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- Renewal by Anderson | February 9th, 2024
Renewal by Anderson | February 9th, 2024
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[ good morning ]
Here’s everything you need to know today
We’re approaching the halfway mark for earnings season and volatility is ramping down after a wild week. Now that we have a solid understanding of what kind of businesses stood tall to end 2023 and which ones cracked under pressure—next week’s CPI numbers should give us a confident view of how the rest of 2024 will play out.
If inflation comes back cooler than expected, that will help cement our nascent rally and put pressure back on the Fed to lower rates and stop pumping the brakes so hard.
However, inflation could easily come in hot with shelter prices still up in the air and gas prices creeping back up to finish January. In that case—we’ll stay mired in this moment of volatile equilibrium where industry winners take all the gains while mid-tier performers get heavy punishments for anything less than perfection.
We’re seeing that dynamic play out this morning as a strong slate of earnings reports got hammered thanks to less-than-optimistic guidance for 2024. Management teams are keeping predictions close to the chest and the market is handing out heavy punishments for that pessimism. Of course, high bond yields and sustained gains for oil aren’t helping anyone’s appetite for any equity that looks too risky.
Meanwhile, with December inflation numbers getting corrected to show a cooler report than initially expected, wider markets are surging as the narrative turns back toward rate cuts coming sooner.
At the same time—the crypto market has passed a few critical milestones and Bitcoin has risen over 11% this week to pass the peaks the chain hit post-ETF approval. With every major token in the top 10 experiencing decent lift to end the week and BTC knocking on the door of a $1 trillion market cap again, crypto season appears to be confirmed.
Ethereum is starting to break out in particular thanks to new speculation that Cathie Wood and crew will be able to lock in approval for an Ethereum ETF as early as May—so gear up for another round of wild volatility surrounding that rumor mill.
But for now, let’s try to find long-term patterns in all this short-term data. We’ll take a look at the stories making the biggest impact as we ramp into Super Bowl weekend and try to see if there are any signals in all this noise. Let’s get into it.
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ finance ]
Affirm Stumbles Despite 48% Revenue Boost
Investors hyped the stock up too much before earnings and the outlook isn’t so rosy.
BREAKING NEWS
Affirm has once again defied the odds with a solid revenue performance in the Q4 earnings they just reported. The only problem is Affirm thinks they have a bleaker outlook for 2024. The stock is getting hammered in early trading after running hot this week.
WHAT HAPPENED
Affirm basically cut their losses in half YoY—only drawing a $166 million net loss. The real headline is how revenue erupted 48% to hit $512 million. Affirm’s active customer numbers continue to pop while the company has gotten costs more and more under control. So why is the stock down nearly 2% in early trading?
THE PAST IS GONE
Once again—like so many other companies in the earnings cycle—Affirm simply has weaker guidance than the market wanted to see. Basically, Affirm’s real Q4 numbers beat expectations resoundingly. Affirm’s Q4 gross merchandise volume beat their guidance by over $700 million. So, investors expected Affirm to react with a lot more confidence in 2024. Instead—Affirm barely raised their 2024 guidance by a meager $1 billion. Basically, a super strong Q4 2023 wasn’t enough to get Affirm’s management to swing for the fences this year—so investors are taking that as a sign that there’s trouble brewing. Combine that with how Affirm ran pretty hot in the lead-up to earnings, and their valuation is merely coming back to earth after folks got a little too optimistic about consumer spending in 2024.
WHY IT MATTERS
Frankly, this is a great result and folks are only really losing if they jumped onto Affirm ahead of earnings yesterday. This result confirms that Affirm is fully back and in a strong position to win after the stock was left for dead in the wake of Apple launching a competitive feature in Apple Pay. Affirm’s utilization is only growing and their delinquency rate is staying right in the middle of expectations. Of course, some analysts think that the growing use of Affirm’s services is a troubling sign as U.S. consumers continue to feel the pinch of rising prices—but we need to see a lot more data before those become genuinely alarming. For now—Affirm stock corrected around 2% downward in early trading after a near-30% run-up this past week.
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Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 0.38% | 8.09% | 37.67% |
| Consumer Disc. | 0.44% | 1.97% | 17.37% |
| Consumer Stap. | -0.03% | 1.54% | 1.08% |
| Energy | 1.03% | 2.53% | -3.38% |
| Financials | -0.38% | 3.40% | 5.52% |
| Health Care | -0.17% | 2.64% | 8.57% |
| Industrials | 0.02% | 4.42% | 13.55% |
| Materials | -0.13% | -0.56% | -0.73% |
| Real Estate | 0.55% | -3.28% | -5.92% |
| Technology | 0.31% | 8.43% | 42.42% |
| Utilities | -0.71% | -6.87% | -11.01% |
*Market data based on standard trading hours and calculated close to close
[ cybersecurity ]
Cloudflare Crushes Expectations With Bigger Deals
Cybersecurity demand is running red-hot as strong players get even stronger.
