Week Ahead: US consumer confidence shaky while rising yields impact markets

Week Ahead

Looking forward to the week ahead we see US consumer confidence on shaky ground, despite more stimulus coming soon. Rising yields will also potentially have big implications for the markets. Elsewhere, New Zealand’s economy looks like its gaining strength ahead of the RBNZ rate statement, while Airbnb leads large caps reporting next week with its first earnings call as a publicly traded company. 

US consumer confidence doesn’t look so confident 

Ahead of the official US consumer confidence figures posted next week, it appears consumer sentiment has fallen in February so far. 

Preliminary data revealed a drop in the University of Michigan’s consumer confidence index from a reading of 79.0 for January to 76.2 in February against a consensus of 80.5-80.8. 

Low income households, i.e. those with an annual income of $75,000 or lower, appear to be driving sentiment lower. Only 23% of households in this grouping said their finances had improved since 2014, and 71% said they had made gains in their income.  

What’s interesting, according to Survey Director Richard Curtain, is that consumer confidence has dropped against the previous month, despite Joe Biden preparing the mother of all stimulus packages. $1.9 trillion in relief is on its way, which will put, at minimum, $1,400 apiece into US consumers’ pockets, plus extra support for small businesses. $900bn was also doled out to lower income households in December 2020. 

Support is on its way, but at the moment, consumer sentiment looks like its in the doldrums. 

Rates & equities react to steepening yields 

As rates have sold off, yields have steepened,  which may have consequences for asset classes like FX, equities, and maybe even crypto currencies.  

Last Tuesday, Treasury yields had their biggest gain in 3 months. 10s rose 9 basis points, reaching the highest since February above 1.3%.  

As our Chief Market Analyst Neil Wilson has previously reported, there are some important factors at play here creating inflationary impetus, notably: 

  • A heavy volume of pro-cyclical fiscal stimulus 
  • Ultra-loose monetary policy 
  • Pent-up demand  
  • A savings glut 

European stocks are sliding as concerns around interest rates feed into investors’ thinking with the speed of the change in absolute yields catching them off guard. UK Inflation rose from 0.6% in December to 0.7% in January, due to rising costs as the cost of furniture and household goods, restaurants and hotels, food, and transport. 

Gold has also weakened on higher yields. 

Essentially, this is one to keep track of, as rising yields as implications across the investment and finance world. 

RBNZ Rate announcement – No change on the Kiwi front 

The Reserve Bank of New Zealand (RBNZ) makes its rate statement next week amidst expectations that no major rate changes are coming. 

New Zealand’s economy has been one of the more resilient in the year of the pandemic. Swift, strong lockdown and border control measures limited damage caused by Covid-19, which has put New Zealand in a better than expected economic position. 

The New Zealand Dollar (NZD) enjoyed a great 2020, making significant strides against the pound, euro, and US dollar, reacting well to a turbulent first half of the year, which included a big sell off 

It’s now expected that no further stimulus is needed for New Zealand. Commentators also believe that negative rates are not going to be implemented by New Zealand’s central bank either. 

Australia New Zealand Banking Group, one of the country’s top lenders, does not expect a rate change by RBNZ, in part due to the strength of the NZD, but also because the country’s labour market is in a good position too. 

New Zealand’s labour rate fell to 4.9% in the last quarter, somewhat unexpectedly, with labour underutilisation in some key sectors falling too. Government stimulus in some areas of the economy is helping cover shortfalls in others, which is a boon for employers, a boon for workers, and a boon for the economy as a whole. Exports have also remained supportive. 

Essentially, the outlook in the short term is still good for New Zealand. Some predict OCR rates will begin rising in 2024. Inflation is predicted to rise to 2.5% by June but may scale back to 0.8% in the following year. Let’s keep an eye on New Zealand, but it may not be wise to expect a massive overhaul in monetary policy at next week’s statement. 

Airbnb’s first earnings as a publicly traded company 

Airbnb went public in December 2020 and will make its first ever earnings call as a publicly traded company on February 25th. 

Of course, any earnings will have to be viewed through the pandemic prism. According to its S1 filing, Airbnb’s gross booking volumes had fallen 39% year-on-year 2020, totalling $18bn, while revenues dropped 32% for a total of $2.5bn in the 9 months up to September 2020. Mandatory lockdowns struck in key economies like the US, EU, and UK in April 2020, which bought personal travel to a halt. 

