Looking Ahead - October 24, 2016
Japan's Trade Balance Report for September will be released over the weekend. It will be a topic of conversation come Monday morning, and potentially a market-moving item, if it alters prevailing views about global growth and the Bank of Japan's monetary policy.
Taking a look at Twilio [TWLO] after it priced a secondary offering, mostly by selling shareholders
Twilio (TWLO -3%) is trading lower but near a session high after the company priced a 7 million share secondary offering at $40/share. The majority of the offering (6.36 million shares) was conducted by selling shareholders.
Recall that Twilio preannounced upside third quarter results on October 11 after filing for the offering on October 11.
Twilio is the leading communications platform as a service (CPaaS) company. Twilio enables developers to build, scale and operate real-time communications within software applications, allowing developers to embed voice, messaging, video and authentication capabilities into their applications via its Application Programming Interfaces, or APIs.
Its customers include high profile technology companies like Uber and WhatsApp. Twilio also serves more traditional companies that offer an app for its customers that requires communications, like Nordstrom.
The company had almost 31,000 customer accounts at the end of the second quarter, up 45% year-over year.
TWLO is down some 40% from its all-time high in late September but still up a whopping ~175% since it sold 10 million shares at $15/share in its June IPO.
The stock is now trading at levels seen just before it reported its first quarter as a public company in August. Twilio company reported a smaller than expected second quarter adjusted net loss on higher than expected sales and guided third quarter and fiscal 2016 sales well above Wall Street expectations.
The 40 level is now an even more important level of support for the stock.
The company will formally report third quarter results and offer fourth quarter guidance on November 3.
Valuation still demanding: With valuation just over $3.7 billion (at ~$43/share), Twilio trades at ~14x sales estimates for 2016 and ~11.3x sales estimates for 2017.
In June, Vonage (VG) acquired the number two player in the CPaaS space, Nexmo, at less than 2x projected sales for next year.
PayPal [PYPL] surges as Q3 TPV growth, guidance shines light on PYPL story
Last night, digital and mobile payment company PayPal (PYPL 43.48, +3.39 +8.5%) reported mostly in-line Q3 results and gave guidance for certain periods in a conference call following the results.
PYPL reported Q3 earnings per share of $0.35 on revenues which rose 18.1% compared to last year to $2.67 billion.
Additionally, PYPL active customer accounts were up 11% to 192 million. Transactions processed were up 24% to 1.5 billion as the company processed $87 billion in total payment volume (TPV), up 25%, or 28% on a FX-neutral basis.
Merchant Services TPV grew 32%, or 34% on an FX-neutral basis, and represented 84% of overall TPV for the quarter. PYPL processed nearly $26 billion in mobile payment volume, up 56%, representing 29% of TPV for the quarter. Venmo, PYPL's social payments platform, processed $4.9 billion of TPV, up 131%.
Also, on the conference call, PYPL management spoke to the Visa (V 82.02, -0.48 -0.58%), MasterCard (MA 102.63, +0.09 +0.09%) and Alibaba (BABA 103.37, -0.48 -0.46%) partnerships. With MA, PYPL is exempted from current and future digital wallet fees and gives a level of cost certainty into the future. With BABA, PYPL noted the partnership offers a route to drive cross-border traffic in China and with Chinese merchants. PYPL noted the Facebook (FB 130.30, +0.30 +0.23%) and Apple (AAPL 116.62, -0.44 -0.38%) partnerships will offer significant exposure to the P2P markets and through the Messages app and Venmo, offers its solutions to more customers than before.
PYPL also gave guidance for specific periods; for Q4 in their press release, and for 2017 and a 3-year outlook on the conference call:
In sum, growing TPV and expanding user engagement seems to be driving shares today as results were mostly in-line and guidance was mixed, but skewed positive. With the holiday season ahead, and a 3-year outlook that ideally gives investors some clarity into the future of PYPL, shares outperform payment peers GPN -1.03%, V -0.64%, WU -0.23%, MA +0.03% and the broader market Dow Jones Industrial Average (-0.48%), S&P 500 (-0.23%), Nasdaq Composite (+0.17%).
McDonald's [MCD] Climbs 2.7% After Earnings Beat
Fast food giant McDonald's (MCD 113.48, +2.91) is pulling away from its lowest level of the year after beating earnings and revenue estimates for the third quarter.
The Dow component reported above-consensus earnings of $1.62 per share on a 2.9% year-over-year increase in revenue to $6.42 billion, which also exceeded estimates.
The revenue growth was fueled by a 3.5% increase in global comparable sales. This was well ahead of expectations for growth of 1.5%. The increase in comparable sales was underpinned by growth in all segments.
Consolidated revenue was down 3.0% due to refranchising. Consolidated operating income, however, increased 5.0%.
Sales in the U.S. increased 1.3% thanks to strong returns from the all-day breakfast menu, promotional activity associated with the McPick 2 platform, and the launch of preservative-free McNuggets. Operating income in the U.S. increased 8.0%.
International comparable sales grew 3.3% thanks to strong sales in the U.K. and a good showing from Australia, Canada, and Germany. International operating income increased 2.0%.
Sales in the High Growth segment were up 1.5% with positive performance from most markets offsetting negative comparable sales in China.
Foundational markets comparable sales increased 10.1%, largely due a strong showing from Japan.
Shares of McDonald's have climbed 2.7% today, narrowing their 2016 loss to 3.9% versus a 1.6% decline in the broader consumer discretionary sector.
La-Z-Boy [LZB] Tempers Fiscal Q2 Outlook
The fall season is traditionally a stronger period for La-Z-Boy (LZB 22.49, -2.02, -8.2%), a maker of residential furniture. This fall, however, strength is not a buzzword associated with the sales activity for La-Z-Boy, which tempered its fiscal second quarter outlook after the close of trading on Thursday.
