July 25, 2023

The Twelfth Day Of Gainsmas

Some traders are saying Christmas has come in July, with the Dow notching its twelfth straight day of gains. Meanwhile, earnings continue to roll in as the market awaits tomorrow’s Federal Reserve interest rate decision and commentary. Let’s see what else you missed. 👀

Today’s issue covers cloud growth boosting Alphabet but weighing on Microsoft, a growth stock that won’t grow, and more from the day. 📰

Check out today’s heat map:

5 of 11 sectors closed green. Materials (+1.76%) led, and real estate (-0.73%) lagged. 💚

In economic news, the Case-Shiller home price index rose 0.7% MoM in April, bringing them to within 1% below their June 2022 peak. Meanwhile, July’s Conference Board consumer confidence report showed optimism improved to its best level in two years. And the Richmond Fed index from July indicated manufacturing activity continues to slump while services rebounded. 🔺

Globally, the International Monetary Fund (IMF) raised its global growth forecast by 0.2 percentage points but kept its 2024 growth forecast unchanged at 3%. Its positive update comes despite a slower-than-anticipated recovery in China’s economy, dwindling U.S. consumer savings, and tighter credit conditions. 🔺

Two generals reported results today, with one popping and the other dropping. General Motors shares fell about 4% after raising its full-year guidance and announcing a 50% increase to its cost-cutting plans. Meanwhile, General Electric shares jumped 6% after every part of its business showed improvement, and results topped Wall Street’s estimates. 🫡

Verizon shares attempted to stabilize after its quarterly results showed net additions in its business segment offset losses in its consumer business. Revenue declines and uncertainty around the recent lead-sheathed cables investigation continue to weigh on the stocks. 📱

Tight existing home supplies continue to drive demand for new homes, pushing PulteGroup shares to fresh all-time highs after its results topped expectations. 🏘️

And lastly, PacWest Bancorp and Banc of California shares were both very volatile today, confirming an all-stock merger after the bell. 🏦

Other symbols active on the streams included: $AMC (-12.48%), $TUP (-15.82%), $BFRG (+44.22%), $AURC (+223.03%), $BBIG (-14.45%), $ELBM (+70.73%), and $DOGE.X (+8.21%). 🔥

Here are the closing prices:

S&P 500	4,567	+0.28%
Nasdaq	14,145	+0.61%
Russell 2000	1,966	+0.02%
Dow Jones	35,438	+0.08%

Earnings

When Growth Stocks Don’t Grow

It was another frustrating quarter for growth stocks that aren’t growing fast enough for the market’s liking, including Spotify.

The digital music streaming service reported a loss of 1.55 euros per share. Meanwhile, revenues of 3.18 billion missed estimates of 3.21 billion euros. 🔻

Monthly active users (MAUs) grew 27% YoY to 551 million, with 36 million net additions coming during the quarter. Paid subscribers also rose 17% YoY to 220 million. To help drive revenue growth, the company is joining competitors in raising prices. Yesterday it announced it would increase Premium subscription prices by as much as $2 (or up to 20% for some plans) as the market landscape continues to evolve. 🔺

With that said, the price changes will have a minimal impact on third-quarter earnings. As a result, the company expects total revenue of 3.3 billion euros. That was shy of the 3.4 billion anticipated by analysts. In the meantime, the company continues to invest in its ad-supported business, which jumped 12% YoY, driven by a 30% increase in podcast ad revenue.

Overall, investors are still waiting for the company’s operating leverage to kick in and drive profitability. $SPOT shares fell 14% on the day. 📉

From a long-term perspective, it’s been a rough ride for shareholders. The stock has been in a 50%+ drawdown longer than it has been within 10% of its all-time highs. Not the type of action typically seen from growth stocks whose businesses are firing on all cylinders… 😬

Some might suggest that $SNAP falls into a similar category. The social media platform reported another weak quarter, plummeting 18% after hours on the news. 👎

Downside moves after earnings tend to happen in growth stocks that are no longer “growthing.” And today’s results seem to confirm that theory. 🤷

Earnings

Cloud Giveth & Cloud Taketh Away

Tech giants continue to live and die by the cloud, so let’s see how Alphabet and Microsoft fared today. 👇

Alphabet reported better-than-expected results across its segments. Below is CNBC’s summary graphic.

So far, Search revenue has been resilient, though it’s too early to see the potential impact of Microsoft’s artificial intelligence (AI) efforts in the space. Meanwhile, a rebound in advertising and strength in the company’s cloud unit boosted results.

Overall, investors were happy with the results. $GOOGL shares rose to fresh recovery highs after hours, up nearly 7%. 📈

Microsoft didn’t experience the same cloud strength. But first, let’s see the headline numbers. 👀

Adjusted earnings per share of $2.69 topped the $2.55 anticipated. Revenues of $56.19 billion were also ahead of the expected $55.47 billion.

Below is a snapshot of how the company’s product and service segments performed YoY. 📋

The company’s Azure cloud revenue growth slowed one percentage point QoQ to 26%, weighing on investor sentiment. Although it’s a slight decrease, it’s expected to be the primary growth driver of the business going forward. And with a stock price that’s trading at all-time highs, a lot of high expectations are already priced in. ⛅

In the meantime, investors will be closely watching mentions of artificial intelligence (AI) during the company’s conference call. Recent news that it plans to charge $30 per month per user for its Copilot service boosted shares, so the market is eager to hear more about its plans to monetize this tech.

$MSFT shares barely budged on the news, sitting down about 1% after hours. 🤷

Bullets

Bullets From The Day:

✂️ Biogen to cut 1,000 jobs as it bets on Leqembi launch. The biotech giant is cutting 11% of its workforce to reduce costs ahead of the launch of its newly approved Alzheimer’s drug. The cuts are part of the company’s ongoing cost-cutting measures that are expected to generate $700 million in net operating expense savings by 2025. CNBC has more.

🤝 UPS and Teamsters reach tentative labor deal. A deal has potentially been reached, avoiding a labor stoppage expected to begin next week. While details are not public, the union said UPS Teamsters will receive $2.75 per hour more in 2023 and $7.50 more per hour over the length of the contract. Still, roughly 340,000 Teamsters still need to vote to end the threat of a strike, which would now begin in late August if the current agreement isn’t ratified. More from CNN Business.

📝 Threads is rolling out one of its most requested features. Meta’s Twitter competitor has been missing a key feature, the Following feed, giving users an alternative to the “For You” feed driven by the company’s algorithm. Twitter, or shall we say, X’s chronological feed of only people users chose to follow, was a key differentiator. We’ll have to see if this change and the new features Threads is adding regularly are enough to entice users to make the switch for good. TechCrunch has more.

🚜 AppHarvest announces bankruptcy. The sustainable food company backed by Martha Stewart has filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code. Its largest secured creditor, Equilibrium, has agreed to provide approximately $30 million of debtor-in-possession financing to support operations during the process. More from Yahoo Finance.

📉 RTX shares lose altitude due to engine troubles. Defense contractor RTX Corp, formerly Raytheon, announced that over one thousand of its Pratt & Whitney GTF engines will need “accelerated removals and inspections.” Investors received limited clarity about the overall impact of this issue on the company’s operations and financials, but it doesn’t appear promising. Shares fell 10% in their largest one-day drop since the pandemic began. Reuters has more.