BREAKING NEWS
Cloudflare has capped off a brilliant run by adding over $10 billion to their market cap since October. Their latest earnings report simply confirms that strong players can do no wrong in this red-hot cybersecurity space. Let’s break down the numbers.
WHAT HAPPENED
As Cloudflare levels out after a year of meteoric outperformance, the company only mildly beat expectations in this report. Cloudflare generated an adjusted $.015 EPS from $362 million in revenue. Revenue grew 32% YoY while their net loss was basically cut in half. Cloudflare is now within striking distance of profitability.
ENTERING THE BIG LEAGUES
This Q4 performance came with 2 critical milestones as Cloudflare signed their biggest deal of all time and their largest renewal of all time. Basically, Cloudflare established they can make deals in the big leagues and hold onto large clients even with massive competitors like Palo Alto Networks and Microsoft ready to pounce on any clients who are the slightest bit unhappy.
While Cloudflare hasn’t exactly called their shot regarding when they’ll turn a real profit—their EPS and revenue expectations for the year came in much higher than The Street figured they would. This rosy outlook is all investors really want to see right now.
WHY IT MATTERS
As Cloudflare pushes hard into the GPU market and offers inference services across all of their worldwide data centers—they are establishing themselves as a clearly differentiated player in a crowded and top-heavy space. These results show just how complex and nuanced the needs are in the cybersecurity industry. Instead of Cloudflare eating into Palo Alto Network’s market cap—the firm has established a secure $30 billion niche for themselves that’s set to grow in 2024. This security space is red hot and looks to be getting even hotter. Cloudflare stock responded by popping over 20% in early trading—bringing the stock up well over 50% since growth started accelerating in October.
[ social media ]
Pinterest Just Can’t Hit Revenue Goals
The stock is slumping hard despite strong earnings performance. Where is all the ad revenue?
BREAKING NEWS
The year of efficiency clearly isn’t for everyone—Pinterest is falling hard after their revenue numbers missed estimates. Even though Pinterest is becoming more profitable, the market only wants to reward perfection.
WHAT HAPPENED
Pinterest has had a great run across the last year and the market simply needed to see slightly better performance to justify the run-up.
Pinterest generated a 10x increase in net income this quarter—hitting $201 million as they streamlined operations. However, Pinterest missed revenue expectations by just under $10 million with $981 million in quarterly revenue. Efficiency only works if you outperform your targets in this business.
CONFIDENT GROWTH
Pinterest is growing their monthly active users at a respectable clip and beating estimated. MAU numbers rose 11% to reach 498 million. However, there’s a chance that Pinterest pulled that off by generating less-valuable monthly average users because their Average Revenue Per User topped out at $2.00. The Street was hoping to see a $2.05 ARPU worldwide. With Meta setting the standard with an unfathomable $10.10 ARPU—Pinterest simply needs to hit stronger performance targets if investors are going to stick with the stock.
WHY IT MATTERS
Pinterest’s revenue growth for Q1 also isn’t quite hitting expectations despite the fact that the company looks like they will maintain their progress toward greater profitability this year.
The main issue here is simple: the overall advertising market has shown strong signs of recovery despite initial fears The Street had to start Q4. Pinterest simply isn’t seeing enough gains from that recovery. While Meta dominates high-value markets—Pinterest’s main user growth is coming from regions that only drive a $0.15 ARPU. Growth is great—but the kind of growth Pinterest is experiencing may hurt their valuation in the short term. For now, Pinterest stock dropped over 8% in premarket trading. Given that the stock has jumped over 50% in the last 6 months, this is more of a correction than the market bailing on the company. Their outlook is strong—but it sure could be stronger.
Extra Moby Snacks
PepsiCo followed a familiar pattern this morning as their stock slumped over 1%. Basically, Pepsi streamlined operations enough to crush earnings estimates—but a revenue shortfall is making investors stay on the sidelines.
Expedia stock cratered more than 15% this morning despite beating estimates on both sides of the balance sheet. Expedia missed some key revenue areas and named a new CEO—signalling a little too much risk for The Street’s liking.
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