Market Snapshot
| Dow | 43297.03 | +390.08 | (0.91%) | | Nasdaq | 20069.62 | +266.24 | (1.34%) | | SP 500 | 6039.74 | +65.97 | (1.10%) | | 10-yr Note | 0/32 | 4.59 |
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| | NYSE | Adv 2048 | Dec 684 | Vol 401 mln | | Nasdaq | Adv 2891 | Dec 1306 | Vol 4.7 bln |
Industry Watch
| Strong: Consumer Discretionary, Information Technology, Communication Services, Financials, Energy, Consumer Staples |
| | Weak: -- |
Moving the Market
-- Session marks official start to the "Santa Claus Rally" period (last five trading days of the year and first two trading days of the new year)
-- Below-average volume in front of holiday closures
-- Gains in mega cap stocks boosting index performance
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Closing Summary
24-Dec-24 13:25 ET
Dow +390.08 at 43297.03, Nasdaq +266.24 at 20069.62, S&P +65.97 at 6039.74
[BRIEFING.COM] The major indices logged gains across the board on below-average volume at the NYSE. This session marks the official start to the "Santa Claus Rally" period (last five trading days of the year and first two trading days of the new year), which doesn't always result in gains for the market, but it did today.
The S&P 500 logged a 1.1% gain, the Dow Jones Industrial Average registered a 0.9% gain, and the Nasdaq Composite rose 1.4%. Buying activity was broad based, leading 25 of the 30 Dow components to close higher and all 11 S&P 500 sectors to finish in the green.
The consumer discretionary sector logged the biggest gain by a decent margin, jumping 2.6% thanks to Tesla (TSLA 462.28, +31.68, +7.4%) and Amazon.com (AMZN 229.05, +3.99, +1.8%). Apple (AAPL 258.20, +2.93, +1.2%), Microsoft (MSFT 439.33, +4.08, +0.9%), NVIDIA (NVDA 140.22, +0.55, +0.4%), and Broadcom (AVGO 239.68, +7.33, +3.2%) helped propel the information technology sector to a 1.0% gain.
American Airlines (AAL 17.35, +0.10, +0.6%) was a story stock after temporarily grounding all flights due to a technical issue. Other airline stocks fared better than American, leading the US Global JETS ETF (JETS) to settle 0.5% higher. American Airlines is not a component in the S&P 500 industrial sector (+0.8%), but its competitors like Delta Air Lines (DAL 62.56, +1.04, +1.7%) and United Airlines (UAL 101.16, +1.68, +1.7%) were some of the top performing components.
Treasury yields moved lower after today's $70 billion 5-yr note sale met strong demand. The 10-yr yield is down one basis point to 4.59% and the 2-yr yield is down one basis point to 4.34%. Note, the Treasury market closes at 2:00 p.m. ET.
There was no US economic data of note today. Markets are closed tomorrow for Christmas. Looking ahead to Thursday, market participants will receive the weekly jobless claims report at 8:30 ET.
- Nasdaq Composite: +33.4% YTD
- S&P 500: +26.6% YTD
- Dow Jones Industrial Average: +14.9% YTD
- S&P Midcap 400: +13.5% YTD
- Russell 2000: +11.5% YTD
NVDA, AVGO, other chipmakers outperform
24-Dec-24 12:30 ET
Dow +281.20 at 43188.15, Nasdaq +209.56 at 20012.94, S&P +50.71 at 6024.48
[BRIEFING.COM] With a 30 minutes left in the session, stocks remain near session highs. The S&P 500 shows a 0.9% gain.
Semiconductor shares are showing strength today. The PHLX Semiconductor Index (SOX) trades 0.8% higher. NVIDIA (NVDA 140.70, +0.98, +0.7%) and Broadcom (AVGO 238.85, +6.50, +2.8%) are standouts from the space.
This price action has also bolstered the S&P 500 information technology sector, which trades 0.9% above yesterday's close.
Treasury auction meets strong demand
24-Dec-24 12:00 ET
Dow +227.56 at 43134.51, Nasdaq +207.53 at 20010.91, S&P +47.10 at 6020.87
[BRIEFING.COM] The major indices remain near session highs with about one hour left of trading.
Today's $70 billion 5-yr note sale met strong demand. The auction drew a high yield of 4.478%, which stopped through the when-issued yield by 0.2 basis points while the bid-to-cover ratio (2.40x vs 2.39x average) was just above average and indirect takedown (67.3% vs 67.8% average) was a touch shy of the prior 12-auction average.
The Treasury market is little changed from before the auction. The 10-yr yield is up two basis points from yesterday at 4.62% and the 2-yr yield is unchanged from yesterday at 4.35%.
