even within Costco. People still have brand loyalty or they don’t want to be seen with the “cheap knock-off” version. And many people are simply not aware of the product. See this X post, for example:

Numerous competitors have come and gone. The energy drinks market is growing rapidly and becoming increasingly attractive, enticing competitors to capture a share of it.

There was another worry as well. Iran bombed aluminum smelters in the Middle East and two major sites were seriously damaged. But the Middle East as a whole (not these two) are only responsible for 9% of the global supply. So, I think this fear is exaggerated.

If you are not a paying subscriber, the article ends here for you. I hope you enjoyed it. If you want to know if I would buy Celsius now, consider upgrading. One good idea might pay back the investment.

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Some weeks ago, Topicus (TOI.V) (TOITF) reported its Q4 and FY 2025 results and this is a deep dive into those earnings and the potential AI impact on the company.

As you probably know, I have a second service called Best Anchor Stocks, which is run by Leandro. He is also a Topicus stockholder and wrote an earnings analysis for Best Anchor Stocks subscribers. I used that as a basis for this article, but I added context, commentary, and my takes. Of course, as always, I will update the Selling Rules, the Quality Score and the valuation.

Right now, the stock is down more than 50% from its all-time high, set not even a year ago.

Is that warranted or not? Let’s find out.

The Numbers

Topicus grew its revenue 20% year-over-year in both Q4 and the full year. Q4 revenue came in at €436.8 million, up from €364.9 million. Full year revenue came in at €1,552.3 million (or about $1.8B), up from €1,294.9 million. Not bad for a “small” European software compounder that most people haven’t even heard of.

Organic growth was 4% for both periods, with maintenance and other recurring organic growth at 6%. Now, 4% organic growth doesn’t make you jump out of your chair. But 6% on the recurring side, the revenue that’s sticky and predictable, is actually quite decent for a serial acquirer that constantly buys companies with sometimes flat but mostly declining organic growth. Remember, the Constellation/Topicus playbook is to buy cheap, stabilize, and slowly get that organic revenue moving upward. The 6% recurring organic growth tells you the existing portfolio is healthy.

What most people miss here is the composition of that revenue. Maintenance and other recurring revenue hit €1.097 for the full year, up from €900 million in 2024. That’s a 22% increase and represents about 71% of total revenue. This is the core of the business. This revenue stream is highly predictable, sticky revenue and margins are high.

Professional services came in at €372 million (up 14%), while hardware and other revenue jumped to €39 million from €25 million, a 59% increase that likely reflects some of the acquired businesses. But overall, it’s just 2.5% of revenue.

One of the problems with Topicus is that the numbers are not easy to read and that was the case again with these earnings. The headline earnings look terrible if you take them at face value. Net income dropped 53% for the full year, from €149.5 million to €70.1 million. On a per share basis, diluted EPS fell from €1.11 to €0.50. If this is all you look at, you’d think the company is under pressure. But it’s not.

The full-year net income decline is almost entirely driven by a €221.7 million non-cash (!) expense related to the Asseco Poland investment. When Topicus elected to record this investment at cost under the equity method of accounting, it triggered this one-time charge. It’s accounting noise, not operational problems. On top of that, the company also recorded €119.7 million in income from derivatives, fair value adjustments, and a dilution gain tied to Asseco. So, even within the Asseco-related items, it’s a messy picture that tells you essentially nothing about how the actual business is performing.

This is why you need to look at cash flows. And the cash flows are singing a beautiful song.

Operating cash flow grew 19% for the full year to €412.7 million, up from €347.6 million. In Q4 alone, CFO jumped 35% to €107.7 million.

The metric that matters most for Topicus is free cash flow available to shareholders, or FCFA2S. In short, FCFA2S is the cash flow Topicus would generate for its shareholders if it stopped doing acquisitions, after stripping out all the money that goes to minority partners and Constellation Software, the parent company.

FCFA2S grew 23% to €218.7 million for the year.

In Q4, FCFA2S was up 40% to €51.2 million. One thing I appreciate about Topicus versus Constellation is that FCFA2S is actually a clean number here. There’s no IRGA (intergroup revolving account) muddying the waters, which makes Topicus’ cash flow a much more transparent measure of what shareholders are actually earning.

Digging into the FCFA2S numbers, a few things stand out. Interest paid on other facilities nearly doubled from €5.7 million to €13.0 million in Q4, and went from €21.1 million to €24.9 million for the year. Not very high on the total, but it reflects the higher debt load from the Asseco stake and, of course, other acquisitions.

Lease obligations also grew meaningfully: from €24.6 million to €30.1 million for the year. This tells you the acquired businesses come with real physical footprints.

But the most important takeaway is that despite these increased costs, the FCFA2S still grew 23%. That’s strong.

Topicus now also receives interest and dividends from its Asseco stake. This contributed €9.5 million in 2025 and €1.4 million in Q4 alone. It’s a small but new source of cash flow that will recur and probably grow over time.

Record Capital Deployment

This is where the quarter and the year get really exciting. 2025 was by far the strongest year on record for Topicus in terms of capital deployment, and it wasn’t even close.

Between Asseco and other acquisitions, Topicus deployed €662 million of capital (net of cash acquired) during 2025. To put that in perspective, last year the number was €77 million. The year before that, €199 million. This was a big shift.

Now, a huge chunk of this was the Asseco Poland investment (€384.9 million net). But even excluding Asseco, the company completed acquisitions for total consideration of €390.4 million (including holdbacks and contingent consideration). The net cash spent on non-Asseco acquisitions was €248.3 million (€311 million in acquisitions minus €62.7 million in cash obtained with those businesses). That’s still an all-time record for Topicus.

What’s important here is that this capital deployment was roughly 3 times the full-year FCFA2S. In other words, Topicus deployed significantly more than it earned. How? By leveraging. That’s only good as long as the leverage stays manageable. And it does.

Topicus ended the year with €326.7 million in cash and total debt of €692.5 million (split between €345.3 million in revolving credit facility/current term loans and €347.2 million in non-current term and other loans). That puts net debt at roughly €366 million.

That’s a leverage ratio of about 0.9x operating cash flow. For any normal company, that’s very conservative and that also goes for a serial acquirer.

I also want to highlight the maturity structure: the non-current term loans of €347.2 million don’t come due until at least 2032.

That’s crucial because it means Topicus can continue using debt as fuel for acquisitions without worrying about near-term refinancing.

The balance sheet also reveals the scale of change this year. Total assets grew from €1.54 billion to €2.51 billion — a 63% increase in a single year. Intangible assets (the acquired software) went from €951 million to €1.20 billion. The investment in equity method associates (Asseco) is now €515 million, up from just €2.5 million. This shows that the company completely transformed in 2025.

And there’s still plenty of dry powder. Topicus has room under its revolving credit facility, generates over €400 million in annual operating cash flow, and has debt maturities far out. This is a company that could keep deploying capital aggressively if the opportunities are there.

The environment looks favorable for deals. Private equity distributions grew meaningfully in 2025, but these were concentrated in large deals. The mid-market, where Topicus hunts, remains stagnant. PE holding periods have stretched, and limited partners are pressuring funds for returns. That’s the kind of environment where a disciplined buyer like Topicus can find deals at attractive prices.

