Market Snapshot
| Dow | 39357.01 | -140.53 | (-0.36%) | | Nasdaq | 16780.61 | +35.31 | (0.21%) | | SP 500 | 5344.39 | +0.23 | (0.00%) | | 10-yr Note | +3/32 | 3.91 |
|
| | NYSE | Adv 947 | Dec 1811 | Vol 820 mln | | Nasdaq | Adv 1675 | Dec 2542 | Vol 4.9 bln |
Industry Watch
| Strong: Information Technology, Energy, Utilities |
| | Weak: Real Estate, Consumer Discretionary, Consumer Staples, Industrials, Health Care, Utilities |
Moving the Market
-- Not a lot of conviction after volatile week
-- Waiting on influential economic data this week (PPI, CPI, Retail Sales, Housing Starts)
-- Choppy action in Treasuries acting as limiting factor for equities
-- Geopolitical angst contributing to jump in oil prices
| Closing Summary
12-Aug-24 16:30 ET
Dow -140.53 at 39357.01, Nasdaq +35.31 at 16780.61, S&P +0.23 at 5344.39
[BRIEFING.COM] The stock market had a somewhat lackluster session after last week's volatile price action. The S&P 500 closed less than one point above its prior closing level while the Dow Jones Industrial Average (-0.4%) and Nasdaq Composite (+0.2%) closed slightly lower and slightly higher than Friday's settlement.
The muted action was due to hesitation in front of market-moving economic releases. The Producer Price Index (Tuesday), the Consumer Price Index (Wednesday), Retail Sales (Thursday), and Housing Starts (Friday) are among the influential reports.
Only three of the S&P 500 sectors settled higher while the real estate (-0.6%) and communication services (-0.6%) sectors logged the biggest declines. The information technology sector led the pack, rising 0.9%, followed by energy (+0.5%) and utilities (+0.2%).
The info tech sector was boosted by gains in Apple (AAPL 217.53, +1.54, +0.7%), Microsoft (MSFT 406.81, +0.79, +0.2%), NVIDIA (NVDA 109.02, +4.27, +4.1%), and Broadcom (AVGO 148.62, +0.36, +0.2%).
The energy sector reacted to a jump in oil prices ($79.91/bbl, +3.13, +4.1%) on geopolitical angst after the recent death of Hamas political leader Ismail Haniyeh stirred concerns about a retaliation from Iran (and/or its proxies) against Israel.
Separately, the New York Fed's Survey of Consumer Expectations showed that median one- and five-year-ahead inflation expectations were unchanged in July at 3.0% and 2.8%, respectively, while median three-year-ahead inflation expectations declined by 0.6 percentage point to 2.3%. This was the lowest level since the survey's started in June 2013.
The 10-yr note yield settled three basis points lower at 3.91% and the 2-yr note yield fell three basis points to 4.02%.
- S&P 500: +12.1% YTD
- Nasdaq Composite:+11.8% YTD
- S&P Midcap 400: +4.8% YTD
- Dow Jones Industrial Average: +4.4% YTD
- Russell 2000: +1.7% YTD
Reviewing today's economic data:
- The Treasury Budget for July showed a deficit of $243.7 billion compared to a deficit of $220.8 billion in the same period a year ago. The July deficit resulted from outlays ($574.1 billion) exceeding receipts ($330.4 billion). The Treasury Budget data is not seasonally adjusted so the July deficit cannot be compared to the June deficit, which was revised higher to $70.9 billion (from -$66.0 billion).
- The key takeaway from the report is that the U.S. government continues to run large budget deficits, driven in part by net interest costs that are outweighing defense spending.
Tuesday's economic lineup features:
- 6:00 ET: July NFIB Small Business Optimism (prior 91.5)
- 8:30 ET: July PPI (Briefing.com consensus 0.1%; prior 0.2%) and Core PPI (Briefing.com consensus 0.2%; prior 0.4%)
Treasury Budget shows larger deficit than prior year
12-Aug-24 15:35 ET
Dow -170.06 at 39327.48, Nasdaq +23.37 at 16768.67, S&P -3.43 at 5340.73
[BRIEFING.COM] The major indices continue to slide sideways ahead of the close.
The Treasury Budget for July showed a deficit of $243.7 billion compared to a deficit of $220.8 billion in the same period a year ago. The July deficit resulted from outlays ($574.1 billion) exceeding receipts ($330.4 billion). The Treasury Budget data is not seasonally adjusted so the July deficit cannot be compared to the June deficit, which was revised higher to $70.9 billion (from -$66.0 billion).
