Canyon Edge - $ORCL & $CHWY Earnings, The Rise of Alternative Data

Welcome to the 3rd edition of Canyon Edge - in this edition we talk about Oracle and Chewy’s upcoming earnings and discuss the rise of alternative data.

Before we dive in today we want to give a huge shoutout to the team over at Variant. Variant is a tool built by former analysts to challenge consensus and discover hidden insights on public companies. Access is open for buyside professionals and students at select schools.

Check it out here - https://variantinsights.com/

Earnings Intelligence

$ORCL | Wednesday, June 11 - Q4 FY2025 Earnings

Sell-side Consensus Estimates (YoY):

 Revenue: $15.58B (+9.04%)

 Net Income: $4.74B (+2.81%)

 EPS (Adjusted): $1.64 (+0.74%)

Sentiment Check:

4 Strong Buys / 20 Buys / 15 Holds / 0 Sell / 0 Strong Sell

What to Watch;

AI & Cloud Infrastructure aka Project Stargate

Oracle’s focus on AI training and processing, especially with Project Stargate, is a key growth driver. Investors will want to see clear evidence that these efforts are leading to actual demand and revenue.

Capacity Expansion Progress

Oracle’s biggest constraint has been infrastructure capacity. Updates on CapEx deployment and whether bottlenecks are easing (ahead of Q1 FY26) will be a key factor for confidence in future growth.

Multi-Cloud Partnerships

Oracle’s integration with Azure, AWS, and Google Cloud is a core differentiator. Continued partnerships signal an expanding customer base and revenue resilience.

RPO. A strong indicator of future growth

With a record $130B in remaining performance obligations, the size and growth of this backlog could indicate consistent revenues in the future, which will give some investors confidence.

Desk Color:

Piper Sandler: “Has room for upside, but must overcome some near-term challenges related to margin pressures and a challenging macro.”

Oracle has outperformed the overall market YTD (+4.81%) and is seeing heavy momentum going into earnings, this has investors concerned if the momentum can last. Specifically with the 15-25% growth group that Oracle falls in. But overall, software names are looking a bit “cheap” compared to historical multiples, looking at the picture below we see that they are trading 21% below the trailing 5-year average. While we don’t expect them to trade up to ‘21 multiples we do see some recovery in the back half of this year.

$CHWY | Wednesday, June 11 - Q1 2025 Earnings

Sell side Consensus Estimates (YoY):

Revenue: $3.08B (+7.03%)

EBITDA: $191M (+17.20%)

EPS (Adjusted): $0.34 (+9.66%)

Sentiment Check:

7 Strong Buys / 11 Buys / 11 Holds / 0 Sell / 1 Strong Sell

There’s decent sentiment from the Street around Chewy, especially after its strong performance in May, where the stock surged 23.7%, and 42.6% Year-to-date. Bulls point to the stability of pet spending, which tends to hold up even during uncertain market conditions, making Chewy a solid stock to own in volatile times. They also argue that Chewy is well-equipped to handle challenges like tariffs. On the other hand, some of the bearish sentiment, particularly from Jefferies, gives the view that while Chewy is a great company with a strong business model, the stock has simply run up too fast. That explains their recent downgrade from a “Buy” to a “Hold” rating heading into earnings. It’ll be important to see if upcoming earnings justify the recent run or if the stock starts to cool off as expectations catch up.  

What Matters:

A key area to watch heading into earnings is Chewy’s EBITDA margin. In 2024, the company posted a full-year EBITDA margin of just 1.6%, while Q1 of that year came in at 2.9%. The focus this quarter will be whether Chewy can expand on that 2.9% margin, potentially driven by stronger pet product sales, increased sponsored ad revenue, and improvements in operational efficiency, particularly in fulfillment.

Desk Color:

Morgan Stanley: “1Q datapoints point to continued top-line momentum despite a mixed pet adoption backdrop. CHWY has outperformed the S&P 500 by ~30 pts intra-quarter, implying a beat & raise is priced in & may lead to a muted earnings reaction.”