You should know that right now many VMS companies are somewhat in panic. They don’t want or can’t adapt to the new AI wave. They see valuations crumble and that’s when they are more ready than ever to sell. With so much flexibility left, Topicus can seize the moment for some attractive acquisitions.

Of course, capital deployment is always lumpy for a company like this. Remember that just two years ago, Topicus was being criticized for paying a special dividend because it couldn’t find enough deals. How the tables have turned.

AI Disruption? Look At These 3 Numbers

Let’s address the (supposed?) elephant in the room. A significant part of Topicus’ drawdown from its all-time high is tied to the broader AI fear sweeping through the software industry. The narrative is that AI-native tools will replace vertical market software. I’ve written extensively about why I think this fear is overblown for a company like Topicus, but let’s look at what the actual numbers tell us.

First, organic growth. Maintenance and recurring organic growth of 6% doesn’t scream “being disrupted by AI.” It’s right in line with the historical trend. If AI were eating Topicus’ lunch, you’d expect to see churn accelerating and organic growth collapsing. We’re not seeing that. Not yet, anyway.

Second: staff expenses as a percentage of revenue actually decreased in 2025.

For the full year, staff costs were €835 million on €1,552 million in revenue, or about 53.8%. In Q4 specifically, this ratio dropped even further to around 52%. And this happened during a year of massive capital deployment, where newly acquired businesses typically come with a bunch of employees and usually drag efficiency down.

Within staff expenses, R&D spending grew considerably faster than overall staff costs. That’s the exact pattern you’d want to see in an AI world: the company is getting more efficient on the operational side while investing more in product development. One quarter doesn’t make a trend, but it’s a data point worth tracking closely.

Third, contingent considerations grew in 2025, while impairments slightly decreased. Contingent considerations are extra payments that the sellers of an acquired company can get if the company reaches certain milestones. An impairment is a write-down of an asset (like goodwill or an investment) when its value has dropped below what you paid for it. It’s an accounting recognition that you overpaid or the asset lost value.

If AI were destroying Topicus’ portfolio, you’d expect to see the opposite: acquired companies missing their milestones, resulting in lower contingent considerations and more impairments showing up. This is another indicator that the acquired businesses are performing in line or better than expected.

Now, I don’t want to be dismissive of the AI risk. It’s real, and it’s uncertain. But there are several structural reasons why I think Topicus is better positioned than most:

The switching costs in vertical market software go far beyond price. I’ve given the example before of a clerk in a Belgian municipality who’s been using Cipal Schaubroeck for twenty years. You’re not ripping that out because some kid built something with Claude. The compliance requirements, the security concerns, the retraining costs, the risk of downtime and so much more parameters protect the VMS software.

Topicus is heavily exposed to Europe and to government entities. These are among the most conservative buyers of software on the planet. As Asseco recently noted, customers in their space are reluctant to even store data outside of Europe or use the hyperscalers. That’s a structural tailwind for an entrenched European VMS player.

And perhaps most importantly: Topicus is not just a software company. It’s a capital allocator. If the VMS landscape changes because of AI, Topicus can pivot its capital allocation to wherever the returns are best. The compounding machine doesn’t depend on any single piece of software but on the discipline of buying great businesses at good prices.

Conclusion

2025 was a good year for Topicus. The company crossed €1.5 billion in revenue for the first time, deployed a record €662 million in capital, grew FCFA2S by 23%. Still, the stock price is down by more than 50%. The AI narrative has created fear, and the Mark Leonard succession story at Constellation has added uncertainty, even though Topicus has been operating independently under Robin van Poelje for years now.

The business is performing. The capital allocation is performing. The balance sheet is in good shape with room to keep going. That’s all I needed to know to know that the sell-off is, so far, only based on sentiment and stories, not the data.

So, on to the Selling Rules, the Quality Score and the valuation to know if Topicus is a buy.

The Selling Rules

I made Selling Rules for Topicus. Here they are.

Let me go over them one by one.

1. Organic revenue growth

You want to see organic revenue growth. Topicus buys businesses with low, no or even negative revenue growth. That’s why they are much cheaper. But the company optimizes those businesses to see revenue growth again, especially recurring revenue.

At the same time, I want to look at the 3-year trailing twelve months, not just the quarter or the year. The reason is that if Topicus does a big acquisition one day, it will need time to turn that business around. And there’s another reason to do this. Let me explain that with the numbers of this year.

Organic growth was 4% in both Q4 2025 and full-year 2025, but over the last three years it was 7.7%. So, you might conclude that organic growth was weaker in 2025, but that is not necessarily the case. In 2025, Topicus had record capital deployment. If you acquire more businesses, organic revenue will be lower that year because the new businesses have more influence on the total. Conversely, if the company deploys less capital, organic revenue will be higher.

2. FCFA2S

Free Cash Flow Available To Shareholders is a temperature check for how well the business compounds. I’m very happy that Topicus reports it, as it shows the fundamentals. If the company acquires well, FCFA2S will grow at a good pace.

So, why 15% and 10%?

FCFA2S shows what the business would do without acquisitions and accounting necessities. If growth is under 15%, it means that the business is decelerating in revenue growth or that the company’s acquisitions are of poorer quality.

Under 10% growth, the thesis would be broken.

Again, this is not something you want to look at on a yearly basis, let alone quarterly. Acquisitions are made when they are attractive. Once the company would start doing them just because, it would be a red flag. The lower quality would then also be visible in FCFA2S.

3. Recurring revenue as a % of total revenue

Recurring revenue was €1.097B in 2025, 71% of total revenue. This is the structural health metric for VMS businesses. The entire Constellation/Topicus model depends on sticky, recurring revenue.

If recurring revenue as a percentage of total declines, it means either: Topicus is acquiring lower-quality businesses (more project/services revenue), or its businesses see churn in recurring contracts. Both signal a deterioration of the business.

A drop to 65% recurring revenue, therefore, would signal more services-heavy businesses, which have worse economics: lower margins, less predictable, and lower switching costs. Below 58% fundamentally changes the character of the portfolio from recurring revenue to consulting/services, and then Topicus is simply another story, and the thesis is broken.

4. Net Debt / CFO Ratio

Net debt was €742.4M at the end of 2025, and cash from operations came in at €412.7M. That means a net debt/ CFO ratio of 1.8x. This is conservative for a serial acquirer but it is significantly higher than the previous years.

Constellation Software has never taken more than 2x in debt, but Mark Leonard also said that this may change because of certain circumstances.

So, a higher ratio would not be a red flag immediately, but of course, too much is too much. If the ratio were 3x, I’d trim because of the higher risk. Ät 3.5x, I’d sell, because it would totally change the dynamics. The same goes for issuing shares to pay debt. That would undercut the whole model. This is not about issuing shares if it’s an offensive move. In other words, if Topicus sees more opportunities than it has money and it is convinced this will be temporary, it’s OK to raise some money. But if it’s to pay off debt, that’s a red flag to me.

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I promised you that there would be a second article from Zack this week and here it is. As always, I will update the Selling Rules, the Quality Score and then evaluate the current valuation.

Hi Multis, Zack here, with CrowdStrike’s earnings analysis.

