US pre-mkts: Bank earnings strong, Cat upgrade

Very strong bank earnings coming through this morning – JPM led the way yesterday and the latest numbers from peers also look strong. Real good signs of improving loan growth in particular is a positive for BAC.

US pre-market key pointers

Bank of America (BAC)

Strong performance from Bank of America.

  • Net income of $7.7bn, EPS of $0.85 vs $0.71 expected
  • Revenues up 12% year-on-year – JPM was just up 2.2%
  • Net interest income up 10% to $11.1bn – most rate-sensitive of the big banks
  • Record M&A activity – Noninterest income up 14% to $11.7bn, driven by record asset management fees, strong investment banking revenue and higher sales and trading revenues
  • Expenses down on the quarter, flat on the year
  • $624m clawback from bad loan provisions – bottom line flattered less than the JPM numbers.
  • Stock up pre-mkt to tune of 2.5%, having fallen 0.92% yesterday in sympathy with JPM, which is trading mildly higher in pre-mkt.

Wells Fargo (WFC)

Wells Fargo results showed:

  • Net income of $5.1bn, EPS $1.17 vs $0.98 expected
  • Net interest income was down 5%, due to lower loan balances that reflect soft demand, also higher prepayments, lower yields
  • Results include $1.7bn decrease in credit loss provisions – equivalent to $0.30 per share.
  • Pre-mkt trades +1%, having slipped 1.3% yesterday.

Meanwhile, ahead of the cash open on Wall Street, US futures indicate all the major averages will open higher. SPX seen opening up 30+pts at just under 4,400, Dow Jones +200pts at 34,610, NDX at 14,900. Risk looking solid.

  • Walgreens Boots Alliance reported earnings $1.17, vs $1.02 expected, revenues $1bn ahead of expectations, cost-cutting programme a year ahead of schedule. US comparable sales up 8.1% from a year before.
  • UnitedHealth shares +2% pre-mkt after reporting earnings beat and raised guidance.
  • Caterpillar +1% pre-mkt, bouncing of its weakest level since Jan, as Cowen advises clients to buy ahead of the first ‘megacycle’ in 14 years, initiates with ‘Outperform’ rating and PT of $241.
  • Tesla shares are up pre-mkt to their best level in 7 months.
  • Boeing down 1% pre-mkt after report says co. dealing with new Dreamliner defect, production problems
  • FTSE 100 at HOD just a whisker under 7,200
  • Dollar continues to struggle. GBPUSD making a fresh 3-week high at 1.37334.
  • Gold also trades at HOD at $1,800, sitting on its 100-day SMA.
  • Treasury yields lower, 10s at 1.532%

Earnings season: five stocks on Goldman’s radar

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.

Stocks rally, inflation sticks, earnings on tap

Stock markets rose in early trade as investors parsed the latest signs of inflation and the central bank reaction function, whilst earnings season has got underway across the pond with some decent numbers from JPMorgan. Wall Street rose mildly, snapping a three-day losing streak. VIXX is off sharply, which maybe reflects increasing comfort that the market has stabilised, if not able to make new highs just yet.

Earnings season gives investors a chance to ignore some of the noise and market narratives and get into actual numbers. Only this time we expect the corporate reporting season to underline the inflation narrative – the question is whether it’s just inflation or stagflation. Probably we get a bit of both – watch for sandbagging. JPMorgan numbers were positive, but as ever the stock fell despite beating on the top and bottom line. Profits were boosted by better-than-expected loan losses. Trading revenues were robust, asset and wealth management strong, loan growth improving and likely to pick up in 2022. Delta Air Lines also posted numbers that topped expectations including a first quarterly profit ex-state aid since the pandemic. But higher fuel costs and other expenses will hit the fourth-quarter profit – shares fell over 5%. Today sees Citigroup, Bank of America, Morgan Stanley and Wells Fargo report.

Chinese producer price inflation rose 10.7% in September, the highest level since 1996. The China PPI number is an important leading indicator for global consumer inflation. On that front, US consumer price inflation accelerated in September to 5.4%, with prices up 0.4% month-on-month. Core rose 0.2% from August, leaving prices ex-volatile items like energy and food at 4%. US PPI inflation today is seen at +0.6%, +0.5% for the core reading.

Minutes from the Fed’s last meeting indicated the US central bank is likely to commence tapering asset purchases next month. “Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” the minutes said.