But Airbnb does have enormous brand recognition, which may be helping its shares and business do better than peers. Its market cap of about $120bn outstrips its rival online holiday rivals like Expedia ($22bn), Tripadvisor ($5bn) and even Booking.com ($91bn) Listings have stayed relatively stable, for instance, dropping only 2% across the pandemic with 5.6m registered in September 2020 against 5.7m in December 2019. 

Long-term stays (bookings over 28 days) were down only 13% y-o-y in April 2020, traditionally the worst month for hotel bookings, but showed y-o-y growth between May and September of that year. 

A project $3.2 trillion market opportunity may keep investors looking to Airbnb. According to commentators, Airbnb has very strong potential in its three key offerings: 

  • $1.8 trillion – Short-term stays 
  • $210 billion – Long-term stays 
  • $1.4 trillion Experiences 

What is more, Airbnb had 247 million guests in 2019, accounting for 3.8% of the estimated 6.5 billion global paid overnight trips that year. If it can capture just 10% of the potential market, Airbnb could net $340 billion in sales a year. 

This will be an interesting earnings call to say the least. We’ll be able to register the impact of pandemic on Airbnb and see if its fundamentals are strong enough to weather the storm.  

The outlook may be good already. Investor confidence seems high. Airbnb shares soared 200% after it went public, and as of February 15th, they were trading around their record level. 

Major economic data 

Date  Time (GMT)  Currency  Event 
Tue Feb 23  3.00pm  USD  CB Consumer Confidence 
       
Wed Feb 24  1.00am  NZD  Official Cash Rate 
  1.00am  NZD  RBNZ Monetary Policy Statement 
  1.00am  NZD  RBNZ Rate Statement 
  1.00am  NZD  RBNZ Press Conference 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu Feb 25  1.30pm  USD  Prelim GDP Q/Q 
  3.30pm  USD  US Natural Gas Inventories 

 

Key earnings data 

Date  Company  Event 
Mon 22 Feb  Berkshire Hathaway  Q4 2020 Earnings 
  Palo Alto Networks  Q2 2021 Earnings 
     
Tue 23 Feb  Home Depot  Q4 2020 Earnings 
  Square  Q4 2020 Earnings 
  HSBC  Q4 2020 Earnings 
  Thomson Reuters  Q4 2020 Earnings 
     
Wed 24 Feb  NVIDIA  Q4 2021 Earnings 
  Lowe’s  Q4 2020 Earnings 
  Royal Bank of Canada  Q1 2021 Earnings 
  Budweiser  Q4 2020 Earnings 
  National Bank of Canada  Q1 2021 Earnings 
  Puma  Q4 2020 Earnings 
     
Thu 25 Feb  Salesforce  Q4 2021 Earnings 
  Airbnb  Q4 2020 Earnings 
  Vale  Q4 2020 Earnings 
  Toronto-Dominion Bank  Q1 2021 Earnings 
  Moderna  Q4 2020 Earnings 
  Bayer  Q4 2020 Earnings 
  Dell  Q4 2021 Earnings 
  HP  Q1 2021 Earnings 
  Etsy  Q4 2020 Earnings 
  Telefonica  Q4 2020 Earnings 
     
Fri 26 Feb  Deutsche Telekon  Q4 2020 Earnings 
  BASF  Q4 2020 Earnings 

IPO frenzy stateside, no-deal Brexit preparations ramp

Morning Note

Shares in Airbnb surged on debut, closing above $144 on their first day of trading after listing at $68. The more-than-doubling in the share price reflects huge investor interest, particularly in the retail space, as well as significant excess liquidity that is finding a home wherever it can. There is a strong fear of missing out on these mega IPOs, and investors seem very willing to discard usual valuation sensibilities to get on board. DoorDash only slipped by 1.8% on its second day of trading after soaring on its debut the day before. With a market cap of $68bn for Airbnb let’s just not talk about valuation and earnings multiples.

 

Preparedness for a no-deal Brexit is now the order of the day as both the EU and UK are talking impasse. Sunday’s deadline may be like all the rest (and be pointless) but there are only 3 weeks until January 1st so time really is running out. Sterling has been relatively unscathed so far but this morning GBPUSD broke down at the week lows at 1.32250 this morning to hit its weakest in almost a month. No deal risks are rising so the market is trying to price it – the problem is the binary nature of the outcome which leave the market only able to guess at fair value.