Mega caps continue to lead
24-Dec-24 11:40 ET
Dow +213.56 at 43120.51, Nasdaq +204.95 at 20008.33, S&P +46.02 at 6019.79
[BRIEFING.COM] There hasn't been much up or down action at the index level in recent trading.
Mega caps continue to lead the market higher. Apple (AAPL 257.39, +2.10, +0.8%), Microsoft (MSFT 437.70, +2.45, +0.6%), Amazon.com (AMZN 228.65, +3.62, +1.6%), and NVIDIA (NVDA 141.07, +1.40, +1.0%) are standout winners from the space. AAPL reached a new 52-week high.
The Vanguard Mega Cap Growth ETF (MGK) sports a 1.1% gain.
AAL underperforms after grounding flights
24-Dec-24 11:00 ET
Dow +210.84 at 43117.79, Nasdaq +197.05 at 20000.43, S&P +43.48 at 6017.25
[BRIEFING.COM] The market hasn't moved much in either direction at the index level in recent trading. The Dow Jones Industrial Average sports a 0.5% gain and the S&P 500 trades 0.7% above its prior close.
American Airlines (AAL 17.22, -0.02, -0.2%) is a story stock today after temporarily grounding all flights due to a technical issue. Other airline stocks are faring better than American, leading the US Global JETS ETF (JETS) to trade 0.5% higher.
American Airlines is not a component of the S&P 500 industrial sector (+0.3%), but its competitors like Delta Air Lines (DAL 62.30, +0.78, +1.3%) and United Airlines (UAL 100.75, +1.27, +1.3%) are some of the top performing components.
Xometry making new highs since surprise profit in Q3; supply chain jitters fueling growth (XMTR)
Xometry (XMTR +5%) caught our attention this morning. There is not any news out, but the stock has been showing good momentum since its Q3 report in early November. The stock is trading at a new 52-week high today, so we wanted to take closer look to see what it driving the stock higher.
- This operator of an AI-powered online marketplace connecting buyers with suppliers of manufacturing services sees manufacturing as a massive, highly fragmented, and regionalized industry in need of efficiency. Xometry believes the industry is poised for increased digitization. Also, small- to medium-sized manufacturers face barriers to entry as they have to compete with larger manufacturers. Xometry sees an opportunity to help these smaller companies with their materials, financing and advertising.
- Xometry made its IPO debut pretty recently, in June 2021. Since going public, it has grown its revenue and gross margin rapidly. It has also gotten closer and closer to being adjusted EBITDA positive, which the company expects to accomplish in Q4. Annual revenue in recent years has grown impressively. Analysts expect 2024 revenue to come in around $543 mln then grow to $647 mln in 2025.
- The company has expanded its networks of both buyers and suppliers. It has also grown gross margin for its marketplace segment. When Xometry went public, gross margin was about 23.5% for marketplace and that increased to 33.6% in Q3. As such, even as it has grown revenue strongly, at very significant rates, the gross profit has actually grown even faster.
- Xometry is increasingly embedded in its customer supply chains, digitizing inefficient and cumbersome processes. Also, international growth has been a key catalyst. In Q3, international revenue grew 55% yr/yr, driven by strong growth in Europe. It is now approaching a $100 mln annual run rate vs $2 mln in 2020. Currently, 19% of total marketplace revenue is international and Xometry believes it can get that up to 30-40%, which is consistent with many other global online marketplaces.
- What really stands out is that Xometry has grown strongly despite a weak industrial macro picture. ISM data has been in contraction for 23 of the past 24 months. Despite that, Xometry posted 19% yr/yr revenue growth in Q3 to $141.7 mln. The company achieved this because it believes it is clearly gaining market share. Another factor is that awareness is still relatively small. However, that is changing as demonstrated by its customer growth.
- Another tailwind has been concerns about supply chains. With tariffs and geopolitical tensions, many customers have concerns about supply chains, particularly in Asia. Xometry helps by being in 16 localized marketplaces, including the US, Europe, Asia. If customers are looking to ensure that they can deliver their product to their end customers, Xometry Marketplace is a good way to protect their supply chain at no cost. Xometry gives them that redundancy and security that they need.
Overall, Xometry appears to be hitting more radar screens since its Q3 report. Analysts had been expecting a loss, but the company surprised the market with its first profitable quarter as a public company. That Xometry has been able to grow nicely despite a contracting industrial market is pretty impressive. And the potential upheaval of supply chains caused by tariffs should fuel more interest from customers.
Starbucks' recent declines slowing down as today's strike is expected to have limited impact (SBUX)
Union-related issues continue to brew at Starbucks (SBUX +1%), prompting a roughly 10% correction since last week. The Starbucks Workers Union, which was formed in late 2021, has over 11,000 organized workers across 535 company-owned stores in the U.S. However, by comparison, SBUX employs more than 200,000 people and operates over 10,000 stores in the U.S. Last week, the union stated that 98% of unionized workers voted to authorize a strike. The dates were set for between December 20 and today and were expected to affect over 300 stores nationwide by Christmas Eve.