To kick off the Q4 FY2026 earnings call, CEO George Kurtz highlighted seven points that perfectly encapsulated the quarter. I thought to myself, why reinvent the wheel? So to start, I’ll let Mr. Kurtz take it away with those seven highlights, with my own commentary interspersed:

One, all-time record net new ARR of $331 million for the quarter, which grew 47% year-over-year, coming in well ahead of our expectations. For the year, we delivered $1.01 billion in net new ARR, up 25% year-over-year. Our first year delivering over $1 billion of net new ARR.

Two, ending ARR of $5.25 billion, crossing the $5 billion milestone, which accelerated to 24% growth year-over-year.

Both ARR and Net New ARR continue to signal sales acceleration and market share gains.

For SaaS companies, annual recurring revenue (’ARR’) is often a better indicator of performance than revenue because it provides a clearer view into current and future obligations.

That said, Revenue came in at $1.31B, an increase of 23% year-over-year, beating estimates by 1%.

Gross margins continued to stay steady: GAAP subscription gross margin at 79% (up from 77% in Q4 last year), and Non-GAAP subscription gross margin was 81% (up from 80% last year).

Back to George Kurtz:

Three, record free cash flow of $376 million for the quarter, or 29% of revenue. For the year, we delivered record free cash flow of $1.24 billion or 26% of revenue.

CrowdStrike continues to impress with growing free cash flow and margin. This led to cash and cash equivalents growing to $5.23B ending FY2026:

If you want Fiscal AI at a 15% discount, you can do that here.

CrowdStrike has not taken any debt since 2021 and the rock-solid balance sheet provides stability and optionality for future acquisitions or buybacks.

On the topic of share buybacks, CrowdStrike recently repurchased $50.6M in shares, its first move since announcing its $1B program last year.

Moving on to Kurtz’s comments on operating income:

Four, all-time record operating income of $326 million for the quarter, or 25% of revenue.This is the third consecutive quarter of record operating income. For the year, we delivered $1.05 billion of operating income, exceeding the billion-dollar operating income milestone for the first time.

It’s worth noting that this refers to non-GAAP operating income. On a GAAP basis, there was a slight loss from operations of $6.9M.

While CrowdStrike is still technically at a GAAP operating loss, the gap (pun not intended) is primarily driven by Stock-Based Compensation (’SBC’).

Even when accounting for SBC, CrowdStrike is on the verge of being GAAP operating profitable again.

In fact, after adding in other income and tax provisions, the company achieved GAAP net income of $39M or $0.15 in EPS. This marks CrowdStrike’s first positive quarterly net income since the July 2024 outage.

Speaking of the 2024 outage, this was also the final quarter impacted by the Customer Care Program (’CCP’) credits. It turns out the CCP had a major silver lining despite the short-term revenue headwinds as Kurtz noted:

As we lapse the one-year mark from the end of our highly successful CCP program, we have seen that accounts that took CCP deals have gross and net retention rates higher than the company average, have shown a strong trend of early renewal, and have already expanded more than twice the total $80 million of ARR value we provided.

Talk about turning lemons into lemonade!

Onto Kurtz’s fifth point:

Five, record net new ARR from cloud, next-gen identity, and next-gen SIEM collectively. Ending ARR for these solutions collectively grew more than 45% year-over-year. Amidst today’s AI backdrop, our endpoint business accelerated for the second consecutive quarter.

New products are the bread and butter of CrowdStrike’s land-and-expand model. 45% year-over-year growth signals a massive appetite for the broader platform.

Here’s the performance breakdown followed by a quick summary of each module:

Source: CrowdStrike

Cloud Security: Protects cloud infrastructure and AI workloads. As AI usage increases, CrowdStrike’s revenue will grow along with it.

Next-Gen SIEM: Collects and analyzes event data to respond to threats in real-time. Growth in this newer module continues, indicating increased usage and market-share gains at the expense of legacy providers.

Next-Gen Identity: Protects credentials for both human and AI “employees.” Since 80% of breaches now involve compromised identities rather than traditional viruses, this layer is mission-critical.

While it isn’t illustrated in the graphic above, there have been two consecutive quarters of acceleration for the more established endpoint product. This is despite a false narrative that endpoint security is becoming commoditized.

The reason for the reacceleration? AI adoption.

With the rise of Model Context Protocol (’MCP’) servers, localized LLMs, and AI coding tools, the endpoint is becoming a massive attack surface as evidenced by George Kurtz:

As of Q4, our sensors detected more than 1,800 distinct AI applications running on enterprise devices, representing nearly 160 million unique application instances across our customer base.

With the proliferation of AI agents and processes running on local devices, basic antivirus protection is no longer good enough and more advanced endpoint protection is critical for modern companies.

Other Product Updates

CrowdStrike officially moved to acquire SGNL (zero trust solution for AI agents) and Seraphic Security (enhanced web browser security), two additional tuck-in acquisitions to expand its AI-focused modules.

They also announced the general availability of AI Detection and Response (AI-DR), which has been quite a success so far, growing 5x from last quarter.

Source: CrowdStrike

AI-DR acts as a modern “firewall” for AI. Just as a traditional firewall stops malicious files from entering your system, AI-DR prevents sensitive or “bad” information from being sent to AI models using prompt filtering and governance guardrails to ensure agents stay within their authorized boundaries.

With new module growth, it’s no surprise adoption rates have remained strong:

And continued product adoption goes hand-in-hand with Kurtz’s next point:

Six, dollar-based net retention of 115% and gross retention of 97%, showcasing best-in-class durability and stickiness.

Customers aren’t leaving, they are staying, and spending more.

DBNRR (dollar-based net retention rate) is 115%, which means the total revenue from the specific group of customers who were with the company a year ago grew by 15% over the last 12 months, including all customers who left or reduced their spending.

After a downtick in DBNRR for FY2025, we see re-acceleration heading into FY2027:

And to cap it off with the last achievement:

Seven, we delivered $1.69 billion in ending ARR from accounts that have adopted the Falcon Flex subscription model, growing more than 120% year-over-year, turbocharging our land and expand motion.

Falcon Flex subscriptions continue to be a huge success in growing customer product adoption and revenue and it’s becoming a bigger piece of the ARR pie.

Falcon Flex allows customers to toggle between modules within a single commitment without renegotiating contracts, leading to more seamless procurement and spending.

Critics worried this might artificially inflate adoption metrics with temporary usage, but “reflex” (renewal) data from George Kurtz debunks that:

The proof of Falcon adoption success is in the reflex. Customers are using what they buy and expanding their Flex commitments. More than 380 Flex accounts have already reflexed, representing more than 23% of the Flex customer base, up from 5% in Q1. The average ARR lift after a reflex is 26%, happening on average within seven months.

Our multiple time reflexes on average have an ARR lift of an additional 48% from their initial Flex subscription.

In summary, Falcon Flex unlocks never-seen-before adoption for customers. Flex is now how we go to market.

It’s clear that Falcon Flex isn’t just providing a short-term bump in revenue; customers are continually increasing their spend commitments over time.

For FY2027 guidance, management shared the following:

• ARR guide of $5.5B for Q1 FY2027, $6.5B for the full-year FY2027 (24% growth year-over-year)

• Revenue guide of $1.36B for Q1 FY2027, $5.91B for the full-year FY2027 (23% growth year-over-year)

• Non-GAAP income from operations guide of $309M for Q1 FY2027, $1.4B for the full year FY2027 (33% growth year-over-year)

• Free Cash Flow Margin of 33% in Q1 FY2027 and at least 30% for the full FY2027.

