Cricut Crafted Another Great Quarter

Growth Slows At Cricut 

Crafting king Cricut NASDAQ: CRCT came out of the gate strong following its IPO but growth appears to be slowing. The company reported a very good quarter but one in which growth slowed from high to low double-digits. That's not typically something we like to see but the reason, however, may be the mitigating factor due to the comparisons. The slowdown is not caused by user growth but by materials. Sales of materials and accessories were basically flat on a YOY basis but let’s remember, last year was peak-pandemic, it is not surprising Cricut’s clients were loading up on supplies. The takeaway is that Cricut’s user base continues to grow and provides leverage for future sales. The pantry-loading of last year may impact sales of supplies this year but that impact will soon fade and when it does revenue and earnings will reaccelerate. 

Cricut Is Levered For Growth 

Cricut had a good quarter there is no doubt. Aside from the slowdown in accessories and materials sales, there is no other metric to be displeased with. The company reported $260.1 million in net revenue or up 24.4% from last year which missed the Marketbeat.com consensus but by a slim margin that is more than offset by expectations of future growth. Revenue was driven by a 55.7% increase in users and a 55.8% increase in paid subscriptions that should drive recurring materials sales long into the future. On a segment basis, Connected Machine sales grew by 35.7% while subscription revenue rose by 70.8%. Accessories and materials, the company’s biggest profit-driver, rose only 2.0% over last year. 

International sales are another area of interest. The international market is the company’s biggest growth opportunity and represented only 7% of sales in the previous quarter. The company reported a 110% YOY increase in the International segment this quarter making it a more robust 12% of sales. It is our view, with the recent push into new foreign markets, that International sales will continue to grow at a very high double-digit to triple-digit rate for the next several quarters and quickly eclipse domestic revenue and earnings. 

“(We)Extended our international rollout, entering the Middle East and Hong Kong markets in the third quarter. We also launched a direct-to-consumer eCommerce site in Ireland, France, and Germany, while continuing to diversify retail relationships in the UK, Australia, and France. Additionally, we expanded our worldwide retailer footprint in newer markets such as Germany, the Nordics, Benelux, Spain, Mexico, South Africa, and Singapore.”

Short-Squeeze Candidate Cricut Falls To Support

Cricut has been called out as a short-squeeze candidate more than once. The short-interest has been running in the 20% to 30% for the last few months and was sitting at 22.5% ahead of the Q3 report. The Q3 results were not enough to spark a short squeeze but now, with shares back to a key support level, it looks like another short-covering rally is in the making.

The Technical Outlook: Range-Bound Cricut Falls To Support

Shares of Cricut fell more than 13% in the wake of the Q3 results but may have already found support. Price action opened the day with a large gap lower but above key support at the $24 level. It is possible that price action could fall below this level but there is no indication of that at this time. Assuming price action is able to hold above $24 we see the stock moving to the side and consolidating at these levels. A move upward would face resistance at the $28 to $30 range. A move above that level would be more bullish but within a range. The next target for resistance would be near $36.