Market Snapshot
| Dow | 44302.32 | -444.23 | (-0.99%) | | Nasdaq | 19605.30 | -268.59 | (-1.35%) | | SP 500 | 6025.99 | -57.58 | (-0.95%) | | 10-yr Note | -4/32 | 4.49 |
|
| | NYSE | Adv 715 | Dec 1978 | Vol 1.0 bln | | Nasdaq | Adv 1265 | Dec 3079 | Vol 7.7 bln |
Industry Watch
| Strong: Energy |
| | Weak: Consumer Discretionary, Materials, Consumer Staples |
Moving the Market
-- AMZN trading lower after soft Q1 revenue guidance and announcing a plan to spend approximately $100 billion on capex in 2025
-- Reacting to other earnings news
-- Digesting the January Employment Situation report, which featured a jump in average hourly earnings that may not bode well for inflation; Prelim-February University of Michigan Consumer Sentiment survey showed higher inflation expectations
-- Jump in Treasury yields in response to jobs report and consumer sentiment survey
|
Closing Summary
07-Feb-25 16:20 ET
Dow -444.23 at 44302.32, Nasdaq -268.59 at 19605.30, S&P -57.58 at 6025.99
[BRIEFING.COM] The stock market began the final session of the week on a positive note, with major indices pushing higher thanks to gains in mega-cap stocks. Investors seemed largely unaffected by the January Employment Situation report, released at 8:30 ET. The report was solid, showing an increase in nonfarm payrolls and a historically low unemployment rate of 4.0%. Market participants took the 0.5% increase in average hourly earnings, a potential inflationary signal, in stride.
The S&P 500 was up as much as 0.3% and the Nasdaq Composite traded up as much 0.4% at their best levels of the day.
The optimistic start quickly unraveled at 10:00 ET following the release of the preliminary February University of Michigan Consumer Sentiment survey. The headline sentiment figure came in weaker than expected, posting 67.8 compared to the anticipated 71.3. The main point of concern, though, was that year-ahead inflation expectations spiked to 4.3%, a sharp jump from 3.3%.
This shift in consumer sentiment triggered a sell-off in the Treasury market, which exerted additional pressure on equities. The 10-year yield settled five basis points higher at 4.49%, while the 2-year yield climbed by seven basis points to 4.28%.
Stocks faced additional selling interest when reports surfaced that President Trump had informed Republican lawmakers of his plans to impose additional tariffs as early as today. The potential for political shifts over the weekend, when markets would not be able to react in real-time, added a layer of uncertainty.
By the close, the S&P 500 was 1.0% lower, near its worst level of the session. The Nasdaq Composite declined 1.4%.
An earnings-related drop in Amazon.com (AMZN 229.15, -9.68, -4.1%), which issued soft Q1 revenue guidance and revealed plans to allocate approximately $100 billion to capital expenditures in 2025, also contributed to the downside action today.
- Dow Jones Industrial Average: +4.1% YTD
- S&P Midcap 400: +2.7% YTD
- Russell 2000: +2.2% YTD
- S&P 500: +2.5% YTD
- Nasdaq Composite: +1.1% YTD
Reviewing today's economic data:
- January Nonfarm Payrolls 143K (Briefing.com consensus 155K); Prior was revised to 307K from 256K, January Nonfarm Private Payrolls 111K (Briefing.com consensus 163K); Prior was revised to 273K from 223K,
- January Avg. Hourly Earnings 0.5% (Briefing.com consensus 0.3%); Prior 0.3%, January Unemployment Rate 4.0% (Briefing.com consensus 4.1%); Prior 4.1%, January Average Workweek 34.1 (Briefing.com consensus 34.3); Prior was revised to 34.2 from 34.3
- The key takeaway from the report is that it is a good "economic" report as the jump in average hourly earnings on a nominal and real basis is a good portent for consumer spending. The question will be if it is a good "market" report given that the jump in average hourly earnings can be construed as a sticky inflation indicator that will forestall another rate cut by the Fed.
