Market Snapshot
| Dow | 41240.52 | +65.44 | (0.16%) | | Nasdaq | 17725.76 | -152.03 | (-0.85%) | | SP 500 | 5616.84 | -17.77 | (-0.32%) | | 10-yr Note | -1/32 | 3.82 |
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| | NYSE | Adv 1494 | Dec 1256 | Vol 748 mln | | Nasdaq | Adv 1917 | Dec 2293 | Vol 5.1 bln |
Industry Watch
| Strong: Consumer Staples, Materials, Utilities, Energy, Financials, Real Estate |
| | Weak: Information Technology, Communication Services, Consumer Discretionary |
Moving the Market
-- Not a lot of participation amid vacation schedules
-- Losses in mega cap stocks and semiconductor space, driven by consolidation activity, weighing down indices
-- Wait-and-see mentality in front of NVIDIA (NVDA) earnings results on Wednesday
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Closing Summary
26-Aug-24 16:20 ET
Dow +65.44 at 41240.52, Nasdaq -152.03 at 17725.76, S&P -17.77 at 5616.84
[BRIEFING.COM] The stock market had a mixed showing on the first day of the new week. The S&P 500 (-0.3%), Nasdaq Composite (-0.9%), and Russell 2000 (-0.04%) settled with losses while the Dow Jones Industrial Average (+0.2%) closed at a new record high.
The mixed showing was a reflection of some trepidation following last week's solid gains in reaction to Fed Chair Powell's dovish remarks. There also wasn't much news to respond to and investors are in vacation-mode ahead of Labor Day, which contributed to the muted action.
Advancers led decliners by an 11-to-10 margin at the NYSE and decliners lead advancers by the same margin at the Nasdaq.
NVIDIA (NVDA 126.46, -2.91, -2.3%) was an influential laggard in front of its earnings report after Wednesday's close. This price action was related to consolidation activity, which also weighed down other mega cap and semiconductor-related names. Meta Platforms (META 521.12, -6.88, -1.3%) and Broadcom (AVGO 159.62, -6.74, -4.1%) were among standouts in that respect.
NVDA shares are still 155.4% higher this year; META shares are up 47.2% in 2024; and AVGO shows a 43.0% gain this year.
The information technology sector (-1.1%) logged the biggest decline among the six S&P 500 sectors that closed lower. The consumer discretionary sector was the next worst performer, dropping 0.8%. Meanwhile, the energy sector showed relative strength, gaining 1.1% today amid rising oil prices.
WTI crude oil futures settled 3.4% higher at $77.42/bbl following retaliatory strikes over the weekend by Israel and Hezbollah. Additionally, Libya's eastern government has said it will stop oil production, according to Bloomberg.
Treasury yields settled little changed from Friday. The 2-yr note yield rose two basis points to 3.82% and the 10-yr note yield settled one basis point higher at 3.82%.
- S&P 500: +18.1% YTD
- Nasdaq Composite: +17.8% YTD
- S&P Midcap 400: +10.9% YTD
- Russell 2000: +9.4% YTD
- Dow Jones Industrial Average: +9.4% YTD
Reviewing today's economic data:
- July Durable Goods - ex transportation -0.2% (Briefing.com consensus 0.1%); Prior was revised to 0.1% from 0.5%, July Durable Orders 9.9% (Briefing.com consensus 4.0%); Prior was revised to -6.9% from -6.6%
- The key takeaway from the report is that business spending was soft in July, evidenced by a 0.1% decline in new orders for nondefense capital goods excluding aircraft.
Looking ahead, Tuesday's economic data features:
- 9:00 ET: June FHFA Housing Price Index (prior 0.0%) and June S&P Case-Shiller Home Price Index (Briefing.com consensus 6.0%; prior 6.8%)
- 10:00 ET: August Consumer Confidence (Briefing.com consensus 100.0; prior 100.3)
Treasuries settle little changed from Friday
26-Aug-24 15:35 ET
Dow +50.82 at 41225.90, Nasdaq -159.89 at 17717.90, S&P -19.47 at 5615.14
[BRIEFING.COM] Things are little changed at the index level over the last half hour. The S&P 500 sports a 0.3% decline ahead of the close.
The 2-yr note yield settle two basis points higher at 3.82% and the 10-yr note yield settled one basis point higher at 3.82%.
Looking ahead, Tuesday's economic data features:
- 9:00 ET: June FHFA Housing Price Index (prior 0.0%) and June S&P Case-Shiller Home Price Index (Briefing.com consensus 6.0%; prior 6.8%)
- 10:00 ET: August Consumer Confidence (Briefing.com consensus 100.0; prior 100.3)
Some notable names reporting earnings this week
26-Aug-24 15:10 ET
Dow +50.88 at 41225.96, Nasdaq -134.29 at 17743.50, S&P -16.56 at 5618.05
[BRIEFING.COM] The major indices trade in relatively narrow ranges.