 

Yesterday, the European Central Bank (ECB) conformed to expectations by expanding its emergency asset purchase programme by an additional €500bn and extended the duration of the scheme to March 2022. Christine Lagarde suggested that the €1.85bn package would not be used fully used, which brought the ceiling vs target debate back into play. At the same time, EU leaders passed the €1.8tn budget after Hungary and Poland dropped their objections, paving the way for payments to be made next year. Meanwhile, US CPI inflation rose a little faster than expected in November and initial jobless claims were worse than expected, hitting 853k vs the 725k forecast. It points to weakness in the economy as cases have risen in recent weeks, eroding confidence in the recovery without a stimulus plan on hand to bridge the gap until vaccines are rolled out en masse.

 

European markets traded a little weaker early on Friday, with the major bourses down around 1% following on from a softer session on Wall Street that left the S&P 500 and Dow Jones lower but the Nasdaq rose a touch. No-deal Brexit fears are probably taking the shine off European equities, whilst there has been any significant catalyst from the US as lawmakers continue to discuss stimulus without getting a deal over the line. 

 

Chart: FTSE 100 lower, 6520 is the key support level 

FTSE 100 lower, 6520 is the key support level

Airbnb IPO date set for Dec 9th

Equities
Investments

Airbnb looks set to go ahead with its long-awaited IPO on Dec 9th, with the shares to begin trading on Dec 10th. The shares are expected to price at $44-$50 with the listing to raise around $2.5bn. Some 55m shares will be sold with a greenshoe option for 5m more if demand is high. The pricing would indicate a valuation of almost $30bn at the top of the range. 

It comes as DoorDash estimates that its IPO will price shares at $90-95, above the $75-$85 range set out only last week. The shares are expected to trade on the New York Stock Exchange under the symbol “DASH.” 

November was a particularly strong month for US equities, with the Dow Jones notching its best month since 1987 and the Russell 2000 recording its best-ever month. Demand for equities remains strong but these IPOs will be an important gauge of exactly where investor sentiment lies heading into the Christmas period and the New Year. Big November rallies often leaves December a little soft, with the Santa Rally essentially being pulled forward. If Airbnb or DoorDash fail to fly it might signal some trouble under equity market bonnet. 

Airbnb financials 

The company generate a profit of $219 million in the third quarter of 2020, on $1.34 billion in revenue. This was down fractionally from the $227 million in profit during the same quarter last year, which was its only profitable quarter in 2019, coming on $1.65 billion in revenue. 

However, the onset of lockdowns due to the pandemic made for a very challenging first half of 2020 for Airbnb as it chalked up net losses of $916 million on revenue of $1.18 billion. The company, which plans to list on the Nasdaq under the ticker ABNB, provided detailed customer and revenue figures.

You can read more on Airbnb financials in this post. 

Airbnb IPO coming this year: what you need to know

IPO

Airbnb is pressing ahead with its stock market listing with the company filing its S-1 form at the US Securities and Exchange Commission and a planned IPO date before the end of 2020. Will it be another unprofitable dog of a tech unicorn or a GOAT (Go Out And Travel) favourite in 2021?

The company reports it made a profit of $219 million in the third quarter, on $1.34 billion in revenue. In a filing on Monday, November 16th, management explained this was down fractionally from the $227 million in profit during the same quarter last year, which was its only profitable quarter in 2019, coming on $1.65 billion in revenue.

However, the onset of lockdowns due to the pandemic made for a very challenging first half of 2020 for Airbnb as it chalked up net losses of $916 million on revenue of $1.18 billion.

The company, which plans to list on the Nasdaq under the ticker ABNB, provided detailed customer and revenue figures. Here’s a snapshot of the key metrics and financials.

Pandemic booking trends

Gross nights and experiences booked

  • Material contraction on a year-over-year basis, with a low in April 2020, down 72% year over year.
  • From April through June 2020, the company saw a steady rebound in gross nights and experiences booked before cancellations and alterations, which were down 21% in June relative to the same period in the prior year.
  • From July through September 2020, gross nights and experiences booked have been stable, down approximately 20% relative to the same period in the prior year.

Cancellations and alterations

  • Dramatic increase after the COVID-19 outbreak, as guests were either unable to travel or uncomfortable doing so.
  • While the number of nights and experiences cancelled in January 2020 was 13% of the gross nights and experiences booked that month, the number of nights and experiences cancelled in March and April 2020 exceeded the number of gross nights and experiences booked during those months.
  • From April to September 2020, cancellations and alterations as a percentage of gross nights and experiences booked initially declined significantly and then have remained relatively stable for the past several months.