- February Univ. of Michigan Consumer Sentiment - Prelim 67.8 (Briefing.com consensus 71.3); Prior 71.1
- The key takeaway from the report is that the weakening in sentiment was described as "pervasive" across political, age, and wealth groups, underscoring the worrisome impact of higher inflation expectations.
- December Wholesale Inventories -0.5% (Briefing.com consensus -0.5%); Prior -0.2%
Stocks sit near lows ahead of the close
07-Feb-25 15:30 ET
Dow -448.78 at 44297.77, Nasdaq -284.57 at 19589.32, S&P -60.45 at 6023.12
[BRIEFING.COM] The stock market remains near session lows ahead of the open.
Consumer credit increased a whopping $40.8 billion in December (Briefing.com consensus $13.4 billion) after declining by an upwardly revised $5.4 billion (from $7.5 billion) in November. December saw the largest increase in consumer credit since June 2021.
The key takeaway from the report is that there was healthy demand for consumer credit in December despite relatively high interest rates.
X shares fall after press conference
07-Feb-25 15:00 ET
Dow -448.18 at 44298.37, Nasdaq -281.05 at 19592.84, S&P -57.34 at 6026.23
[BRIEFING.COM] The major indices trade in narrow ranges near session lows.
Earnings season continues next week with names like McDonald's (MCD), Coca-Cola (KO), AutoNation (AN), Humana (HUM), CVS Health (CVS), Kraft Heinz (KHC), Cisco (CSCO), Deere (DE), and Applied Materials (AMAT) all reporting.
Separately, President Trump at a second press conference with Japan's PM says Nippon Steel is looking at an "investment" in US steel (X 35.73, -2.54, -6.5%) instead of a purchase, adding that he doesn't want Nippon Steel to own US Steel.
Energy outperform amid rising oil prices
07-Feb-25 14:30 ET
Dow -414.70 at 44331.85, Nasdaq -282.15 at 19591.74, S&P -55.84 at 6027.73
[BRIEFING.COM] The market continues to move lower.
The energy sector is alone in positive territory, up 0.6%, amid rising oil prices. WTI crude oil futures are 0.5% higher at $70.94/bbl.
Meanwhile, the heavily-weighted consumer discretionary (-2.4%) and information technology (-1.1%) sectors show the largest declines.
Growth underperforms value
07-Feb-25 14:05 ET
Dow -390.09 at 44356.46, Nasdaq -252.17 at 19621.72, S&P -51.17 at 6032.40
[BRIEFING.COM] The major indices dropped to session lows over the last half hour.
Growth stocks have more influence over index losses than value stocks. The Russell 3000 Growth Index is 1.0% lower and the Russell 3000 Value Index is 0.4% lower.
The S&P 500 is down 0.9% and the Nasdaq Composite trades 1.3% lower.
Microchip sinks to new 52-week lows following grim guidance; outlines turnaround strategy (MCHP)
Microchip (MCHP -2%) missed EPS and sales estimates in Q3 (Dec) and guided Q4 (Mar) figures meaningfully below consensus, pushing shares to fresh 52-week lows today. The semiconductor firm was already coming off weak data, guiding Q3 (Dec) numbers below consensus in November only to lower its revenue forecast one month later.
High inventory levels continue to act as a brutal headwind. In December, MCHP decided to shut down one of its wafer fab facilities, aiming for Q2 of this year, which it anticipated would generate annual cash savings of around $90 mln. However, due to the excess inventory of products made at this facility, MCHP did not foresee savings trickling to its bottom line until the beginning of 1Q26.
- As such, earnings remain under pressure. In Q3, MCHP missed earnings estimates for the first time in over five years. Management commented that its performance reflected the need to realign its business; inventory levels reached 266 days, up from 247 days at the end of the last quarter.
- CEO Steve Sanghi, who stepped into the role just three months ago, added that even though substantial inventory destocking has unfolded across its customer base and channel partners, a correction cycle is still not over. This grim outlook is reflected in MCHP's Q4 (Mar) guidance, projecting adjusted EPS of $0.05-0.15 and revs of $0.92-1.00 bln, a 28% drop yr/yr at the midpoint.
