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- Flyover | February 6th, 2024
Flyover | February 6th, 2024
TOGETHER WITH
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[ good morning ]
Here’s everything you need to know today
Once again—the fear of higher interest rates for longer is fueling a moment of equilibrium in the market. Bulls are jumping on winning stocks while Bears sell losers even harder.
In this phase of earnings season—we’ve got winners and losers in relatively equal measure. A small number of winners are netting massive gains while a larger number of weaker companies offset that with tough pullbacks.
While the market continues to worry about inflation running hot—layoffs appear to be ramping up as every major tech player makes big cuts to keep up with the efficiency of big players like Meta and Alphabet. Despite this—America added enough jobs in January to keep bond yields firmly above 4%. For companies outside the very top, that adds a ton of pressure for their profits to outperform. Right now, only the biggest players have the scale necessary to prove the efficiency model.
As more mid-size players are forced to play Mark Zuckerberg’s game—we’re going to see some companies crack from the pressure after netting short-term gains thanks to layoffs. Not everyone is going to get the efficiency model right. We have to stay measured in our investments despite how attractive some short-term gains may seem as more and more rounds of layoffs get announced.
With that in mind—there are still plenty of players who went full-efficiency last year who are demonstrating they can still drive growth. At the same time, some companies have access to new revenue lines that completely offset their need for more efficient operations. While there are fewer and fewer ways to win in this market—the winners are reaping bigger and bigger rewards.
Let’s check in with some of those winning plays and see how they can keep up their outperformance no matter what 2024 throws at us.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ pharmaceuticals ]
Eli Lilly Tops $700 Billion as Zepbound Takes Over
Ozempic is so over—all hail the Mounjaro Empire
BREAKING NEWS
Eli Lilly’s stock has officially doubled in the last year thanks to a meteoric rise in Mounjaro sales. Now—their latest earnings call has fully cemented their dominance in the GLP-1 race.
WHAT HAPPENED
Eli Lilly’s revenue jumped an absurd 28% to $9.3 billion in Q4. Basically, Mounjaro and Lilly’s new weight-loss formulation Zepbound drove over $2 billion in revenue by themselves. Mounjaro’s contribution jumped 38% YoY and Zepbound had massive results despite only getting approved and in pharmacies in the last 3 weeks of the quarter.
All that growth was amplified by a solid increase in gross margin as well—allowing Lilly to smash estimates by driving a $2.49 EPS from this tidal wave of new revenue.
FLYING HIGHER
Eli Lilly also pumped up their 2024 guidance to project another 20% in revenue growth this year as Zepbound scales and their groundbreaking Alzheimer’s treatment approaches FDA approval.
With Eli Lilly opening new manufacturing plants in Germany as well—the Mounjaro Empire is opening a new front in their battle to beat Ozempic.
WHY IT MATTERS
GLP-1 drugs like Mounjaro and Novo Nordisk’s Ozempic are now approaching software-like growth numbers. With Zepbound surging thanks to new programs to get the weight-loss injection into as many hands as possible—Eli Lilly is pushing hard to stay on top.
However, with new approvals on the horizon for better formulations of Ozempic, Novo Nordisk may have the last laugh here. Despite achieving new heights, this GLP-1 battle is only getting started. For now, Eli Lilly surged over 4% in early trading and briefly topped $700 billion in market capitalization. Completely wild.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | -1.40% | 8.77% | 36.68% |
| Consumer Disc. | -1.41% | 1.10% | 15.94% |
| Consumer Stap. | -0.62% | 2.35% | 0.59% |
| Energy | -0.25% | 0.08% | -3.17% |
| Financials | -0.59% | 2.62% | 6.51% |
| Health Care | 0.31% | 2.35% | 7.49% |
| Industrials | -0.55% | 3.44% | 12.31% |
| Materials | -2.54% | -3.48% | -2.04% |
| Real Estate | -1.98% | -4.36% | -7.01% |
| Technology | 0.23% | 9.54% | 44.58% |
| Utilities | -2.08% | -6.49% | -11.01% |
*Market data based on standard trading hours and calculated close to close
[ streaming ]
Spotify Approaches Profitability as International Growth Spikes
The streaming king is finally proving the audio model
BREAKING NEWS
Thanks to improving margins and better-than-expected subscriber growth—Spotify has cemented their dominant spot in the music space. Let’s break down their numbers:
WHAT HAPPENED
You might remember that Spotify actually managed to turn a profit in their last earnings report. While their Q3 numbers were great, Q4 is cyclically a more expensive quarter—so The Street anticipated Spotify flipping back to a loss.