Nights and Experiences Booked

  • Negative in March and April 2020.
  • By May 2020, gross nights and experiences booked had begun to recover, while cancellations and alterations began to fall, resulting in a return to positive Nights and Experiences Booked from May to September 2020.
  • From July through September 2020, Nights and Experiences Booked have been stable, down 28% relative to the same period in the prior year.
Monthly Nights & Experiences Booked Trends
2019 2020
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
In millions (except percentages)
Gross nights and experiences booked 30.5 28.3 28.4 38.3 32.8 19 8.7 16.4 26 28.3 26 23.9
 % YoY Change 31% 30% 35% 25% 17% -42% -72% -50% -21% -19% -21% -23%
(-) Cancellations and alterations 3.9 3.6 3.9 5 4.9 23.1 9.4 7.2 6.5 6.6 5.4 4.4
Cancellations and alterations as a % of gross nights and experiences booked 13% 13% 14% 13% 15% 122% 108% 44% 25% 23% 21% 18%
Nights and Experiences Booked* 26.6 24.7 24.5 33.9 27.9 -4.1 -0.7 9.2 19.5 21.7 20.6 19.5
 % YoY Change 31% 30% 35% 22% 12% -114% -103% -68% -31% -28% -28% -28%

Airbnb define Nights and Experiences Booked as net of cancellations and alterations.

Gross daily rate

  • Represents GBV per Night and Experiences Booked, all before cancellations and alterations. This measure is a useful proxy for the average daily rate (ADR) trend over this period; because the net metrics reflect elevated cancellations and were negative in March and April 2020, the net daily rate was not meaningful for those periods.
  • The year-over-year increase in gross daily rate from May to September 2020 was driven by faster recovery in North America and Europe, the Middle East, and Africa (EMEA) during this period, which have historically higher daily rates than Latin America and Asia Pacific.
  • The gross daily rate was also impacted by a mix shift toward entire home listings in non-urban destinations, which have higher daily rates.

Gross Booking Value before cancellations and alterations

  • Followed a similar trend to gross nights and experiences booked, materially declining on a year-over-year basis between March and May 2020.
  • GBV before cancellations and alterations recovered in June 2020, growing 1% year-over-year driven by the increase in gross daily rate.
  • From July through September 2020, GBV before cancellations and alterations has been stable, down less than 10% compared to the same periods in the prior year.

Gross Booking Value

  • Declined and rebounded as a result of the trends described above.
  • In September 2020, GBV was down 17% on a year-over-year basis, less than the 28% decline in Nights and Experiences Booked due to the growth in gross daily rate.
  • GBV reflects bookings made in a period for future nights or experiences and is a leading indicator for revenue, which is recognized during the period that stays and experiences occur.
Monthly Nights & Experiences Booked Trends
2019 2020
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
$ in billions (except percentages & gross daily rate)
Gross daily rate $110.20 $110.23 $110.36 $122.51 $122.63 $104.35 $91.69 $135.73 $145.72 $133.84 $132.24 $127.84
 % YoY Change -1% -1% 0% 0% 1% -12% -21% 18% 27% 19% 21% 18%
Gross Booking Value before cancellations and alterations 3.9 3.6 3.9 4.7 4 2 0.8 2.2 3.8 3.8 3.4 3.1
 % YoY Change 13% 13% 14% 26% 19% -49% -78% -41% 1% -4% -4% -9%
Gross booking Value 26.6 24.7 24.5 4.2 3.5 -0.9 -0.6 1.1 2.7 2.8 2.7 2.5
 % YoY Change 31% 30% 35% 24% 15% -127% -119% -69% -17% -19% -14% -17%

Airbnb define Gross Booking Value as net cancellations and alterations.

Financials

Year Ended December 31st Nine Months Ended September 30
2017 2018 2019 2019 2020
In thousands (except share amounts)
Consolidated Statements of Operations Data
Revenue $ 2,561,721 2,651,985 4,085,239 2,698,239 2,518,935
Costs & expenses
Cost of Revenue 647,690 864,032 1,196,313 902,695 666,295
Operations & Support 395,739 609,202 815,074 600,788 548,369
Product Development 400,749 579,193 976,695 693,796 690,677
Sales & marketing 871,749 1,101,327 1,621,519 1,184,506 545,510
General & administrative 327,156 479,487 597,181 490,262 421,082
Restructuring charges n/a n/a n/a n/a 136,969
Total costs & expenses 2,643,083 3,633,241 5,306,782 3,872,047 3,008,902
Income (loss) from operations -81,362 18,744 -501,181 -173,604 -489,967
Interest income 32,102 66,793 85,902 68,661 23,830
Interest expense -16,403 -26,143 -9,668 -6,801 -107,548
Other income (expense), net 6,564 -12,361 13,906 42,130 -115,751
Income (loss) before income taxes -59,099 47,033 -411,703 -69,614 -689,436
Provision for income tax 10,947 53,893 262,636 253,187 7,429
Net loss $ -70,046 -16,880 -674,339 -322,081 -696,865
Net less per share attributable to Class A and Class B common stockholders, basic & diluted $ -0.27 -0.07 -2.59 -1.24 -2.64