Post the CPI and FOMC minutes we see Treasury yields lower, the dollar lower, gold firmer. Lower bond yields lifted megacap growth, or at least provided some marginal buying excuse to do so. Inflation is still hot but not getting much hotter. Narrative has clearly exited team transitory to support team sticky. The question now is whether we are at peak in/stagflation fears and this allows the market to move on to start pricing for 12-18 months hence, by which time you’d feel a lot of the post-pandemic bottlenecks and pressures will have eased. The problem for this – still team transitory if you like – is that anything that raises the costs of getting goods from source to consumer is inflationary and the pandemic has certainly been that. But so too is the shift in globalisation trends, eg Brexit.

Sterling is firmer as the dollar weakened in the wake of the CPI report. GBPUSD has broken free of the trend resistance and with bullish MACD crossover in play. Bulls would like to see the previous two highs on the MACD cleared (red line) to confirm reversal of the downtrend since May.

GBPUSD Chart 14.10.2021

Chart: Dollar index easing back to the middle of the channel, but faces pressure from bearish MACD crossover.

Dollar Index 14.10.2021

Yesterday I noted that gold was likely to face some volatility and break free from its recent consolidation. CPI numbers were indeed the catalyst and we saw gold prices hit the highest in a month, approaching $1,800 before pausing. Near-term, consolidation again with the 1hr chart showing a clear flag pattern with the lower end capped by the 23.6% line.

Gold Chart 14.10.2021

Chart showing gold price movements on 14.10.2021

Oil has firmed, with WTI recovering the $81 handle, though price action remains sluggish and sideways for the time being. OPEC yesterday cut its global oil demand growth forecast for 2021 but maintained its 2022 view and cautioned that soaring natural gas prices could boost demand for oil products.

OPEC cuts its demand growth forecast for 2021 to 5.82 million barrels per day, down from 5.96 million bpd. As we noted some months ago, it was always likely that OPEC would need to trim its 2021 forecast since it had always backdated so much of that extra demand to come in H2. The original 6m bpd forecast implied 1m bpd in H1, 5m bpd in H2, which always seemed optimistic. Critically, though, it was not wildly optimistic – demand has come back strongly after shrugging off the summer Delta blues. The cartel maintained its 4.2m bpd growth forecast for next year. EIA inventories today – a day late due to the Columbus Day holiday – forecast 1.1m build.

Crude Oil Futures Chart 14.10.2021

Nat gas – holding the trend support and 20-day SMA, bearish MACD crossover still in force.

Natural Gas Chart 14.10.2021

Hays shares +4% as fees rose 41% from a year ago. Strong leveraged play on record numbers of job vacancies and staff shortages. Shares have been flat the last 6 months, though +17% YTD, +45% the last 12 months leaves not a lot of room left on the table.

Dunelm still performing strongly against tough comparisons. Total sales in the first quarter increased by 8.3% against a very strong comparative period in FY21, when sales grew by 36.7%. Gross margins were down 10bps and expected to be 50-75bps lower than last year for the full year. Management warned on supply chain problems and inflation but stressed that good stock levels should provide them some cover. Some way to go to for the shares to recover recent highs but encouraging signs.

Markets primed for US inflation, FOMC minutes, JPM kick off earnings season proper

European stocks were off half a percent this morning in early trade after another fragile day on Wall Street saw selling into the close and another weaker finish. All eyes today on the US CPI inflation number, minutes from the FOMC’s last meeting and the start of earnings season with numbers due out from JPMorgan. Asian equities mixed after Chinese trade data was better than expected.

Markets in Europe turned more positive after the first half-hour but it’s clear sentiment is anaemic The FTSE 100 is chopping around its well-worn range, the DAX is holding on to its 200-day moving average just about. Possible bullish crossover on the MACD needs confirming – big finish required.

Dax Chart 13.10.2021

JOLTS: We saw a marked jump in the « quits rate » with 4.3m workers leaving their jobs, with the quits rate increasing to a series high of 2.9%. Tighter labour market, workers gaining bargaining power = higher wages, more persistent inflation pressures.

But… 38% of households across the US report facing serious financial problems in the past few months, a poll from NPR found. Which begs the question – why and how people are not getting back into work and quitting. One will be down to massive asset inflation due to central bank and fiscal policy that has enabled large numbers of particularly older workers to step back sooner than they would have down otherwise. Couple of years left to retire – house now worth an extra 20% and paid off, 401k looking fatter than ever, etc, etc. Number two is something more sinister and damaging – people just do nothing, if they can. Working day in, day out is like hitting your head against a brick wall – you get a headache, you die sooner, and you don’t go back to it once you’ve stopped doing it. Animal spirits – people’s fight to get up and do things they’d prefer not to do – have been squashed by lockdowns.

