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Internet/e-Commerce 1Q Internet Sector Preview Earnings Preview Equity | 06 April 2017 Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens@baml.com 1Q Preview; Expectations building on a strong 2H Our early sector preview highlights our estimates vs. Street, early 1Q data points, and some opportunities for 1Q results for 30 stocks in our coverage group (more detailed company previews to follow). For large-caps, Street 2017 EPS estimates are down 8% YTD while the average stock price is up 9% YTD; suggesting macro and 2H optimism is driving stocks, which could continue throughout earnings season. 1Q was not without potential pressures, including ramping competition in several sectors and delayed tax refunds. A key theme for the group, in our view, is advertising & listing ranking revenue initiatives at eCommerce sites (AMZN, EBAY, EXPE), and we are constructive on all three stocks. Per our Internet sentiment ranking screen (page 7), FB, WIX, TREE have best sentiment while TWTR and TRIP have weakest. A few early checks positive, mixed eCommerce data Our early ad checks suggest robust overall demand, aided by somewhat easy comps vs 1Q’16, with Instagram momentum a standout. eCommerce is more mixed, with some concerns on consumer spending due to delayed tax refunds, but optimism that spending will rebound in March/April. In travel, there are modest concerns on pressure on US inbound travel, a bigger negative for Expedia than Priceline. FX spot rates for both the Euro and the Pound have depreciated 1% vs. the US$ since end of Jan. Many key upcoming events for stocks in 2Q Top events in 2Q include Facebook’s F8 developer conference on April 18-19, Google’s Marketing Next keynote on 5/23, an AWS event in San Francisco on April 18-19, expected closing Verizon’s acquisition of Yahoo, Netflix’s release of several key franchise including House of Cards, Orange is the New Black, Sense8, Glow, and Unbreakable Kimmy Schmidt, consumer wide release of Pandora Premium, Expedia’s new HomeAway disclosures and, possibly, Amazon’s new revenue disclosures. We expect meet/beat EPS for several companies We are above the Street on 2017 EPS for 16 of the 25 stocks discussed within and, of those, we are most confident in Facebook & Priceline for 1Q upside potential. We expect Facebook to benefit from robust traffic, Instagram momentum, and greater adoption of audience targeting tools. We also think Priceline can beat 1Q given strong booking trends into the quarter and a modest recovery in European travel. We are below the Street on 2017 EPS for AMZN, TRIP, and YHOO. Expedia is a top eComm/travel idea for 2Q/3Q on potential for accelerating room nights, HomeAway optimism, and less uncertainty on near-term estimates. GOOG, AMZN & ZG interesting 1Q sentiment stocks For large cap’s, we believe GOOGL has had high recent interest given controversy around Youtube ad placements. We are not sure if Google will provide clarity on the issue on their call, but we do expect advertisers to return by 3Q and any overhang to be resolved. For Amazon, the company had new revenue disclosures in its 10-K filing, and there is growing optimism on advertising being a positive bottom-line driver. In SMID Internet, Zillow has more controversy going into 1Q as investors are once more concerned about potential regulation by the CFPB limiting the ability of agents and mortgage brokers to co-market on the platform. We remain positive on the stock due to its dominant position in online real estate and our belief that the high ROI of the ad unit (our survey suggested >6x return) will ensure that agents buy Zillow placements regardless of mortgage broker incentives. Additionally, we see earnings upside potential. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 62 to 64. Analyst Certification on page 59. Price Objective Basis/Risk on page 53. 11729935 Timestamp: 06 April 2017 04:12AM EDT Americas Internet/e-Commerce Justin Post Research Analyst MLPF&S +1 415 676 3547 justin.post@baml.com Nat Schindler Research Analyst MLPF&S +1 415 676 3574 nathaniel.schindler@baml.com Ryan Goodman, CFA Research Analyst MLPF&S +1 415 676 3560 ryan.c.goodman@baml.com Jason Mitchell Research Analyst MLPF&S +1 415 676 3534 jason.s.mitchell@baml.com Akshay Bhatia Research Analyst MLPF&S +1 415 676 3548 akshay.bhatia@baml.com Table 1: Key 1Q metrics for Large Cap Internet (>$5bn Market Cap) Company Ticker Key 1Q Metric BofAML Estimate Alphabet GOOGL Website revenue (ex-FX) growth vs 22.3% in 4Q 21.6% Amazon AMZN AWS revenue growth vs. 47% in 4Q 43% y/y eBay EBAY US GMV growth trends 3.5% y/y Expedia EXPE Room night growth vs. 15% in 4Q 16% Facebook FB Ad revenue growth (ex-FX) vs. 54% reported in 4Q 52% Netflix NFLX 1Q Intl sub guidance 3.9mn Priceline PCLN 1Q room night growth vs. 31% in $Q 26% y/y Snap SNAP Global DAU's vs. 158mn in 4Q 166mn TripAdvisor TRIP Update on ad spend targets, 2017 guidance 18% S&M y/y growth Twitter TWTR MAUs and y/y trend vs 319mn (+4% y/y) in 4Q 322mn MAUs (+4% y/y) Yahoo YHOO Any update on acquisition timing and ongoing breach investigations N/A Zillow ZG Mortgage Revenue $18.1mn Source: BofA Merrill Lynch Global Research estimates Table 2: Key 1Q metrics for Small Cap Internet (<$5bn Market Cap) Company Ticker Key 1Q Metric BofAML Estimate BankRate RATE 1Q revenue $117mn Quotient QUOT 1Q transactions 731mn Care.com CRCM US paying families 266,607 (4% y/y) Fitbit FIT 1Q unit sales and gross margin 3mn/39% GoPro GPRO 1Q unit sales and gross margin 800K/35% GrubHub GRUB Gross food sales growth 26% Match.com MTCH Paid Member Growth 17% OnDeck Capital ONDK 1Q origination growth and marketplace take rate 12% / 3% Pandora P Ad revenue per listening hour growth 10% LendingTree TREE Variable marketing margin growth 29% y/y Trivago TRVG Qualified referral growth 56% y/y Wayfair W 2Q revenue growth guidance 25% y/y Wix WIX Premium subscribers growth 36% Yelp YELP 1Q Local advertising account adds 4k (17% y/y) Zynga ZNGA Online Games DAUs 17.9 Source: BofA Merrill Lynch Global Research estimates 2 Internet/e-Commerce | 06 April 2017 1Q Internet Summary Previews We are publishing updates on 1Q industry data points and write ups on our early outlook and top 1Q earnings focus items for select stocks in our Internet coverage group (more detailed previews with various channel checks for large cap stocks to follow.) Our commentary is designed to highlight 1Q data points, stock trading opportunities and potential issues for 1Q results, and our estimates vs. consensus. For 1Q EPS estimates, we are above the street for well over 50% of our companies under coverage, and only below on QUOT, P, RATE, and TRIP. For large caps, we have highest confidence in EPS upside for Facebook and Priceline. Table 3: 1Q17 BofAML Estimates vs. The Street Large Cap Stocks (>$5bn Market Cap) Ticker 1Q17 Metric BofA