Market Snapshot
| Dow | 43428.02 | -748.63 | (-1.69%) | | Nasdaq | 19524.00 | -438.36 | (-2.20%) | | SP 500 | 6013.23 | -104.39 | (-1.71%) | | 10-yr Note | +29/32 | 4.42 |
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| | NYSE | Adv 713 | Dec 1983 | Vol 1.2 bln | | Nasdaq | Adv 1112 | Dec 3525 | Vol 8.5 bln |
Industry Watch
| Strong: Consumer Staples |
| | Weak: Industrials, Health Care, Energy, Consumer Discretionary, Materials |
Moving the Market
-- UNH weighing down DJIA after WSJ report that DOJ launched a civil fraud investigation into Medicare Advantage billing practices
-- Consolidation after big run
-- Growth concerns after weak economic data this morning
-- Losses in some mega cap names
-- Increased volume on options expiration day
| Closing Summary
21-Feb-25 16:30 ET
Dow -748.63 at 43428.02, Nasdaq -438.36 at 19524.00, S&P -104.39 at 6013.23
[BRIEFING.COM] The stock market logged sharp declines in a broad-based retreat on above-average volume on this options expiration day. The major indices all settled near their worst levels of the day, which left the S&P 500 just above its 50-day moving average (6,010) with a 1.7% loss.
Concerns over growth and valuations drove consolidation activity and profit-taking interest. The concerns over growth followed soft economic data this morning, including the preliminary February S&P Global US Services PMI, which fell to contraction territory (i.e. below 50), the final University of Michigan Consumer Sentiment report for February, which dropped to 64.7, and existing home sales, which declined 4.9% month-over-month in January.
The worries about valuation have been growing this week, sparking discussions about the possibility of the market having reached a near-term peak.
Fallout in shares of UnitedHealth (UNH 466.42, -36.00, -7.2%) following a Wall Street Journal report that the DOJ has launched a civil fraud investigation into UNH's Medicare Advantage billing practices also weighed on the market, particularly the Dow Jones Industrial Average (-1.7%).
Four of the S&P 500 sectors declined at least 2.0% including the consumer discretionary (-2.8%) and technology (-2.5%) sectors.
Treasuries settled with gains across the curve in response to this morning's economic data. The 10-yr yield dropped eight basis points to 4.42% and the 2-yr yield settled eight basis points lower at 4.19%.
- Dow Jones Industrial Average: +2.1% YTD
- S&P 500: +2.2% YTD
- Nasdaq Composite: +1.1%
- S&P Midcap 400: -0.6% YTD
- Russell 2000: -1.6% YTD
Reviewing today's economic data:
- February S&P Global US Manufacturing PMI - Prelim 51.6; Prior 51.2
- February S&P Global US Services PMI - Prelim 49.7; Prior 52.9
- January Existing Home Sales 4.08 mln (Briefing.com consensus 4.06 mln); Prior was revised to 4.29 mln from 4.24 mln
- The key takeaway from the report is that existing home sales are being suppressed by affordability constraints that are rooted in elevated home prices, which are tied to limited inventory, and elevated mortgage rates.
- February Univ. of Michigan Consumer Sentiment - Final 64.7 (Briefing.com consensus 67.8); Prior 67.8
- The key takeaway from the report is that the weakening in sentiment cut across groups by age, income, and wealth, and was attributed largely to worries about imminent price increases driven by tariff actions.
Looking ahead, there's no US economic data of note on Monday.
Treasuries settle with gains
21-Feb-25 15:35 ET
Dow -712.79 at 43463.86, Nasdaq -417.69 at 19544.67, S&P -97.19 at 6020.43
[BRIEFING.COM] The S&P 500 has maintained a posture above its 50-day moving average, but remains near its worst level of the day.
Treasuries settled with gains across the curve in response to this morning's economic data. Flash February Manufacturing (51.6; prior 51.2) and Services (49.7; prior 52.9) PMI readings for the U.S. showed the first contraction in the services sector since early 2023. The 10-yr yield dropped eight basis points to 4.42% and the 2-yr yield settled eight basis points lower at 4.19%.