Share of NVIDIA (NVDA 126.82, -2.52, -2.0%) remain near their lows of the day in front of its earnings after Wednesday's close.
Nordstrom (JWN), PVH (PVH), Box (BOX), Catalent (CLTL), Abercrombie & Fitch (ANF), Bath & Body Works (BBWI), Chewy (CHWY), J.M. Smucker (SJM), Kohl's (KSS), HP Inc (HPQ), Salesforce (CRM), NetApp (APP), CrowdStrike (CRWD), Five Below (FIVE), Dollar General (DG), Best Buy (BBY), Dell (DELL), Gap (GAP), Ulta Beauty (ULTA), lululemon athletica (LULU), and Autodesk (ADSK) are also among the notable names reporting earnings this week.
SF Fed Pres. Mary Daly supports rate cuts
26-Aug-24 14:40 ET
Dow +61.27 at 41236.35, Nasdaq -137.90 at 17739.89, S&P -15.70 at 5618.91
[BRIEFING.COM] The major indices continue to trade in a lateral flow. Volume remains below-average to this point in the session amid ongoing vacation schedules ahead of Labor Day.
San Francisco Fed President Mary Daly (FOMC voter) said she believes the time has come for rate cuts, according to Bloomberg, echoing Fed Chair Powell's commentary on Friday.
Separately, copper futures settled 0.2% higher at $4.22/lbs.
INTC lower after activist investor news
26-Aug-24 14:05 ET
Dow +17.25 at 41192.33, Nasdaq -203.55 at 17674.24, S&P -28.31 at 5606.30
[BRIEFING.COM] The Dow Jones Industrial Average hit a fresh session low in recent trading, briefly dropping below Friday's closing level.
A look inside the DJIA shows Coca-Cola (KO 70.83, +1.04, +1.5%), Dow Inc (DOW 54.08, +0.55, +1.0%), and Walt Disney (DIS 91.34, +0.78, +0.9%) leading the 30 components.
Intel (INTC 20.16, -0.38, -1.9%) shows the largest decline among Dow stocks after hiring advisors to help defend itself against activist investors, according to CNBC.
Intel sinks lower again as it reportedly prepares for activist investors to come knocking (INTC)
Coming off one of its worst quarterly performances in recent memory in which it missed top and bottom-line estimates for Q2 and issued very weak Q3 guidance, it seems that beleaguered chip maker Intel (INTC) sees the sharks circling. According to a report from CNBC last Friday night, INTC has hired advisors from Morgan Stanley (MS) and perhaps other firms to help defend itself against possible battles with activist investors.
- At this point, no concrete activist investor activity has materialized, but with shares of INTC plunging by 60% on a year-to-date basis, the company has certainly become an easy target. INTC's issues are both deep and many, but the biggest indictment against its leadership is the massive share losses it has suffered at the hands of Advanced Micro Devices (AMD) and NVIDIA (NVDA).
- From a technology and product standpoint, INTC was simply unprepared to capitalize on the explosion of AI, which has necessitated massive investments in new data center chips -- an area that NVDA and AMD have dominated. To illustrate just how far INTC has fallen behind, in Q2, revenue in its Data Center and AI segment fell by 3%, while AMD's Data Center segment experienced a 115% surge in revenue. NVDA, which is slated to report Q2 earnings after the close on Wednesday, saw its revenue rocket higher by 262% last quarter.
- If an activist investor does home in on INTC, it seems likely that the aim would be to reduce its cost structure and to sharpen its focus on AI and its core businesses. In that brutal Q2 earnings report, INTC also announced a headcount reduction of at least 15% of its workforce, along with a 20% cut to its 2024 capex projection and the suspension of its dividend. However, it wouldn't be surprising if an activist investor pressed INTC to take it a step further by divesting some non-core assets.
- INTC already has an established track record of executing such transactions. In October 2022, the company spun off ADAS technology company Mobileye Global (MBLY), and this past February, it spun off Altera into a new standalone FPGA company. Additionally, in September 2023, it sold a 10% stake in the IMS Nanofabrication business for $4.3 bln to Taiwan Semiconductor Manufacturing (TSM).
- It would be pure speculation to suggest what other assets an activist investor could set its sights on for divestiture -- if any at all -- but INTC needs more capital to fund its "IDM 2.0" strategy, which is the company's strategy of rededicating itself to technology leadership, while also transitioning to a foundry model. For some perspective, INTC's cash flow from operations for the six months ended June 29, 2024 was $1.07 bln. Ten years earlier, the company generated cash flow of nearly $9.0 bln for the six months ended June 208, 2014.