More signs of inflation: NY Fed said short and medium-term inflation expectations rose to their highest levels since survey began in 2013.

NY Fed inflation expextations 13.10.2021

UoM preliminary report on Friday – will give us the latest inflation expectation figures. This is where expectations stand now. Today’s CPI print is expected to show prices rose 0.4% on the month to maintain the annual rate at 5.4%.

University of Michigan inflation expectations 13.10.2021

The Fed’s Clarida said the bar for tapering was more than met on inflation and all but met on employment. FOMC minutes will tell us more about how much inflation is a worry – we know the taper is coming, the question is how quickly the Fed moves to tame inflation by raising rates.

Watch for a move in gold – it’s been a fairly tight consolidation phase even as rates and the USD have been on the move – the inflation print and FOMC minutes could spur a bigger move. Indicators still favour bulls.

Gold Chart 13.10.2021

US earnings preview: banks kick off the season

Wall Street rolls into earnings season in a bit of funk. The S&P 500 is about 4% off its recent all-time high, whilst the Nasdaq 100 has declined about 6%, as the megacap growth stocks were hit by rising bond yields. S&P 500 companies are expected to deliver earnings growth of 30%, on revenue growth of 14%.

JPMorgan Chase gets earnings season underway with its Q3 numbers scheduled for Oct 13th before the market open. Then on Thursday we hear from Bank of America, Citigroup, Morgan Stanley and Wells Fargo, before Goldman Sachs rounds out the week on Friday. JPMorgan is expected to deliver earnings per share of $3, on revenues of $29.8bn. Note JPM tends to trade lower on the day of earnings even when it beats expectations for revenues and earnings.

Outlook: Nike and FedEx are among a number of companies that have already issued pretty downcast outlook. Supply chain problems are the biggest worry with a majority of companies releasing updates mentioning this. Growth in the US is decelerating – the Atlanta Fed GDPNow model estimates Q3 real GDP growth of just 1.3%. Higher energy costs, rising producer and consumer inflation, supply bottlenecks, labour shortages and rising wages all conspiring to pull the brake on the recovery somewhat. Still, economic growth has not yet given way to contraction and after a global pandemic it will take time to recovery fully.

Trading: Normalisation of financial markets in the wake of the pandemic – ie substantially less volatility than in 2020 – is likely to weigh somewhat on trading revenues, albeit there was some heightened volatility in equity markets towards the end of September as the stock market retreated. Dealmaking remains positive as the recovery from the pandemic and large amounts of excess cash drove business activity.

Costs: The biggest concern right now for stocks is rising costs. Supply-side worries, specifically rising input and labour costs, pose the single largest headline risk for earnings surprises to fall on the downside. The big banks have already raised their forecasts for expenses this year on a number of occasions. It’s not just some of the well-publicized salary hikes for junior bankers that are a concern – tech costs are also soaring.

Interest rates: Low rates remain a headwind but the recent spike in rates on inflation/tapering/tightening expectations may create conditions for a more positive outlook. The 10s2s spread has pushed out to its widest since June. Rising yields in the quarter may have supported some modest sequential net interest income improvement from Q2.

Chart: After flattening from March through to July, the yield curve is steepening once more.

Yield Curve 13.10.2021

Loan demand: Post-pandemic, banks have been struggling to find people to lend to. Commercial/industria loans remain subdued versus a year ago, but there are signs that consumer loan growth is picking up. Fed data shows consumer loan growth has picked up as the economy recovers. However, UBS showed banks were lowering lending requirements in a bid to improve activity, which could impact on the quality, though this is likely a marginal concern given the broad macro tailwinds for growth. Mortgage activity is expected to be substantially down on last year after the 2020 surge in demand for new mortgages and refinancing.

Chart: Consumer loan growth improving

Consumer Loan chart 13.10.2021

Other stocks we are watching

The Hut Group (THG) – tanked 30% yesterday as its capital markets day seems to have been a total bust. Efforts to outline why the stock deserves a high tech multiple and what it’s doing with Ingenuity and provide more clarity over the business seemingly failed in spectacular fashion. The City has totally lost confidence in this company and its founder. No signs of relief for the company as investors give it the cold shoulder. Shares are off another 5% this morning.