- Where does MCHP go from here? Mr. Sanghi outlined a comprehensive turnaround strategy, touching on nine pillars that are expected to stabilize the business and return to growth. The first couple of pillars are already in motion; MCHP is closing one of its fabs and reducing capacity at two of its other fabs. Meanwhile, MCHP is working to reduce its inventory, targeting 130-150 days. Other actions include diving deep into each business unit to uncover greater efficiency, review its channel strategy, and strengthen customer relationships.
MCHP's correction was extended today following another weak quarter and concerning guidance. A troubling development for MCHP is that inventory is high across the board; no end market is unaffected. Without a clear timeline on when the company anticipates carving out a bottom or when a recovery might ensue, investors are steering clear. This trend could persist until further clarity from MCHP is provided.
e.l.f. Beauty heads lower on weak guidance as consumption trends have softened (ELF)
e.l.f Beauty (ELF -19%) is trading sharply lower following its Q3 (Dec) earnings miss last night. This affordable cosmetics company did post impressive revenue, up 31.2% yr/yr to $355.3 mln, which was much better than expected. It also lowered FY25 guidance, but with just one quarter left, it was basically a guide down for Q4 (Mar). ELF expects MarQ sales to range from -1% to +2%.
- ELF is unlike typical cosmetics companies, not only for its lower price points, but also because it relies heavily on social media video platforms like TikTok. Influencers and customers post lots of videos providing makeup ideas and advice for young women. Unfortunately, ELF said there has been lower social conversation around beauty. Consumer mindshare has been focused elsewhere, including wildfires in LA and uncertainty around the TikTok platform.
- In terms of why it issued weak guidance for MarQ, ELF explained that consumption trends at the start calendar 2025 have been softer than expected. In addition to the online video trends mentioned above, ELF believes this decline is reflective of consumers stocking up in a highly promotional December. Also in MarQ, ELF will be lapping the global launch of its viral Glow Reviver Lip Oil, which was ELF's biggest launch in calendar 2024. ELF benefitted from higher shipments in MarQ last year as retailers built inventory ahead of the big launch.
- Another factor for the weak guidance is that initial reads for a couple of its new product launches for spring 2025 have started off slower than expected. It is still in the early days of marketing activations for these launches. Over the next few weeks, ELF's retailers will add spring innovation to their stores and refresh ELF's in-store presentation, including expanded space in Target and Walgreens. These results are still in progress, but the early reads did impact the guidance.
- The silver lining is that ELF does not believe Q4 (Mar) is indicative of the underlying run rate of its business, and it remains confident it can deliver market-leading growth. Looking ahead, ELF remains focused on four areas with significant runway for growth: digital, color cosmetics, skin care and international.
What is interesting is that Estée Lauder (EL) sold off on Tuesday after also providing weak guidance for MarQ. That seemed more understandable given the value conscious consumer as it is positioned more on the prestige end of the spectrum. In fairness, the two are also different because EL has high exposure to China, which has been weak. Hopefully, ELF's troubles are just near term in nature and maybe consumers did stock up in December given all the discounting. Nevertheless, we were surprised to see cosmetics names at both end of the spectrum issue weak guidance.
Expedia Group soars on an impressive Q4 report and reinstated dividend (EXPE)
Following sizeable earnings upside, accelerated revenue growth, uplifting guidance, and a reinstated dividend after a five-year hiatus, Expedia Group (EXPE +17%) is soaring today, flirting with all-time highs reached in early 2022. Since the travel giant appointed Ariane Gorin as CEO in May of last year, its shares have surged by over +80%, a testament to solid operational execution, successful growth initiatives, and an improving travel demand backdrop.
- Travel demand was more robust than EXPE anticipated in Q4, illuminating a steady preference from consumers across the globe to allocate their tighter budgets toward experiences. Booked room nights grew by 12% yr/yr in the quarter, up 3 pts from last quarter. Total gross bookings also accelerated, climbing by 13% in Q4 versus a 7% jump last quarter, which already represented a 150 bp increase from Q2.
