Closing Market Summary: NFLX +8.2% jumps as net adds better than expected, other streaming names also higher; OMC +7.1% also up big on earnings
After Hours Summary:After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: NFLX +8.2% (also to acquire animation studio Animal Logic), OMC +7.1%, FULT +3.6%, NBHC +3.3%, MATX +1.7%, CALM +0.5% (also to pay $0.75/sh dividend as part of variable div policy)
Companies trading higher in after hours in reaction to news: AEHR +7.1% (receives $12.8 mln in orders from its lead silicon carbide test and burn-in customer), ROKU +2.9% (in sympathy with NFLX earnings), FUBO +2.7% (in sympathy with NFLX earnings), INZY +2.4% (announces preliminary data from Phase 1/2 trial of INZ-701), DIS +2.4% (in sympathy with NFLX earnings), WBD +1.8% (in sympathy with NFLX earnings; also plans to add massive collection of A24 films to HBO Max, according to ScreenRant), PARA +1.2% (in sympathy with NFLX earnings), TSLA +1% (ordered to pay $10.5 mln in from car accident, according to Reuters), AIR +1% (awarded a Captains of Industry contract with the Defense Logistics Agency), NVAX +0.7% (confirms that CDC Advisory Committee voted unanimously to recommend COVID-19 vaccine), VALE +0.5% (provides Q2 production and sales data), GOGL +0.4% (files mixed securities shelf offering), EA +0.4% (CTO to depart; co to structure with two pillars, naming two separate CTOs for each division), BA +0.4% (VietJet places order for 200 737 MAX jets, according to Bloomberg), BV +0.1% (acquires commercial landscaping co), DCP +0.1% (increases dividend)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: FOR -17%, IBKR -1.4%, JBHT -1.3%, PNFP -0.4%
Companies trading lower in after hours in reaction to news: VBLT -78% (announces top-line data from OVAL Trial), RVMD -9.8% (stock offering), LQDA -3.9% (US patent office rules in its favor), OMIC -2.4% (files for $250 mln mixed securities shelf offering), LSCC -1.5% (collaborates with LG to bring edge AI technology to LG's 2022 premium laptop lineup), BLTE -0.7% (submits IND application to FDA for LBS-008 Phase 3 clinical trial), XOS -0.5% (announces Q2 deliveries), QGEN -0.3% (surpasses 3 mln NGS patient test cases), KKR -0.1% (acquires Atlantic Yards from Hines)
Genesis Lent $2.4 Billion to Hedge Fund Three Arrows Capital
Crypto brokerage’s parent company, Digital Currency Group, filed claim for $1.2 billion
Digital Currency Group Inc., the cryptocurrency conglomerate that owns Genesis Global Trading Inc., is the biggest creditor of the beleaguered hedge fund Three Arrows Capital Ltd., according to court documents compiled by Three Arrows’s liquidator.
DCG’s Genesis Asia Pacific Ltd. lent Three Arrows $2.4 billion, the court document said. The hedge fund put down the equivalent of $1.2 billion in crypto and other collateral as of last month.
Three Arrows, founded in 2012 by Su Zhu and Kyle Davies, was ordered into liquidation last month after creditors sued the hedge fund for failure to repay debts. The hedge fund suffered heavy losses in recent months amid a broad selloff in cryptocurrencies.
The court documents released Monday provided the most comprehensive look at creditors to Three Arrows yet. The filing named more than two dozen entities that in total had lent $3.5 billion worth of dollars and crypto assets to Three Arrows, as of Monday’s market value, though some of those loans might have been partially repaid.
The court records also underlined the difficulties that Three Arrows’s creditors and its court-appointed liquidators have faced in connecting with Messrs. Zhu and Davies, and raised concerns that the founders had used their firm’s funds on extravagant personal expenses.