Overall, guidance is solidly on track. Historically, CrowdStrike “beats and raises,” which suggests we could see even higher margins and top-line acceleration as the year progresses.

Other News

Microsoft Partnership

CrowdStrike announced a significant partnership with Microsoft, allowing organizations to purchase the Falcon platform with Microsoft Azure consumption credits. This is significant because Microsoft’s E5 solution is one of CrowdStrike’s biggest competitors.

For Microsoft to offer their biggest cybersecurity competitor a space in their marketplace is further validation that some customers prefer CrowdStrike as a “best-of-breed” vendor over Microsoft, which is often chosen simply because of convenience or cost consolidation to a single vendor.

Amazon Web Services Growth

In related news, CrowdStrike announced it has generated nearly $1.5 billion in total contract value on the AWS Marketplace, up 50% year-over-year. Success on AWS could potentially foreshadow significant contributions from the latest Microsoft partnership as well.

These cloud market partnerships are an efficient way to generate sales for CrowdStrike, as they allow the company to leverage Microsoft and Amazon’s sales to cross-sell their products at a lower commission fee than the larger overhead of managing a direct salesforce.

Memorandum of Understanding (’MOU’) with Saudi ARAMCO

CrowdStrike signed an MOU with the Saudi-owned ARAMCO. While it’s just an initial proposal, it elevates CrowdStrike from just a software vendor for enterprises to a trusted national security partner for mission-critical assets.This could set the stage for future multi-million dollar deals in sovereign markets leading to long-term contracts driven by sticky infrastructure-level integration.

Perplexity Comet

CrowdStrike and Perplexity also announced a partnership. This is what Mark wrote about it in the Overview Of The Week:

Earlier this week, CrowdStrike issued a press release announcing a strategic partnership to integrate the CrowdStrike Falcon platform with Perplexity’s Comet Enterprise.

If you’re not familiar with Comet Enterprise, it is Perplexity’s enterprise-focused AI browser that allows employees to research, analyze information, and interact with AI directly within a browser interface while giving organizations administrative controls over security, data usage, and governance.

Source

As companies increasingly incorporate AI tools into everyday workflows, CrowdStrike is positioning Falcon to secure these emerging environments through partnerships like this one. The collaboration also highlights the value of CrowdStrike’s recent acquisition of Seraphic, a browser security company, which provided the browser-layer runtime protection needed to integrate Falcon directly into AI-driven browsing platforms such as Comet Enterprise.

The AI “Threat”

A modern-day analysis would not be complete without addressing the AI “threat” that hangs over each SaaS company.

Last month, Claude announced the release of Claude Code Security:

Source: X

Like clockwork, CrowdStrike sold off 7% by the end of the day.

A couple of days later, George Kurtz fired back his own rebuttal:

Source: X

Pretty ironic, right? Even Claude agrees it cannot create CrowdStrike.

To press further, Anthropic (Claude) is a customer of CrowdStrike:

Source: Stockscurrent

If the capability were there, Anthropic would have built it in-house but clearly, that isn’t the case. Let’s take a deeper look at why:

Claude Code analyzes the code that it created itself to find vulnerabilities, functioning much like an automated application security testing (’AST’) tool. It flags issues and suggests fixes. This is helpful, and it will likely become an efficient, low-cost alternative for developers looking to ship cleaner, more secure code.

One market fear is that if code ships with zero vulnerabilities, the need for an expensive platform like CrowdStrike vanishes. But remember: 80% of all breaches are not malware-based. So even if Claude fixes every code vulnerability, a stolen identity or a human error (like clicking a phishing link) can bypass secure code instantly.

In contrast, CrowdStrike monitors in real-time, living deep within the operating system to block malware execution and track hackers moving through the network. While Claude proactively analyzes and asks for approval, CrowdStrike reacts in milliseconds to stop active threats.

George Kurtz highlights this distinction perfectly:

Here’s what you have to remember, is that what customers want is real-time prevention. You have to be in line, you have to be able to get the data in milliseconds, and you have to make a decision. That’s not the case with an LLM.

In short: Claude may allow developers to build more securely, but CrowdStrike is still needed to operate securely.

The Long-Term AI Moat

But let’s take it a step further. What if AI eventually builds a competing security platform?

CrowdStrike maintains a few distinct advantages over an alternate AI-built platform or other competitors for that matter:

1. CrowdStrike is a Net Data Creator. The platform generates real-time proprietary telemetry from approximately 2 trillion objects and over 1 trillion security events daily. These create unique patterns and security rules that don’t exist anywhere else on the internet. So any new security platform that may be spun up, no matter how advanced, will be behind the ball due to its lack of learned real-time customer data insights.

2. This usage data enables a technique called “Cyber-Reinforced Learning from Human Feedback” (’RLHF’). Breaches in real time produce expert-labeled data as a by-product of operations. This closed-loop system creates a flywheel: more events occur, which are validated by their experts, lead to platform improvements that no other competitor has, lead to more product adoption and additional events.
   

3. Lastly, reliable Cybersecurity hinges on deterministic outcomes. You can’t simply be right 90% of the time or suffer from occasional hallucinations. Stopping adversaries requires both efficacy and precision; you don’t get a second chance if it fails. Would an organization risk its infrastructure security to save money on less-tested alternative solutions? Cybersecurity is non-negotiable.

AI as a Tailwind

To flip the script, rather than a threat, AI and the “agentic workforce” represent a massive new market for CrowdStrike.

AI adoption means a new attack surface that must be secured. As it grows, CrowdStrike becomes an even more necessary layer of protection for the AI stack. We are already seeing this reflected in the growth of the modules (Identity, Endpoint, AI-DR, etc.) mentioned earlier in this article. CrowdStrike is set to benefit from this AI revolution, not be replaced by it.

Conclusion

With that, we conclude with another record-breaking quarter for CrowdStrike.

The company has successfully navigated the 2024 outage, turned its recovery program into a growth engine, and is now crossing the threshold into meaningful GAAP profitability. Module adoption and growth prove that AI is a tailwind for the business, not a threat, and with the $5 billion ARR milestone in the rearview mirror, the path toward its $10B ARR goal by 2030 looks to be on track. Remember that the goal was initially for $10B in revenue in 2032.

Thank you for reading! If you enjoyed this article, please give me a follow @ZackStacksKap. I often provide additional commentary on this and other Potential Multibagger stocks and would love to hear from you on X.

With that, I pass it over to Kris for the Selling Rules, the Quality Score and valuation.

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This week, you can expect two articles from Zack. This is the first one. Of course, as always, I will update the Selling Rules, the Quality Score and look at the valuation. But first, the word is Zack’s.

Hi friends, Zack here, covering TransMedics’ (TMDX) Q4 2025 earnings.

In the current “SaaSpocalypse” environment, few Potential Multibagger stocks have been spared a significant selloff. TransMedics, however, has remained pretty resilient over the past few months. It dropped with the total market, but all in all, not too much.