Diversified Energy – the latest to get caught in the ESG net – shares plunged 19%, as much as 25% at one point after a Bloomberg report said oil wells were leaking methane. Rebuttal from company seemed to fall on deaf ears. Shares recovering modestly, +3% today.

Analysts are lifting their Netflix price targets, partly on the popular « Squid Game. » Netflix will report its third-quarter earnings next week.

La semaine à venir : Préparez-vous pour le blitz des résultats du troisième trimestre

Wall Street sera en vie avec l’approche des rapports sur les résultats entrants lorsque la saison des résultats du troisième trimestre commencera sérieusement cette semaine. Du côté des données, nous obtenons les données de l’US IPC américain ainsi qu’un aperçu de la Fed avec les dernières notes de réunion du FOMC.

Indicateur clé de l’inflation avec le rapport de l’US IPC

Le premier est le rapport de mercredi sur l’indice des prix à la consommation, mesurant l’inflation aux États-Unis.

Après la publication en septembre des chiffres d’août, Jerome Powell et ses collègues s’en tiennent au scénario : toute cette inflation élevée est simplement transitoire. Les données de mercredi sauvegarderont-elles cette vue ?

En contexte, le dernier rapport de l’IPC publié en septembre montrait que les choses s’étaient un peu calmées en août. Les prix sous-jacents ont augmenté à leur rythme le plus faible depuis six mois jusque-là. L’IPC global a augmenté de 0,3 % après avoir gagné 0,5 % en juillet. Au cours des 12 mois jusqu’en août, l’IPC a augmenté de 5,3 % après avoir grimpé de 5,4 % en juillet.

Certains membres de la Fed ne sont cependant pas inquiets.

« Je suis confiant à penser qu’il s’agit de prix élevés, qu’ils vont baisser à mesure que les goulets d’étranglement de l’offre seront résolus », a déclaré à CNBC le président de la Fed de Chicago, Charles Evans. « Je pense que cela pourrait être plus long que prévu, absolument, cela ne fait aucun doute. Mais je pense que l’augmentation continue de ces prix est peu probable. »

Les prix du carburant sont cependant à la hausse. Le pétrole et le gaz ont grimpé en flèche la semaine dernière. Des prix du pétrole plus élevés indiquent généralement des coûts d’intrants et de transport plus élevés dans plusieurs secteurs, qui peuvent ensuite être regroupées sur le consommateur, entraînant des prix plus élevés dans tous les domaines. Cela dit, les coûts élevés de l’énergie et leurs répercussions pourraient être exprimés plus clairement dans l’impression de l’IPC du mois prochain, plutôt que dans celle de mercredi.

Compte rendu de la réunion du FOMC pour donner un aperçu de la pensée de la Fed

Mercredi voit également la publication du procès-verbal de la réunion du FOMC pour sa réunion de septembre.

Nous connaissons maintenant le scénario : les taux doivent rester bas ; dégression à venir.

Cela dit, nous savons également que certains des membres les plus bellicistes de la Fed prévoient des hausses de taux plus tôt que prévu. Il y a un sentiment que des taux plus élevés pourraient venir l’année prochaine.

Le président Powell a également ajouté sa voix au chœur de ceux qui mettent en garde contre le fait de ne pas relever le plafond de la dette. La secrétaire au Trésor Janet Yellen a averti fin septembre que le gouvernement américain pourrait manquer de liquidités si aucune mesure n’était prise.

Le défaut de paiement de la dette américaine causerait des « dommages importants » à l’économie américaine, selon Powell. Le président Biden a indiqué qu’il existe une réelle possibilité d’augmentation de la dette, de sorte que la crise pourrait être évitée.

En termes de pilotage de l’économie, cependant, le dégression est probablement le plus important. On pense que la Fed supprimera progressivement son soutien jusqu’à ce qu’elle disparaisse complètement d’ici la fin de 2022.

C’est un signe fort que les États-Unis visent à revenir rapidement à une période économique normale. Mais la menace de nouveaux variants de COVID-19 reste importante. Espérons qu’il n’y aura pas un autre nouveau Delta forçant une nouvelle vague de blocages en 2022 ou que la Fed en paye les pots cassés.

La saison des bénéfices est de retour

Direction Wall Street. Les bénéfices du troisième trimestre sont sur le point de commencer à affluer des méga plafonds alors que la saison des bénéfices recommence cette semaine.

Comme toujours, nous lançons les choses avec les grandes banques d’investissement qui ont annoncé des chiffres de croissance époustouflants au deuxième trimestre. L’élan va-t-il continuer ? JPMorgan, Wells Fargo, Citigroup et Goldman Sachs, entre autres, lanceront le bal des résultats avec le premier rapport de JP atterrissant mercredi.