Mr. Zhu recently put a house he bought for $35 million in December on the market. The property is “one of the most prestigious forms of housing” in Singapore, Charles McGarraugh, chief strategy officer of Blockchain.com, wrote in an affidavit, citing media reports.
Celsius Defends Decision to Halt Withdrawals at Debut Bankruptcy Hearing
The cryptocurrency lender said the move was necessary to safeguard customers’ financial interests as users fled and crypto assets sold off
Celsius Network LLC tried to ease customers’ anger over its freeze on account withdrawals, but indicated it doesn’t intend to quickly release their funds as the cryptocurrency lender aims to weather the downturn in digital currencies and craft a repayment plan.
Celsius lawyers used the company’s debut appearance in bankruptcy court Monday to defend its decision to halt withdrawals last month, saying that was necessary to safeguard customers’ financial interests as users fled and crypto assets sold off.
“The reality is the pause was necessary in order to preserve the assets that the company has so they can be…equitably distributed to all of the platform’s customers,” Celsius lawyer Patrick Nash Jr. said.
The company intends to use the breathing spell of chapter 11 to help it withstand the crypto downturn and come up with a repayment plan for its users, Mr. Nash said.
Judge Martin Glenn of the U.S. Bankruptcy Court in New York expressed concerns that continued volatility in cryptocurrencies could affect the company’s restructuring. The judge also raised questions about customer funds held in custody accounts, which represent about 4% of Celsius’s deposits, worth about $180 million, on behalf of roughly 58,000 users, court papers show.
It is an open legal question whether those funds are “truly a custodial account, truly in-trust,” Mr. Nash said. Custodial funds are isolated and will continue to be held in an identifiable account until the legal issue is decided in bankruptcy court, Mr. Nash said.
“I can certainly understand $180 million is a lot of money,” Judge Glenn said. “I can certainly understand the frustration if people believe they signed documentation that this was a custody account, and if it’s held in trust they want to be able to access it.”
Monday’s hearing was intended to ease Celsius’s entry into chapter 11, where customers are the key creditor constituency. Celsius has no funded debt, court papers show.
A government lawyer with the Justice Department’s bankruptcy division said it is working to assemble an official committee that would represent customers’ interests during the chapter 11 case, paid for by Celsius.
During Monday’s hearing, Celsius lawyers said the company is facing customer blowback over its decision last month to pause withdrawals. It faced a run on the bank, meaning customers who left funds on the platform would have been left “holding the bag” had withdrawals continued, Mr. Nash said.
Some Celsius employees received death threats and hate mail, lawyers said, adding that outrage was partly fueled by the company’s relative silence in the weeks leading up to the bankruptcy.
In court papers last week, Chief Executive Alex Mashinsky disclosed a roughly $1.2 billion hole in the company’s balance sheet. Celsius also has said it owes users more than $4.7 billion, which represents most of the crypto lender’s $5.5 billion in total liabilities.
Celsius said in court on Monday that the value of its assets have fallen by about $17.8 billion since March 30, to $4.3 billion from roughly $22.1 billion.
One avenue to repay customers is through the expansion of an existing bitcoin-mining business that makes money at current prices and would become more valuable if the cryptocurrency market improves, according to the company.
Founded in 2017 by Mr. Mashinsky, S. Daniel Leon and Nuke Goldstein, Celsius allowed users to earn interest payments on cryptocurrency deposits and take out loans using those cryptocurrencies as collateral.
On Monday, Mr. Nash said no new customer accounts are being opened. Celsius also said it is no longer issuing margin calls or liquidating collateral to satisfy loans, according to court documents.
The company pitched itself as a safe alternative to traditional banks and promised users high interest rates. It was valued at about $3 billion after raising $690 million in a Series B financing round in May, according to the bankruptcy filing.
Celsius is scheduled to appear in bankruptcy court again next month.
One Hedge Fund Is Up 223% This Year Thanks to a Big Bet Against Tech Stocks
Coltrane Asset Management reaped profits on a two-year short of tech and growth companies
In late 2020, Mandeep Manku made a big contrarian bet.