ML Street Small Cap Stocks (<$5bn Market Cap) BofA ML vs. Street Ticker 1Q17 Metric BofA ML Street BofA ML vs. Street AMZN Revenue $35,335 $35,255 RATE Revenue $117 $116 EPS $2.34 $2.28 Ahead EPS $0.14 $0.15 Below EBAY Revenue $2,210 $2,206 CRCM Revenue $43 $43 EPS $0.49 $0.48 Ahead EPS $0.04 $0.02 Ahead EXPE Revenue $2,134 $2,140 FIT Revenue $282 $278 EPS $0.07 $0.06 Ahead EPS ($0.19) ($0.19) In-line FB Revenue $7,905 $7,798 GRUB Revenue $153 $153 EPS $1.14 $1.11 Ahead EPS $0.25 $0.24 Ahead GOOGL Revenue $20,219 $19,891 GPRO Revenue $205 $207 EPS $9.53 $9.45 Ahead EPS ($0.39) ($0.44) Ahead NFLX Revenue $2,710 $2,644 TREE Revenue $127 $125 EPS $0.45 $0.45 In-line EPS $0.93 $0.91 Ahead PCLN Revenue $2,415 $2,441 MTCH Revenue $293 $308 EPS $9.08 $8.75 Ahead EPS $0.14 $0.13 Ahead SNAP Revenue $163 $158 QUOT Revenue $72 $72 EPS ($0.18) ($0.21) Ahead EPS $0.01 $0.03 Below TRIP Revenue $379 $377 P Revenue $319 $318 EPS $0.23 $0.27 Below EPS ($0.49) ($0.35) Below TWTR Revenue $535 $510 TRVG Revenue €241 €241 EPS $0.03 $0.01 Ahead EPS €0.02 €0.02 In-line YHOO Revenue $821 $815 WIX Revenue $91 $90 EPS $0.14 $0.14 In-line EPS ($0.05) ($0.13) Ahead ZG Revenue $239 $236 W Revenue $944 $933 EPS $0.06 $0.05 Ahead EPS ($0.49) ($0.60) Ahead YELP Revenue $201 $198 EPS $0.18 $0.16 Ahead Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 Internet/e-Commerce | 06 April 2017 3 Our 2017 estimates vs. street Of the 25 Internet stocks listed below in our coverage, we are above the Street on 2017 EPS on 16 stocks and below the street on 9. Table 4: 2017 BAML Estimates vs. The Street Large Cap Stocks (>$5bn Market Cap) Ticker Metric BofA ML Street Small Cap Stocks (<$5bn Market Cap) BofA ML vs. Street Ticker Metric BofA ML Street BofA ML vs. Street AMZN Revenue $164,532 $165,158 RATE Revenue $508 $505 EBITDA $18,246 $19,382 EBITDA $126 $126 EPS $10.90 $12.60 Below EPS $0.68 $0.70 Below EBAY Revenue $9,458 $9,398 CRCM Revenue $172 $172 EBITDA $3,520 $3,494 EBITDA $20 $19 EPS $2.03 $2.01 Ahead EPS $0.43 $0.36 Ahead EXPE Revenue $10,097 $10,010 FIT Revenue $1,625 $1,580 EBITDA $1,857 $1,835 EBITDA ($156) ($120) EPS $5.54 $5.38 Ahead EPS ($0.37) ($0.36) Below FB Revenue $38,546 $37,774 GRUB Revenue $650 $645 EBITDA $24,358 $23,775 EBITDA $184 $181 EPS $5.67 $5.43 Ahead EPS $1.13 $1.10 Ahead GOOGL Revenue $88,636 $87,691 GPRO Revenue $1,307 $1,266 EBITDA $43,457 $43,264 EBITDA $66 $48 EPS $41.82 $41.12 Ahead EPS $0.09 ($0.08) Ahead NFLX Revenue $11,627 $11,221 TREE Revenue $525 $515 EBITDA $1,218 $1,053 EBITDA $96 $96 EPS $1.44 $1.41 Ahead EPS $3.91 $4.00 Below PCLN Revenue $12,518 $12,447 MTCH Revenue $1,285 $1,325 EBITDA $4,784 $4,747 EBITDA $462 $459 EPS $75.35 $74.11 Ahead EPS $0.95 $0.88 Ahead SNAP Revenue $1,007 $1,034 QUOT Revenue $312 $288 EBITDA ($580) ($617) EBITDA $44 $46 EPS ($0.59) ($0.57) Ahead EPS $0.18 $0.09 Ahead TRIP Revenue $1,647 $1,649 P Revenue $1,629 $1,621 EBITDA $346 $339 EBITDA ($17) ($38) EPS $1.22 $1.23 Below EPS ($0.21) ($0.49) Ahead TWTR Revenue $2,301 $2,352 TRVG Revenue €1,105 €1,088 EBITDA $639 $564 EBITDA €44 €40 EPS $0.33 $0.27 Ahead EPS €0.05 €0.06 Below YHOO Revenue $3,369 $3,574 WIX Revenue $420 $416 EBITDA $848 $891 EBITDA $74 $64 EPS $0.65 $0.67 Below EPS $0.31 $0.36 Below ZG Revenue $1,062 $1,048 W Revenue $4,169 $4,237 EBITDA $215 $211 EBITDA ($48) ($59) EPS $0.48 $0.44 Ahead EPS ($1.55) ($1.65) Ahead YELP Revenue $895 $889 EBITDA $166 $161 EPS $0.99 $1.04 