Last night, SBUX provided an update on the strike, noting that only a small number of stores, around 60, were temporarily closed due to the union's actions. Management added that the strike could reach additional stores today. However, the company noted that 97-99% of its stores will continue to operate normally. As such, the strike is expected to have a limited impact on SBUX's overall operations.
- SBUX has not expressed much concern over the 4% of its U.S. stores where its employees have chosen to be represented by a union. The striking does add another headache that the company and its recently appointed CEO, Brian Niccol, must work through. However, we view union-related setbacks as mostly noise.
- Still, the noise coincides with macroeconomic headwinds that have kept a tight lid on recent growth. In Q4 (Sep), SBUX's North America and International comps contracted by 6% and 9%, respectively, while China comps (SBUX's second-largest market) fell by 14%. Mr. Niccol, who joined the company in early September, conceded that results were underwhelming, reinforcing his view that changes are needed, from menu simplification, removing excess consumer costs, and returning abandoned perks.
- SBUX's "Back to Starbucks" plan aims to take on these much-needed changes, ultimately targeting a return to sustainable growth domestically and abroad. SBUX's strategy involves meaningful investments in equipment, renovation, and marketing, which could weigh on the company's near-term bottom-line performance. However, investors remain excited over Mr. Niccol carrying over his success at Chipotle and Taco Bell. Shares remain over +10% higher since the announcement of his appointment as CEO.
A strike by unionized workers across a minuscule percentage of SBUX's total footprint in the U.S. is not expected to weigh materially on the company's operations. More stores could vote to unionize in the future. However, we view the problem as relatively minor. Instead, SBUX is up against a more significant hurdle: reenergizing demand. It is still early into Mr. Niccol's turnaround plan, so Q4 numbers provide more of a baseline from which SBUX should improve rather than signal a future trend. Therefore, Q1 (Dec) results in the coming months should offer more clues as to how "Back to Starbucks" is shaking out.
Boston Beer Co lowers its FY24 GAAP EPS outlook following production contract amendment (SAM)
Boston Beer Co (SAM -3%) slips after lowering its FY24 GAAP EPS outlook on Friday after the close following its announcement of restating an existing production agreement with Rauch North America. The agreement included a commitment to minimum capacity availability by Rauch, with SAM obligated to meet annual minimum volume commitments. If it did not, it was subject to contractual shortfall fees.
Under the amendment, SAM agreed to pay $26 mln in cash to better match SAM's future capacity requirements, allowing heightened production flexibility and more advantageous termination rights. This payment is expected to clip $1.70 in after-tax GAAP EPS in Q4, resulting in a lowered GAAP EPS guidance for the year to $3.80-$5.80 from $5.50-$7.50. However, SAM still reiterated its FY24 adjusted EPS and depletions and shipments forecasts.
- Heading into FY24, SAM anticipated falling short of its future annual volume commitments at various third-party production facilities, resulting in expected shortfall fees. On Friday, SAM reiterated its expectation that these fees will hurt gross margins by 65-75 bps in FY24. When adding in production and prepayment amortization, SAM sees a 160-180 bp impact on margins.
- Shortfall fees do not always mean that volumes are missing internal goals. Instead, it can mean that SAM's regional mix changed. It also could be due to SAM's expansion in international markets. This shows up in SAM reiterating its FY24 depletions and shipments outlook for the year, continuing to project a low single-digit percentage decline. This outlook was reduced last quarter, taking the possibility of flat depletions and shipments growth off the table, reflecting lingering challenges associated with SAM's Truly Hard Seltzer brand.
- Truly Hard Seltzer business endured an 11% volume decline in measured channels in Q3. SAM continues testing various strategies to reignite Truly demand, such as being more discerning over flavors. At the same time, SAM's once-resilient Twisted Tea brand encountered softening demand last quarter. While SAM has seen positive signals from the early rollout of its American Light beer across new markets, overall depletion trends were not shaping up favorably exiting Q3, resulting in its lowered guidance.
SAM commented in late October that as its contractual terms expire, it will reassess its capacity needs and commitments with production partners. Shortfall fees tend to weigh considerably on Q4 margins. Reducing these headwinds can help preserve the annual margin drop-off SAM has experienced in recent years. Nevertheless, other headwinds remain, from a saturated hard seltzer market to slowing demand for its typically resilient Twisted Tea banner. As we mentioned following Q3 results in October, SAM may struggle over the near term until a sustained turnaround within its Truly Hard Seltzer business emerges.