His hedge fund, Coltrane Asset Management, had already been hit hard when markets plunged because of Covid-19. He decided to swing Coltrane’s portfolio from favoring cheap European companies to betting against tech and other fast-growing companies in the U.S. Markets with so many stocks trading at more than 10 times their revenues, with fervor concentrated in a few sectors, “always end poorly for investors,” Coltrane told clients in a September 2020 presentation.
It almost ended poorly for Mr. Manku. By the end of 2020, Coltrane’s short had backfired as markets roared back, led by tech. Clients started to bail, and the fund lost 56% for the year. Despite gaining 19% in 2021, the hedge fund, which had once managed more than $1 billion, had dwindled to less than $200 million by January 2022.
Then tech stocks plunged.
Coltrane is now up 223% this year through June, according to people familiar with the matter, one of the biggest percentage gains this year by a hedge fund. The total gain is several hundred million dollars.
While growth-focused hedge funds were recording steep losses and companies were slashing their valuations, Coltrane reaped profits. Declines in the stock prices of pandemic darlings like Netflix Inc. and Peloton Interactive Inc. contributed, as did shorts on Meta Platforms Inc., videogame platform Roblox Corp. and electric-truck maker Rivian Automotive Inc., investors said. A bet against used-car website Carvana Co., whose stock price has plunged about 90% this year, contributed 9 percentage points of the gains, said a person familiar with the fund.
Mr. Manku and his team kept the trade on for two years, adding to bets as stock prices fell and cycling companies in and out of the trade. Coltrane placed bearish options bets that supercharged its returns, all while avoiding pressure to shut down.
“He’s a conviction manager,” said Stuart Roden, an early Coltrane investor and ex-chairman of European hedge-fund firm Lansdowne Partners. “He didn’t get out at the wrong time. That’s extremely difficult.”
Mr. Roden said he wasn’t as worried about the trade, whose analytical foundations he believed were sound, as he was about whether Mr. Manku would be able to see it through. “In our industry, lots of people who ended up right weren’t able to be there when they were right because they were closed out or clients took their money away.”
Mr. Manku and partners Nick Banner and Laura Webster told clients the hyper growth some of these companies saw during Covid wouldn’t continue in the way their management teams and shareholders expected.
Lots of insider selling at fast-growing companies was a signal, too. “Those who know these companies’ prospects best are taking their capital out,” the September 2020 investor presentation said, calling out insider sales at several companies.
Coltrane has locked in many of the gains from the shorts and is overall long the market again, though it still has some bets against growth stocks, said people familiar with the fund. Mr. Manku believes a greater opportunity now exists in snapping up cheap European companies, the fund’s historic area of focus.
Mr. Manku has told others Coltrane’s returns this year reflect a moment in time and that long-term performance is what matters. Since its 2012 start through June, the fund has gained 19% a year on average.
“Success is about having a consistent approach that’s true to your world view, staying grounded and calm,” Mr. Manku said in a statement. “We are still very much at the beginning of our journey but have, we hope, learned a few valuable lessons already.”
Mr. Manku, 38 years old, grew up in rural northwest England and developed an early fascination with stock markets and valuation. By high school, he was active on internet message boards dedicated to stock analysis and was investing for himself and friends in an account he’d opened in his mother’s name, with her blessing.
He warned of frothy, momentum-driven markets in a letter he wrote as a 16-year-old that was published in an investing magazine in 2000. “The key to safely defusing this situation will be difficult, for it would involve derating many obviously overvalued hi-tech companies, and sacrificing performance (and bonuses) in the aid of sustainable share price growth,” he wrote.
Still, he suffered large losses when the dot-com bubble burst. Friends say that early lesson to adjust his portfolio to reflect his beliefs was formative for Mr. Manku.
