Market Snapshot
briefing.com
| Dow | 39131.53 | +62.42 | (0.16%) | | Nasdaq | 15996.82 | -44.80 | (-0.28%) | | SP 500 | 5088.80 | +1.77 | (0.03%) | | 10-yr Note | +5/32 | 4.26 |
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| | NYSE | Adv 1712 | Dec 1044 | Vol 851 mln | | Nasdaq | Adv 2397 | Dec 1863 | Vol 5.1 bln |
Industry Watch
| Strong: Utilities, Financials, Materials, Industrials, Consumer Staples, Real Estate, Health Care |
| | Weak: Energy, Consumer Discretionary, Information Technology |
Moving the Market
-- Mega caps rolled over from early strength, weighing down broader market
-- Some carryover momentum from yesterday's NVDA-induced rally fueling underlying positive bias
-- Semiconductor stocks and growth stocks lagging the broader market after showing strength yesterday in sympathy with NVDA
-- Treasury yields moving slightly lower
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Closing Summary
23-Feb-24 16:25 ET
Dow +62.42 at 39131.53, Nasdaq -44.80 at 15996.82, S&P +1.77 at 5088.80
[BRIEFING.COM] The movement in the stock market was limited today after yesterday's surge in response to NVIDIA's (NVDA 788.17, +2.79, +0.4%) earnings report. The major indices spent most of the session trading near their prior closing levels.
Ultimately, the S&P 500 and Dow Jones Industrial Average eked out another gain, extending further into record territory. The Nasdaq Composite, meanwhile, declined 0.3% due to lagging semiconductor names and growth stocks.
After leading the market higher yesterday in sympathy with NVDA, semiconductor stocks underperformed the broader market. The PHLX Semiconductor Index (SOX) slipped 1.2%, leaving its gain this week at 1.9%. Growth stocks also underperformed relative to value stocks. The Russell 3000 Value Index gained 0.4% while the Russell 3000 Growth Index closed little changed from yesterday.
Still, the A-D line was positive, reflecting a slightly positive bias under the index surface. Advancers led decliners by a 3-to-2 margin at the NYSE and by a 4-to-3 margin at the Nasdaq.
The positive disposition was partially driven by carryover momentum following yesterday's rally. A nice drop in the 10-yr Treasury note yield, down seven basis points to 4.26%, also acted as support for equities.
Seven of the 11 S&P 500 sectors closed higher, led by utilities (+0.7%), materials (+0.6%), and industrials (+0.5%). Meanwhile, the energy sector (-0.6%) saw the largest decline as oil and natural gas prices dropped. WTI crude oil futures fell 2.6% to $76.52/bbl and natural gas futures dropped 7.1% to $1.70/mmbtu.
The consumer discretionary sector (-0.3%) also lagged the broader market due weakness in shares of Booking Holdings (BKNG 3,505.96, -396.03, -10.2%). BKNG was the worst performing stock in the S&P 500 today after reporting earnings.
Warner Bros Discover (WBD 8.61, -0.95, -9.9%) was another notable laggard after disappointing earnings, weighing down the communication services sector (-0.2%).
- S&P 500: +6.7% YTD
- Nasdaq Composite: +6.6% YTD
- Dow Jones Industrial Average: +3.8% YTD
- S&P Midcap 400: +2.8% YTD
- Russell 2000: -0.5% YTD
There was no US economic data of note on Friday.
Monday's economic lineup is limited to the January New Homes Sales report at 10:00 ET.
Energy sector underperforms
23-Feb-24 15:35 ET
Dow +81.75 at 39150.86, Nasdaq -54.91 at 15986.71, S&P +2.65 at 5089.68
[BRIEFING.COM] The market is not moving up or down much heading into the close.
The 2-yr note yield settled unchanged at 4.72% and the 10-yr note yield fell seven basis points to 4.26%.
Separately, WTI crude oil futures fell 2.6% to $76.52/bbl and natural gas futures dropped 7.1% to $1.70/mmbtu. This price action has weighed down the S&P 500 energy sector (-0.5%), which shows the largest decline among the 11 sectors.