Qualcomm secures favorable ruling in Arm Holdings (ARM) case against company, boosting shares (QCOM)
Qualcomm (QCOM) scored a major win in the courtroom last Friday after a jury ruled that the company's license to use Arm Holdings' (ARM) chip architecture for laptops and PCs is valid, allowing it to continue selling chips into that market. At the heart of the matter was whether QCOM was covered by a less costly license agreement that ARM worked out with Nuvia -- a CPU design company QCOM acquired in 2021 -- or whether QCOM was obligated to rework that deal, resulting in higher royalty fees to ARM.
The jury found that QCOM did not breach its contract by sticking to the arrangement that Nuvia forged with ARM, reducing the risk that the margins and profits of its burgeoning PC business will take a substantial hit due to costlier royalty rates. However, that risk hasn't been totally eliminated just yet.
- On the question of whether Nuvia violated the terms of its license agreement with ARM upon the QCOM acquisition, the jurors couldn't come to a consensus, resulting in a hung jury. Therefore, this piece of the litigation can be retried, which looks like a near certainty. In fact, ARM's attorneys have vowed to keep fighting, setting the stage for another trial in 2025.
- While the PC/laptop market is currently a relatively small portion of QCOM's business -- handsets still account for roughly 60% of total revenue -- it is a key component of the company's revenue diversification strategy. As new AI technologies, such as GenAI chatbots, are increasingly infused into new laptop models, QCOM expects growth for its Snapdragon X chipset to accelerate in the coming quarters.
- On that note, in 4Q24, IoT revenue jumped by 22% yr/yr to $1.68 bln, after that end market posted declines in each of the prior three quarters as the stubborn inventory glut across the company's OEM customer base finally eased. PCs and laptops, which make up part of the IoT business, played a role in the turnaround as the Snapdragon X chip made its way into 58 platforms.
- Furthermore, during an analyst event in mid-November, QCOM said that its projecting PC revenue of $4.0 bln by FY29. That estimate could prove to be conservative if the company achieves its goal of reaching 100 design wins by 2026, providing it with access to approximately 70% of the PC market.
Overall, the verdict is a positive development for QCOM, eliminating some risk for its up-and-coming PC business. However, the company isn't out of the woods yet as ARM looks to appeal the decision, and as the prospect of Apple (AAPL) launching its own modem chips in the next couple of years looms.
Despegar.com investors get a stocking stuffer; Prosus to acquire DESP at a 33% premium (DESP)
Shareholders of Latin American online travel company Despegar.com (DESP +32%) got a stocking stuffer this holiday season. Prosus, an e-commerce-based technology company, announced it will acquire DESP for $19.50 per share, all in cash for an enterprise value of approximately $1.7 bln. That represents a 33% premium from Friday's close. DESP's board has approved the transaction and the deal is expected to close 2Q25.
- Despegar has some attractive features. It operates in over 19 Latin American markets, serving customers through two primary business models: an omnichannel B2C platform and a rapidly expanding B2B segment that offers services to partners such as banks, airlines, and retailers. Despegar has grown into a leading position in the Latin American online travel space. It handles over 9.5 mln transactions annually, generating $5.3 bln in gross bookings and $706 mln in revenue.
- An attractive feature of DESP is that it recently achieved two significant milestones in Q3: a new 10-year Lodging Outsourcing Agreement with Expedia starting in 2025, which will expand DESP's lodging supply; second, DESP announced improvements in its AI travel assistant, Sofia, into an SaaS offering. This would open up opportunities for Despegar to leverage its AI technology beyond its own platform, allowing partners to integrate SOFIA into their platforms. DESP expects it become a growing source of recurring revenue.
- Prosus sees significant potential in leveraging its extensive consumer ecosystem in the region to drive user growth and engagement on Despegar, while introducing new products and services. Prosus plans to create synergies between Despegar and its other regional businesses, such as iFood, Latin America's largest food delivery platform with 60 mln customers per year, and Sympla, a prominent events platform.
- Despegar recently reported impressive Q3 results. Revenue grew just 8.9% yr/yr, however, that was 53% growth on an FX neutral basis to $193.9 mln. DESP said it focused on profitability in key markets such as Brazil (its largest and most important market) and it benefitted from a notable demand recovery in Argentina. As a result, adjusted EBITDA jumped 94% yr/yr to $48.0 mln, representing an all-time high margin of 24.8%. Despite FX challenges, DESP said that demand remains strong across the region.
Overall, we think the 33% premium is attractive for DESP investors and we can see why Prosus would find DESP attractve. The company has been seeing a recovery in travel demand in Latin America in recent quarters. The recent Expedia lodging deal was a big positive and the leveraging of its Sofia AI technology to integrate into other platforms was a win as well. Prosus clearly saw some value here, given the stock recent pullback in recent weeks.
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