Below Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 4 Internet/e-Commerce | 06 April 2017 Stock price performance above estimate revisions Internet sector stocks are up 6% YTD, on average, while EPS estimates for profitable companies in our coverage cluster are down 5% YTD. For large-caps over $5bn in market cap., street 2017 EPS estimates are down 8% YTD while the average stock price is up 9% YTD; suggesting macro expectations and stock rotation are having a larger impact on stock movement than earnings estimates. eCommerce leads the group, up 8% YTD with Travel up 6% and Media behind at 5%. Small Caps are lagging Large caps YTD at 4% vs. 9%. Chart 1: YTD Stock Price Performance vs. YTD 2017 Estimate Revisions By Sector 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Internet Group Media eCommerce Travel Large-Cap Small-Cap SP 500 2017 % Change in Stock Price YTD % Change in Street 2017 Est Source: Excludes companies with negative earnings, Bloomberg, as of 4/4/2017 Nine of the twelve large caps in our group are up YTD and four of these companies have had positive stock returns despite negative EPS estimate revision (AMZN, EXPE, EBAY & IAC). TRIP is the worst performing large cap YTD, down 12%. Only FB and NFLX have had positive 2017 EPS estimate revisions, with GOOGL, YHOO and PCLN holding flat. Chart 2: YTD Stock Price Performance vs. YTD 2017 EPS Revisions For Larger-Cap Internet Stocks ($5bn+) 30% 20% 10% 0% -10% -20% -30% -40% AMZN EBAY EXPE FB GOOGL NFLX PCLN TRIP TWTR YHOO IAC ZG SPX Avg 2017 % Change in Stock Price YTD % Change in Street 2017 Est Source: Bloomberg consensus estimates, as of 4/4/2017 Internet/e-Commerce | 06 April 2017 5 Sector Valuations Internet sector trading multiples for EV/EBITDA and P/E are tracking up slightly YTD, (excluding NFLX). On a y/y basis, the group P/E is at 24x vs. 22x last year, while the group EV/EBITDA is at 14x vs. 13x a year ago. Chart 3: Internet Sector Historical 2-Yr Forward Avg. EV/EBITDA 25x 20x 15x 10x 5x 0x Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 Chart 4: Internet Sector Historical 2-Yr Forward Avg. P/E 40x 35x 30x 25x 20x 15x 10x 5x 0x Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 Large cap receiving a premium; Small caps at the low-end of historical range Excluding NFLX and YHOO, large cap stocks in the Internet group are trading at 26x 2018 EPS below the small cap group at 28x 2018 EPS, with both Large and Small caps trading slightly above their average for the past 5 years (see chart below). The media sector is trading at a steep discount to travel and eCommerce. • The eCommerce sector is currently trading slightly above the midpoint of its five year range at 32x 2018 EPS. AMZN and WIX are well above at 49.5x and 74x respectively while EBAY is trading below at 15x. • The Media sector is trading well below the midpoint of its recent range (excluding NFLX), at 25x 2018 EPS. GOOG (18x), FB (21x), and YELP (23x) are below the sector average while TWTR (40x) is above. • The Online Travel sector is currently trading slightly above the mid-point of its five year range at 23x but below the internet sector average. TRIP (29x) is trading above the average while EXPE (18x) and PCLN (21x) are below. Chart 5: Historical 2-Year Forward P/E Multiple By Sector (ex NFLX) 70x 60x 50x 40x 30x 20x 10x 0x Chart 6: Historical 2-Year Forward P/E Multiple (select stocks) 90.0x 80.0x 70.0x 60.0x 50.0x 40.0x 30.0x 20.0x 10.0x 0.0x Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 