| | | Market Snapshot
| Dow | 39497.54 | +51.05 | (0.13%) | | Nasdaq | 16745.30 | +85.28 | (0.51%) | | SP 500 | 5344.16 | +24.85 | (0.47%) | | 10-yr Note | +5/32 | 3.94 |
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| | NYSE | Adv 1415 | Dec 1310 | Vol 850 mln | | Nasdaq | Adv 1952 | Dec 2167 | Vol 5.7 bln |
Industry Watch
| Strong: Consumer Discretionary, Health Care, Information Technology, Energy |
| | Weak: Materials |
Moving the Market
-- Lacking conviction after turbulent week
-- Gains in the mega cap space providing a boost to index performance
-- Treasury yields mostly lower than yesterday
| Closing Summary
09-Aug-24 16:20 ET
Dow +51.05 at 39497.54, Nasdaq +85.28 at 16745.30, S&P +24.85 at 5344.16
[BRIEFING.COM] The stock market exhibited mixed action at the index level to close out the week. There was not a lot of conviction from buyers or sellers following volatile activity this week. Advancers led decliners by an 11-to-10 margin at the NYSE while decliners led advancers by the same margin at the Nasdaq.
The three major indices ultimately settled with gains. The S&P 500 rose 0.47% and the Nasdaq Composite closed 0.51% higher. Today's action left the S&P 500 little changed from last Friday after recovering from Monday's steep selling.
Gains in the mega cap space had an outsized impact on index performance. Eli Lilly (LLY 891.68, +46.37, +5.5%) was a standout in that respect, building on its post-earnings gain. Apple (AAPL 216.24, +2.93, +1.4%), Microsoft (MSFT 406.02, +3.33, +0.8%), Amazon.com (AMZN 166.94, +1.14, +0.7%), Meta Platforms (META 517.77, +8.14, +1.6%) were also among the influential winners.
Small and mid cap stocks lagged their larger peers, leading the Russell 2000 (-0.2%) and S&P Mid Cap 400 (-0.03%) to close with losses.
Many other stocks participated in upside moves, though. Nine S&P 500 sectors closed with gains led by communication services (+1.0%) and information technology (+0.6%). The materials sector was alone in negative territory at the close, down 0.1%, and the industrial sector closed flat.
The 10-yr note yield dropped six basis points to 3.94% and the 2-yr note yield rose one basis point to 4.23%.
There was no notable US economic data today.
Next week's economic lineup includes: July Treasury Budget on Monday, July Producer Price Index on Tuesday, July Consumer Price Index on Wednesday, July Retail Sales report on Thursday, July Building Permits and Housing Starts on Friday.
- S&P 500: +11.5% YTD
- Nasdaq Composite:+11.0% YTD
- S&P Midcap 400: +5.6% YTD
- Dow Jones Industrial Average: +4.7% YTD
- Russell 2000: +2.8% YTD
Market moves sideways ahead of the close
09-Aug-24 15:35 ET
Dow +48.94 at 39495.43, Nasdaq +83.79 at 16743.82, S&P +25.42 at 5344.73
[BRIEFING.COM] The market moves mostly sideways near session highs.
The Russell 2000 and S&P Mid Cap are trading 0.2% and 0.1%, respectively, while the three major indices trade higher.
Treasuries settled with the week with losses from last Friday. The 10-yr note yield rose 15 basis points to 3.94% and the 2-yr note yield jumped 18 basis points to 4.05%. This week's action put some renewed pressure on the 2s10s spread, compressing it by three basis points to -11 basis points.
Highlights from next week's economic and earnings lineup
09-Aug-24 14:55 ET
Dow -29.98 at 39416.51, Nasdaq +47.25 at 16707.28, S&P +13.58 at 5332.89
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Next week's economic lineup includes: July Treasury Budget on Monday, July Producer Price Index on Tuesday, July Consumer Price Index on Wednesday, July Retail Sales report on Thursday, July Building Permits and Housing Starts on Friday.
The earnings calendar next week features Home Depot (HD), Cisco (CSCO), Walmart (WMT), Applied Materials (AMAT), and others.
Palo Alto Networks higher on Barclays tgt bump, S&P 500 in second place
09-Aug-24 14:25 ET
Dow -7.41 at 39439.08, Nasdaq +58.79 at 16718.82, S&P +16.08 at 5335.39
[BRIEFING.COM] The S&P 500 (+0.30%) is in second place on Friday afternoon, up about 16 points.
Elsewhere, S&P 500 constituents Palo Alto Networks (PANW 329.82, +12.45, +3.92%), Assurant (AIZ 176.37, +6.10, +3.58%), and Solventum Corporation (SOLV 60.35, +1.69, +2.86%) dot the top of the standings. Barclays raised their PANW tgt, while SOLV hits an 11-week high after last night's Q2 beat and upside guidance.