The key takeaway from the report is that the U.S. government continues to run large budget deficits, driven in part by net interest costs that are outweighing defense spending.
Home Depot (HD), Tencent Music (TME), Sea Limited (SE), Melco Resorts & Entertainment (MCLO), and others report earnings ahead of Tuesday's open.
Treasuries sit near low yields
12-Aug-24 15:05 ET
Dow -177.53 at 39320.01, Nasdaq +35.09 at 16780.39, S&P -1.57 at 5342.59
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour. The S&P 500 is little changed from Friday's closing level.
Treasuries remain near intraday low yields. The 10-yr note yield is at 3.91% and the 2-yr note yield is at 4.01%.
Looking ahead to Tuesday, market participants receive the July Producer Price Index at 8:30 ET. Other data include the NFIB Small Business Optimism Survey at 6:00 ET.
July budget deficit widens yr/yr
12-Aug-24 14:30 ET
Dow -186.07 at 39311.47, Nasdaq +27.68 at 16772.98, S&P -4.32 at 5339.84
[BRIEFING.COM] The major averages mostly shrugged off the July Treasury Budget; mainly, the interest on the federal debt has continued to widen, totaling $956 mln in the latest reading, bringing the fiscal year-to-date spend on interest higher than Medicare and national defense.
The Treasury Budget for July showed a deficit of $243.7 bln versus a deficit of $220.8 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the July deficit cannot be compared to the deficit of $70.9 bln for June.
Total receipts of $330.4 bln grew 19.6% compared to last year while total outlays of $574.1 bln rose about 15.5% compared to last year.
The total year-to-date budget deficit now stands at $1.52 trln vs $1.61 trln at this point a year ago.
Gold firmly higher on Monday
12-Aug-24 13:55 ET
Dow -209.57 at 39287.97, Nasdaq +25.07 at 16770.37, S&P -6.61 at 5337.55
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.15%) is now the only average in positive territory. At the top of the hour the monthly Treasury Budget is set for release.
Gold futures settled $34.40 higher (+1.4%) to $2,507.80/oz, continuing the late-week rally from last week, on renewed rate cut sentiment.
Meanwhile, the U.S. Dollar Index little changed at $103.12.
Columbia Sportswear's turnaround efforts lay the groundwork for returning to growth (COLM)
Columbia Sportswear (COLM) returned to our Value Leaders Rankings last week. The outdoor apparel company has been engaged in an ambitious turnaround plan as it contends with a macroeconomic landscape that has taken a noticeable toll on its U.S. business, which comprises around two-thirds of its total sales. This backdrop has weighed on past results and guidance; COLM recently projected Q3 figures below consensus but did leave its FY24 outlook unchanged.
However, following its seasonally weak Q2 report, the majority of COLM's woes appear to be easing, allowing the company to finally focus on returning to growth.
- Cost containment and inventory reduction efforts have been producing benefits. COLM's inventory exiting Q2 was down by 29% yr/yr, providing a leaner framework to reduce discounting and boost margins. Meanwhile, COLM's profit improvement program is on target to produce $75-90 mln in cost savings in FY24, supporting the company's plans to generate over $350 mln in operating cash flow.
- COLM's turnaround has mirrored the ongoing comeback of its close rival, V.F. Corp (VFC), which is digging itself out of a much deeper hole. Unlike VFC, COLM has relatively little debt, boasting a debt-to-equity ratio of around 19% compared to the 193% for VFC. The lower debt profile of COLM helps free up capital to bolster its struggling brands, while VFC is fixated on lowering its debt in the short term.
- COLM's non-core banners, SOREL, prAna, and Mountain Hardwear, registered shrinking sales growth last year, with SOREL and prAna's yr/yr sales decline only widening through the first six months of FY24. However, COLM has already been through the thick of it, noting last month that its efforts to stabilize SOREL and lay the foundation for its next growth phase are in motion. Meanwhile, prAna's turnaround efforts have shown early positive signs, mostly in future season orders, which suggest a return to growth.
- COLM's unchanged FY24 guidance underpins an expected brighter second half of the year relative to the first. Management has maintained an uplifting tone throughout its turnaround plan, delivering incremental progress each quarter. With the coming back-to-school and holiday shopping seasons, COLM may be able to exit a turbulent FY24 on the right foot.