Bien que la croissance semble ralentir par rapport aux résultats exceptionnels du deuxième trimestre 2021, nous pourrions toujours être sur un trimestre très performant. Le groupe de données financières américain FactSet prédit que les sociétés du S&P500 bénéficieront d’une croissance des bénéfices de 27,6 % au troisième trimestre, le troisième taux de croissance des bénéfices en glissement annuel le plus élevé rapporté par l’indice depuis 2010.

Il y a également des problèmes de chaîne d’approvisionnement à gérer au troisième trimestre. Ils ont existé tout au long du premier semestre, mais avec la hausse des prix des matières premières et de l’énergie, on peut assister à un ralentissement des résultats.

Certes, Apple a averti que la croissance des ventes chuterait vers la fin de l’année, mais voyons ce qui se passe.

Notre calendrier de la saison des bénéfices aux États-Unis vous tiendra au courant des méga plafonds signalés et du moment où vous pourrez planifier vos transactions en fonction des rapports sur les bénéfices de ce trimestre. Vous aurez également un aperçu des entreprises faisant rapport cette semaine ci-dessous.

Données économiques majeures

Date  Time (GMT+1  Asset  Event 
Tue Oct-12  10:00am  EUR  ZEW Economic Sentiment 
  10:00am  EUR  German ZEW Economic Sentiment 
  3:00pm  USD  JOLTS Job Openings 
       
  6:01pm  USD  10-y Bond Auction 
Wed Oct-13  1:30pm  USD  CPI m/m 
  1:30pm  USD  Core CPI m/m 
  6:01pm  USD  30-y Bond Auction 
  7:00pm  USD  FOMC Meeting Minutes 
       
Thu Oct-14  1:30am  AUD  Employment Change 
  1:30am  AUD  Unemployment Rate 
  1:30pm  USD  PPI m/m 
  1:30pm  USD  Core PPI m/m 
  1:30pm  USD  Unemployment Claims 
  4:00pm  USD  Crude Oil Inventories 
       
Fri Oct-15  1:30pm  USD  Core Retail Sales m/m 
  1:30pm  USD  Retail Sales m/m 
  1:30pm  USD  Empire State Manufacturing Index 
  3:00pm  USD  Prelim UoM Consumer Sentiment 
  Tentative  USD  Treasury Currency Report 

 

Key earnings data 

Wed 13 Oct  Thu 14 Oct  Fri 15 Oct 
JPMorgan Chase & Co (JPM) PMO  Bank of America Corp (BAC) PMO  Goldman Sachs Group Inc (GS) PMO 
     
Wells Fargo & Co (WFC) E  Citigroup Inc (C) PMO  Goldman Sachs Group Inc (GS) PMO 
     
  Morgan Stanley (MS) PMO   

 

GameStop earnings look ahead

Meme stock favourite GameStop (GME) is set to report Q2 results after the market closes on Wednesday, September 8th. The stock, which was at the heart of the Reddit trading frenzy in January, is up more than 1,000% YTD and closed Tuesday’s session at $199, a loss of $3.45, or 1.7%, on the day.

Flush with the proceeds of a recent equity raising, the company has been tackling debt and seen encouraging sales progress, with growth across hardware, accessories and collectibles categories.

What should investors expect from GameStop earnings?

Markets expect losses to halve, with the company seen reporting a loss of $0.70 per share vs $1.40 per share seen in the same period a year ago. Revenues are expected to rise 20% year-on-year to  $1.1 billion.

In June the company said it would continue to suspend guidance for 2021 due to the pandemic, but said net sales were the best metric to follow. “The company’s second-quarter sales trends continue to reflect momentum, with May total sales increasing approximately 27% compared to last year,” the company stated.

Ultimately though the stock remains disconnected from fundamentals so the price action is more about expectations for the turnaround strategy. Given its propensity for volatility, traders should be willing to expect noisy price action around the results.

On the chart, we can see that after a run lower through June and July the subsequent rally has stalled and there is a clear loss of momentum to the upside. Bulls looking to break $230 to be encouraged at a return to March and June swing highs around the $340-350 level.

Chart showing GameStop price action on 08.09.2021.

Earnings season: Robinhood doubles revenues but shares still drop

Trading app Robinhood reported some major wins in its first earnings report since going public but the stock slid after offering a stark guidance warning.