- Bookings for EXPE's consumer business accelerated by 5 pts from Q3 to expand by 9% in Q4, supported by growth across each of its banners. Vrbo, EXPE's answer to Airbnb (ABNB), registered mounting momentum throughout 2024. This trend is encouraging, particularly following such a volatile past year or so when EXPE was working through a conversion, which weighed heavily on performance. EXPE's CEO acknowledged that there is still plenty of work to do to continue improving Vrbo, noting that the company has exciting plans coming in 2025.
- Meanwhile, Hotels.com posted a return to bookings growth, supported by international markets, which continued to outpace the U.S.
- The clear standouts in Q4 were EXPE's B2B and advertising businesses, delivering growth of 24% and 25% yr/yr, respectively. While ads cooled off from the 32% leap last quarter, growth was still impressive, underscoring success with EXPE's several initiatives, such as launching new ad types and introducing new tools for partners, both of which have resonated with advertisers. Advertising is a high-margin, high-growth business. EXPE sees considerably more opportunity to innovate in this business, potentially boosting margins over the next several quarters.
- With the help of sustained advertising demand coupled with a favorable travel environment, EXPE posted healthy adjusted EPS growth of 39% yr/yr to $2.39. Gross margins climbed by 125 bps yr/yr in Q4, nearly reaching 90%.
- Looking ahead, EXPE predicts bookings to cool off in Q1, highlighting FX headwinds and an unfavorable yr/yr comparison, targeting growth of +4-6%. Similarly, EXPE expects revenue growth of +3-5% next quarter, a deceleration from the 10.3% posted in Q4. These numbers mostly represent EXPE's FY25 outlook, projecting gross bookings and revenue growth in the +4-6% range.
EXPE capped off FY24 on a high note, posting an excellent Q4 report. The company has made the right moves during a mixed demand landscape from the past several quarters to prepare for liftoff once demand rebounds more meaningfully. EXPE's performance sets a bullish tone ahead of its closest peers' upcoming Q4 reports, including ABNB on February 13 and Booking Holdings (BKNG) on February 20. On a side note, shares of ABNB have flatlined over the past five months. If it can extract similar gains from an improving travel demand landscape as EXPE, it could ignite a powerful rally in the stock.
Pinterest emerges from Google's and Meta Platforms' shadows to deliver strong Q4 report (PINS)
Lacking the immense war chests of tech behemoths Alphabet (GOOG) and Meta Platforms (META), Pinterest (PINS) has always been the underdog as billions of dollars pour into new AI technologies in order to gain a strong foothold in the digital advertising space. After GOOG and META both reported strong Q4 results within their advertising businesses, PINS became somewhat of an afterthought as its Q4 earnings report approached on the assumption that its results wouldn't stack up. Case and point: shares of PINS were virtually flat since META's Q4 report on January 29, prior to today's earnings-induced launch higher.
To further hammer the point home, last year, PINS fell by nearly 20%, while META and GOOG soared by 70% and 36%, respectively. However, while its stock was languishing in 2024, PINS was busy making its own AI-powered improvements to its platform while launching new consequential products like Performance+. Those investments are now paying off in a major way, as illustrated by the company's Q4 results and bullish outlook.
- The clear blemish on PINS' Q4 results is the EPS miss, ending a streak of nine consecutive bottom-line beats. That shortfall, though, is mitigated by the fact that PINS' adjusted EBITDA jumped by 28% yr/yr to $470.9 mln with adjusted EBITDA margin expanding by 320 bps yr/yr to 41%. Better yet, the company is anticipating further margin expansion in 2025, although the gains may not be as sizable as they were in 2024.
- A combination of solid cost discipline and revenue growth fueled by MAU increases and rising ARPU is providing the boost to adjusted EBITDA. In Q4, total expenses were up 10% compared to revenue growth of nearly 18%, illustrating that PINS is seeing a strong return on its investments in R&D and headcount. Furthermore, its less-antagonizing platform is resonating with more users and advertisers, as reflected by the 11% growth in MAUs to 553.0 mln -- a new all-time high for the company.