One of the core elements of COLM's turnaround is attracting a younger demographic. By catering to the outdoor lifestyle, which requires the right apparel and equipment, COLM has a unique marketing angle to lure younger consumers to its assortment of brands, especially given the trend of spending more on experiences than things. The suppressed discretionary spending climate may linger over the near future as incomes slowly catch up to the cumulative inflation and unemployment creeps higher. However, COLM's financials, including zero short-term debt and solid cash flow generation, its well-established core banner, and ongoing turnaround progress, give it an edge in navigating short-term uncertainty. As always, a stop loss limit of 15-20% is a good idea.
Robinhood Markets stays on target after receiving an upgrade at Piper Sandler (HOOD)
Robinhood Markets (HOOD +3%) maintains its steady upward momentum today following an upgrade to "Overweight" from "Neutral" at Piper Sandler. The trading platform has been looking to get back on target since last Monday's market correction sunk the stock. HOOD reported decent Q2 numbers last week that initially triggered an upbeat response, only for the stock to finish lower by the closing bell. However, investors quickly latched onto the positives from the quarter, pushing the stock marginally higher.
Briefing.com notes that even after a monster rally since intraday lows last week, shares of HOOD still trade around 25% below their two-year highs last month, reflecting an attractive upside in the event of a sustained rally. However, given HOOD's business model, there are factors potentially hindering its rebound capacity. For instance, since HOOD makes the bulk of its revenue via payment-for-order-flow (PFOF), markets must remain consistently healthy to keep traders actively engaged on the platform. Current price levels indicate some fear that markets could be nearing turbulence, pressuring HOOD's monthly active user (MAU) growth and its primary revenue stream. Changes in the regulatory environment could also pose a tall hurdle for HOOD.
Nevertheless, HOOD's steady quarterly performance last week illuminated solid progress in fortifying its competitive edge in a hotly contested industry.
- HOOD's active trading market share has been consistently expanding. To better compete with more established titans in the trading industry, including Charles Schwab (SCHW) and Interactive Brokers (IBKR), HOOD has been implementing changes to its trading platform to attract traders, such as introducing better margin rates, fueling an over 20% jump in margin balances. However, management conceded it has more work to do. Perhaps overhauling its mobile and web platform with more comprehensive charts could be a good place to start to carve out more of an economic moat.
- MAUs have increased for two consecutive quarters following several periods of declines, expanding by 9% yr/yr to 11.8 mln last quarter. While this did represent a sharp drop from the 13.7 mln in Q1, a decent sequential uptick in Gold subscribers helped ease the pain. HOOD's Gold membership, which costs a monthly fee, sets it apart from many brokerage platforms, offering compelling APY on uninvested cash and lower margin rates, among other features. Currently, just 8% of funded customers are Gold subs, underscoring how much potential recurring revenue HOOD can tap into by accelerating its Gold membership expansion efforts.
- International markets represent a massive opportunity for HOOD. The company has targeted the U.K. and surrounding European markets, where customers desire similar features in the U.S. As such, HOOD has focused on bolstering its international feature set, which could spark a long-lasting tailwind and further diversify its revenue.
HOOD embarked on a tremendous rally to start 2024, doubling its stock price at the peak last month only for the recent market correction to snap its uptrend. However, this pullback may merely be a temporary buying opportunity before the stock swells again as HOOD progresses into a go-to brokerage platform domestically and across Europe.
Monday.com bucks tough enterprise software spending climate with strong beat-and-raise report (MNDY)
Work management platform provider Monday.com (MNDY) continues to defy a challenging IT spending environment, delivering another impressive beat-and-raise earnings report in Q2 on robust revenue growth of 34%. After raising its FY24 revenue guidance in mid-May when reporting its Q1 results, MNDY lifted its outlook again, forecasting revenue of $956-$961 mln. MNDY's original forecast called for revenue of $926-$932 mln, so its new guidance equates to a sizable increase of $29.5 mln at the midpoint of the ranges.
- For enterprise software companies, it's been a mixed bag in terms of the demand environment as some firms experience slowing spending trends within their customer bases, but that hasn't been the case in the work management platform space. MNDY's strong performance comes on the heels of better-than-expected quarterly results from Asana (ASAN) and Smartsheet (SMAR) on May30 and June 5, respectively.
- Against a macroeconomic backdrop that's not very conducive to generating stronger revenue growth, many companies have turned their attention to improving operational efficiencies and productivity -- without expanding their workforces. This trend has put work management tools in the sweet spot as IT departments continue to prioritize spending on platforms like MNDY's.