Robinhood earnings

Robinhood headline stats

Robinhood revenues soared 131% year-on-year in the second quarter for a total of $546 million. The “app that seeks to democratise finance” was buoyed by a robust surge in cryptocurrency trading.

Transaction-based revenues totalled $451m, of which $233m – or over half – came from crypto trades. Cryptocurrency’s share of Robinhood revenues reached 51% in Q2 – soaring way above the 17% generated in the first quarter.

For comparison, digital currency trading revenues in Q2 2020 were just $5m. Now, more than 60% of Robinhood accounts are trading tokens.

Interestingly, it wasn’t Bitcoin or Ether that was the most traded token amongst HOOD users. Instead, the most popular traded crypto on the app was Elon Musk and internet favourite Dogecoin. The token accounted for 34% of all crypto trading transactions on the Robinhood app.

If you think about it, this sort of makes sense. Cryptocurrencies are a preferred asset of a new generation of traders; many of whom got involved in trading during the peak pandemic lockdown. They’re young and heavily swayed by opinions from non-traditional sources, such as Reddit.

Dogecoin is a bit of a meme, starting as a joke token, but has since gained massive popularity – not least due to the influence of perennial Doge champion Elon Musk.

The app also made incredible ground in some other assets. Options trading, for example, reached $165m in transaction-based revenues. A further $52m was sourced from equities trading. Robinhood also nets revenues from gold, although these are very small compared to its other market segments.

Robinhood’s assets under custody accelerated to $102bn – annualised growth of 202%. In Q2 2020, that figure was closer to $32bn.

The number of total funded accounts, i.e., those tied to a bank account, increased 151% year-on-year to reach 22.5m users. Robinhood recorded 18 million in Q1.

So, revenues are up. Assets under custody ballooned. The number of app users has increased too. All things considered, this first public quarterly earnings report should be a cause for celebration for Robinhood investors and traders surely?

Robinhood share price falls as app warns of slower Q3 trading

Robinhood tanked about 10% in after-hours trading after the report. It made gains last night on Wednesday but was once more in the red to the tune of 9% pre-market on Thursday.

The fairly major drop came after the app issued guidance for the rest of the year.

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.

Cryptocurrency exchange Coinbase gave a similar outlook in its Q2 earnings release earlier this month.

The app reported a second quarter net loss of $502m. It was profitable at this time last year. Even so, Robinhood said this was within the expected loss range of $487-537m.

Like Coinbase, Robinhood’s performance is now intrinsically linked to cryptocurrency price action. Dogecoin, Bitcoin and Ether are all subject to the major volatility that affects all crypto tokens.

“If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the app said.

The key here is sustaining user loyalty. Many Robinhood users view their accounts in a similar way to sports-betting apps. When professional sport was called off worldwide due to the pandemic, many such users turned to stock markets and crypto trading for the perceived similarities it holds with gambling on sports matches.

Additionally, many Robinhood users feel the app is best used as a springboard. Once they’ve gained familiarity and a level of comfort with trading and investing, they then move onto other, more established institutions to raise their trades.

It will be interesting to see HOOD’s direction once the US economy opens up. Can it sustain activity from a new breed of users?

We did see a 4 million jump in the level of funded accounts in Q2, so perhaps it’s doable. But when the app is pegged so closely to crypto price movements, it may not be unfair to suggest that we’ll see some Robinhood share price volatility going forward.

Earnings season: Airbnb’s 300% revenue jump

Airbnb is the latest big tech firm to record a Wall Street-beating quarter but see its share price drop.

Airbnb earnings

Airbnb’s headline stats

With revenues totalling $1.34bn in Q2 2021, Airbnb notched up a 300% year-on-year increase. This flew over Wall Street expectations.

Sales were up 175% y-o-y this quarter for a total of $175m. Gross booking value, the key metric Airbnb uses to track host earnings, incorporating taxes and cleaning and service fees, clocked in at $13.4bn. In year-on-year terms, that’s a 320% increase.

83.1 million nights were booked using Airbnb in Q2 2021, measuring 29% growth against the first quarter, and 197% over Q2 2020 when the world entered lockdown. Analysts expected 79.2m nights booked, so again this was another beat.

The key takeaways from Airbnb’s latest earnings report are:

  • Revenues – $1.34bn against $1.26bn estimated
  • Earnings – -$0.11 per share

While a lot of the main measuring metrics were smashing Wall Street estimates, Airbnb shareholders would have lost money, according to these statistics.

