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Corporate America is (Finally) Beating the Pandemic
Last Monday, I made several earnings predictions.
- Take-Two Interactive (NASDAQ:TTWO). “Options strategies involving straddles could pay off.”
- Disney (NYSE:DIS). “Will likely ride its wave of success.”
- Uber (NYSE:UBER). “Could disappoint.”
The first two would come to pass. Take-Two would gyrate almost 15% after missing revenue estimates by a mere 0.21%. Meanwhile, Disney would add almost $20 billion to its market capitalization following strong earnings.
But my third prediction proved to be overly pessimistic.
“Uber did much better than investors thought it would,” Wedbush’s Dan Ives reflected in a CNBC interview. [There were] “a lot of fears because of the virus, because [of] what we saw from Lyft.” Instead, Uber would beat revenue estimates by 8%, sending shares up 6%.
Uber joins a long list of “reopening” stocks that have done well this quarter. And if more positive surprises emerge, it could be a strong signal that — after a two-year pandemic — regular life is finally starting to return.
What to Expect This Week: 1. Alibaba Reports Earnings
On Tuesday, embattled ecommerce giant Alibaba (NYSE:BABA) will report Q3 earnings. Expectations are relatively low.
That’s because the Chinese Communist Party has been putting BABA through the wringer. In October 2020, Alibaba’s founder disappeared for three months after criticizing the government. A crackdown has since led BABA to follow a -85% Q1 earnings miss with an even larger -89% underperformance for Q2.
Though BABA’s Q3 earnings could be a bright spot, investors should prepare for more pain to come. The Chinese government’s move into fintech and cloud computing is signaling that Beijing has had enough with letting that industry’s stars roam free.
2. Airbnb Reports Earnings
Meanwhile, Airbnb (NASDAQ:ABNB) heads into earnings with lofty Street expectations.
Perhaps too high.
“With growth slowing and numbers likely to come down, we worry about the potential for multiple compression,” noted BTIG’s Jake Fuller.
And he has a point. Airbnb is a strange “reopening” play since it already performed so well during the pandemic. As more travelers begin to use traditional hotels again, it’s unclear whether Airbnb is a company that will benefit or be hurt by the return to pre-pandemic normalcy.
Bottom line: investors might consider buying protective puts in the short-term, while hanging on for the long.
3. Nvidia, Applied Materials and Shopify Report
A slew of tech companies will report earnings on Wednesday. Nvidia (NASDAQ:NVDA), Applied Materials (NYSE:AMT), Cisco (NASDAQ:CSCO), DoorDash (NYSE:DASH) and Shopify (NYSE:SHOP) all will publish their financials.
These companies will doubtlessly show diverging fortunes. Nvidia and other chipmakers have seen massive shortages from unprecedented demand. Meanwhile, work-from-home companies like Shopify have seen stocks plummet as consumers return to in-person retail.
4. Stacks Airdrops
On Feb. 19, Stacks (STX-USD) will release two NFT projects: Metalife Vision and Mutant Monkey.
The $2 billion cryptocurrency has been working hard to bring smart contracts to Bitcoin (BTC-USD). By creating a secondary layer on top of the protocol, Stacks aims to add Decentralized Applications (DApps) and smart contracts to an otherwise “dumb” blockchain.
Bitcoin enthusiasts should watch these airdrops carefully. If these NFT projects do take hold, it’s a sign that perhaps Ethereum (ETH) has yet another competitor to watch.
5. Valentines Day Blues
And finally, today is Valentine’s Day — a day where florists and jewelers can expect thousands of panicked last-minute requests (Hang on readers, I have a quick call I need to make…)
But before you think about gifting stocks to your other half instead, consider this:
Since 1928, the S&P 500 has declined 60% of the time on Valentine’s Day, according to a lighthearted study by CNBC. On average, companies lose 0.25% in the following month.
Of course, these correlations don’t suggest any causation; since 1897 the Dow Jones has had a 50-50 chance of gaining or losing on the holiday.
Still, that hasn’t stopped pundits from trying to find a link anyway.
The Surprising Return of Post-Pandemic Spending
It’s been a difficult month for predicting earnings surprises. Lyft (NASDAQ:LYFT) would fall 4% despite posting a 70% gain in revenues, while Uber (as I mentioned) would rise on similar figures.
Nowhere is that more true than in hotels, restaurants and leisure. This week, Hilton (NYSE:HLT), Tripadvisor (NASDAQ:TRIP) and a whole host of other travel stocks will also report their Q3 earnings.
Options traders will love every moment — 35% implied volatility in Hilton options is much too low when earnings are so uncertain.
But if you’re not an options trader and still can’t figure out what to buy…
…what about a Valentine’s Cryptokitty NFT, an everlasting symbol of a 2018 fad that once was.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at email@example.com or connect with me on LinkedIn and let me know what you’d like to see.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.