6 Internet/e-Commerce | 06 April 2017 Currency still a slight headwind for 1Q results but improving We expect FX to remain a y/y headwind for 1Q results; the Euro is down about 6% y/y but up 1% from where it was when most Large-cap internet companies reported 4Q results in late January (~$1.06). The GBP at $1.22 is down slightly (1.4%) over the same period. Our currency strategist is forecasting the Euro to end 2017 at $1.05 and the GBP to end at $1.19. FX pressure will ease after 1Q if rates hold, unless a company has high exposure to Japan. Table 5: Percent change y/y Euro GBP Yen Other* 4Q15 1Q16 -12.3% -2.0% -4.5% -5.4% -8.1% 1.1% -14.4% -11.0% 2Q16 2.0% -4.9% 9.4% -6.3% 3Q16 4Q16 0.3% -1.5% -13.9% -17.4% 19.3% 15.1% -2.9% 0.0% 1Q17 -3.5% -14.5% 2.5% 3.3% 2Q17E 3Q17E -5.6% -4.5% -15.4% -9.2% -3.9% -9.9% -0.3% -0.9% 4Q17E -1.2% -3.5% -8.1% 0.2% Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 International revenues a percent of total revenues is highest at PCLN (87% of gross profit), GOOG (53%), FB (53%), TRIP (43%), EBAY (57%), and EXPE (42%). Higher operating margins in UK/Europe than US and lower Intl. taxes can increase this exposure. Chart 7: Spot Rate % Change Y/Y (USD vs. FX Spot Rate) 30% 20% 10% 0% -10% -20% -30% Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16Dec-16 Jan-17 Feb-17Mar-17 Euro GBP Yen Other Source: Bloomberg; Other Includes the following *Asian (KRW, AUD, HKD), Europe (RUB, SEK, CHF), Americas (BRL, MXN, CAD) , as of 4/4/2017 Internet/e-Commerce | 06 April 2017 7 Sentiment Ranking Update We are updating our sentiment ranking index on 25 stocks in our Internet coverage universe (as of 4/4/17). We have aggregated six different indicators we think are relevant to gauge sentiment and have generated an overall “sentiment” score for each company. This sentiment analysis is intended to be informative and should not be used to form an investment opinion; for example our model does not factor in valuation or management quality. Of our company coverage universe, we have excluded four game publisher companies as well as two recent IPO’s from this analysis as data may not be comparable. Table 6: 1Q16 change in sentiment ranking Ticker Rank Pre 4Q Δ Score Pre4Q Δ FB 1 +3 4 +4 WIX 2 -1 4 +2 TREE 3 -1 8 -1 AMZN 4 +5 8 +4 NFLX 5 -2 9 -1 GOOGL 6 NA 9 +1 PCLN 7 +1 9 +2 CRCM 8 +9 11 +3 EXPE 9 +5 12 +2 IAC 10 +5 12 +2 RATE 11 -4 13 -2 EBAY 12 +4 13 +1 ONDK 13 +5 14 +1 ZG 14 -9 14 -5 YHOO 15 +6 14 +3 GPRO 16 +8 14 +5 YELP 17 -7 16 -4 W 18 -5 16 -3 P 19 NA 16 NA GRUB 20 -9 16 -4 MTCH 21 +1 17 +1 QUOT 22 -10 17 -4 FIT 23 +2 19 +1 TRIP 24 -1 20 -2 TWTR 25 -5 21 -5 Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017 Investor sentiment categories We assembled data that measures investor sentiment across six categories. These metrics include latest short interest (as a % of float), change in short interest as a % of float over the last 90 days, current stock performance over the last 90 days, current average sell side ratings, forward year EPS estimate revisions over last 90 days, and expected FY17 revenue growth. While there are no perfect indicators of average investor sentiment, we believe these metrics provide a helpful framework of investor sentiment in our sector. In our analysis, Facebook, WIX, and LendingTree had the highest sentiment in 1Q, while Fitbit, Trip and Twitter had the lowest sentiment. Care.com had the most improved ranking, moving up 9 points to 8 th , while Quotient had the biggest decline moving down 10 spots in our ranking to 22 nd . Methodology Our methodology consisted of: 1) gathering financial data across six categories that we believe are relevant to measuring investor sentiment, 2) ranking companies on each attribute using a scale of 1 to 29, with 1 highest and 29 the lowest, and 3) ranking the companies based on the avg. score of the six metrics. 