That’s fairly odd, given the fact that Airbnb’s net loss has narrowed, falling from $575.6m to $68m. Everything suggests Airbnb is moving in the right direction – but there is still a huge, COVID-19 shaped shadow looming over the rest of the holiday app’s year.

Airbnb stock price

Airbnb shares slid 4% upon publishing its earnings reports. EPS is down too as seen above.

That means it joins other tech stocks like Apple and Tesla posting bumper quarterly results but seeing their share prices dip.

In a letter to investors, the app’s executives stated Airbnb is bracing for Delta variant volatility. Cases continue to rise in the US and around the wider world, meaning travel restrictions and limits on overnight stays could very well make a return.

If that was the case, then stays and revenues may slide in Q3 and Q4.

The company said that although it expects the third quarter to deliver its strongest quarterly revenue on record, it expects Q3 nights and experiences booked to be below that of Q2 and Q3 2019.

“As we exit Q2 and come into Q3, we have a combination of fewer bookings for the fall, just given the nature of some of the seasonality, and any kind of impact potentially on Covid concerns,” Airbnb CFO Dave Stephenson said on a call with analysts.

Vaccination progress and containment of new COVID-19 variants will be key to Airbnb’s sustainability. Summer is also drawing to a close. New bookings in the Autumn and Winter, not the busiest times of the year for holiday-related businesses, have already started to slip as Dave Stephenson points out.

It’s going to be a long six months for Airbnb.

Earnings season: Coinbase rides crypto volatility all the way to the bank

Cryptocurrency exchange Coinbase sees profits surge this quarter following a period of high volatility in crypto markets.

Coinbase earnings

Coinbase’s headline stats

Q2 was a very solid quarter for Coinbase this earnings season. The current crypto market volatility played into the exchange’s hands as it record Wall Street-beating estimates.

Here are Coinbase’s key stats for this earnings season:

  • Revenue -$2.23 billion vs. $1.78 billion expected
  • Earnings – $3.45 per share vs. $2.33 expected

Note: the EPS figure excludes stock-based shareholder compensation.

Coinbase profits soared 4,900% year-on-year with net profit totalling $1.6bn. While volatility may not suit traders, it’s certainly paid off big time for Coinbase.

The exchange’s profitability and economic health essentially rely on the price of Bitcoin. The world’s most popular digital token, and the biggest by value, did have a torrid time last quarter. Prices fell 41% in that time.

Despite this, a flurry of trading took place, which explains the hefty revenues Coinbase generated. $1.9bn of its total revenues stemmed from transaction fees last quarter. A further $100m came from subscription-related services.

Bitcoin is still the most popularly traded token on the Coinbase exchange. However, volumes had dropped quarter-on-quarter. In Q1, Bitcoin made up 36% of all transactions. This had dropped to 24% as of Q2 2021.

Other coins, notably Ethereum, have started to eat into Bitcoin’s market share.

Looking to the future, Coinbase offered no formal guidance but did indicate that trading volumes are likely to be smaller in Q3.

Coinbase share price action

At the time of writing, Coinbase shares are up roughly 7%, building on the 2.1% gains made when the exchange posted its results on Tuesday afternoon.

That’s interesting. Even some of the biggest tech-related firms like Apple posted strong quarters, but still their stock price drop after reporting.

The analyst consensus appears strongly in favour of Coinbase. 78.6% give the stock a Buy rating.

Coinbase analyst recommendations

In terms of price targets, Coinbase could offer upsides of up to 38%.

Coinbase price target

Analysts would suggest the stock is undervalued. It’s currently trading at $291.5, though the price target is as high as $370.64.

Coinbase sentiment tracker

Coinbase is down about 29% since it went public in April. At that time, Coinbase opened at $381 per share. Its valuation of $100bn was a bit of a landmark in terms of cryptocurrency legitimacy.

Week ahead: OPEC+ meets as Delta variant puts pressure on oil markets

OPEC-JMMC August meetings, pushed back after July’s tough negotiations, take place this week. Traders will look to the cartel for a response to potential dents to demand recovery caused by rising Delta variant numbers worldwide.

Elsewhere, UK Q2 GDP figures are released on hopes of strong growth while US CPI inflation is in focus too with July’s stats coming this week.

It’s fair to say July was a bit of a tense month for OPEC and its allies. It will be hoping to avoid further conflicts when it meets on Thursday this week.

The Cartel has been doing its best to not go overboard with production tapering. Given the relative strength of prices, despite last week’s wobble, its efforts to curb output to protect prices have been broadly successful.