After stints at Deutsche Bank in London and Daniel Loeb’s Third Point in New York, Mr. Manku—an improvisational saxophonist—started Coltrane in 2012 with less than $50 million and named it after the musician John Coltrane. Investors and friends describe him as private and focused on his track record rather than the size of his fund. He eschews idea dinners and chose to base his Europe-focused firm in New York, rather than London, to avoid crowd-think.
The trade was harrowing at times. In 2020, Mr. Manku started taking long runs along the West Side Highway during market hours to blow off steam. He once accidentally ran the equivalent of a marathon.
The team started to sense the tide was turning in April 2021, when special-purpose acquisition companies began to have trouble raising money. The conviction grew stronger in the fall as companies increasingly began to tout the metaverse, which struck Coltrane as being invented to suggest higher potential valuations for companies, and as the team saw more write-downs by buy-now, pay-later companies.
Mr. Manku has since told investors that if he were to execute the trade all over again, he might wait to put it on, lessening the pain Coltrane and its clients, including endowments and foundations, took in the interim.
“He’s pretty humble right now,” one Coltrane investor said of Mr. Manku. “He knows that if he were a stock, he would be short it; he understands he’s due for the pendulum to shift. But he’s always focused on the game.”
>>> Up
* Banca Sistema Raised to Buy at Banca Akros (ESN); PT 2.20 euros (+)
* Danone Raised to Hold at Berenberg; PT 52 euros
* Deliveroo Raised to Buy at Berenberg; PT 140 pence (+)
* Melia Hotels Raised to Buy at Intermoney Valores; PT 7 euros
>>> Down
* Babcock Cut to Reduce at Numis; PT 270 pence
* Bilia Cut to Hold at Kepler Cheuvreux; PT 165 kronor (+)
* Cherry Cut to Neutral at Oddo BHF; PT 10.38 euros (+)
* Fevertree Drinks Cut to Equal-Weight at Barclays; PT 1,000 pence
* Fevertree Drinks Cut to Reduce at HSBC; PT 800 pence
* Gamma Communications Cut to Underperform at Oddo BHF
* GSK Cut to Reduce at AlphaValue/Baader
* Henkel Cut to Sell at Berenberg; PT 50 euros
* Hotel Chocolat Cut to Hold at Peel Hunt; PT 175 pence (+)
* Neoen Cut to Underweight at Morgan Stanley; PT 35 euros
* THG PLC Cut to Equal-Weight at Barclays; PT 100 pence (+)
* UBS Group Cut to Underweight at Barclays on Buyback Concerns
* United Internet Cut to Neutral at Oddo BHF; PT 30 euros
* Voltalia Cut to Equal-Weight at Morgan Stanley; PT 22 euros
>>> Initiation
* Breedon Rated New Buy at Stifel; PT 80 pence
* Deutsche Telekom Reinstated Outperform at Oddo BHF; PT 23 euros
* Julius Baer Rated New Equal-Weight at Barclays
* Telecom Italia Reinstated Outperform at Oddo BHF
* Telefonica Reinstated Underperform at Oddo BHF; PT 4.80 euros
* Vodafone Reinstated Neutral at Oddo BHF; PT 140 pence
>>> Call
* Cboe Double-Upgraded at MS With Higher Volatility a Tailwind
* Henkel Cut at Berenberg in Food/HPC, Danone Raised (+)
* Hugo Boss PT Lifted at RBC on Potential for Margin Improvements
* Neoen, Voltalia Cut; MS Turns Selective on Pure-Play Renewables
* SGS Organic Growth Likely to Provide Reassurance, Citi Says (+)
* Swedbank 2Q Strong NII Performance, Lower Impairments: Jefferies (+)
* Watch Remy Cointreau, Heineken as Citi Sees 2Q FX Tailwinds
* Wise Update is Well Ahead of Expectations, Morgan Stanley Says (+)
* Zurich Airport Less Exposed to Disruption, Raised to Buy at Citi