Companies pull guidance as COVID-19 chaos reigns

Equities

A slew of leading US companies have pulled their guidance today, blaming the uncertainty caused by the coronavirus outbreak. What else do the latest earnings reports tell us about the stocks?

Chipotle

Chipotle beat earnings estimates by $0.18 after reporting earnings per share of $3.08 for the first quarter. Revenue clocked in around expectations at $1.41 billion, as a surge in online orders helped to soften the blow from the closure of around 100 restaurants in locations such as shopping centres.

Despite pulling its guidance, the company has announced plans to help it adapt to the changing conditions, which include improving its mobile app, partnering with more delivery companies (and making delivery free), and shifting ad spend from live sports events to online, such as streaming platforms.

Executives have also said that diminished competition for real estate is helping the company secure better sites for future restaurants, even as it delays work on some of the 165-odd locations it had planned to open this year.

Shares are up around 10%.

AT&T

Shares in AT&T are drifting lower today after the company’s latest earnings report. Not only did the company pull its guidance, it also missed EPS expectations by a cent and reported revenue of $42.8 billion against forecasts of $44.2 billion.

The first quarter saw a surge in new phone subscribers, despite over 40% of its retail stores having to shut. Premium TV subscribers slumped by 897,000. The company estimates that the pandemic has hit EBITDA by $435 million.

Although guidance is out of the window, the company stated that it has enough free cash flow to make its debt payments and to pay dividends.

Quest Diagnostics

Quest Diagnostics has jumped 4% today after the company said that it had begun testing in its medical labs for COVID-19 antibodies, using tests from Abbot Laboratories and PerkinElmer. Earnings came in 5 cents above expectations, but revenue was 3.6% lower at $1.82 billion. The company expects to be able to perform over 200,000 antibody tests per day by the middle of next month. While guidance has been pulled, dividends are unaffected.

Kimberly-Clark

Earnings for Kimberly-Clark came in well-above expectations at $2.13 per share, versus consensus expectations of $1.97. Revenue was up as well, topping $5 billion against expectations of $4.86 billion, as consumers stocking up on essential items pushed organic sales up 11%.

The stock has slipped around 1% lower today.

LYFT

Lyft earnings aren’t due until May 6th, but the company has already followed its larger rival Uber in pulling its 2020 guidance. The company had been aiming to finally turn profitable this year, but the coronavirus pandemic has crushed those forecasts. Driver bookings are down around 75% in recent weeks.

‘The pandemic began to have a negative impact on business trends, including ride volumes, in mid-March, which has continued into April,’ Lyft said yesterday.

The May 6th earnings will detail the measures the company is taking to safeguard its financial position and reduce costs, while supporting both drivers and riders.

Forget earnings – Lyft set to release Q1 loss report

Equities

LYFT caused quite a stir when it held its IPO in March. The offering was quickly oversubscribed (as is Uber’s), and shares eventually hit the market at $87.24 – well above the company’s $72 per share offer price.

Initial public offerings tend to start with a bang – stock often rockets higher before settling down; as Lyft’s did when it closed its first day of trading at $77.75. It only took one more session to drop below its $72 offer price, and the rout has continued ever since. At the time of writing, Lyft is trending 30% below its offer price, languishing sub-$60.00.

More pain incoming for Lyft stock?

It seems that owning a piece of a unicorn that is yet to make a profit but is valued at over $26 billion quickly lost its shine. Tech IPOs are always exciting, because everyone hopes to end up holding a piece of the next Facebook, but so far Lyft looks more likely to follow in the footsteps of Snap Inc, which has never come anywhere close to reclaiming 2017’s starting price and is currently 62% below it.

Profitability is the key issue. Ride-hailers like Uber and Lyft may have disrupted the traditional taxi market, but so far they are burning through cash fast. In its IPO filing, Lyft revealed that it made a net loss of $911 million in 2018, up 23% from 2017. However, revenue was growing faster, with 50% growth to $2.2 billion recorded last year.