The reason is simple: its competitive advantage isn’t in software but in the physical organ-preservation device the company has pioneered. When you factor in the extensive FDA approvals required to reach this stage, you have a company that is remarkably “AI-proof.” Knock on wood. Hopefully, our friend Claude isn’t reading this…

How was the performance to conclude FY2025? Let’s find out.

The Financial Numbers

• Overall Revenue: $160.8M, a 32% increase year-over-year, beating estimates by 4%.

• Net Product Revenue: grew 34% year-over-year, driven by organ system sales.

• Service Revenue: grew 39% year-over-year, reflecting the continued scaling of their logistics and aviation wing.

• International Revenue: As you may recall from last quarter, TransMedics began its international expansion into Europe via Italy. International revenue grew 24% YoY, and though it still only represents 3% of total revenue, management expects more meaningful volume in the second half of 2026. Since Europe accounts for roughly 45% of global transplant volumes, the OUS (outside the U.S.) opportunity remains massive.

• Gross Profit: $93M, a 29% increase year-over-year.

• Gross Margin: 58% versus 59% last year. Slight compression in margin was due to higher clinical service expenses as they expanded their organ care program along with increased freight costs with their growing aviation and logistics fleet.

• Operating Income: $21M versus $8M last year.

• Operating Margin: 13% versus 7% last year. Strong signs of operational leverage are being exhibited here, with expenses growing more slowly than revenue.

• Diluted Earnings Per Share: $2.62 versus $0.19 last year. Note this includes a significant one-time tax benefit; without it, diluted EPS would be $0.53, still almost triple that of last year.

Zooming out on FY 2025, we see a consistent trend of rising revenue growth and increasing operating margin:

A bit of a chart crime in that it shows growth slowing to 37% but I think most investors would take 30%+ growth in a heartbeat. FY2025 operating margin jumped significantly from 8% to 18%, indicating TransMedics is well on its way to the stated long-term goal of 30% operating margin by 2028.

This was also the first year finishing with positive cash flow, leading to an increase in the company’s cash position without taking on additional debt:

If you want Fiscal AI at a 15% discount, you can do that here.

In FY2025, TransMedics has successfully transitioned from the “startup” cash-burn phase to a “self-funding growth” phase, which is excellent to see.

Guidance

For 2026, TransMedics expects roughly 22.5% growth at the midpoint. While this looks like a stark deceleration, management has a history of guiding conservatism or call it serious sandbagging if you like. At this time last year, they also guided for 22.5% and ultimately finished the year at 37%. I have high confidence that they will beat this guidance again.

Organ Transplant Numbers

In FY2025, TransMedics completed 5,139 U.S. OCS transplants, a 38% increase year-over-year. This accounted for 26% of the total U.S. transplants, up from 20% in 2024.

CEO Waleed Hassanein made a powerful point on the call:

We strongly believe that the OCS NOP once again played a key role in driving overall liver and heart market growth due to the increased use of DCD and DBD donors in the U.S.

Since 2022, U.S. national transplant volumes for liver, heart and lung grew at a rate of 25%, including OCS NOP transplant volume. Without OCS volume, national volumes for the same organs would have declined by approximately 1% over the same period.

TransMedics is taking market share by expanding the total addressable market by making more organs viable. But in this context, that sounds cold, as the reality is that TransMedics helps save more people’s lives.

TransMedics U.S. market share by organ continues to confirm this trend:

Source: TransMedics Q4 2025 conference call transcript

The company also shared revenue by organ for the quarter:

Source: TransMedics

Putting these data points together, the liver is doing very well with both revenue growth and market share. However, the heart is growing at a slower pace and lung is declining (although at low volume).

The active trials for the heart and lungs aim to address the shortage of available organs for transplantation. Before we jump into how that works, I think it’s helpful to understand the two types of donor states:

1. Donation after Brain Death (’DBD’)
   In DBD cases, the brain is no longer functional, but organs are maintained within the donor’s body because the heart is still beating and blood is circulating. This makes it much easier to keep the organ in good condition.

   Because this is the “ideal” scenario, doctors often default to the lowest-cost preservation method: static cold storage (essentially a high-tech cooler with ice). In their eyes, the incremental improvement of an advanced system doesn’t always justify the extra cost (over $100,000) or the perceived risk of changing a “working” process.

2. Donation after Circulatory Death (’DCD’)

   DCD occurs when the heart has stopped and blood is no longer circulating oxygen. In this case, organ preservation is extremely time-sensitive; if they aren’t preserved quickly, they deteriorate and must be discarded.

   Historically, DCD organs were discarded at a much higher rate because cold storage couldn’t keep them viable. Transplant centers are much more open to using TransMedics here because, without it, the organ would likely be unusable.

Tying it all together, TransMedics’ Organ Care System (’OCS’) extends the life of these organs, allowing them to capture a large percentage of the DCD market.

As TransMedics builds more valuable clinical data, they hope to prove that the OCS drives better outcomes in all organs (both DCD and DBD) and also saves costs in the long run due to fewer complications and logistical costs. Convincing stakeholders that OCS is the new “standard of care” is the primary goal for these trials, which we will review next.

OCS Heart ENHANCE Trial

Source: TransMedics

The heart trial is split into two parts.

• Part A is designed to showcase how OCS can safely exceed the conventional time and distance limitations by maintaining a DBD heart past 4 hours.

• Part B is to demonstrate the superiority of the OCS system over conventional cold storage within 4 hours.

Founder and CEO Waleed Hassanein noted that progress in Part B hit a snag: the makers of a competing static cold storage box are refusing to allow their technology to be randomized against the OCS. He did express confidence that they could bypass this roadblock, but wasn’t really clear on how that would be done.

While this roadblock seems like a negative, I actually view it as a positive as well. Why would a competitor try to stop the trial from happening? Most likely because they know the OCS device is superior and should the data come to light, that would eat into their market share.

OCS Lung DENOVO Trial

Source: TransMedics

This program is aimed at revitalizing the U.S. lung transplant market as a whole. In general, lung volumes have been small. The main issue with lungs is that they are susceptible to edema (fluid buildup) when put them on cold storage. This trial will try to demonstrate that by utilizing OCS, lung transplants have a higher survival rate and fewer complications.

The last piece that was mentioned was not necessarily a trial but a publication.

The Liver Registry Publication is an upcoming peer-reviewed paper that will detail real-world clinical data from TransMedic’s more than 9,000 OCS liver transplants. Through this publication, they hope to demonstrate “unequivocal, drop the mic, statistical superiority,” as stated by Waleed Hassanein. Although liver already makes up a large proportion of market share, this data would be the final stamp of evidence to overcome any lingering hesitations, validating the economic and clinical value compared with competing organ preservation methods.

This quote is from another conference last December but I think it demonstrates Waleed Hassanein’s confidence in their product:

OCS machine perfusion based on 9,000 livers we have done, we are convinced that it should be malpractice if the livers are not put on the OCS. I mean, we are talking about significant survival difference, significant improvement in post-transplant complication rate.

Bold words. So basically, he states that, with this evidence, OCS should be the standard of care in any liver transplant scenario.

TransMedics’ roadmap for continued market share expansion is highly dependent on the success of these trials, which are currently expected to take 12 to 18 months to enroll. The liver publication should be out by the 2nd half of this year.