8 Internet/e-Commerce | 06 April 2017 Highest sentiment: FB, WIX, and TREE; Lowest: FIT, TRIP, and TWTR Based on our sentiment ranking index, Facebook, Wix, and LendingTree have top investor sentiment pre 1Q earnings. Facebook moved into first place from fourth due to the lowest short interest as % of float, second highest FY17 revenue growth, sixth highest sell side FY16 EPS estimate revisions, and third best stock performance in the last 90 days. Wix came in second place with top stock performance in the last 90 days, top expected FY17 revenue growth and second best sell-side FY16 EPS estimate revision, despite ranking ninth for current sell side ranking and seventh for short interest ratio. LendingTree placed third with best current sell side ranking and best change in short interest ratio. Fitbit had third worst investor sentiment with the worst stock performance in the last 90 days, the worst expected FY17 revenue growth and the second largest change in short interest in the period. TripAdvisor, had the second lowest sentiment with the third worst sell side ranking and fifth worst sell side EPS estimate revision. Twitter, our lowest sentiment stock pre 1Q earnings, had second to worst sell side ranking and expected FY17 revenue growth, along with third to worst sell side estimate revisions and was below average in all of our categories. Score Ranking vs. Investment Rating Our sentiment analysis is independent of our investment rating system, and our investment rating may or may not factor in positive or negative sentiment. This scorecard analysis includes only data currently up to the last 90 days, and our investment rating opinion takes into consideration potential stock price fluctuations, attractiveness for investment relative to other stocks within our Coverage Cluster, business model quality, and valuation. Please see our Fundamental Equity Rating Opinion Key at the end of the report for more details. Table 7: Combined Metric List Company Short Interest % float Δ short interest % of float Performance 90 days Sell Side Ranking EPS Estimate Revisions Expected FY17 Rev. Growth FB 1% 0% 21% 4.7 4% 37% WIX 2% -1% 67% 4.4 62% 43% TREE 23% -20% 21% 5.0 -6% 34% AMZN 1% 0% 20% 4.8 -10% 21% NFLX 6% -1% 14% 4.1 15% 27% GOOGL 1% 0% 6% 4.7 0% 19% PCLN 3% 0% 20% 4.6 0% 16% CRCM 3% 0% 42% 3.5 28% 6% EXPE 8% -2% 11% 4.6 -12% 14% IAC 1% 0% 12% 4.4 -5% -1% RATE 2% 0% -13% 4.2 2% 16% EBAY 2% 0% 14% 3.6 -3% 5% ONDK 12% 3% 1% 3.3 34% 30% ZG 11% -2% -9% 3.9 -26% 24% YHOO 6% 1% 19% 3.8 0% 2% GPRO 36% -3% -4% 2.3 74% 7% YELP 10% 0% -14% 3.7 -2% 25% W 38% 2% 17% 3.9 -22% 25% P 30% 2% -7% 3.9 2% 17% GRUB 18% 7% -11% 4.1 -5% 31% MTCH 27% 5% -4% 4.2 1% 8% QUOT 8% 0% -13% 4.8 -56% 5% FIT 26% -4% -29% 3.1 NA -27% TRIP 16% 5% -12% 2.9 -21% 11% TWTR 11% 3% -11% 2.5 -55% -7% Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017
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Earnings Preview - Epstein Files Document HOUSE_OVERSIGHT_014887

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