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- Internal | February 16th, 2024
Internal | February 16th, 2024
[ good morning ]
Here’s everything you need to know today
Another day, another hotter-than-expected inflation report. The Fed’s preferred Producer Price Index (PPI) came in a lot hotter than expected. Markets are throwing a whole fit about it in early trading.
While the market has largely absorbed persistent inflation this week, caution is warranted as traders tend to overreact to both positive and negative market events.
The main thing pushing the PPI was the services side of the equation—with hospital outpatient care expenses surging 2.2% in the last year. This lines up with some of the tough earnings reports we’ve seen from healthcare and insurance stocks. That’s going to be something we watch a lot closer now that we’re seeing more of a pattern here.
For now, as we push into the back half of Q1, we’re getting a much better idea of what businesses will perform better through 2024. It’s looking more and more likely that we’ll stay in a higher interest rate environment for longer, but enough firms are compounding their efficiency improvements from last year enough to convince traders that we can weather this storm (for now).
Some of the price action we’re seeing is honestly the market swinging back after huge overreactions in Q4. Back in October—Alphabet, Meta, and Snapchat all put out cautious guidance indicating that ad demand may dry up during the 2023 holiday season. Now that most major ad platforms have reported solid holiday revenue—it turns out those fears were overblown.
Still, this market demands nothing short of fine-tuned perfection. So most of the sell pressure we’re seeing is great companies that fell just short of expectations or issued guidance for 2024 that was just too conservative. Moves like that help us stay confident that most of this market isn’t running too hot. That is—unless you’re the mob of options traders who have jacked up Super Micro Computer stock more than 300% in the last 6 months.
With some traders piling into winners in an ever-more desperate hunt for alpha, we have to be extra cautious in our investing strategy for the next few months while earnings have a chance to catch up with valuations—or at least until the market decides it has seen enough and opts for a correction.
So let's delve into the key drivers behind today's market movements to better understand investor expectations from these companies, enabling us to make informed investment decisions in a market characterized by both excitement and risk.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ crypto ]
Coinbase Surges On Crypto Optimism
The Street’s original crypto platform refuses to cede market share
BREAKING NEWS
Coinbase stock surged this morning after the company obliterated profitability estimates. Instead of crypto optimism crowding their market—Coinbase has fully secured its position. Let’s explore.
WHAT HAPPENED
First up, revenue at Coinbase surged nearly 50%. However, the market is mainly reacting to Coinbase generating a $273 million net income after generating a half a billion dollar loss during the same period in 2022.
Coinbase consolidated operations at the exact right time and was able to efficiently ride a wave of crypto optimism that began to break across the industry at the end of last year.
BAG SECURED.
The main fear analysts had for Coinbase was the platform losing market share as more institutional players like Fidelity began allowing crypto trading. Instead, Coinbase managed to more than doubled their trading volume from Q3 to Q4—hitting $154 billion.
Coinbase’s strategy revolving around partnering with institutional players is paying off in a big way—as $125 billion of that trading volume came from large institutions. While retail traders are definitely returning the the platform—institutions were feasting on periods of volatility that hit the blockchain as ETF mania kicked off.
WHY IT MATTERS
Coinbase really stunned investors with this result. Folks were pricing in a lot of gains for Q1 of this year—but nothing this soon.
The party has already arrived for Coinbase and they are already secure in their niche. With more volatility to come, Coinbase stock surged over 14% in early trading.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 0.82% | 9.94% | 45.08% |
| Consumer Disc. | 1.16% | 4.75% | 18.84% |
| Consumer Stap. | 0.65% | 1.30% | 0.76% |
| Energy | 2.79% | 7.19% | -2.70% |
| Financials | 1.71% | 7.43% | 9.26% |
| Health Care | 0.73% | 4.09% | 10.86% |
| Industrials | 0.75% | 7.76% | 16.30% |
| Materials | 1.89% | 3.76% | 3.49% |
| Real Estate | 2.40% | -0.18% | -1.97% |
| Technology | -0.21% | 6.88% | 43.98% |
| Utilities | 1.68% | -1.56% | -9.32% |
*Market data based on standard trading hours and calculated close to close
[ gambling ]
DraftKings Misses Profit With Huge Lottery Gamble
Despite huge revenue gains—some investors think DraftKings hasn’t generated enough efficiency to justify their latest acquisition
BREAKING NEWS
Just days after a record-breaking Super Bowl, DraftKings managed to post a strong revenue result in their Q4 earnings report. However, they also announced a spicy acquisition and the market thinks that’s way too much of a gamble.
WHAT HAPPENED
Another thing hurting DraftKings stock right now is that investors were expecting the company to swing into profitability in Q4. Instead, DraftKings missed this pretty significantly by driving a $0.10 loss per share.
This was compounded by DraftKings having high expectations for revenue that they just barely missed. DraftKings still boosted revenue 44% YoY to $1.23 billion, but they needed a lot more to justify the 150% run-up the stock has experienced in the last year.
THIS IS HOW I WIN
DraftKings also placed a hefty wager by acquiring a premier digital lottery app—Jackpocket—for $750 million. Sure, this acquisition has the chance to significantly expand the gaming profile and portfolio at DraftKings.
However, that price is a little too hefty for The Street right now—especially when the company already couldn’t hit profitability during a blowout quarter.
WHY IT MATTERS
Temporary headwinds aside, DraftKings is in a strong position entering 2024. The company expects to boost revenue by as much as 34% this year—aided by huge gains in monthly active players and the average revenue generated from each player on the platform.
Casino and other gambling apps are increasingly becoming the main driver for DraftKings, even when this most recent Super Bowl drove record volume. Still, the market has to take its pound of flesh for that Jackpocket acquisition—so DraftKings stock stumbled a little over 1% in early trading. But that price action looks like it could easily flatten to end the day.
[ advertising ]
The Trade Desk Roars Back to Life on Improved Outlook
We’ve cancelled the apocalypse
BREAKING NEWS
After overblown conservative guidance crushed The Trade Desk’s valuation in Q4—the digital ad platform surged this morning. Turns out, ad demand is doing pretty great. Let’s see how:
WHAT HAPPENED
Revenue jumped to $606 million at TTD in Q4, representing a 23% boost from last year. Sure, TTD missed earnings per share (EPS) expectations by a few pennies—but their $97 million net income came in 37% higher than last year.
TV CONNECTS
More importantly, The Trade Desk expects revenue to stay strong this quarter with $478 million in revenue projected for Q1. The Trade Desk’s connected TV advertising is starting to see some real volume—and it looks like commerce is ready to outperform despite diminished retail spending.
WHY IT MATTERS
This beat is more about overblown fear—as advertising demand didn’t dry up for platforms in Q4 unless they were Snapchat. The Trade Desk just proved they can drive value for their customers no matter what the environment is—which is a huge confidence boost for investors. So, the Trade Desk gained back all the market share they gave up in Q4. TTD stock popped nearly 20% in early trading.
Extra Moby Snacks
The EV wars might be ready to heat up in a big way as reports have come to light that Chinese EV maker BYD is gearing up to establish a factory in Mexico. This would serve as an entry point into the U.S. market for China’s budget electric vehicle player. Your move, Elon.
Toast—the restaurant payments platform—finally started their road to recovery by announcing a 10% layoff of their staff during their Q4 earnings report. Toast has struggled with earnings and revenue growth, and this move should help the platform find an appropriate level. Toast stock rose 5% in early trading in response to their new operational plan.
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