Stocks stick to narrow ranges
23-Feb-24 15:00 ET
Dow +81.10 at 39150.21, Nasdaq -23.02 at 16018.60, S&P +7.29 at 5094.32
[BRIEFING.COM] The major indices have traded in relatively narrow ranges recently. The S&P 500 is up 0.1% and Nasdaq Composite sports a 0.2% decline.
Monday's economic lineup is limited to the January New Homes Sales report at 10:00 ET. Also, Li Auto (LI), Fidelity Nat'l Info (FIS), Domino's Pizza (DPZ), and others report earnings ahead of Monday's open.
Mega cap stocks continue to hang over the broader market. The Vanguard Mega Cap Growth ETF (MGK) is down 0.1%.
Insulet among top S&P 500 laggards as investors balk at guidance
23-Feb-24 14:30 ET
Dow +33.28 at 39102.39, Nasdaq -33.73 at 16007.89, S&P +1.26 at 5088.29
[BRIEFING.COM] The S&P 500 (+0.02%) has retreated a bit in the last half hour, now trading only narrowly higher.
Elsewhere, S&P 500 constituents Palo Alto Networks (PANW 282.21, +14.39, +5.37%), Iron Mountain (IRM 75.17, +3.07, +4.26%), and CoStar Group (CSGP 85.09, +2.62, +3.18%) dot the top of the average. PANW recoups a portion of recent earnings-related losses, while IRM and CSGP are, too, coming off earnings-related declines.
Meanwhile, Insulet (PODD 184.22, -12.92, -6.55%) is near the bottom of the S&P following last night's Q4 beat as Wall Street eyed what was deemed conservative guidance.
Gold adds to weekly gains on Friday
23-Feb-24 14:00 ET
Dow +84.79 at 39153.90, Nasdaq -4.99 at 16036.63, S&P +8.46 at 5095.49
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.03%) returns to negative territory.
Gold futures settled $18.70 higher (+0.9%) to $2,049.40/oz, up +1.2% this week, aided in part by weakness in the greenback over the last few sessions.
Meanwhile, the U.S. Dollar Index is lower by less than -0.1% to $103.89.
Intuit flat despite strong results; investors wanted to see better guidance for tax season (INTU)
Intuit (INTU +0.6%) is trading roughly flat following its Q2 (Jan) earnings report last night. INTU focuses on small businesses and consumers (QuickBooks, TurboTax, Mint, Credit Karma, Mailchimp). INTU beat handily on EPS, its eight consecutive double-digit EPS beat. Revenue was just in-line. We knew all eyes would be on the Q3 (Apr) guidance because tax season is huge for Intuit. It was mixed, with downside EPS but upside revs. Intuit reaffirmed FY24 guidance.
- The star of the show was again its Small Business and Self-Employed Group (SBSE), which is mostly QuickBooks. Segment revenue grew 18% yr/yr to $2.2 bln. QuickBooks Online Accounting revenue grew 19%, driven primarily by customer growth, higher effective prices, and mix-shift towards higher end offerings. Online Services revenue grew 24%, driven primarily by growth in payroll, payments, and Mailchimp. Total international online ecosystem revenue grew 16% CC.
- Consumer Group segment (TurboTax, both DIY and assisted) revenue was down 5% yr/yr to $492 mln, driven by the later IRS opening this year. The IRS began accepting and processing returns starting January 29, compared to January 23 last year. Despite the revenue decline in Q2, Intuit reaffirmed FY24 revenue guidance for Consumer Group at +7-8%. While it's early in the season, Intuit says TurboTax Live Full Service is resonating with customers.
- Its Credit Karma segment has been a laggard in recent quarters with higher rates acting as a headwind. Revenue was flat yr/yr at $375 mln. But that was an improvement from a -5% revenue decline in Q1 (Oct) and -11% in Q4 (Jul). The trend is encouraging for investors. Growth in Credit Karma Money, credit cards, and auto loans, was offset by a decline in home loans, personal loans, and auto insurance.
