I made the most of market volatility last week. I initiated two new positions in my portfolio. I also cut loose one of my winning positions.
I invested in Sleep Number (SNBR 0.63%) and fuboTV (FUBO 0.73%) last week, and I closed out my stake in Yext (YEXT 1.85%). Let's take a closer look at the reasons that went into my calls for buying and selling these three somewhat obscure investments.
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Sleep Number
There's not a lot for investors to get excited about when it comes to the mattress market. It's a cutthroat niche with gobs of years between upgrade cycles. Sleep Number stands out as a rare disruptor. It's a maker of air-chambered mattresses with adjustable firmness settings and that is unique in of itself, but it raised the bar two years ago by introducing the industry's first smart bed. The Sleep Number 360 monitors sleep patterns, and it can improve your sleep by adjusting firmness settings or even raising or lowering the bed's incline if it senses tossing, turning, or even snoring.
A revolutionary product isn't enough, of course. You need to have perfect timing, and Select Comfort's strong showing lately was possibly aided this year by the stay-at-home movement. Folks spending more time at home have been spending on upgrading their digs.
Net sales rose 12% in Sleep Number's latest quarter, better than the 9% that analysts were forecasting. Online and phone sales more than doubled, leading same-store comps to an 11% ascent. Margins improved to the point where earnings grew even faster. Sleep Number jacked up its guidance. It sees earnings per share climbing 48% to $4 a share this year, so this dynamic game changer of a stock is trading for less than 16 times this year's earnings.
FuboTV
It's easy to dismiss fuboTV as just another streaming service in a glut of digital offerings, but that would be a big mistake. FuboTV bills itself as the leading sports-first streaming service, and don't let that be a screaming red flag. This isn't ESPN on steroids. It's actually better than that.
FuboTV isn't a cheap platform. Folks pay at least $60 a month for the platform that covers 90% of NFL, 100% of NHL, 88% of Major League Baseball, and nearly 70% of NBA games. It covers a plethora of premium sports channels, and it's the only digital platform streaming available content in 4K. It also offers a strong catalog of non-sports channels.
Investors aren't talking about fuboTV. It quietly went public at $10 last month, but after last night's blowout report, I'm guessing I won't be the only one writing about -- and owning -- fuboTV these days. Adjusted revenue soared 71% in fuboTV's latest quarter, as a 58% increase in paid subscribers combined with a 14% increase in average revenue per user over the past year. Advertising revenue is a small part of the model -- accounting for just 12% of the business -- but its revenue soared 153% in Tuesday night's report.
I was attracted to fuboTV as my latest investment last week by strong subscriber trends. This was a company whose revenue nearly doubled in 2019. It began 2020 with 316,000 subscribers. By the end of June it had slipped to 286,000, understandable since all of the major leagues didn't start up again until later this summer. FuboTV's subscriber guidance back in August was calling for 340,000 to 350,000 for the quarter it reported on Tuesday. It wound up clocking in with 455,000 paid subscribers.
In September it was eyeing 410,000 to 420,000 subscribers by the end of this year, and last month -- when it was wooing IPO investors -- it boosted that year-end goal to 480,000. Now it's expecting to close out 2020 with as many as 510,000 paid subscribers. This is the way you like to see subscriber trends going with any streaming service.
Yext
The one stock I sold last week was Yext. There's a credibility gap when it comes to search these days, and Yext helps businesses building out a platform of accurate business information that is disseminated through search engines and digital assistant offerings.
Yext was a profitable investment for me, climbing better than 30% in my eight months of ownership, but I didn't like the way growth was trending. Yext went from revenue climbing 24% in its fiscal first quarter ending in April to less than 22% for the three months ending in July. Seeing year-over-year growth decelerate sequentially -- for five consecutive quarters -- isn't a deal breaker in of itself. However, I don't like how its trailing 12-month net dollar-based retention rate has declined to 105%. The more successful software-as-a-service -- or SaaS -- stocks don't clock in below 120%. Serving a limited niche market and with revenue from existing customers growing slowly I felt it was time to turn Yext into whatever I wind up buying next.