The main takeaway is that INTC and its leadership team is a vulnerable position as the company's turnaround plan falters and as it continues to miss out on one of the most powerful growth catalysts to come through the semiconductor industry in decades. Although INTC has taken some steps to reduce its cost structure, activist investors may be looking for the company to take even more drastic measures.
Pinduoduo plunges to 2024 lows as rising competition, slowing consumer spending hits Q2 sales (PDD)
Intensifying competitive pressures and macroeconomic headwinds in China have weighed on Pinduoduo (PDD), the owner of discount eCommerce retailer Temu, and those issues took center stage again in Q2. While PDD exceeded EPS expectations, the company missed on the top-line for the first time since 4Q22 as revenue growth slowed to 86% from 131% last quarter. What's hitting the stock especially hard, though, is the gloomy commentary from PDD's executives.
- In the earnings press release, VP of Finance Jun Liu stated that "revenue growth will inevitably face pressure due to intensified competition and external challenges" and that "profitability will also likely be impacted as we continue to invest resolutely." Additionally, co-CEO Lei Chen commented that he sees "many challenges ahead" while the company is prepared to "accept short-term sacrifices and potential decline in profitability."
- These rising competitive and macroeconomic pressures are not only impacting PDD, but they're also having a profound effect across the eCommerce landscape in China. For instance, on August 15, rivals Alibaba (BABA) and JD.com (JD) posted lackluster Q2 results, including a revenue miss for the former and the slowest revenue growth (+1.2%) in at least five years for the latter.
- Unfortunately for PDD and its peers, there doesn't appear to be any relief in sight as eCommerce giant Amazon (AMZN) is reportedly planning to add a new discount section on its site with direct shipping from China. On June 26, The Information reported that AMZN would begin offering products from merchants in China at lower prices, but with longer shipping times.
- Despite the difficult sales environment, PDD has no intention of slowing its spending and investments to improve its platform and to fend off competitors. In Q2, operating expenses jumped by 48% to RMB 30.8 bln, mainly due to increased spending on sales and marketing initiatives. Non-GAAP operating profit still soared by 139% yr/yr to RMB 14.6 bln, but that does mark a significant slowdown from last quarter's 237% surge.
- If all of this wasn't enough for investors to worry about, PDD is also facing heightened regulatory risks in both China and the U.S. While China continues to clamp down on anti-competitive practices from tech companies, the U.S. is ramping up tariffs on Chinese imports.
The main takeaway is that PDD is taking hits from multiple sides and that it's not immune to the consumer spending slowdown, even though its platform is geared towards offering products at discounted prices.
Trupanion has been making a strong move since earnings; sentiment seems to be improving (TRUP)
Trupanion (TRUP) has been barking up a storm since reporting impressive Q2 results a couple of weeks ago. As a provider of medical insurance plans for cats and dogs, it would make sense if consumers decided to cut back on this spending given how tight consumer budgets are these days. However, Trupanion surprised the market with a good Q2 report. The stock has made quite a move since the Q2 report (+33%), trading to a new 52-week high.
- The company reported a loss as expected, but it was narrower than analysts had been expecting. Also, revenue rose nicely, up 16% yr/yr to $314.8 mln, which also was better than expected. What's more and we think the metric investors liked most was subscription revenue jumping 20% yr/yr to $208.6 mln. TRUP says its subscription business is the financial engine behind its business.
- Breaking down the components of its subscription growth, ARPU increased by 11% yr/yr, a record pace since TRUP became publicly traded 10 years ago and pet count increased by 8%. Within its core Trupanion brand, ARPU expanded even faster at 13%. Modulating between growth and pricing is a key focus for TRUP.
- An issue the company has been dealing with rising veterinary pricing, so it works hard to get that right balance between its prices and vet inflation. What really helped with Q2 subscription revenue is that TRUP had approximately 24% pricing rolling through its book, and veterinary inflation remained consistent with expectations at 15%. Against this backdrop, retention in the quarter was strong with the average pets staying with TRUP for over 60 months. Of note, within its core Trupanion product, approximately half of its Trupanion members have received a pricing increase of 20% or more over the last 12 months.
- Unlike other direct-to-consumer subscription models, because TRUP is an insurance provider which is more regulated, it is limited in how quickly it can adjust and implement pricing. However, TRUP recently received meaningful rate approvals in two of its largest states that are beginning to take effect. While these new rates will take time to run through its book, they should enable TRUP to increase acquisition spending and pet growth in these regions now that the company has reestablished pricing.
Overall, we just wanted to flag the big move recently in Trupanion. It seems like US consumers are willing to keep spending on their pets despite the macro pressures. Also, we think consumers are seeing the rising cost of veterinary care and having health insurance is way to mitigate those increased costs. It also tells us sentiment around this stock finally seems to be improving. It has been under pressure in recent years, but the durability of its subscription base and favorable rate increases from state regulators are convincing the skeptics.