- Intuit says partners were taking a conservative approach to extending credit in both personal loans and credit cards in Q2. Also, Q2 is typically the seasonally weakest quarter of the year for Credit Karma. Intuit expects Q3 to benefit from additional Credit Karma Money revenue during tax season. Intuit has been more deeply integrating Credit Karma and TurboTax. Credit Karma members can file with TurboTax directly in the Credit Karma app.
- And finally, its ProTax Group, which serves professional accountants, saw revenue grow 8% to $274 mln, reflecting the timing of when tax forms were delivered, which is a driver for revenue recognition.
Overall, this was a bit of a mixed quarter. Nice upside for Q2, but we think investors were somewhat disappointed in the Q3 guidance. And that is tax season, Intuit's largest revenue quarter every year, so it's particularly important. The revenue guidance was encouraging but the EPS guidance was a good bit below expectations. We think its SBSE unit performed well despite small businesses facing macro headwinds. Credit Karma will likely remain challenged until rates come down, but it was good to see that business trending better.
Booking Holdings hits turbulence; investors take profits on lighter-than-expected Q4 results (BKNG)
Booking Holdings (BKNG -9%) encounters minor turbulence today despite exceeding top and bottom-line expectations in Q4 and conveying relatively uplifting commentary surrounding travel demand in 2024. Today's price action reminds us of the post-earnings sell-off in shares of rival Expedia Group (EXPE) earlier this month and, to a lesser extent, Airbnb (ABNB). Just like EXPE, shares of BKNG hit all-time highs ahead of its Q4 results, leading to rapid profit-taking today despite no glaring weaknesses from the quarter.
BKNG delivered stronger numbers than both EXPE and ABNB in Q4. The company also initiated a quarterly dividend for the first time, beginning at $8.75 per share -- a roughly 1% annual yield -- payable on March 28. While travel demand will hit a speed bump in Q1, mirroring trends noticed by EXPE and ABNB, BKNG is upbeat about sustained global travel demand throughout 2024, a brighter outlook than EXPE's.
- BKNG expanded its adjusted EPS by 29.3% yr/yr to $32.00, assisted by an 18.2% increase in revs to $4.78 bln. Gross bookings edged 16% higher, significantly better than EXPE's 6% growth, aided by a healthy uptick in airline bookings, which surged by 46% in the quarter.
- Gross bookings grew 7 pts above BKNG's room nights booked, which ticked 9% higher yr/yr in Q4. The discrepancy was due to higher accommodation constant currency average daily rates (ADRs) plus a positive impact from flight bookings.
- Notably, BKNG's alternative accommodations room night growth climbed by 19% yr/yr, above ABNB's 12% growth in the quarter, underscoring consumer preference for BKNG's platform, prices, or listings.
- Geographically, growth was broad-based outside the U.S., where room nights booked were flat yr/yr. Asia grew bookings in the mid-teens percentage, Europe was up by low double digits, and all other international countries grew by a combined low single digits. With BKNG's international mix of room nights at 50% in Q4, strength overseas is critical to its quarterly performance.
- Looking ahead, BKNG anticipates Q1 room nights growth of +4-6%, a deceleration from Q4 but consistent with what EXPE and ABNB outlined. The war in the Middle East is projected to cut 1 pt off room night growth. Meanwhile, gross bookings will be about 1 pt higher than room night growth at +5-7%. For the year, BKNG aims to reach constant currency growth in gross bookings, revenue, and EPS above what it achieved in 2019, translating to about 8% growth for bookings and revenue and 15% for EPS.
BKNG's Q4 report was not overly troubling, resembling much of what we saw from two of its primary competitors. However, with shares hitting all-time highs yesterday, shrugging off the corrections in EXPE and ABNB, investors were hungry for more, especially given BKNG's significant overseas exposure, which has been holding up nicely stacked against the U.S. Still, we like today's pullback as a decent entry point, especially with management observing resiliency in global leisure travel demand to start 2024.