OCS Kidney Updates

The team also shared updates on the OCS Kidney device, which is currently in development. With over 20,000 kidney transplants performed annually in the U.S., the kidney market represents a huge opportunity to expand TransMedics’ TAM. Over 8,000 kidneys are thrown away each year due to low viability from cold storage. This represents “low-hanging fruit” for TransMedics to capitalize on as they apply their technology to save these otherwise wasted organs.

Source: TransMedics

The team plans to unveil the OCS Kidney device in early 2026 and initiate a clinical trial by early 2027, with the goal of proving statistical superiority over traditional cold storage.

Competition

Competition was a hot topic in the past, but talk has cooled significantly as TransMedics continues to grow its volume and market share. That sentiment was reflected in Waleed Hassanein’s blunt response to competition during the call:

Listen, we’re very cognizant of everything that moves in the field of organ transplant. We are not seeing competitive dynamic impacting our ability to execute in 2026 and beyond, and I will leave it at that.

He didn’t waste his breath. This should inspire confidence that there isn’t much standing in their way.

Further evidence of weak competition can be seen when looking at Xvivo, one of their closest competitors in terms of scale. This was shared on X:

As you can read from his last sentence, it’s a different mix of transplant organs and they serve in Europe, but if you read the rest of the X post you can see Xvivo is clearly struggling while TransMedics thrives.

In fact, this revenue chart tells the whole story:

There may have been signs of potential competition leading into 2022, but since then, it has become clear who the “top dog” is.

It’s also worth noting that another competitor, OrganOx, was acquired last year and no longer provides public financial data. Based on the most recent data, it appears their revenue is much closer to Xvivo than to TransMedics, and their technology only covers the liver and lacks the integrated logistics (aviation/transport) that make TransMedics so unique.

Government Policy Alignment

TransMedics is also moving toward becoming a more integrated partner with the U.S. government. As Waleed Hassanein noted:

Specifically, we are exploring if TransMedics can be a more integrated contributor to the national transplant ecosystem in the U.S.

The government is currently working to modernize the national transplant program by increasing organ utilization and upgrading infrastructure. If this partnership comes to fruition, it will embed TransMedics even further into the national infrastructure, creating a massive moat around their business.

Conclusion

TransMedics continues to impress with consistent executional excellence. On top of the usual KPIs, key things to watch are the clinical trial results and the timeline for the new OCS systems. These milestones are crucial to reaching their goal of 10,000 annual transplants by 2028 and 20,000 to 30,000 by 2030.

If you enjoyed this article, please give me a follow @ZackStacksKap. I often provide additional commentary on this and other Potential Multibagger stocks and would love to hear from you on X. Thank you for reading!

With that, I pass it over to Kris for the Selling Rules, the Potential Multibaggers Quality Score and the valuation.

Hi Multis

Kris here. I think we can agree that Zack did a great job with the analysis. Now, we update the Selling Rules, the Quality Score and the valuation to assess if the stock is a buy at this point.

The Selling Rules

I don’t just follow up on the Selling Rules I have made in the past. I also update them regularly and that’s why I added a new Selling Rule.

The new Selling Rule is that I want the medical trials to go right. If TransMedics can’t expand OCS indications, revenue growth will almost certainly start to slow.

The Potential Multibaggers Quality Score

If you want to continue reading this article, go to this page.

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Mercado Libre (MELI) reported its Q4 2025 earnings at the ned of February. The company announced more investments and that made the stock drop like a bomb. It is now down more than 35% from its top.

So, let’s look at the numbers first.

The Numbers

• Revenue: $8.76B (+44.6% YoY), beating estimates by $300M

• EPS: $11.03, missing estimates by $0.41

• Operating margin: 10.1% (down from 13.5% a year ago)

• Full year revenue growth: 39%

• Full year income from operations growth: 22%

Marketplace:

• GMV: $20B (+37% YoY FX-neutral in Brazil, +35% in Mexico)

• Items sold growth: 45% YoY in Brazil (accelerating from 42% in Q3 and 26% in Q2)

• Unique active buyers: 83.2M (+24% YoY)

Mercado Pago:

• Monthly active users: 77.9M (~28% YoY)

• Credit portfolio: $12.5B (+90% YoY)

• Assets under management: $19B (+78% YoY)

• Nearly 3 million new credit cards were issued in Q4 alone

Regional Breakdown:

• Brazil: 54% of revenue

• Mexico: 22% of revenue

• Argentina: 18% of revenue

• Other: 4% of revenue

Advertising:

• Revenue grew 67% YoY (FX-neutral)

And here’s an overview from Mercado Libre’s earnings call slides:

Investing For Dominance

Let me repeat something I’ve said in my previous MELI articles. Every single time Mercado Libre has deliberately compressed margins to invest in the long-term opportunity, it has paid off. Every. Single. Time.

And each time, analysts doubted the company. Same story, over and over again. Sometimes, the markets are funny in their own way. Management was very transparent about the investments, which I always like.

In the shareholder letter, management quantified the margin impact of the investments (note: CBT = cross-border trade, 1P= 1st-party selling, where MELI is the merchant)

We estimate the combined impact of our strategic investments, which include the lower free shipping threshold in Brazil, CBT, 1P and the credit card, was equivalent to 5-6 percentage points of operating margin in Q4’25.

So, without the deliberate investments MELI made, the operating margin would have been around 15-16%. That’s strong, and it would have probably meant a beat on earnings, too.

CFO Martin de Los Santos added on the conference call that the company won’t hesitate to keep investing:

Our main focus is on capturing the large opportunities in front of us in commerce, fintech and advertising. And we will not hesitate to invest in order to capture those opportunities as we have done in the past, even if that puts some short-term margin pressure. We’re not trying to optimize short-term margin.

Now, if you’re a trader, you hate hearing this but as a long-term investor, this is music to my ears. And importantly, these aren’t vague promises. The results are already visible. Even with all these investments, full-year income from operations still grew 22%. The company makes the right choice to grow faster at the expense of higher short-term margins.

So, yes, analyst calls like this one are correct but myopic, only looking at the year ahead.

Source: Seeking Alpha

That was the reason Mercado Libre dropped more after earnings. Thank you to all traders and short-term focused analysts.

Commerce: Brazil Is On Fire

The free shipping initiative in Brazil that we discussed extensively last quarter continues to deliver beyond expectations. As a reminder, Mercado Libre lowered the free shipping threshold (from R$79 to R$19), and the results are remarkable.

Items sold in Brazil accelerated from 26% year-over-year in Q2, to 42% in Q3, to 45% in Q4. Overall, it was 43.2% (the number disappears for one reason or another when I download the chart).

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The unique active buyers grew by 24% YoY, the highest number of new buyers ever.

New CEO Ariel Szarfsztejn was proud:

New buyers that have come to MercadoLibre since June when we launched the new value prop are buying more items across a larger number of categories with higher retention rates compared to cohorts of new buyers prior to that change.

You can see this here.

It’s very impressive to see this. Usually, when an e-commerce business grows quickly, the average number of items sold per user drops. That MELI can make both grow so strong is another testament to the strength of this company.

I think this is a point many miss. So, anyone saying that the margin compression is important is not looking at Mercado Libre as an investment but as a trade. As an investor, you think like a business owner, and as a business owner, I’d be delighted with these results.