Since our lesson today is on alternative data, here is some alternative data that Morgan Stanley Research analysts collected;

Invest like a PM - What Really Matters Heading Into Q1 Earnings for Chewy

Customer Spending

Investors will be closely watching how customer spending trends unfold, especially in light of the recent PCE report showing just 2.1% year-over-year growth in April. It will be interesting to see whether Chewy’s customer base remains resilient, given signs of a broader spending slowdown. A key metric to look at is Net Sales per Active Customer, which indicates whether customers are spending less, the same, or more. If this figure comes in above last quarter’s results, it would be a positive signal for the stock, suggesting that customers continue to prioritize spending on Chewy’s products despite macroeconomic pressures.

International Expansion

Chewy launched its expansion into Canada in 2023, tapping into a market where 63% of households own pets. It will be important to watch whether the international segment of the business is gaining traction. If growth is evident, it could serve as a meaningful catalyst for the stock, highlighting the potential for Chewy’s products and services beyond the U.S. market.

EBITDA 

EV/ EBITDA is currently priced at 28x this year. This puts the spotlight on management and if they can deliver on these expectations. Investors expect that marketing and advertising expenses are going to rise, but are betting on fulfillment efficiencies to offset this. But Chewy might have room for multiple expansion, especially if the company continues to generate consistent revenue even during an economic slowdown. In that case, investors could start viewing it as a defensive play, potentially rewarding the stock with higher valuation multiples for its resilience in a recessionary environment.

Analyst Mode

Alternative Data

At an institutional level, information such as 10Ks, 10Qs, and research reports are used by everybody. This means that everyone has the same information and it becomes hard to get an edge. During the 2010s, alternative data usage started to become popular in the hedge fund world. The shift from traditional data to alternative data saw funds utilizing credit card data, web-scrapers, and more to place bets (see image below).

Let’s dive a bit into credit card data; These datasets gather consumer spending information directly from the original source. Some companies assemble panels of representative consumers who consent to share their credit card activity, while others partner with payment technology providers to access transaction data from retail purchases. This information is then aggregated and analyzed to produce broader insights.

Credit card data can help funds get ahead of the crowd on the spending behavior of customers weeks before a company’s earnings are released. Traders specializing in retail and commerce track transaction volumes for stocks such as Walmart, Target, and Lululemon to predict earnings and analyze category-level shifts (athletic wear vs formal wear).

Gabe Plotkin was an early adopter of alternative data, using it to make trades in the consumer and retail sector. Plotkin was wildly successful at SAC Capital doing this and then spun out into Melvin Capital, which closed after the Gamestop fiasco.

In Black Edge by Sheelah Kolhatkar, she introduces Plotkin with this “It was clear that within the star system at SAC, Plotkin was on the rise. He had developed a formula for studying credit card data and shopping mall traffic that he claimed helped him make winning trades in consumer stocks. Whatever he was doing, it seemed to be working. He was making huge profits. Like Cohen, he could have millions at risk in the market and still go home and have the best night’s sleep of his life.”

Some of the most intuitive ways that alternative data is used is satellite imagery. Funds were gauging the occupancy of Walmart parking lots and extrapolating Walmarts quarterly earnings. Here’s an excerpt from a CNN article that talks about the rise of alternative data,

“Last summer, a large hedge fund had a hunch: Lumber prices were about to crash because of excess inventories caused by a railway strike.

Before placing a massive short bet that lumber company share prices would fall, executives at the hedge fund confirmed the theory by hiring a drone to fly over lumberyards, people familiar with the matter told CNN Business.

“You could literally see lumber piling up everywhere,” one of the people said.”

As more and more funds pick up alternative data, it has become table stakes and funds need to look other places to find alpha.

Thanks for reading the 3rd edition of the Canyon Edge, as always - subscribe for more and all inquiries should be directed to;

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