Morning Market Feed, June 6th

Markets made a big upward push as jobs data came out which we will get into, both the good and bad of it. Furthermore, I got the video for the Duolingo analysis out, so I will include a link to that at the bottom of this newsletter. We will also look at the lululemon earnings as this is the largest stock in the social media portfolio. Talking about the social media portfolio, PayPal also had another executive introduced, so let’s dive straight into it!

- ADP Jobs Report

The ADP Jobs Report was released yesterday and this wasn’t particularly great, but good for the markets. So what does the ADP Employment Change measure and why did the markets move up on it? The ADP report measures the change in non-farm payrolls for private companies. So why is it important? The ADP report is released on the Wednesday before the Non-Farm Payroll report of the Bureau of Labour Statistics on Friday. It is often seen as a somewhat leading indicator of the big number. Yesterday the ADP number came in at 152K, as 175K was expected. This means slower job growth than expected.

So why is this bad? Slowing job growth is a sign of a slowing economy, this is fine when it’s just a random report that comes in slightly lower, but in this case, we are talking about a slowdown that is widely expected, and will be used as proof that we are heading towards a recession. I’m not saying that I see it that way, but it will be used in that argument.

So what’s good about that? Funds want rate cuts. Or I think it’s better worded as “funds and institutions want the hope for rate cuts”, because lower interest rates make for a lower risk free rate, thus would support higher valuations for stocks, as well as more money moving from the sidelines into the market. It would also mean that the cost of capital would move down which is also good for stocks, smaller caps mostly.

- lululemon earings

Yesterday I released an article under the “Hot Takes”, which is where I put my blogs about things I want to write about between the Morning Market Feeds, or when I want to share an extended opinion. The article went over what I wanted to see from the earnings of lululemon. You can read that here. But at a first look, the earnings look decent. So let’s look at how they compared to the expectations.

EPS: $2.54 VS $2.40 expected
Revenue: $2.208B VS $2.199B expected

This means we see revenue growth of about 10% year-over-year, and EPS growth of 11%. Furthermore, the board approved a $1 billion stock buy-back program, even as we saw negative free cash flow in the latest quarter. This amount is only $3 million, which is a substantial improvement from the same quarter 1, and 2 years ago.

In terms of guidance, the company expects to see EPS in the range of $2.92, to $2.97 on revenues of $2.4, to $2.42 billion, this compares to expectations of $3.03 of EPS on revenues of $2.45 billion. This is a miss that other stocks have been punished quite hard for.
For the full year, EPS guidance came in at the range of $14.27 to $14.47 on revenues of $10.7 billion, to $10.8 billion, this compares to expectations of $14.13 of EPS, on revenues of $11.76 billion. This means that the full-year guidance came in slightly ahead on an EPS basis, but all other measures missed slightly.

Later today I will listen to the earnings call and read the transcript in order to pick up on hints and be able to give better feedback on it, and see how the company reported on the issues I’d like to have answered, you’ll read about this tomorrow. As of now, before the pre-market opens, the stock is up about 10%, but missing guidance numbers haven’t always gone down as favorably with institutional investors so I’m not celebrating a good quarter just yet.

- PayPal announces another additional executive

PayPal announced a new Chief Accounting Officer, or better said, the addition of a Chief Accounting Officer. Chris Natali will join from Alteryx, where he currently holds the position of CAO, and interim CFO. Before Alteryx, Natali held roles at Hewlett Packard, Gymboree, Hyatt Hotels, and Hewitt Associates. Natali will start his new role at PayPal on June 10th

- A side note

I have referred to my social media portfolio from time to time lately, even though this is a very small account, coming Monday, I will explain the philosophy behind the account, and what stocks I’m holding, and at what size, with a slight explanation why. I will do so to be fully transparent and so you know what I am talking about when I refer to the social media portfolio.

- Any economic data?

We will see the weekly update on initial jobless claims, which is expected to come in at 220K. This number will probably get the same reaction as the ADP number mentioned earlier. We will also see import, and export numbers.

That was it for today, let’s see if the markets can keep their momentum going as the S&P500 and Nasdaq had new ATH closings yesterday.

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