Markets will be looking to see whether Lyft can continue the rapid pace of revenue growth, while those losses need to be reined in. A slower pace would be a good start, but really markets want to see that number reversing as the company hopefully moves towards profitability. Will management offer any guidance regarding a timeline for that?

The stock will live and die on those expectations; growing market share or increasing revenue per ride will mean nothing if the company keeps piling up the losses.

Brexit compromise, dire PMIs, a lift for Facebook and a drop for Lyft

Equities
Forex
Morning Note

Facebook up on Deutsche Bank Instagram note, Lyft receives first “Sell” rating

Despite the negative news-flow swirling around Facebook as it battles concerns over privacy and extremist content, stock has continued to climb today, registering a 3.3% gain. A new note from Deutsche Bank states analysts believe that Friday’s addition of a Checkout on Instagram feature for the image-sharing platform could bring in revenue of $10 billion by 2021. Facebook is currently trying to move away from its reliance on ads, which currently generate 98% of revenues.

Finding alternative revenue streams is important for the company as it faces pressure to clamp down on who it is allowing to advertise, especially as the platform comes under scrutiny for the role of paid ads during elections and other political events.

At the other end of the spectrum is Lyft, which yesterday closed below $69.00; under its IPO price. The stock has been hit by its first “sell” rating. Michael Ward of Seaport Global has set a target price of $42 per share, claiming the current price represents a “leap of faith” in the willingness of consumers to forgo car ownership in favour of ride-hailing services.
Executives at rival ride-hailer Uber may not be looking forward to their upcoming float as much now. Lyft’s performance could significantly dent the price investors are willing to pay; it seems that holding a company valued at many times earnings and yet to post a profit isn’t quite the golden opportunity many first believed.

Looking at the wider markets, sentiment remains positive after fresh signs that the US and China are nearing a deal to end the months-long trade war between the world’s two largest economies. Recession fears are easing and global stocks climbed to six-month highs, while a move out of safety pushed the German ten-year yield back above 0%.

Asian shares hit a fresh seven-month-high, with the Hang Seng up 0.9% to break above the 30,000.00 handle before consolidating around 29,950.00, and the Nikkei 225 up 1.3% to flirt with 21,800.00.

European shares are also higher; the DAX has registered a 1% gain. Signs that the UK government may be moving towards a softer Brexit have helped nudge the FTSE up nearly 60 points; resistance remains around 7,400.00.

Cable caught between Brexit compromise and service sector stumble

Having exhausted all other Brexit options, Theresa May last night announced that the UK needed another short Article 50 extension, and extended an offer of talks to Labour leader Jeremy Corbyn. May still doesn’t want the UK to take part in European Elections, but wants to avoid a no-deal Brexit; currently scheduled for April 12th.

It marks a significant change in strategy, and cable responded positively. Sterling was up 0.5% against the dollar this morning, but gains were trimmed following a dire reading from the March services PMI. Analysts expected the reading to drop from 51.3 in February to 50.9, but the sector instead recorded a contractionary 48.9.

Taken together, the PMIs are waving a red flag for the UK economy. Only the manufacturing sector continues growing, and that is because of companies stockpiling ahead of Brexit.

The uncertainty facing businesses is an anchor on the UK economy, but can May and Corbyn craft a deal between them that appeases Parliament? The move certainly signals the Prime Minister is ready to consider a softer Brexit, but will anyone buy it?

During normal times, a consensus between Conservative and Labour leaders would have a strong chance of uniting the house. But we have to remember the circumstances and the leaders in question. Tories aren’t likely to vote for anything with Corbyn’s fingerprints on, while the Labour party isn’t exactly Corbyn’s biggest fan either.

Cable remains higher – a deal that potentially avoids further economic damage is clearly better than no deal that threatens even more (so markets believe). A soft patch for the economy can be overlooked if things get cleared up quickly, and hope this is the case has kept GBP/USD supported around $1.3175.

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under License no. 092/08 and FSCA under Licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.