Looking ahead, there's no US economic data of note on Monday.
Losses continue to build
21-Feb-25 15:05 ET
Dow -730.32 at 43446.33, Nasdaq -426.81 at 19535.55, S&P -100.18 at 6017.44
[BRIEFING.COM] The S&P 500 trades just above its 50-day moving average (6,010). The index is 1.7% lower this week.
Losses continue to build in just about everything. The equal-weighted S&P 500 trades 1.5% lower and ten of the 11 S&P 500 sectors trade lower. Three sectors are more than 2.0% below prior closing levels, including the technology (-2.3%) and consumer discretionary (-3.0%) sectors.
Decliners have a nearly 3-to-1 lead over advancers at both the NYSE and at the Nasdaq.
VIX spikes as momentum unwinds
21-Feb-25 14:30 ET
Dow -784.65 at 43392.00, Nasdaq -401.16 at 19561.20, S&P -98.92 at 6018.70
[BRIEFING.COM] The market continues to drop. The Dow Jones Industrial Average is nearly 800 points lower today.
The downturn is related to the unwinding of momentum trades that is causing a stir for speculators late to the party (i.e., they are weak-handed holders and are getting shaken out of positions by the disappointing price action).
This unwinding is seen by some as a sign that the market was on the cusp of a near-term top. That consideration, and the counter-trend price action, has fueled an uptick in seeking protection to hedge against further downside risk, evidenced by the gain in the CBOE Volatility Index (18.05, +2.39, +15.3%).
Retailers underperform in front of earnings next week
21-Feb-25 14:00 ET
Dow -702.28 at 43474.37, Nasdaq -345.41 at 19616.95, S&P -86.12 at 6031.50
[BRIEFING.COM] The market remains in a steady decline.
Retailers are underperforming the broader equity market in front of earnings reports from key names in the space next week. The SPDR S&P Retailer ETF (XRT) shows a 3.0% decline.
Home Depot (HD 386.86, -7.77, -2.0%), Lowe's (LOW 240.38, -6.03, -2.5%), TJX (TJX 121.47, -1.50, -1.2%), Urban Outfitters (URBN 52.97, -1.74, -3.2%), Dollar Tree (DLTR 74.05, -2.24, -2.9%), and Bath & Body Works (BBWI 39.23, -0.90, -2.3%) are among the retailers reporting results next week.
Rivian in reverse after issuing disappointing FY25 deliveries guidance (RIVN)
Despite achieving its first positive gross profit margin and comfortably exceeding 4Q24 revenue expectations, Rivian Automotive (RIVN) is driving lower today over concerns that FY25 may shape up to be a disappointing year for the upstart EV maker. Those concerns are grounded in the company's tepid 2025 deliveries guidance of 46,000-51,000 vehicles, which fell well short of expectations and signaled a yr/yr decrease of nearly 7% at the midpoint. RIVN stated that "changes to government policies and regulations" could further impact a challenging demand environment. Those changes may include the elimination of the $7,500 EV tax credit that has helped to support the EV market.
- A solid quarter was also anticipated after RIVN reported better-than-expected Q4 deliveries of 14,183 vehicles in early January. That deliveries report eased investors' worries that the component shortages impacting the production of RIVN's Enduro motors would linger and constrain future production. On that note, the company commented in the Q4 Shareholder Letter that it does not expect the component shortage to impact operations in 2025.
- The good news didn't stop there as RIVN also reiterated that it remains on track to launch its mass-market R2 model in 1H26. Better yet, the midsize SUV is expected to cost far less to produce than the R1. More specifically, the R2 bill of materials is forecasted to be approximately half of the R1 bill of materials, enabling RIVN to make significant progress on its path to profitability.