- Compared to META and GOOG, PINS' capex investments pale in comparison. For instance, in Q4, META and GOOG both shelled out over $14.0 bln in capex, while PINS' invested about $3.8 bln in equipment, property and technology. PINS is making those dollars stretch, though, as its AI investments are becoming game-changers. PINS stated that its AI-powered whole page optimization is enabling it to flex up relevant ad loads to users during moments of high commercial intent, leading to stronger action and convert rates for advertisers.
- Performance+, which bundles automation and AI features to simplify ad campaign creation, is also seeing healthy adoption thanks to the better efficiency it provides during the ad setup and creation process. Building upon this product is a key priority in 2025 as PINS doubles down on providing advertisers with more creative control through features like automated cropping, adjusting image brightness, and adding logo overlays.
PINS impressive Q4 performance and upside Q2 revenue guidance are catching investors' attention, showing that the company deserves to be in the conversation alongside META and GOOG when it comes to digital advertising companies that are capitalizing on new AI capabilities.
Amazon heads lower following Q4 report as Q1 guidance had some FX-related softness (AMZN)
Amazon (AMZN -4%) is heading a bit lower today despite reporting nice EPS upside with its Q4 earnings report last night, its largest EPS beat in three years. The holiday quarter is Amazon's largest sales quarter of the year, so it's important. Revenue rose 10.5% yr/yr to $187.79 bln, which was in-line. However, Amazon faced a much steeper than expected FX headwind, about $900 mln, whereas prior guidance anticipated only $200 mln. AMZN would have exceeded the top end of guidance.
- The FX headwind also explains why the Q1 revenue guidance at $151.0-155.50 bln was a good bit lower than analyst expectations. This guidance seems to be the main reason for the stock being lower today. But once we have the FX explanation, it does not look as bad. We also think that's why the stock is down only modestly. Q4 operating income was a record $21.2 bln vs prior guidance of $16-20 bln. AMZN also guided to healthy Q1 operating income of $14-18 bln.
- Let's start with the Stores segment. AMZN saw growth of 9.5% in North America and 7.9% (+9% CC) in the international segment. Worldwide paid units grew 11% yr/yr as its focus on low prices, broad selection, and fast shipping continues to resonate with customers. AMZN benefitted from record-setting events during its Prime Big Deal Days in October and Black Friday and Cyber Monday around Thanksgiving.
- Turning to AWS, segment sales increased 19% yr/yr (+19% CC) to $28.8 bln with segment operating margin of 36.9% vs 29.6% a year ago. We were a bit nervous for AMZN heading into this report given that its peer Microsoft Azure posted growth at the low end of guidance. However, this was AWS's third consecutive quarter with +19% CC yr/yr growth, so we did not see any drop-off.
- Importantly, Azure noted some weakness in its non-AI business. However, AMZN said that AWS continued to see growth in both Generative AI and non-Generative AI offerings as companies turn their attention to newer initiatives, bring more workloads to the cloud, restart or accelerate migrations from on-premise to the cloud, and tap into the power of Generative AI. Also, AMZN did not seem overly worried about DeepSeek. AMZN said that virtually all the big Generative AI apps are going to use multiple model types and different customers are going to use different models for different types of workloads.
- Turning to Advertising Services, segment revenue grew +18% CC to $17.29 bln. This continues a downward trend from recent quarters: +19% CC in Q3, +20% CC in Q2, +24% CC in Q1, +26% in Q4. However, this segment's base is getting larger. Advertising remains an important contributor to profitability in the North America and International segments. Also, the $17.3 bln comps at a $69 bln annual revenue run rate, more than double what it was just four years ago at $29 bln.
Overall, we think AMZN's Q4 report was quite good. We understand investor concerns about the Q1 guidance, however, given that much of it is FX-related, that does not concern us as much. We think the stock action is also playing a role in today's pullback. The stock has been quite impressive since early August, up about 57% from its lows. Sentiment was quite positive heading into this report, so any little ding on guidance is triggering some profit taking.
|
