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- BABBEL | February 23rd, 2024
BABBEL | February 23rd, 2024
TOGETHER WITH
Today’s report is brought to you by Babbel, the world’s first language-learning app and also the best-selling. Its intuitive lessons have led to over 10 million subscriptions being sold, centering on learning a language through real-life conversations.
[ good morning ]
Here’s everything you need to know today
With Nvidia proving the rally yesterday, we’re back to a moment of equilibrium as the market piles onto winners and oversells losers in equal measure.
Since the AI rally looks like it will sustain at least until Q2, we’re seeing the market behave a little more rationally around software earnings. Intuit followed a classic pattern where they reported well above Q4 expectations but cautioned that their 2024 outlook wasn’t as rosy. Instead of a complete collapse, Intuit is just experiencing a moderate single-digit pullback in response.
This is encouraging overall as it helps demonstrate calmer price action. The market ramped up with near-delusional intensity as we approached Nvidia’s earnings report on Wednesday night and—after yesterday’s quick celebratory rally—traders are finally calming down.
So, now we enter a period where the market will continue to nervously watch earnings and heap rewards on firms that outperform on efficiency and cash flow. Until Jerome Powell sets a firm timeline for rate cuts, we’ll simply see a lot of volatility around individual pieces of market news.
So, let’s check out the headlines that will have the most lasting impact and see what trends we can find:
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ social media ]
Reddit Eyes Google’s Market in Massive IPO
The 2024 IPO market finally has some real players
BREAKING NEWS
After years of speculation, Reddit has filed to be listed on the New York Stock Exchange under the ticker RDDT. This is the first major social media IPO since 2019—and it shows Reddit has some bold plans for life as a public company.
WHAT HAPPENED
Reddit has been a niche cornerstone for internet culture since 2005. Because of their extremely specific user base, Reddit has had a lot of trouble developing strong revenue streams, as their structure wasn’t the best for advertisers.
In the last few years, Reddit has really dialed in the ad model though. Reddit’s SEC filing shows that the company netted a 20% YoY increase in revenue in 2023—hitting $804 million. The company operated at a $90 million dollar loss and has plans to rapidly push toward profitability through several different monetization strategies.
SEARCH PARTY
The most interesting detail in Reddit’s IPO filing is how they intend to sell ads around searches on the platform. Reddit has developed into a really important ‘town square’ where folks with expertise post insights and offer advice. In a moment where public sentiment on Google search is souring thanks to an oversaturation of ads and poor-quality results, Reddit has a real opportunity here.
Algorithmic improvements to their search and advertising engine have a compelling path to taking a small bite out of the search market—but Reddit has a lot to prove there. Reddit also is developing tools to establish a ‘social economy’ on the platform. Rounding out their monetization strategy, Reddit is also a huge wealth of training data for AI firms. The company expects no less than $66 million in social media revenue in 2024.
WHY IT MATTERS
Reddit has had a tough road building to this IPO—but the unique construction of their community gives them a lot of really interesting paths to growth. Reddit expects to begin trading sometime in March. This is the first real public challenger to Alphabet we’ve seen on the search market in a while, but this IPO could just as easily go the way of SNAP and Pinterest if the company can’t establish an efficient growth path.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 1.50% | 4.48% | 47.21% |
| Consumer Disc. | 1.94% | 4.15% | 24.06% |
| Consumer Stap. | 0.31% | 2.94% | 1.62% |
| Energy | 0.17% | 6.75% | 2.08% |
| Financials | 1.16% | 4.62% | 12.17% |
| Health Care | 1.18% | 4.86% | 13.37% |
| Industrials | 1.24% | 5.19% | 18.49% |
| Materials | 1.01% | 4.26% | 6.75% |
| Real Estate | 0.26% | -1.00% | -0.10% |
| Technology | 3.27% | 1.24% | 48.21% |
| Utilities | -0.77% | 0.52% | -8.51% |
*Market data based on standard trading hours and calculated close to close
[ used cars ]
Carvana Surges as Car Market Improves
Inflation’s biggest loser is flying high on their first annual profit
BREAKING NEWS
Carvana jumped as high as 30% in early trading after they shocked the market with an annual profit. How did they pull off this turnaround?
WHAT HAPPENED
Efficiency is king in this market. Carvana actually sold fewer cars in 2023—but operated in a way that they still ended up profitable. Carvana generated $450 million in net income from $2.4 billion in sales. While that revenue number just barely missed expectations, Carvana’s net income was a staggering improvement compared to last year’s $1.59 billion loss.
EFFICIENCY WINS
Basically, Carvana was able to strike a deal with creditors to cut their outstanding debt by $1 billion. Carvana used that relief to stay afloat while they cut other expenses and generated new efficiencies. Carvana crushed their advertising costs and trimmed inventory. All the while, improvements in used car prices helped lift revenue after a year of underperformance.
While that 2023 win is great—Carvana also projects they’ll continue to be profitable in 2024 with an adjusted core profit coming in ‘significantly above $100 million in Q1.
WHY IT MATTERS
Carvana stock is surging despite the fact they still missed revenue expectations. This market doesn’t want companies to post revenue gains, it wants to see efficiency above all else. Carvana pulled off some really powerful cost-cutting strategies that look like they’ll pay off long-term. Carvana stock leveled off at a 26% boost in early trading. The company still has a very long way to go before they reclaim their incredible highs from 2021.
[ fintech ]
Block Defies Expectations With Quarterly Profits
Wow, it turns out payment networks can actually make money
BREAKING NEWS
Jack Dorsey’s Block company posted a strong finish to a tumultuous 2023 by netting a surprise quarterly profit. How’d they pull it off?
WHAT HAPPENED
Block’s Cash App and Square payments networks spent 2023 significantly pulling back operational spend, and that gamble paid off with Block generating a respectable $0.45 EPS from $5.77 billion in revenue. Revenue numbers just barely beat expectations while basically no one on The Street expected Block to post anything close to a positive EPS.
VOLUME GAME
Block mainly cut costs at Cash App while still locking in strong transaction volume. Cash App saw 56 million monthly transacting activities on the network in December—a massive improvement over last year. This allowed Cash App to generate a 25% YoY increase in gross profit to $1.18 billion. Block also initiated another wave of layoffs in December—but that isn’t projected to slow their volume. Because of that, Block has significantly boosted their adjusted EBITDA expectations to $2.40 billion.
WHY IT MATTERS
The payments business has been pretty volatile lately with a huge influx of competitors and big players like PayPal struggling to find a profitable way forward. Block just resoundingly announced themselves as a huge force in this space and The Street is very excited for all these improvements. Block stock jumped over 15% in early trading.
Extra Moby Snacks
Intuitive Machines stock jumped over 30% this morning after the aerospace company confirmed that their unmanned Odysseus spacecraft had successfully landed on the Moon. This is the first American lunar landing since Apollo 17 in 1972. With India and China also having successful lunar landings around the Moon’s South Pole—a new space race is really starting to ramp up.
Despite improving subscriber numbers, Warner Bros Discovery stock still slumped over 8% after the old media titan missed profitability and revenue expectations. Hopefully that joint sports app can save them.
TOGETHER WITH
Today’s report is brought to you by Babbel, the world’s first language-learning app and also the best-selling. Its intuitive lessons, have led to over 10 million subscriptions being sold, centering on learning a language through real-life conversations.
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