- Indeed, the company is already making major strides in that regard. In Q4, RIVN generated positive automotive gross profit of $110 mln, compared to $(611) mln in the year-earlier period. Lower material costs driven by engineering design changes and commercial supplier negotiations provided a boost. On an adjusted EBITDA basis, RIVN is fast approaching the breakeven point with Q4 adjusted EBITDA coming in at $(277) mln, marking an improvement of $729 mln on a yr/yr basis.
- However, if demand begins to sour in 2025, due to macro and/or regulatory changes, RIVN's path to profitability could take a detour. Higher production, leading to greater manufacturing efficiencies, is the key to a stronger bottom-line for automakers. If the company is forced to slow production amid soft demand conditions, its timeline for profitability could be pushed out.
From a company-specific standpoint, RIVN is executing well and the fact that its R2 platform remains on track for 1H26 is a major positive. However, factors that are out of its control -- life tariffs, tax credits, and interest rates -- are creating an uncertain environment that's taking some of the charge of its stock.
Dropbox gets dropped as paying users contract in Q4 while revenue guidance falls short (DBX)
Dropbox (DBX -15%) is getting dropped today following its grim Q1 and FY25 revenue outlook, stemming largely from its decision to hold onto FormSwift, a document-generating application. The company had plenty of steam heading into Q4 results last night, climbing by over +50% since August lows and flirting with multi-year highs reached in February 2024.
Unfortunately, the cloud-based file storage and sharing platform's momentum was abruptly halted following another round of bearish guidance. During its past rally, investors were willing to shrug off a consistent string of downbeat quarterly revenue projections, focusing on AI potential and DBX's cost-cutting initiatives, including a 20% workforce reduction in October. However, this time around, there were too many glaring weak points for investors to overlook.
- A consistent theme throughout DBX's past three quarters was a sequential uptick in paying users, jumping by as much as 63,000 in Q2. However, in Q4, paying users contracted by 15,000 sequentially, marking the first sequential drop since 4Q23. DBX attributed the decline to pressure on down-sell, churn, and team expansion activity sparked by increased pricing sensitivity.
- Making matters worse, DBX anticipates paying users to decline by about 300,000 in 2025, half of which stems from a reduced investment in FormSwift. Following a lengthy strategic review, DBX announced it would hold onto FormSwift but eliminate marketing for the product, generating paying user headwinds.
- Its decision is dragging down Q1 and FY25 revenue growth projections by 80 bps and 150 bps, respectively. The company expects Q1 revs of $618-621 mln, a 2% dip yr/yr at the midpoint, marking DBX's first quarter of yr/yr net sales compression in over five years, and FY25 revenue of $2.465-2.480 bln, a 3% drop at the midpoint.
- Moving ahead, DBX is looking at a few areas in which to reaccelerate growth. For starters, the company plans to continue optimizing its Teams business, pulling on certain levers, such as pricing optimizations and churn improvements, to offset nagging headwinds. Furthermore, DBX is turning its core business into a launchpad for Dash, its AI-powered universal search function. Management sees the majority of its File Sync and Share (FSS) subscribers, which would translate to around 0.5 mln business accounts, as good prospects for Dash.
- However, dampening the enthusiasm for Dash is the fact that DBX does not anticipate a material contribution to revenue from the product this year. Meanwhile, competitors like Sharefile (PRGS) and Box (BOX) already offer similar functions.
DBX's Q4 report was decent, maintaining its impressive streak of bottom-line upside. However, gloomy revenue guidance branching from DBX's move to keep FormSwift but allocate resources toward Dash is deflating investor sentiment significantly today. Since DBX is still in the early innings with Dash, investors are booking profits today as the company's shift in attention is expected to noticeably dent growth this year.
Akamai Tech struggling to escape lingering weakness in its content delivery business (AKAM)
Akamai Tech (AKAM) has made significant progress in transforming into a cybersecurity and cloud computing company, but its traditional CDN (content delivery network) business is still mired in a deep slump that continues to offset the strength of those two businesses. That persistent weakness in the Delivery segment, which is being weighed down by slowing digital spending and internet traffic, is the primary cause behind AKAM's downside EPS and revenue guidance for 1Q25 and FY25.