Block is squarely benefiting from cost-cutting and Cash App growth, fueling strong profits (SQ)
Block (SQ) may have missed Q4 EPS expectations, but the payments and buy now, pay later (BNPL) company is generating robust profit growth with momentum building in FY24, leading it to raise its guidance. After initially forecasting FY24 adjusted EBITDA of $2.4 bln and adjusted operating income of $875 mln, SQ now expects to generate adjusted EBITDA of at least $2.63 bln and adjusted operating income of at least $1.15 bln, representing estimated yr/yr growth of 47% and 228%, respectively.
- Keeping a tight lid on costs and headcount is a key component of SQ's improving profitability. During the Q3 earnings call last November, COO Amrita Ahuja stated that the company was setting a cap on the number of employees at 12,000, adding that the company will be smaller by the end of 2024.
- At that time, SQ had more than 13,000 employees. With this tighter constraint on workforce size, SQ expects to increase productivity and efficiency, while also driving meaningful leverage on stock-based compensation as a percentage of gross profit.
- Additionally, SQ has identified other areas to derive savings, such as real estate, process improvements using automation, and discretionary spending. On a non-GAAP basis, total operating expenses were up by just 6% in Q4 to $1.48 bln.
- Meanwhile, SQ's person-to-person payment platform, Cash App, continues to generate strong growth with revenue up 31% yr/yr to $3.91 bln with gross profit increasing 25% yr/yr to $1.18 bln. SQ noted that Cash App benefitted from growth inflows per active user, driven by financial services products and stronger monetization due to pricing changes.
- This combination of strong Cash App growth and solid cost control enabled adjusted EBITDA to double yr/yr to $562 mln, with SQ forecasting adjusted EBITDA to grow to $570-$590 mln in Q1.
- While SQ has done well to mitigate macroeconomic-related headwinds, it isn't completely immune to the slowdown in consumer spending. Outside of the strong holiday shopping season -- SQ had a record-setting Black Friday and Cyber Monday weekend for transactions -- activity has generally moderated for the Square business.
- Square Gross Payment Volume (GPV) grew by 10% as GPV per seller continued to be impacted by lower discretionary spending in the U.S. In the year ago period, Square GPV increased by 14%.
- In this tougher macroeconomic climate, more consumers have been turning to BNPL services to make purchases. This was made clear when Affirm (AFRM) crushed Q2 EPS and revenue estimates and guided Q3 revenue far above expectations on February 8. SQ's Afterpay is benefitting from the same trend as the platform contributed $242 mln of gross profit to Cash App in Q4.
- GMV from Afterpay was $8.6 bln, up 25% yr/yr, driven by strength across the pay-in-four offering.
The main takeaway is that SQ's profitability is on the rise, even amid this challenging environment, as cost-cutting actions and the healthy growth of Cash App and Afterpay fuel its growth.
Rivian Automotive stalls out, hits all-time lows following bleak FY24 guidance (RIVN)
Rivian Automotive (RIVN -26%) stalls out today following dismal FY24 guidance. The electric vehicle maker's headline numbers in Q4 were decent, barely missing bottom-line estimates while edging past analysts' revenue forecasts. However, RIVN projected flat production growth in FY24 alongside a low single-digit uptick in deliveries, well below street estimates. Furthermore, RIVN is encountering a major speed bump to start FY24, forecasting a 10-15% sequential drop in deliveries in Q1. To round out the disappointment, RIVN announced a 10% reduction in its workforce and plans to shut down production during Q2 in conjunction with operating efficiency initiatives.
- With entry-level prices hovering around $70,000, RIVN's vehicles are by no means cheap. While tax credits and other incentives can bring the costs down, big OEMs like General Motors (GM) and Ford Motor (F) are beginning to flood the EV market with lower-priced alternatives, so RIVN may be finding it increasingly challenging to compete. At the same time, hybrids remain a viable alternative to EVs, particularly in the U.S., where individuals tend to have extended commutes.