Meanwhile, Intel (INTC 19.87, -0.62, -3.03%) is near the bottom of the average after news the company was sued by Anaconda alleging misuse of its AI software.
Gold escapes weekly losses, ending higher on Friday
09-Aug-24 14:00 ET
Dow +39.16 at 39485.65, Nasdaq +73.55 at 16733.58, S&P +21.43 at 5340.74
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.44%) is still atop the standings, up almost 74 points with about two hours left on the session.
Gold futures settled $10.10 higher (+0.4%) to $2,473.40/oz, ultimately ending the week +0.1% higher, aided today in part by a softer dollar and weakness in bond yields.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $103.11.
Akamai Tech breaks out as Q3 and FY24 guidance signal possible demand stabilization (AKAM)
Akamai Tech (AKAM +11%) delivered a decent enough Q2 report to help its shares break free from recent sideways action and fill the gap from last quarter's sell-off. The content delivery network (CDN) provider was coming off a weak showing in Q1, plagued by slowing traffic across the industry. As a CDN provider, AKAM benefits from healthy internet traffic as companies distribute their content across a global network of edge servers, those closest to the end user, to keep load times quick.
In Q2, traffic remained weak, leading to a 13% drop in delivery revenue yr/yr to $329 mln. However, AKAM already warned that the current environment would produce lackluster near-term results last quarter when it projected bearish Q2 guidance. As such, investors are not stuck on a relatively underwhelming performance in Q2. Rather, the market is liking several improving dynamics.
- For instance, AKAM anticipates a modest uptick in yr/yr traffic in Q3, mainly supported by the Olympic Games, which should drive around $3-4 mln in incremental revenue. Furthermore, content delivery comprises just a third of overall revenue, down from around two-thirds roughly five years ago, allowing AKAM to benefit from robust demand across its cloud and security businesses.
- Security revs climbed by 15% yr/yr to $499 mln, comprising over half of AKAM's total revenue of $979.6 mln, a 4.7% jump yr/yr, for the first time. Cloud computing revs grew even quicker at 23% yr/yr to $151 mln.
- AI is also generating tailwinds, albeit likely modest. AKAM is implementing several AI-powered tools, such as a chatbot application, to improve customer experience. AKAM believes AI is making up only a small fraction of its total annualized recurring revenue (ARR). However, management is optimistic about the technology's growth potential.
- Shining brightest was AKAM's guidance. Following the company's first downbeat outlook since 2022, AKAM needed to return to form in Q2. The company projected Q3 adjusted EPS ahead of consensus and revs in-line, expecting growth of +2-4%, similar to Q2. For FY24, AKAM raised its previous outlook, although not back to its initial targets. The company expects FY24 adjusted EPS of $6.34-6.47, up from $6.20-6.40, and revs of $3.97-4.01 bln, up from $3.95-4.01 bln.
- AKAM only lifted the low end of its FY24 revenue outlook because of how muted Q4 was last year despite being the company's typically strongest quarter.
After such a messy Q1 report in early May, AKAM's Q2 performance and subsequent Q3 and FY24 guidance were a relief. We mentioned ahead of AKAM's report that stabilization could be enough to alleviate broader concerns over the current economic climate. While Q3 forecasts do not translate to much sequential improvement, they also do not show further weakness, an encouraging sign that perhaps the worst is behind AKAM.
Sweetgreen +29% making some sweet green for investors; comps strong despite consumers eating at home
This fast food restaurant operator with a focus on salads and bowls is trading sharply higher post-earnings for the third quarter in a row following its Q2 report last night. SG reported a larger than expected loss, but beat on revenue. SG also raised FY24 guidance for sales to $670-680 mln from $660-675 mln and for adjusted EBITDA to $16-19 mln from $10-19 mln.
- While SG reported a larger than expected loss, we think investors are focusing more on the huge jump in adjusted EBITDA to $12.4 mln vs $3.3 mln a year ago. Adjusted EBITDA margin increased to 7% vs 2% in the prior year period. The company is not yet profitable partly because it's building new locations at a good clip, but it is still good to see positive adjusted EBITDA.
- This adjusted EBITDA improvement was primarily driven by an increase in Restaurant-Level Profit, as well as a decrease in pre-opening and G&A expenses. Restaurant level margin for Q2 was 22.5%, expanding over 200 bps yr/yr, making this one of the highest restaurant level margin performances in the company's history.