- AKAM did manage to surpass Q4 EPS and revenue estimates, but it's worth noting that the company did reset Q4 expectations lower last quarter when it issued downside guidance in the Q3 earnings press release. Strength in the Compute segment, which generated yr/yr revenue growth of 24% to $167 mln, was a key factor behind the upside Q4 results. In particular, cloud infrastructure saw healthy demand, especially among larger enterprises. In fact, at year end, about 300 enterprise customers were spending at least $100K in ARR for cloud infrastructure services.
- Moving forward, AKAM anticipates that the cloud infrastructure business -- which provides a competitively priced edge computing network -- will have an even larger impact on its growth. For the remainder of FY25, the company is now aiming to grow total cloud infrastructure services ARR by 40-45%, driven primarily by enterprise customers.
- Meanwhile, in the highly competitive cybersecurity space, AKAM is expanding its capabilities in order to better compete against companies like CrowdStrike (CRWD) and Palo Alto Networks (PANW). In Q4, Security revenue increased by 14% to $535 mln, matching last quarter's growth rate, as AKAM's broader product portfolio has enabled it to expand its customer base. For example, after initially entering the cybersecurity market with DDoS mitigation and web firewall products, AKAM now has products that also protect infrastructure, APIs, and applications.
- Similar to Compute, AKAM is banking on Security's momentum continuing in FY25 and beyond, anchored by its Guardicore platform, which ended FY24 with an ARR of $190 mln, up 31% on a yr/yr basis. Company-wide, AKAM announced a new 3–5-year goal that includes inorganic revenue growth of over 10%, fueled by the Compute and Security segments.
- That seems like a tall task, though, when considering the ongoing weakness in the Delivery business. Following last quarter's 16% decline, revenue in Delivery fell by 18% in Q4 to $318 mln. In addition to the macro-related headwinds mentioned above, AKAM is contending with a significant drop in revenue from one of its largest customers. During the earnings call, the company noted that this customer is navigating "political challenges" in the U.S. and is pursuing a DIY strategy. This factor will produce a headwind of about 1-2% per year on AKAM's overall revenue growth for the next couple of years.
Overall, the story remains mostly the same for AKAM. While the company continues to make good progress shifting its revenue towards Security and Compute -- which now account for 69% of total revenue -- the lingering issues in Delivery continue to act as an albatross on its financials. Until that situation improves, the stock will likely have a difficult time finding any sustained upward momentum.
Booking Holdings journeys toward record highs today following accelerating growth in Q4 (BKNG)
Booking Holdings (BKNG +4%) rode the strong travel demand current in Q4, posting another healthy earnings beat on accelerating revenue growth. The online travel agency, which owns several brands, including Booking.com, Kayak, and OpenTable, also hiked its dividend by 10%. Leading into Q4 results, peers Expedia Group (EXPE) and Airbnb (ABNB) popped on robust travel demand and uplifting forward-looking remarks, anticipating individuals' appetites to continue traveling to persist over the near term.
- This resilient demand backdrop reinforced BKNG's strong headline numbers in Q4, posting adjusted EPS of $41.55 on top-line growth of 14.4% yr/yr to $5.47 bln, up over 5 pts from an +8.9% jump last quarter. Room nights exceeded the higher end of BKNG's prior outlook of +6-8%, expanding by 13% yr/yr, with growth seen across all major regions. As a result, gross bookings growth hit 17% in the quarter, crushing BKNG's +7-9% forecast.
- For the year, BKNG surpassed its long-term growth targets, including gross bookings of at least +8% and constant currency-adjusted EPS of at least +15%.
- Like Airbnb and EXPE's Vrbo, BKNG's alternative accommodations offering enjoyed accelerating demand in Q4, registering room night growth of 19% yr/yr, outpacing the overall business. BKNG's alternative accommodation growth rate has been impressive lately, tacking on 5 pts from last quarter's 14% jump. Management chalked it up to excellent supply and its competitive edge in combining traditional and alternative accommodations on its platform, allowing travelers to compare options.