- Coinciding with intensifying competition is a lackluster economic backdrop. RIVN acknowledged that its business is not immune to economic and geopolitical uncertainties, including high-interest rates, which have curbed discretionary spending. As a result, RIVN is finding it challenging to convert orders to sales.
- Still, deliveries shot up over 70% yr/yr in Q4 to just under 14,000. Additionally, RIVN exceeded its FY23 production target of 54,000 handily, registering over 57,000 vehicles produced. As a result, RIVN's total revenue growth of 98.3% to $1.31 bln topped analyst estimates. Meanwhile, RIVN improved its gross profit per vehicle to approximately negative $43,000, around $81,000 better than the year-ago period. Although, it should be noted that it was still a ~$13,000 drop sequentially.
- However, compared to Q3, deliveries fell by roughly 10%, RIVN's first sequential drop since 1Q23. Given RIVN's bearish Q1 delivery target, it will not be the last sequential drop either. Furthermore, with production set to halt in Q2, production will likely tail off after four consecutive quarters of growth. RIVN anticipated producing 57,000 vehicles in FY24.
- RIVN's primary focus this year is achieving its 2024 delivery goal. Its other focus is to reach modest gross profit by 4Q24, which it plans to accomplish by reducing variable costs per unit through material cost reductions, driving greater efficiency through its production facility, and scaling non-vehicle revenue.
After an encouraging earnings report last quarter, RIVN shocked investors with its bleak FY24 outlook yesterday after the bell. Making 2024 even grimmer is that RIVN plans to increase its expenses by over 70% yr/yr. While we like RIVN's confidence in achieving its previously set gross profit goal, it may be best to wait on the sidelines until economic conditions turn.
Etsy not looking is "besty" as cautious guidance weighs on stock; discretionary a tough space (ETSY)
Etsy (ETSY -9%) is heading lower following Q4 results/guidance last night. This was an important quarter because the Q4 holiday period is typically Etsy's largest revenue quarter of the year by a good amount. GAAP EPS was light, but revenue had some decent upside to analyst expectations. GMS declined 0.7% yr/yr to $4.01 bln, which was better than prior guidance of a low single-digit decline.
- The Etsy marketplace performed well during the holiday season. However, Etsy said that headwinds continued for its GMS metric, including pressure on consumer discretionary product spending, softness in the Home & Living category and a highly competitive retail environment focused on deep discounting. The silver lining was that its Etsy marketplace GMS trendline improved in November and December following a challenging October. Etsy says consumers are feeling stretched with low confidence in the economy and less money to spend on discretionary items. However, the company also believes this is a moment that will pass.
- In terms of Q1 consolidated GMS, Etsy currently expects a low single-digit decline yr/yr. This reflects a slow start to the quarter with consumer sentiment remaining low. However, Etsy expects that GMS for the core Etsy marketplace will improve as it moves through the rest of the quarter as a result of planned product and marketing investments.
- Etsy says it's starting 2024 as a much more meaningful company than it was just a few years ago. It has doubled its buyer base, which has now grown yr/yr in four consecutive quarters. Also, buyers on average, are still shopping more frequently and spending much more on Etsy now than they were before the pandemic. Etsy estimates that the TAM in its core geographies and categories is $500 bln with a 2% market share, so still a long runway for growth.
- Etsy also explains that most other online players are competing head-to-head to sell the same merchandise focused on selling it $0.02 cheaper or shipping it two hours faster. This has resulted in the commoditization of the entire experience. Etsy sees itself as offering something different in a sea of sameness. As such, highlighting its best stuff remains a top focus. Etsy is confident that it can get back to growing faster and taking share more broadly.
Overall, Etsy's Q4 was decent in light of a challenging macro environment. However, the cautious guidance for Q1 and FY24 seems to be weighing on the stock today. Etsy is in a tough spot. Inflation and higher rates are weighing on consumer sentiment, especially for discretionary items, which is Etsy's bread and butter. However, as rates and inflation ease up later this year, that should be good for Etsy.
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