At Least We Tried

As the Federal Reserve continues to raise rates and the economy heads for a recession, investors have little patience for money-losing companies. Especially those that aren’t growing.

If you don’t believe us, just ask DraftKings investors, who saw their investment plunge today after the company’s quarterly earnings report. 📉

Although its revenues beat expectations ($502 million vs. 437 million) and it raised its full-year guidance, its monthly users fell short of estimates. DraftKings said it had 1.6 million monthly unique paying customers in the quarter. While that’s 22% YoY growth, it fell well short of the 2 million analysts expected.

The company hopes its online Sportsbook product expansion, which launched in September, will help drive key metrics like customer acquisition, engagement, and retention. However, investors are not waiting around to find out. $DKNG shares tumbled 28% on the day as investors jumped ship. 👎

While this week’s Federal Reserve interest rate decision was the main event, October’s labor market data was the encore. And unfortunately, neither was good news for investors. 🤢

As we’ve discussed regularly, the Federal Reserve is trying to crush demand enough to cool the labor market and housing so that record-high inflation decreases. 🥵

So far, housing has softened, and prices have begun to come down marginally. However, the labor market remains resilient. There was a slight jolt in the data last month, but October’s numbers were pretty darn good.

Let’s summarize it all:

1. The September JOLTs report showed employment postings rose to 10.72 million, meaning there are 1.9 job openings for every available worker;
2. The October ADP Private payrolls report showed 239k jobs were added, with wages increasing by 7.7% YoY;
3. Thursday’s initial/continuing jobless claims report showed that both measures continue to hover near historic lows; and
4. The October nonfarm payrolls report showed 261k jobs were added, with average hourly earnings rising 0.4% MoM and 4.7% YoY. The unemployment rate also ticked up to 3.7%, while the labor force participation rate declined by 0.1% to 62.2%.
   • September’s job number was also revised higher by 52,000 and August’s revised lower by 23,000, for a net positive revision of 29,000.

The summary above indicates that the labor market is still historically strong despite the Fed’s efforts. The Fed knows that its policies will take time to work through the economy and into the data. That’s partially why it changed its language this week to acknowledge that rates will have to stay higher for longer. 📆

Within that data, we also see the service industry continuing to be the primary source of labor demand. Meanwhile, technology, management, and other general business jobs have ticked down. That data very much jives with the “tale of two labor markets” narrative we’ve been covering.

Layoffs in tech, real estate, and other industries that overexpanded during covid get all the headlines. But in the real economy, there’s still a lot of labor demand. And reducing that demand is not going to happen overnight.

So, for now, the tightening continues. And growth stocks and other risk assets are responding accordingly. 😨

This week we received earnings reports from several former growth darlings. And most of their stocks’ reactions were absolutely dismal.

So before we send you off to enjoy your weekend, we wanted to share some of the worst charts from the week. Just in case you forgot what type of environment we’re in for broken growth stocks. 🙃

First, let’s start with a quick joke. What do you call a stock that’s down 97.68%? A stock that was down 96.19% but fell another 39%. More formally, it’s known as Carvana.

$CVNA shares suffered their worst day ever after it missed already lowered top and bottom-line expectations. Additionally, Morgan Stanley gave up on trying to cover the stock…pulling its rating and price target altogether. A 98% drop in 15 months has to be a record of some sort. Big yikes.😬

$TWLO shares crashed 35% after issuing weaker-than-expected guidance.

$TEAM shares fell 29% after revenue missed expectations and the software maker issued a disappointing forecast.

$NET shares dropped 18% despite beating earnings and revenue expectations. Once again, forward guidance was key and clearly did not appease investors. 

While not a tech stock, we can’t exclude this disaster of a chart…

$FNKO investors were left saying “what the Funko” happened, as shares dove more than 60%. The toy company missed earnings and slashed its outlook, indicating no growth in the coming quarters. Much like its customers, the company’s investors did not play around…opting to aggressively offload shares on the news. 👎