What we have learned from the filing

  • Revenue growth was declining before the pandemic – from around 80% in 2016 to just 32% in 2019.

Management conceded: “Our revenue growth has slowed in recent periods and there is no assurance that historic growth rates will return. Our year-over-year growth rate in revenue decreased in 2019 as compared to 2018 and also decreased in 2018 as compared to 2017.”

  • Regulation is becoming more of a headache as cities clamp down on short-term lets.

Management say: “Laws, regulations, and rules that affect the short-term rental and home sharing business may limit the ability or willingness of hosts to share their spaces over our platform and expose our hosts or us to significant penalties, which could have a material adverse effect on our business, results of operations, and financial condition.

“We are subject to a wide variety of complex, evolving, and sometimes inconsistent and ambiguous laws and regulations that may adversely impact our operations and discourage hosts and guests from using our platform.”

  • It’s never been profitable

“We have incurred net losses in each year since inception, and we may not be able to achieve profitability. We incurred net losses of $70.0 million, $16.9 million, $674.3 million, and $696.9 million for the years ended December 31, 2017, 2018, and 2019, and nine months ended September 30, 2020, respectively. Our accumulated deficit was $1.4 billion and $2.1 billion as of December 31, 2019 and September 30, 2020,” the filing states.

  • It’s not doing as badly as peers – other booking sites have fared worse – the pandemic has made the Airbnb private getaway more appealing than staying in a hotel/resort. However, Experiences have not done as well as hoped – there is no breakout of the figures for this despite launching four years ago.

But…the outlook is much stronger for 2021 now that vaccines are coming. Airbnb could benefit from the GOAT trade.

For more information on how to trade IPOs, please see our guide.

Airbnb IPO: when can you buy and sell Airbnb shares?

Equities

Accommodation website Airbnb is set to be one of the largest stock market listings of the year, after the group filed a draft S-1 registration document with the US Securities and Exchange Commission.

In a statement, Airbnb said the number of shares to be offered and the price range for the proposed offering have not yet been determined. The date of the initial public offering (IPO) is not known, but is expected to take place after the SEC completes its review process. A lot will no doubt depend on market conditions.

We noted earlier in the year that the run-up in stocks after the March trough was offering companies a window of opportunity to get their stock listings out the door.

How much is Airbnb worth?

The company raised $2 billion in two separate tranches in April of this year, whilst it cut staff numbers by 25% to help it survive the enormous impact of the pandemic. This valued the company at $18bn but this was about half what it notionally worth in 2017. In May, chief executive Brian Chesky said the company expects to deliver revenues in 2020 of about half the $4.8bn generated last year.

Part of this is down to the pandemic – it has been a terrible time for the travel sector in particular and about $330bn of revenues has been lost globally, according to the US Travel Association. But Airbnb has enjoyed a surge in bookings as lockdown restrictions ended, particularly in rural areas, where bookings rose 25%.

The fact that Airbnb has not decided to shelve its anticipated IPO this year is a sign of renewed confidence, or it’s a sign the company needs to raise capital fast.

What is Airbnb?

Airbnb launched in 2008 and now has over 150 million users who offer private rentals of apartments and rooms in over 65,000 locations across the globe. It includes Amazon founder Jeff Bezos amongst its early investors. By the end of 2019 analysts were expecting the Airbnb IPO to see the company achieve a valuation of $42 billion.

How to trade Airbnb

Markets.com will be offering a grey market on Airbnb ahead of the IPO, which will let you speculate on the share price before it debuts on the stock market. The grey market price is based on the market capitalisation of the company after its first day of trading. As ever once it has completed the listing you will be able trade the shares by CFD trading or Spread Betting, or invest via share dealing.

Another way to take advantage of the Airbnb IPO is to trade the Renaissance Capital ETF (IPO), which is an index-like basket of companies that went public in the last years.

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