Mid-Morning Look

Wednesday, November 09, 2022

U.S. stocks slide post midterm election results as the GOP looks to have reclaimed control of the House from the Democrats, but the margin of victory is smaller than expected, while the tightly fought Senate race hangs in the balance, with some states still close to call. The “red wave” that was talked about over the past few days did not materialize while the Senate race may come down to a runoff in Georgia on December 6^th (still awaiting confirm results from AZ, NV, though point to “Blue” states). Sectors benefitting from a better-than-expected night for Democrats remain solar, EV space as well as cannabis. Energy stocks slump as oil slides, with stock focus on more defensive names early (Staples, REITs, Healthcare). Big corporate stories early include META cutting 13% of workforce, while Dow component DIS slides 11% after missing quarterly results. S&P futures trying to hold their 50-day moving average support around 3,800 (while 100-day MA higher at 3,905), as Treasury yields and the dollar edge higher as we now await the October consumer price index (CPI) inflation data tomorrow and a bevy of Fed speakers too. Lastly, move volatility in the crypt space as Bitcoin falls 6% to $17,600 and Ethereum -8% to $1,225, and further fallout from those with exposure (COIN, SI, MSTR, MARA, RIOT) as doubts about Binance’s potential takeover of rival exchange FTX grow.

Sector Movers Today

·     Media, Internet: DIS reported Q4 revenues 5% below the Street, while segment operating income also missed consensus estimates driven by higher DTC dilution and weaker parks margins; Q4 EPS of $0.30 fell below est. at $0.57, Disney+ subs ended Q4 at 164.2M, reflecting 12.1M net adds in the quarter, which was above consensus at 9.8M – ESPN+ paid subscribers of 24.3M, up from 17.1M a year ago; NWSA Q1 revenue of $2.48B (-1% y/y) missed est. $2.49B on 3c EPS miss though outperformance at News Media, Book Publishing, SVS, and Digital Real Estate; IAC weaker print with EBITDA much lower on $18.5M in Meredith restructuring costs

·     Advertising: In digital ad-tech sector, few earnings as PUBM lower by 8% after reported mixed 3Q22 results though results worsened through the quarter and into October as 4Q guidance calls for ~1% Y/Y revenue growth; DV reported solid 3Q22 results as revenue and EBITDA both came in 3% above consensus while 4Q guidance bracketed consensus; TTD rises as Q3 EPS $0.26 vs est. $0.22 and revs $394.77M vs est. $385.98M, while guides Q4 2022 revenue $490M vs est. $509.1M; SSP downgrade to Equal Weight at Wells Fargo and cut tgt to $11 from $20 saying challenges include weaker political (which drives our -19% ’22E FCF cut), a lot of ad softness at Networks (esp. the Dr market), and higher leverage due to the ION deal.

·     Consumer Staples: grocer KR was upgraded to Outperform from in-line at Evercore/ISI as expects consumers will trade down from restaurants to cooking food at home, as food inflation would be higher for longer, which bodes well for grocers including KR; KDP invests $50M in non-alcoholic beer leader Athletic Brewing Company; SFM reported stronger-than-expected Q3 EPS of $0.61 topping forecast of $0.51, comps increased 2.4%, ahead of a Street figure of +1.5% and 3-year geometric comp trends remained sluggish at +0.9% in Q3; TSN downgraded to underperform from neutral at Bank of America, ahead of next week’s release of quarterly results

·     Bitcoin news: Cryptocurrencies extended drops as doubts about Binance’s potential takeover of rival exchange FTX grow with Bitcoin falling back to $17,500 (has since pared losses to -5%) and Ethereum 4-month lows around $1,140 earlier. The near collapse of FTX has “severely shaken” confidence in the crypto industry and will trigger tougher scrutiny by regulators, Binance chief Changpeng Zhao said a day after orchestrating a rescue of the exchange’s arch-rival. He said FTX `going down’ is not good for the industry and that due diligence for FTX deal is on-going, though notes Binance had no `master plan’ for takeover of FTX. Shares of names leveraged to bitcoin including COIN, SI, MSTR, MARA, SQ, RIOT and others remain pressured. SI shares extend losses as analyst weigh in on weakness (fell -22% on Tuesday) as liquidity crunch at FTX, 3rd largest crypto exchange and SI client, ripples through ecosystem