Turns out: Spotify managed to significantly narrow losses to ‘just’ $75 million in Q4. This is over a 2/3rds reduction in their losses from last year and strongly suggests that Spotify is knocking on the door of consistent profitability. Revenue beat estimates by jumping 16% to $3.6 billion.
PERFECTING THE FORMULA
After a messy few years trying to corner the podcast industry—Spotify has successfully pivoted to way more efficient growth drivers. Total subscribers jumped 23% YoY with premium subscribers beating The Street’s estimates ending the year with 236 million paying for Spotify.
However, ad-supported subscribers surged 28% YoY—and frankly, those users may be higher-margin than premium subscribers. That’s a big reason why Spotify is getting so close to being profitable.
WHY IT MATTERS
Spotify’s expanded loss was mainly due to severance payments from a massive wave of layoffs the company did after their last earnings report. Spotify is still hitting bigger and bigger growth targets despite taking on a more efficient model. For some, this is a troubling sign as it continues to advance a new paradigm in the economy where leaner, meaner companies are going to win with fewer workers.
In the long term, that might lead to negative consequences on the labor side of things. But for investors, this is a great signal suggesting that Spotify might even turn a yearly profit in 2024. Spotify stock surged over 7% in early trading—meaning their market cap has gained over 80% since their lows in August.
[ big tech ]
Palantir Proves the AI Model
Commercial clients are taking over as government revenue wanes
BREAKING NEWS
Despite not living up to their potential as a key provider for government contracts—Palantir is surging as commercial clients pick up the slack. Let’s break down the defense provider’s new results:
WHAT HAPPENED
Palantir has been prepared to pop for the past year—and things look to be finally paying off for their early investors. The defense software developer posted a strong revenue beat of $608 million and managed to hit expectations by squeezing a respectable $0.08 EPS out of those figures. Palantir carried out 600 pilots of their software in 2023 compared to the barely 100 they ran in 2022.
GOING PRIVATE
Palantir’s main promise has always been in the public sector—offering high-margin services to government agencies worldwide. However, with their recent AI advancements, Palantir is now finding a lot more lucrative growth in the private sector. Palantir’s commercial clients popped 55% in 2023 while their commercial revenue surged 70% as they added bigger and bigger contracts. As AI supercharges what Palantir can offer—their potential revenue and profit base are set to push even higher.
WHY IT MATTERS
While Palantir wasn’t able to meet The Street’s expectations for their 2024 guidance—the stock is still erupting thanks to new confidence that commercial clients can carry the company this year. Palantir still has a lot of potential as a provider for Government clients—but commercial revenue is profitable enough to keep investors happy. Palantir has more than doubled in the last year—and these results helped the company jump nearly 20% in early trading.
Extra Moby Snacks
While there are a lot of big winners today, the losers are losing much more. Chief among these is the warehouse automation company Symbotic—who posted a loss and lagged revenue estimates despite being in a high demand industry. Their stock slumped over 17% on those results.
Chat GPT is still breaking the back of companies that cant adapt to the LLM world. The former tutoring empire at Chegg dropped another 7% today as the company still hasn’t figured out a way to get growth back on track. This is after a 55% decline the company experienced last year thanks to a sharp drop in usage blamed on ChatGPT. Who needs to pay for tutoring and homework help when LLMs get you 75% of the way to a right answer for free? Tough world out here, y’all.
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