The logistics network is absorbing all of this beautifully. Unit shipping costs in Brazil declined 11% during the quarter. More volume is a leverage, as fixed costs go down as a percentage of delivery costs.

Mercado Libre introduced a slow-ship network to fill idle capacity, which I like a lot. When you have trucks and warehouses not in use at any given time, you can ship lower-value items during periods of lower traffic at almost no incremental cost. It’s a brilliant solution and it’s one of the things that competitors without such a big delivery system simply cannot copy, unless they invest heavily for years. Mercado Libre has already done those investments.

Mexico is performing well too, with 35% GMV growth. Cross-border trade saw a 74% increase in FX-neutral GMV. Mercado Libre now operates fulfillment centers in both the U.S. and China to serve its Latin American customers. This is a direct copy of what Amazon does worldwide. Here’s the regional breakdown.

An update on first-party (’1P’) that flew a bit under the radar. 1P is when Mercado Libre is the seller. Amazon started mostly with 1P and then expanded to 3P. Mercado Libre did it the other way around.

CFO Martin de Los Santos confirmed that 1P is now profitable before allocating central and indirect costs. That means it’s still not fuly profitable, but it’s early and this is a meaningful milestone. Scale will do the rest.

Remember, 1P exists as a sort of customer service to fill gaps in selection and pricing where third-party sellers underperform. It grew by about 80% FX-neutral in 2025 and is clearly gaining traction, especially in categories such as supermarkets. It’s an addition to the core 3P model, definitely not a replacement and it’s a good thing to see that there is a path to profitability.

Mercado Libre also changed its shipping fee structure for merchants in Brazil in January, moving to a model that charges based on actual dimensions and weight rather than flat rates. It’s still too early to tell what the financial impact will be, but it shows the company continues to fine-tune its business consistently.

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I’ll start with a Peter Lynch quote. I’ll come back to it later in the article, but it’s important to keep in mind when you look at Hims & Hers.

Never a dull moment with Hims & Hers (HIMS). That’s a prime example of an understatement.

First, a partnership with Novo Nordisk, then a legal battle, and now a partnership with Novo Nordisk again. And that is just one of the multiple developments at Hims & Hers.

If you want to hold this stock, you need an iron-clad stomach. Many Potential Multibaggers have that, but this is by far the most volatile stock I’ve ever covered.

Depending on how you count, this is the fourth or even fifth 30%+ drop in the last year.

Let’s first look at the earnings results that were published at the end of February but we hadn’t had time to cover yet.

The Numbers

Revenue for Q4 2025 came in at $618M, up 28% YoY, in line with consensus. EPS came in at $0.08, a beat by $0.03.

For the full year, revenue was $2.35B, up 59% YoY.

Adjusted EBITDA for 2025 was $318M, up almost 80% YoY, at a 14% full-year margin. Net income was $128M. Operating cash flow hit $300M.

Subscribers grew to over 2.5 million. Monthly revenue per average subscriber hit $83 in Q4, up 11% YoY. Annualize that and you’re approaching $1,000 per customer per year. When it comes to health spending, people simply don’t hesitate the way they do in most consumer categories.

The number of personalized solutions tells an even more important story. At the end of 2025, approximately 65% of subscribers, about 1.6 million people, were on personalized treatments. At the end of 2023, that number was only 600,000. Nearly a million net new personalized subscribers in two years. That number shows what Hims & Hers wants to focus on.

The Stock Crash

On February 5, 2026, Hims & Hers announced it would begin offering a compounded semaglutide pill starting at $49 per month, with subsequent months at $99 per month. Novo Nordisk’s FDA-approved Wegovy pill had launched barely a month earlier, on January 5, with a starting cash price of $149 per month.

On February 7, 2026, Hims & Hers then announced it would no longer offer the compounded semaglutide pill. Only 48 hours, but what chaos.

The problem was that Hims & Hers was caught between a rock and a hard place. Because of strong patents, they couldn’t use Novo Nordisk’s SNAC delivery system for the pill to work in the gut. But if they used another mechanism, which they did, they actually needed FDA approval. And the FDA was swift to react to that aspect. With good reasons this time, if you ask me.

FDA Commissioner Marty Makary said the agency will “take swift action against companies mass-marketing illegal copycat drugs,” and general counsel Mike Stuart of the Department for Health and Human Services said he referred the matter to the Department of Justice for investigation.

Novo Nordisk filed a patent lawsuit and the 10-K filing disclosed that the SEC has opened an inquiry into Hims’ marketing, disclosures, and regulatory compliance around compounded GLP-1 products. But of course, with the new partnership, Novo Nordisk dropped the lawsuit.

Still, the FDA, DOJ, and SEC are simultaneously investigating Hims & Hers. Andrew Dudum’s response on the call was short:

I don’t think we can share too much on anything ongoing, but continue to welcome their conversations.

The existential risk posed by this compounding battle has largely been mitigated by the new partnership, but the regulatory overhang hasn’t fully disappeared. But I don’t think the outcome will be much worse than a fine, if anything.

The Q1 Guidance”Miss”

Q1 2026 guidance is $600M to $625M in revenue, which is just 2% to 7% YoY growth, and quite a big miss versus the consensus of $652M. But the details are important and the numbers have to be adjusted.

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David wrote an article about Global-e (GLBE), but I added quite a bit, so you can see this article as a joint effort, although let me be clear about that, David did by far the most work.

Of course, as always, after the earnings analysis, I will look at Global-e’s Selling Rules, the PM Quality Score and the valuation to decide if Global-e is a buy now.

Hi Multis

David here.

Global-e’s stock recently experienced some weakness, in line with broader market trends, but moved about 15% to $36 following the earnings release. It’s down a little bit to $34.68 at the moment of writing.

So, let’s jump in.

The Numbers

Revenue

Revenue in Q4 was $336.7 million, an increase of 28% year-over-year. The two revenue streams, service fees and fulfillment services, contributed $160.9 million and $175.7 million, respectively. Service fees increased 37% year over year, while fulfillment services grew 20.6% year over year.

One nuance here: the fulfillment take rate came in slightly below expectations this quarter. That’s not a sign of weakness, but because average order values were higher than expected. That means more GMV per transaction, which was good for GMV. So the “miss” on fulfillment take rate is a good miss.

For the full year, revenue mix remained stable with 47% ($451.2 million) from service fees and 53% ($510.9 million) from fulfillment fees. Both segments delivered approximately 27-28% annual growth.

Global-e guided for its first $1 billion+ revenue year in 2026. For any company, that’s a significant threshold.

Gross Profit

Gross profit totaled $154.8 million, compared with $118.7 million in the same quarter last year and up from $99.6 million in Q3 2025. That’s a 46% profit margin.

Gross Merchandise Volume (the total dollar amount of everything sold on the platform) increased 37.8% year-over-year to $2.361 billion, bringing the total GMV for 2025 to $6.569 billion, representing 35% annual growth.

A number that puts the GMV in perspective: Global-e’s total annual GMV for 2020 was $774 million. The company did $1 billion in GMV in November alone.

Global-e delivered strong operating results across key metrics, supporting a solid financial foundation for continued expansion.

The result exceeded company guidance across key metrics, and investor sentiment appears particularly positive regarding the company’s forward guidance.