Stock GAINERS

·     AKAM +4%; reported upside 3Q22 results but gave downside 4Q22 guidance

·     ARRY +16%; 3Q Street expectations on higher ASPs as it passes on its higher input costs – 3Q adj EPS $0.18 vs est. $0.10 on revs $515Mm vs est. $399.4Mm and better guidance

·     AXON +16%; achieved record Q3 revenue, beating estimates on revs and EPS with growth in both segments and raised FY22 guidance

·     CPRI +3%; Q3 EPS $1.79 vs Street at $1.55 as Kors strong at 9.2% revs growth, including currency ding, Versace up 28% constant currency and Jimmy Choo +15%, but cuts holiday sales Q3 view to $1.53B from $1.65B estimate

·     HCAT +28%; after reported 3Q earnings exceeding its revenue and adjusted EBITDA guidance, and proceeding to raise its FY22 guidance on better-than-expected bookings

·     KR +3%; upgraded to Outperform from in-line at Evercore/ISI as expects consumers will trade down from restaurants to cooking food at home

·     MACK +200%; after Ipsen provided an update on its Phase 3 NAPOLI 3 trial of Onivyde in mPDAC with the trial meeting its primary and key secondary endpoints. Ipsen intends to file a supplemental NDA with the FDA on the back of this data – MACK is entitled to up to $450M upon approval of additional indications of ONIVYDE

·     META +5%; to reduce workforce by ~13% (~11k employees); reaffirms Q4 rev forecast of $30-32.5B; note Meta reductions are among the largest to date of any co

·     RAMP +15%; 2Q adj EPS $0.22 vs est. $0.09 on revs $147Mm vs est. $143.4Mm; sees 3Q revs approx $158Mm vs est. $153.6Mm and FY revs $595-600Mm vs est. $592.4Mm

Stock LAGGARDS

·     AFRM -15%; reported mostly in-line Q1 results but lowered FY23 guidance, citing a faster-than-expected reduction in business from Peloton as well as overall macro conditions (sees Q2 revenue $400M-$420M vs. est. $433.6M and FY23 revs $1.60B-$1.68B below est. $1.71B)

·     AMRS -35%; after Q3 EPS loss ($0.50) greater than est. ($0.21) on revs $71.1Mm below est. $91.2Mm; sees 4Q core revs more than $100Mm vs est. $139.5Mm blaming $193.6M increase in operating expenses

·     CARG -10%; reported 3Q rev./EBITDA 11%/$15M below guidance and guiding 4Q rev./EBITDA 39%/$39.6M below the Street on its CarOffer wholesale segment underperforming expectations

·     DIS -11%; reported Q4 revenues 5% below the Street, while segment operating income also missed consensus estimates driven by higher DTC dilution and weaker parks margins; Q4 EPS of $0.30 fell below est. at $0.57, Disney+ subs ended Q4 at 164.2M, reflecting 12.1M net adds

·     LCID -13%; Q3 EPS loss (-$0.40) vs. est. loss (-$0.31); Q3 revs $195.5M vs. est. $209M; Q3 Deliveries of 1,398 EVs and reaffirms FY guidance of 6k-7k deliveries

·     NWSA -4%; Q1 revenue of $2.48B (-1% y/y) missed est. $2.49B on 3c EPS miss though outperformance at News Media, Book Publishing, SVS, and Digital Real Estate

·     RBLX -11%; Q3 EPS loss (-$0.50) vs est. (-$0.30) as revs grew 2% y/y to $517.7M below consensus est. $686.79M, average Daily Active Users (DAUs) were 58.8M, up 24% y/y, hours Engaged were 13.4B, up 20% y/y and average Bookings per DAU was $11.94, down 11% y/y

·     UPST -15%; on larger Q3 EPS loss ($0.24) vs est. loss ($0.07), Q3 revs $157.23M vs est. $171.16M, a decrease of 31% y/y and total fee revenue was $179M, down -15% y/y and sees Q4 revenue about $125M-$145M vs. est. $185M