- Another metric that really stood out was its Q2 comps at +9%, comprised of a +5% benefit from menu price and +4% positive traffic and mix. Also, SG raised its FY24 comp guidance to +5-7% from +4-6% prior guidance. SG says that Caramelized Garlic Steak, which launched in May and protein plates have been particularly successful at driving comps at dinner and on weekends. Dinner now represents 40% of sales, excluding the 2-4PM mid-day daypart.
- In terms of expansion, SG opened four new restaurants in Q2, including one in New Hampshire, a new market for Sweetgreen. The company says its 2024 cohort of new restaurant openings are ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average. SG expects to add 24-26 new restaurants in 2024. It currently has 225 locations.
Overall, this was another impressive quarter for Sweetgreen. Investors appear to be reacting mostly to the impressive comps and the large increase in adjusted EBITDA. We also like that SG raised full year comps. Also, while other fast food chains are struggling with consumers focusing more on value and eating out less, Sweetgreen posted an enviable comp despite its premium pricing.
Sweetgreen generated a lot of excitement when it made its IPO debut in November 2021. The concept is pretty compelling as it's a play on consumers wanting to eat healthier while offering the convenience of a quick meal. Unfortunately, some poor earnings results sent the shares to a low of $6.10 by March 2023. However, the last three quarters have shown that the brand is turning around.
e.l.f. Beauty's strong Q1 results can't cover up its guidance which calls for slower growth (ELF)
Cosmetics and skin care company e.l.f. Beauty (ELF) delivered some attractive quarterly results once again, easily topping 1Q25 EPS and revenue estimates as it continues to significantly outperform a beauty market that's experiencing slower growth. ELF also raised its FY25 guidance, but not by enough to match analysts' top and bottom-line expectations, creating plenty of disappointment and sending shares spiraling lower.
- Rewinding to ELF's Q4 earnings report on May 22, the company issued its initial guidance for FY25, forecasting EPS of $3.20-$3.25 and revenue of $1.23-$1.25 bln. Both of those projections fell short of estimates, but ELF's blowout Q4 results and management's upbeat commentary regarding market share gains led participants to believe that the company was simply taking a cautious approach with its outlook.
- That assumption was not necessarily wrong as ELF raised its EPS guidance to $3.36-$3.41 and its revenue forecast to $1.28-$1.30 bln. The problem, though, is that ELF didn't even raise its EPS and revenue guidance by the amount that it beat Q1 estimates by. In other words, the company is essentially guiding down for the remainder of FY25.
- On that note, during the earnings call, ELF said that it expects Q2 net sales growth to be slightly above its 25-27% annual growth outlook, which is materially below what analysts were modeling. Compounding the issue, the company also stated that Q2 adjusted EBITDA margin could be in the low-teens in Q2 as it annualizes its acquisition of skin care company Naturium from last October. In Q1, adjusted EBITDA margin came in at 24%.
- ELF is certainly not alone as some of its closest competitors are also experiencing softer demand. For instance, in late June, L'Oreal (LRLCY) CEO Nicolas Hieronimus stated that his company expects slower growth overall for the beauty market this year. Prior to that, Estee Lauder (EL) issued a disappointing Q3 earnings report on May 1 that included downside EPS and revenue guidance for Q4 and FY24.
- However, ELF is still vastly outperforming the competition. This is illustrated by the substantial share gains that it continues to accumulate. In Q1, ELF's cosmetics business grew by 26% in tracked channels, compared to a decline of 1% for the broader category. On a dollar basis, the company said that it's now the #2 brand in the U.S. with approximately 12% share, more than double the level it was at three years ago. Meanwhile, in skin care, ELF grew by 45% in tracked channels, a whopping 32x greater than the category growth of 1.4%
- The company attributes these huge share gains to the value proposition that it offers. Many of its products sell for under $10 -- the average price point is $6.50 -- compared to over $20 for high end brands. EFL believes that the quality it offers is also on par with the prestige brands.
Overall, ELF's upside Q1 results were solid, featuring 50% revenue growth (+91% internationally) and an 80-bps bump in gross margin to 71%, but its guidance for slower top-line growth and lower margins next quarter are too much to cover up.
The Trade Desk makes a strong move following upside Q2 results, led by CTV (TTD)
The Trade Desk (TTD +9%) is trading nicely higher following its Q2 earnings beat last night. This operator of a cloud-based online advertising-buying platform beat on EPS. Revenue also grew at a healthy clip, up 25.9% yr/yr to $584.6 mln, which was better than expected but the upside was a bit smaller than the prior two quarters. TTD also guided Q3 revs above analyst expectations.
- A key theme on the call was continued growth in its CTV segment. CTV growth accelerated in 1H24 relative to 2H23. TTD said that CTV, by a wide margin, led its growth again during the quarter. The company continued to gain market share in Q2 as more advertisers sought greater efficiency and measurable results, particularly in CTV and retail media.