Current Results and Future Guidance

Global-e updated its full-year outlook last quarter to the following:

The improved outlook for GMV, revenue, and adjusted EBITDA was discussed in the previous analysis. Management provided several drivers supporting the higher guidance, which was useful for evaluating how these expectations translated into actual results.

The table below compares company guidance with actual reported results.

This was the first full year of GAAP profitability, with a GAAP EPS of $0.39. The amortization of the Shopify warrant, a recurring drag on GAAP results for years, is now essentially gone. That removes a structural GAAP headwind and makes the reported numbers cleaner going forward.

Cash generation remains strong, with $216.2 million in free cash flow generated in Q4.

A portion of this cash is expected to be returned to shareholders. As highlighted previously, Global-e authorized a $200 million share repurchase program.

As of the end of Q4 2025, approximately $72 million in shares had been repurchased, representing about 1.8 million shares. The company indicated that repurchases are expected to continue under the existing authorization.

Management confirmed on the call that the company has continued buying in Q1 2026, with $128 million of capacity still remaining on the program.

Alongside year-end results, Global-e also released its 2026 outlook:

The company expects GMV growth of 28.6% to 34%, revenue growth of 25.8% to 32%, and adjusted EBITDA growth of 30% to 43%.

The adjusted EBITDA guidance, $259M to $284M, at a 22% margin at the midpoint, would give Global-e a Rule of 50 for the full year. That means revenue growth plus EBITDA margin exceeds 50. Usually, The Rule of 40 is seen as a benchmark for great companies..

Also important: Q1 2026 guidance calls for GMV growth of 38.8% at the midpoint. That’s an acceleration.

The outlook indicates that management expects the growth momentum achieved in 2025 to continue.

Growth

Global-e delivered growth across all key metrics in 2025, and the projected growth rates are not extreme.

The strong GMV demand is currently increasing and is even ahead of the most optimistic projections. This strong performance reflects both new merchant additions and growth from existing merchants, with results exceeding historical averages. Management continues to indicate a strong merchant pipeline.

The net-dollar-retention rate for 2025 came in at 122%, an improvement over 2024. Gross dollar retention was 96%. These numbers tell you two things: existing merchants are growing on the platform, and very few are leaving. The 122% NDR means that even without signing a single new merchant, revenue would still grow by 22% from the existing base alone. Very strong.

And that will probably continue. President and co-founder Nir Debbi said on the call that it “looks stronger today than it did in the same period in 2025.” 2025 was already a record year for growth in new merchant contributions, so that statement deserves attention.

Another tailwind can be found in foreign exchange (’FX’). As Global-e is in the middle of international transactions, the FX part of its business cannot be underestimated. Global-e collects revenue globally, but reports in USD.

With a weakening dollar, it can report higher revenue and profit in USD.

The table above illustrates Global-e’s geographic revenue mix. Approximately half of the revenue is generated in the United States, while the remainder is derived from international markets. As a result, a meaningful portion of revenue is affected by foreign exchange movements.

The partnership with Shopify continues to deliver strong results. The collaboration supports continued expansion of the merchant base and geographic coverage.

More specifically: Managed Markets 2.0 is now live. The critical upgrade in this version is full integration with Shopify Payments, replacing the separate payment rails used in the previous version. This means merchants can now run their international store exactly the same as their domestic store; they have the same processes, the same financial flows, and no learning curve. CEO, Chair of the Board and co-founder Amir Schlachet called it the biggest change. Management expects this to have an even bigger effect in the back half of 2026.

And one more thing, Global-e has already integrated the Universal Commerce Protocol (’UCP’), co-developed by Shopify and Google. As agentic commerce evolves, the complexity of cross-border infrastructure only increases and that is exactly what Global-e is built to handle. The company is more than ready.

Tariffs as a lead-generation mechanism

And then... we have to talk about tariffs. It was by far the most discussed topic on the call and one of the things I (Kris) am most asked about in the context of Global-e.

When the tariffs were introduced in 2025, in the short term, this created some pressure on US volumes. But as Amir Schlachet said on earlier calls, the tariff complexity had a positive effect on the pipeline in the midterm and that is now showing up in the Q4 numbers and 2026 guidance.

The EU de minimis removal is the next wave. Until now, small packages into Europe could pass customs without an import tariff. That’s about to end. When that comes into effect, it adds another layer of trade compliance for merchants, which is another boost for Global-e. Companies that previously shipped small parcels into Europe without customs handling will now need what Global-e does.

Global-e also launched its duty drawback offering for U.S.-based merchants in Q4. It allows merchants to reclaim import duties on internationally exported goods, and reclaim certain tariffs on returned goods. Initial adoption among the first group of merchants is described as “very high,” and it’s now being rolled out to all eligible U.S. clients. It’s embedded in the 2026 guidance, though management took a conservative approach given it’s still a new offering.

Saying to merchants: “Hey, if you just take this subscription, you will earn it back multiple times through claimbacks, where we do all the complicated stuff for you” is a pretty good selling point.

Or, in other words, the tariffs are an outstanding lead-generation mechanism for Global-e. Back to you, David!

Costs

One aspect I always look at is the costs. Not only the costs to generate revenue, but also the other costs that a company chooses to make, such as sales and marketing, and general and administrative costs.

The table below presents these costs as a percentage of gross profit. The left side compares Q4 2024 with Q4 2025, while the right side compares full-year 2024 with full-year 2025.

Cost of revenue remained stable at approximately 54% in both 2024 and 2025, with limited variation on a quarterly basis. These costs are typically more difficult to optimize and include items such as payment processing fees, shipping, and logistics.

Operating expenses declined relative to gross profit compared with both the prior year and the comparable quarter, contributing to improved profitability.

More numbers:

• R&D dropped from 9.2% to 8.5% of revenue in Q4.

• Sales and marketing fell from 11.3% to 9.4%.

• G&A from 4.1% to 3.2%.

You see that everything moves in the right direction. Management is guiding for this to continue.

AI and Other Improvements

Global-e is increasingly using artificial intelligence to improve growth and operating efficiency.

One example is a large language model used in customer support, where chatbot interactions are reducing the need for human intervention.

Another example is an internally developed AI tool designed to improve sales efficiency. The tool analyzes customer characteristics, product attributes, and geographic priorities to estimate conversion potential before sales outreach. This helps improve demo targeting and conversion rates while supporting more efficient sales and marketing spending.

But the AI story at Global-e goes considerably deeper than these two examples.

Vibe coding is already having a measurable impact. Entire features and even entire subsystems are designed, developed, tested, and deployed through AI-assisted coding. The efficiency gain is already visible in the lower R&D spend as a percentage of revenue in 2025.

Global-e also launched a full-site localization offering. It’s an in-house LLM-based service that translates entire merchant websites into multiple languages, including text embedded in graphics, a common problem for merchants.

Amir Schlachet made a good point on the call about this. Scale and AI are not separate advantages but they compound each other. Data fuels AI models and Global-e has unique, proprietary transaction data across 200+ markets that no competitor can even dream of.

The bigger Global-e gets, the better the models get. That’s a self-improving moat over time.

Conclusion

Global-e posted a strong quarter and 2026 looks to be strong as well. Does that make it a BUY?

Let’s find out with the Selling Rules, the PM Quality Score and the valuation.

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