Specifically, La-Z-Boy said it anticipates fiscal second quarter sales to be 1.0% to 2.5% lower than last year's second quarter sales of $382.9 million, citing weaker demand throughout the retail home furnishings sector. On a related note, furniture company Ethan Allen (ETH 30.65, -0.75, -2.4%) warned earlier this week that its fiscal first quarter earnings per share results were going to come in below analysts' average expectation and below what the company reported for the same period a year ago.
La-Z-Boy also said it expects earnings per share to range between $0.37 and $0.39, which would be flat to down slightly versus last year's earnings per share of $0.41, which included approximately $0.02 per share for a legal settlement.
The high end of its sales and earnings per share guidance ranges is below analysts' average expectations.
La-Z-Boy provided its update ahead of meetings it is going to have with analysts at the High Point, North Carolina Furniture Market. Those analysts are apt to have plenty of questions that pertain to the industry outlook and La-Z-Boy's approach for dealing with the tough environment.
La-Z-Boy for its part said it remains confident that it has an operating strategy that will create long-term sales growth and deliver improved returns for its shareholders.
That would be a good thing considering LZB has plunged nearly 30% in the last two months on back-to-back disappointments in quarterly sales.
La-Z-Boy will report its fiscal second quarter results after the close on Wednesday, November 30.
Microsoft [MSFT +6.2%] Eyes Record High After Earnings Beat
Shares of Microsoft (MSFT 60.79, +3.54) are set to register a fresh all-time high after the company reported better than expected results for the first quarter.
The tech giant delivered first-quarter earnings of $0.76 per share on a 3.1% year-over-year increase in revenue to $22.33 billion, which also exceeded expectations.
Productivity and Business Processes revenue grew 6.0% to $6.70 billion thanks to 5.0% growth in Office commercial products and cloud services revenue. Office consumer products revenue grew 8.0% and Dynamics products and cloud services revenue increased 11.0%.
The company has been pushing users towards the Office 365 platform in recent years and its consumer subscriber count rose to 24 million during the quarter. Meanwhile, commercial Office 365 revenue surged 51.0%.
Intelligent Cloud revenue increased 8.0% to $6.40 billion. This was driven by an 11.0% increase in Server Products and Cloud Services revenue. Enterprise Services revenue grew 1.0% thanks to strength in Premier Support Services and Consulting while Azure revenue surged 116.0%. Azure is the company's cloud platform, which became operational in early 2010, offering an array of services like computing, mobile and storage services, data management, and messaging.
The company's largest segment, More Personal Computing, saw a 2.0% decline in revenue to $9.30 billion. Windows OEM revenue was unchanged year-over-year, showing some slight strength relative to the PC market. Commercial products and cloud services revenue was also unchanged year-over-year. Phone revenue declined 72.0% as the company winds down its operations in the segment while Gaming revenue declined 5.0% due to lower console revenue, which was slightly offset by higher software and services revenue. Search advertising revenue increased 9.0% thanks to higher revenue per search and higher volume.
Microsoft commented briefly on its acquisition of LinkedIn, saying the deal remains on track to be completed in the second quarter of 2017, congruent with the company's sale of its entry-level feature phone business.
Looking ahead, the company expects second-quarter Productivity and Business Processes revenue between $6.90 billion and $7.10 billion while Personal Computing revenue is expected between $11.20 billion and $11.60 billion. Cloud revenue is expected between $6.55 billion and $6.75 billion.
Skechers [SKX] Skids on Disappointing Q3 Report and Q4 Outlook
Skechers (SKX 22.94) designs and sells some cool-looking footwear for men, women, and children. Be that as it may, it didn't sell as much of that cool-looking footwear in the third quarter as analysts expected nor will it sell as much of that cool-looking footwear in the fourth quarter as analysts thought it might. That understanding has its stock hitting the skids this morning, as it is indicated 15% lower in pre-market action.
The third quarter results shared by Skechers after Thursday's close weren't bad. Rather, they just weren't as robust as investors were expecting.
Third quarter net sales rose 10.1% to a record $942.4 million, its gross margin rate edged up to 45.6% from 45.2% last year, and its diluted earnings per share of $0.42, which were negatively impacted by $0.04 per share due to foreign currency translation and exchange losses, were down only slightly from $0.43 per diluted share in the year-ago period.
So, what's really the problem for investors? It's threefold: (1) the company came up shy of consensus earnings and revenue estimates for the third quarter (2) it was clear that its domestic wholesale business remains a trouble spot due to weak retail industry conditions and (3) the company's fourth quarter revenue guidance fell well shy of analysts' average expectation.
Skechers reported solid international sales activity, registering an 18.3% increase in its international wholesale business and a 16.0% increase in its company-owned global retail business. Its domestic wholesale business, however, decreased 3.4% despite a 0.6% increase in the number of pairs shipped.
The downturn in the domestic wholesale business was attributed to a 4.0% decrease in average selling price per pair, which was a byproduct of a sluggish retail environment in the U.S. that featured store closings, widespread discounting, and a shorter back-to-school period.
Skechers isn't expecting an improvement in the domestic wholesale business in the fourth quarter, which it believes will be down again, as its retail customers are managing inventory with more caution and ordering much closer to season. The company said it is "cautiously optimistic" about the first quarter.
The international business will be a source of operating strength again in the fourth quarter, yet Skechers has adopted a conservative fourth quarter outlook, calling for single-digit net sales increases and comps for its international wholesale business and total retail business. The domestic wholesale business is expected to experience a single-digit net sales decrease.
Altogether Skechers is forecasting fourth quarter net sales in the range of $710 million to $735 million. The high end of that range is approximately 8.0% below analysts' average expectation.