- During the quarter, TTD says it benefited from a relatively stable digital advertising environment, supported by both agencies and brands. Also, TTD's growing access to premium inventory, including major events like the Olympics for the first time through NBCU, as well as gaining access to platforms like Roku and Netflix, also help ensure long-term success. Quickly on margins, TTD reported robust Q2 adjusted EBITDA of $242 mln, a 41% margin. TTD is guiding for another 40+% result in Q3.
- TTD saw a strong performance in the majority of its verticals, particularly in home and garden, food and drink, and shopping. Family relationship and healthy living verticals were both below average. TTD continues to see healthy trends across its verticals. Geographically, North America represented about 88% of TTD's sales in Q2 with international at 12%. TTD expects to capture additional market share internationally going forward.
- TTD cited an industry report that showcases the massive shift over the last four years in terms of where consumers are spending their digital time. It used to be that consumers spend about 60% of their time within walled gardens, and 40% on the open Internet. However, TTD says that trend has completely reversed since the pandemic. Consumers now spend more time on premium open Internet channels such as CTV and digital audio, significantly more time than they spend on social media. Companies like Spotify, Netflix, Disney, Warner Bros. Discovery have fundamentally changed the way that consumers behave.
Overall, this was another good quarter for The Trade Desk, led by its CTV segment. TTD cites key growth drivers such as CTV, retail media, international expansion, a strong identity strategy, and a major product upgrade with Kokai as why it remains confident and optimistic about its future. Even though TTD has had more impressive quarters, we think investors are pleased with its Q2 results given the weak results we saw from related names, like MGNI, PINS, SNAP.
Expedia Group's weak guidance brushed aside as investors focus on uplifting trends from Q2 (EXPE)
With gloomy near-term guidance from competitors fresh in investors' minds, Expedia Group's (EXPE +8%) bearish Q3 and lowered FY24 forecasts are not setting off any alarms today. Over the past week, Airbnb (ABNB) and Booking Holdings (BKNG) discussed a rapid deterioration in demand that cropped up in July, driving soft quarterly forecasts and resetting expectations in front of EXPE's Q2 report. As such, instead of focusing on guidance, investors are applauding EXPE's several internal successes from the quarter, which reflected positively on the company's new CEO, Ariane Gorin, who took over in May.
- EXPE's Q2 performance resembled its peers. Headline numbers were sound, as the company had yet to face the heightened macroeconomic challenges that intensified in July. EXPE grew its bottom line by 21% yr/yr to $3.51 on a 6.0% lift in revenue to $3.56 bln. Gross bookings growth was the same at 6.0%, an acceleration from the +3.0% posted last quarter, while room nights increased by 10%, underpinning a healthy travel environment.
- Propping up bookings growth in Q2 was a substantial improvement in Vrbo, alongside sustained strength across other businesses, including advertising and B2B, which boasted 20% bookings growth. Traffic growth across each of EXPE's core brands -- Expedia, Hotels.com, and Vrbo -- accelerated by around 500 bps sequentially, supporting a nearly 400 bp jump in the company's consumer business, which enjoyed a 1% bump in gross bookings yr/yr.
- The recovery in Vrbo was a pleasing development given how long this business dragged down quarterly results, primarily from EXPE minimizing marketing spend during Vrbo's technical migration. In fact, Vrbo's success in Q2 stemmed from higher marketing spend, as well as improved supply. Management acknowledged that it still has work to do to help Vrbo realize its full potential but was excited about its early success thus far.
- The road ahead is where turbulence ensues. Starting in July, macroeconomic demand began to slow, consistent with ABNB and BKNG's remarks. Average daily rates (ADRs) held up on a like-for-like basis last month. Still, they were overshadowed by FX headwinds and consumers trading down to lower-priced properties. Air ticket prices also endured further pressures.
- As a result, EXPE expects Q3 bookings and revenue growth of +3-5%, marking a slowdown from Q2. Additionally, EXPE projected FY24 bookings to land around 4%, the low end of its previous mid-to-high-single-digits forecast and a bitter decline from the +10% posted in FY23.
EXPE's Q2 report was solid, but its guidance was far from picturesque. However, it mirrored the troubles its peers already warned about, taking the sting out of it. Meanwhile, EXPE delivered several silver linings during the quarter, particularly surrounding Vrbo, which appears to finally be on the road to recovery. It would not surprise us if travel demand remained sluggish for an extended period, especially as the cumulative effects of inflation linger. Still, it helps that EXPE's range of travel products provides a decent defense and that the headwinds from its technical migration are mostly behind it.
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