- From a company-specific standpoint, MNDY's enterprise go-to-market strategy is really humming. In Q2, its largest seat count customer more than tripled to reach 80,000 seats. After initially implementing MNDY's platform with its finance and product teams, this multi-national healthcare company decided to expand MNDY's platform across the entire organization.
- For further evidence of its enterprise go-to-market success, the number of paid customers with more than 50,000 in ARR jumped by 48% to 2,491 and the net dollar retention rate for customers with more than $100,000 in ARR was 114%.
- This new customer growth comes even as MNDY continues to push across product-wide price increases to its existing customer base. MNDY began this rollout last quarter and now the company is extending the price increases to approximately 40% of its customer base. MNDY is still forecasting a revenue benefit of $25 mln this year from the new pricing structure, with a total revenue benefit of $75-$80 mln from FY24-FY26.
- Lastly, the company continues to enhance its underlying technology architecture, launching mondayDB 2.0 this quarter. Building on mondayDB, which was launched in 3Q23, mondayDB 2.0 will help support the needs of large enterprises, enabling customers to manage boards with up to 100,000 items and providing a dashboard that allows up to 500,000 items.
The main takeaway is that the elongated sales cycles and heightened deal scrutiny that many enterprise software companies have experienced is nowhere to be found in MNDY's solid beat-and-raise earnings report.
Starbucks perking up on activist investor interest, but a turnaround will not be easy (SBUX)
Starbucks (SBUX +4%) is perking up following a WSJ report late Friday that activist investor Starboard Value has taken a stake in the coffee chain. This follows previous reporting from CNBC that Elliott Mgmt had accumulated a stake that could worth as much as $2 bln. Clearly, these firms see value in SBUX shares, which have fallen 30% from their mid-November 2023 highs. We expect these firms will be agitating Starbucks' board of directors to make changes.
- With consumers increasingly seeking value, Starbucks premium pricing has been a headwind. SBUX has missed on revs in each of the past three quarters and four of the past five. It also missed on EPS in Q1 (Dec) and Q2 (Mar), before eking out an in-line EPS result in Q3 (Jun). Other chains, including McDonald's McCafe and Dunkin' Donuts, have proven to be tough competitors. Also, Wendy's has been focusing more on breakfast, including coffee.
- In Q3, SBUX reported that global comps declined -3%, driven by a -2% comp growth in North America and particularly by a -14% comp in China, partially offset by a strong performance in Japan. SBUX sees green shoots in its US business by improving operations and supply chain, while also introducing new drinks, with an increased focus on energy drinks. However, SBUX said it was clearly not satisfied with its China results.
- SBUX feels it can drive demand through new menu offerings. Cold share was up 1% yr/yr in Q3, representing 76% of its beverage mix. Its newly formulated coffees have received positive feedback. Beyond coffee, SBUX noted that its new Summer-Berry Starbucks Refreshers and beverages with Pearls, drove the highest week one product launch in SBUX history. However, there has been criticism the chain has been slow to the Boba "pearl" trend.
- SBUX is also focusing more on the energy category as it recently launched new Handcrafted Iced Energy beverages across its US stores in just three months compared to a normal 12-18 months. But again, Dunkin' and others have been doing more energy drinks and SBUX was a bit slow on this trend as well. Looking ahead, SBUX is excited about the return of Pumpkin Spice in Q4 (Sep).
- Turning to China, the company sees it as one of its most notable international challenges. SBUX has continued to face cautious consumer spending and intensified competition. In the past year, SBUX has seen unprecedented store expansion and a mass segment price war at the expense of comp and profitability. SBUX is in the early stages of exploring strategic partnerships to accelerate growth and innovation in China.
Overall, we always like to see activist investors get involved. These are sophisticated investment firms that are known for their value research capabilities. Starbucks is a great global brand. However, inflation has driven consumers to be more value-focused, and that is not Starbuck's forte. Also, SBUX has been late to the energy and boba trends. And China is a weak spot with no obvious near term fix.
One area where we could possibly see these activist investors request changes be made is SBUX's ambitious new store plans. SBUX said on its JunQ call, that even with 16,700+ stores across the US and another 7,300 in China, SBUX sees abundant white space ahead particularly in Tier 2 and Tier 3 cities as populations continue to move to more suburban and rural areas. SBUX sees new stores as a meaningful part of its growth equation. These firms may also pressure the company to do better on value offerings. Hopefully these firms can spark management to make changes but it will not be an easy turnaround.
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.
|