Come July’s meeting, fractures began to appear in the OPEC façade. It’s always a balancing act when its members and allies get together in order to weigh each individual member state’s interests. Oil production is an integral part of all their economies after all. In this case, the UAE was pushing hard to lighten restrictions and redress base levels – something which Saudi Arabia was resisting.

That’s all spilt milk under the bridge now. A deal was reached, after delayed and reorganise meetings and hectic negotiations on both sides. The stoppers have been loosened. New baselines were awarded to members, including chief agitator the UAE, at the eventual outcome.

An extra 400,000 bpd will be added to OPEC+ production monthly volumes from August onwards. That should bring production up to about 2m bpd by the end of 2022. OPEC also confirmed it had extended its production cut deal until April 2022.

This month’s meeting, however, takes on a different hue as rising Delta variant COVID cases continue to mount worldwide. That could majorly impact demand recovery, and thus instigate some kind of retooling to OPEC+’s plans going forward.

A slowdown in Chinese manufacturing could also affect OPEC’s thinking. China is the world’s largest crude importer, so if less oil is needed to fuel its factories then prices could drop as markets recalibrate to lowered Chinese crude imports.

Whatever happens, OPEC will no doubt be extremely keen to avoid any fortnight-long negotiations as happened in July. Either way, Thursday’s meetings will be an interesting watch.

This week also sees the publishing of the UK’s preliminary Q2 growth figures.

Strong vaccine rollout coupled with dropping COVID cases are expected to have supported growth in Q2, following the UK’s1.6% contraction in Q1. Higher consumer spending is likely to be the main growth engine, however, accounting for roughly 70% of gross domestic product between May-July.

So, what are the forecasts? The British Chamber of Commerce (BCC) believes Q2 growth will clock in at 4.1% in 2021’s second quarter.

“The UK economy is in a temporary sweet spot with the boost from the release of pent-up demand, if restrictions ease as planned, and ongoing government support expected to drive a substantial summer revival in economic activity, underpinned by the rapid vaccine rollout,” the BCC said in a statement.

Looking long term, overall GDP growth predictions float between the 7-8% mark. The Confederation of British Industry’s forecasts sit at the optimistic end of the scale at 8.1% for the year.

As it stands, however, the UK’s domestic output is still some 8.8% lower than before the pandemic. Long term growth will likely cool with the effects of inflation and lower government support as we move into 2022.

Speaking of inflation, the week’s other key data release is the US consumer price index figures for July.

If the pace of inflation continues, then it will really test the Fed’s resolve. Chairman Powell has committed to the historically low cash rate, and seems content to let the economy run hot, but is this really sustainable?

June’s CPI inflation already caused alarm for some economists. By rising 5.4% year-on-year, the index had risen at its fastest pace since August 2008.

So far, the Fed has characterised inflation as “transitionary” and is still sticking to its dovish outlook. Its data modelling calls for 3% headline inflation by the end of 2021, before falling back to 2.1% in 2022.

Given consumer spending is the US economy’s major growth engine, accounting for roughly 68% of GDP, it’s little wonder why some observers are feeling tetchy and calling for more action. Gross domestic product missed growth expectations in Q1, for instance, as high prices limited consumer spending.

July’s CPI reading may thus be doubly important for the Fed.

It’s a subdued week for earnings on Wall Street, but we still have some large caps reporting. Headliners this week include Walt Disney, Palantir, and Airbnb who all report in on Thursday.

Make sure you check out our US earnings season calendar to see which large caps are still due to share quarterly earnings this week and beyond.

Major economic data

Date Time (GMT+1) Asset Event
Tue 10-Aug 10.00am EUR ZEW Economic Sentiment
10.00am EUR German ZEW Economic Sentiment
Wed 11-Aug 1.30am AUD Westpac Consumer Sentiment
1.30pm USD CPI m/m
1.30pm USD Core CPI m/m
3.30pm OIL US Crude Oil Inventories
Thu 12-Aug ALL DAY OIL OPEC-JMMC Meetings
7.00am GBP Prelim UK GDP
1.30pm USD PPI m/m
1.30pm USD Core PPI m/m
3.30pm GAS Natural Gas

 

Key earnings data

Mon 9 Aug Tue 10 Aug Thu 12 Aug
The Trade Desk (TTD) PMO Coinbase Global (COIN) AMC Palantir Technologies (PLTR) PMO
Viatris (VTRS) PMO Airbnb (ABNB) AMC
Walt Disney (DIS) AMC

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