Bill.com's new strategic investment plan rejected today as it erodes FY25 EPS guidance (BILL)
After immediately heading higher on solid top and bottom-line upside in Q4 (Jun), Bill.com (BILL -6%) quickly encountered turbulence, resulting in its shares being sent markedly lower today. The initial jump stemmed from a relatively sound overall performance in Q4, which included a new $300 mln repurchase authorization. However, when peeling back some of the layers, investors uncovered a few weaknesses that erased the initial enthusiasm, primarily BILL's soft FY25 EPS guidance, which emerged due to the company's new planned investments for the year. A rating downgrade at Goldman Sachs is also adding to today's selling pressure.
- Starting with the highlights, BILL's adjusted EPS contracted by less than analysts anticipated at -3.4% yr/yr to $0.57, translating to another bottom-line beat, a common occurrence for the financial automation software provider. Revenue grew by 16.1% to $343.67 mln, exceeding analysts' and BILL's forecasts easily. The company added 4,600 net new customers in its direct and accounting channels, as well as 6,700 new customers in its financial institution channel. Meanwhile, total payment volume climbed 10% higher y/yr to $76 bln.
- These bright spots reflected excellent progress on key initiatives BILL implemented during FY24 to better fight against cyclical headwinds that were moderating B2B spending and shifting payment method preferences. BILL made it its mission to adapt its go-to-market actions, improve product experiences, and work better with its partners. Management noted that these moves enabled improved customer acquisition and stabilized payment monetization throughout the year.
- With signs of stabilization unfolding across BILL's business, the company believes now is the best time to begin investing more aggressively. Management touched on four specific areas where it will allocate resources: expanding its value proposition, such as bolstering card usage and international payments; having dedicated teams talk to suppliers; deepening account relationships; and fortifying its ecosystem. In connection with these investments, BILL is beginning to hire additional workers across its R&D and go-to-market teams.
- As a result, BILL's FY25 adjusted EPS guidance fell well short of analyst forecasts, projecting $1.36-1.61, or a 35% drop yr/yr at the midpoint. The company's FY25 revenue guidance was also a tad light, targeting $1.415-1.450 bln, the midpoint of which missed analyst estimates.
In an economic environment still ripe with uncertainty, investors are not warming up to BILL allocating additional capital toward its new strategic priorities. The company is confident that its investments will position it to deliver core revenue growth of +20% or more in FY26, with profitability expanding during that time. However, this is a long way out, and the market may need some proof that +20% is attainable before sharing BILL's confidence that investing now is the proper move. Until then, shares could continue struggling to mount a comeback.
Workday's enhanced medium-term margin outlook takes sting out of subdued FY25 guidance (WDAY)
Workday (WDAY), a provider of human capital management and financial cloud software products, is rocketing higher after issuing 2Q25 results and updating its FY25 guidance, but the main catalyst for the surge is tied to something else. During the earnings call last night, CEO Carl Eschenbach commented that WDAY intends to sharpen its focus on profitability by keeping a lid on headcount growth and by leveraging its partner channel. Accordingly, Mr. Eschenbach said that he expects operating margin to improve to 30% by FY27, up from the current figure of about 25%.
- Adding to the bullish storyline, WDAY also announced a new $1.0 bln stock repurchase plan, providing another driver for EPS growth. On the topic of earnings growth, EPS grew 22% yr/yr to $1.75, beating expectations for the ninth consecutive quarter. The upside was driven by improved efficiencies across the company, which drove non-GAAP operating margin higher by 130 bps yr/yr to 24.9%.
- The news on the demand side isn't quite as upbeat. Subscription revenue came in at $1.903 bln, up 17% yr/yr, down from last quarter's growth of 18.8%. Mr. Eschenbach stated that the company continues to experience deal scrutiny and moderated headcount growth within its customer base. However, he added that WDAY's win rates remain high, helping it to offset the broad-based softness in IT spending.
- After lowering its FY25 subscription revenue guidance last quarter, WDAY reaffirmed its forecast last night, guiding for subscription revenue of $7.700-$7.725 bln, representing growth of approximately 17%. WDAY's medium-term outlook, though, was ratcheted a bit lower with the company expecting annual subscription revenue growth of about 15% for FY26 and FY27. Along with the challenging demand backdrop, CFO Zane Rowe stated that the company is becoming increasingly targeted in its growth investments as it looks to enhance ROI across the portfolio.
The main takeaway is that the business climate remains difficult for WDAY as enterprises continue to rein in costs, but the company's decision to take a more targeted approach with hiring and drive more efficiency, including through using more AI in its call centers, should push margins and earnings growth higher.
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