- BKNG is optimistic about the start of 2025 as it continues to witness healthy demand for leisure travel globally. For Q1, BKNG expects room night growth of +5-7% and gross bookings of +5-7%, which includes around a 4 pt impact from FX headwinds.
- For the year, even when assuming normalized growth, BKNG is targeting constant currency growth rates above its long-term estimates in FY25. Management added that consumers continue to demonstrate the importance of travel, maintaining a preference for experiences, which is reinforcing its energetic long-term outlook.
- AI is staying front and center in BKNG's long-term roadmap. The company believes that AI-powered offerings, like travel-specific AI agents, will take on a central role in delivering a more personalized customer experience. BKNG will remain highly focused on the many AI-related opportunities, furthering the work already unfolding across its operations to integrate Gen AI into its offerings, including Booking.com's AI Trip Planner and Priceline's AI-powered assistant.
- BKNG also sees AI as being able to contribute to a further deceleration of its fixed expense growth in 2025 due to its potential to fuel improvements in operational efficiency.
BKNG is firing on all cylinders as it fully capitalizes on a healthy travel demand environment. Even as competitive forces loom, such as ABNB and EXPE investing in their alternative accommodations platforms while agentic platforms attempt to leverage AI to bypass third-party listings, BKNG is proving its ability to adapt quickly, delivering robust bookings growth across the board while deploying AI where it matters to further cement its competitive edge and provide a long-lasting tailwind.
Floor & Decor higher on improving comp trend, expects a return to comp growth (FND)
Floor & Decor (FND +1%) is trading modestly higher today after wrapping up a difficult 2024 on a positive note. This specialty retailer of hard-surface flooring reported a huge EPS beat. Revenue rose 5.7% yr/yr to $1.11 bln, a bit better than expected. The company also guided FY25 EPS and revenue in-line. Demand for large project discretionary home improvement and hard surface flooring spending was challenging in 2024 given the slow pace of home sales.
- Probably the standout metric was same store comps. In Q4, comps came in at -0.8%, which was better than internal expectations. The Q4 comps were a notable improvement from a -6.4% comps in Q3, -9% in Q2 and -11.6% in Q1. This sequential improvement partially reflects long-awaited modest growth in existing home sales. Despite elevated mortgage rates, existing home sales rose for the third straight month in December, the longest growth streak since early to mid-2021.
- As we noted yesterday, we were a bit nervous knowing we would get our first look at 2025 comp guidance. We think investors were pleased to see FND forecast positive comps at +0-3%. Not huge comps, but at least back in positive territory following a -7.1% comp decline in 2024.
- FND noted on the call that its strong financial position has allowed it to still invest during the cyclical downturn in flooring. Specifically, FND continues to open new stores of various sizes. This has allowed FND to grow market share despite the industry contracting. This will allow FND to maximize sales and profitability once the industry's cyclical growth re-accelerates to historical rates.
- Speaking of which, FND is bullish on the long term housing market and consumer spending environment for hard surface flooring and adjacent categories. FND noted that demand for housing continues to outpace supply and the 40-year median age of owner-occupied housing keeps increasing. FND sees this supply/demand imbalance in housing and aging housing stock as a significant secular growth opportunity as older homes will need updates after several years of postponed remodeling.
- FND also addressed the tariff issue. The company has been actively working to mitigate tariff cost pressures over the past five years by diversifying its countries of origin. In 2024, China-sourced products accounted for 18% of sales, down from 25% in 2023 and 50% in 2018. In Q4, that was down to 16%. FND expects to continue to meaningfully reduce its reliance on China in 2025 and beyond.
At first glance, the EPS/revenue results do not seem to excite investors. However, what did jump out is that FND came close to reporting flat comps in Q4, which we think surprised everyone given the difficult industry dynamics in 2024. Just as important was FND guiding to positive comps in 2025. That signals to the market that FND seems to be turning the corner on the downtrend.
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