After Hours Summary: PINS +14.2% on WSJ report that activist Elliott Mgmt has built large stake; CDXS -21.3% and TXG -12.8% fall on weak guidance; RRGB +2.5% gets a new CEOAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: PINS +14.2% (activist Elliott Mgmt has built a 9+% stake, according to WSJ), ZY +7% (expands agreement with Octant to further scale their platform), RCM +3.4% (to become exclusive provider of enterprise revenue cycle mgmt services for Sutter Health), RRGB +2.5% (names new CEO), DASH +1.8% (ABNB exec joins board), MGM +1.5% (GIGNY attracting takeover interest, MGM mentioned, according to Bloomberg), SPCE +0.8% (signs long-term lease for new manufacturing facility), R +0.6% (increases dividend), ILMN +0.4% (enters into settlement and license agreement with BGI Genomics), APA +0.1% (names new chairman)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CDXS -21.3% (guides Q2 and FY22 revs below consensus; also signs deal with PFE to supply enzyme used in PAXLOVID), TXG -12.8% (guides Q2 revs below consensus), BTU -1% (guides Q2 revs below consensus), AOUT -0.7%
Companies trading lower in after hours in reaction to news: AUPH -4.1% (names new exec in R&D and new CCO), OMGA -2.1% (receives FDA clearance of its IND application to initiate a Phase 1/2 study of OTX-2002), CLOV -1.2% (to offer Medicare Advantage plans in 13 new counties), ABC -0.6% (awarded $6.065 bln contract from Defense Logistics Agency), GD -0.2% (awarded $908 mln US Air Force contract; also awarded $273 mln US Navy contract)
Closing Stock Market Summary: Buyer conviction picks up middayThe stock market opened lower and headed even lower after that. Buyer conviction picked up around midday, leaving the S&P 500 and Dow Jones Industrial Average with modest losses. The Nasdaq was able to climb just above the flat line to close in positive territory.
The weak start was owed to several factors:
- JPMorgan Chase (JPM 108.00, -3.91, -3.5%) and Morgan Stanley (MS 74.69, -0.29, +0.4%) reported weaker than expected results with JPM CEO Dimon repeating his warning about a difficult economic environment.
- The PPI report for June was hotter than expected at the headline level, fueling more speculation about a more aggressive Fed.
- There was renewed political turmoil in Italy after Prime Minister Draghi lost the support of a major coalition partner. Mr. Draghi submitted his resignation, but the country's president refused to accept the offer, suggesting that the prime minister will maintain his post despite flagging support. The renewed uncertainty could get in the way of the ECB's tightening plans.
The lower start sent the S&P 500 back to its low from three weeks ago, but that's where the market found support and rebounded thanks to strong leadership from the technology sector. Comments from Fed Governor Waller also contributed to the turn in sentiment after he said that his base case remains for a 75-bps rate hike, though he acknowledged that he would support a larger increase if it is warranted by economic data.
Aside from information technology (+0.9%), the other S&P 500 sectors to close in the green were consumer staples (+0.2%) and utilities (+0.01%). The technology sector got a boost today from semiconductor related names after Taiwan Semi (TSM 83.67, +2.38, +2.9%) beat on earnings and revenue and issued forward guidance above consensus.
As for the consumer staples sector, Costco (COST 511.94, +19.72, +4.0%) offered support after it was upgraded today to Buy from Hold at Deutsche Bank. Holding the sector down was Conagra (CAG 33.15, -2.59, -7.3%), one of the biggest laggards in the S&P 500 today, after the company issued-below consensus guidance.
The remaining nine sectors showed losses ranging from 0.1% (consumer discretionary) to 1.9% (financials).
The advance-decline line showed the midday pick up in buyer interest. Earlier, decliners led advancers by a nearly 9-to-1 margin at the NYSE and a roughly 4-to-1 margin at the Nasdaq. At the close, decliners led advancers by a 14-to-5 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Treasuries retreated in immediate reaction to the PPI report but most tenors found support above yesterday's lows, narrowing their losses as the day went on. The 10-yr yield rose six basis points to 2.96% while the 2-yr yield slipped one basis point to 3.12%.
More bank earnings will be released ahead of Friday's open with BlackRock (BLK 588.63, -7.75, -1.3%), Citigroup (C 44.14, -1.36, -3.0%), and Wells Fargo (WFC 38.74, -0.33, -0.8%) headlining the list. Major health care component UnitedHealth (UNH 502.43, +1.19, +0.2%) will also report its earnings tomorrow morning.
The market will receive a few more noteworthy economic reports on Friday:
- 8:30 a.m. ET: June Retail Sales (consensus 0.8%; prior -0.3%), Retail Sales ex-auto (consensus 0.6%; prior 0.5%), June Import/Export Prices, and July Empire State Manufacturing survey ( consensus -0.9; prior -1.2)
- 9:15 a.m. ET: June Industrial Production (Briefing.com consensus 0.2%; prior 0.2%) and Capacity Utilization (consensus 80.0%; prior 79.0%)
- 10:00 ET: May Business Inventories ( consensus 1.2%; prior 1.2%) and preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 49.4; prior 50.0)
Reviewing today's economic data:
- June PPI 1.1% (consensus 0.9%); Prior was revised to 0.9% from 0.8%; June Core PPI 0.4% ( consensus 0.5%); Prior was revised to 0.6% from 0.5%
- The key takeaway from the report is that inflationary pressures were most pronounced in the manufacturing sector due to higher energy prices, but the services sector also saw higher prices, coupled with an upward revision to the increase that was reported in May. The June report lifted the yr/yr PPI rate to 11.3%, leaving it just shy of the March peak (11.5%).
- Weekly Initial Claims 244K (consensus 239K); Prior 235K; Weekly Continuing Claims 1.331 mln; Prior was revised to 1.372 mln from 1.375 mln
- The key takeaway from the report is that while still low relative to longer-term averages, initial claims have been inching higher in steady fashion since they reached a low of 167,000 at the end of March and are now at their highest level since early February.
- Weekly EIA Natural Gas Inventories showed a build of 58 bcf vs a build of 60 bcf last week
- Dow Jones Industrial Average: -15.7% YTD
- S&P 400: -20.5% YTD
- S&P 500: -20.5% YTD
- Russell 2000: -24.0% YTD
- Nasdaq Composite: -28.1% YTD
Stripe Cuts Internal Valuation by 28%
Payments processor was last valued by private investors at $95 billion
Payments giant Stripe Inc., last valued by private investors at $95 billion, cut the internal value of its shares by 28%, people familiar with the matter said.
Stripe told employees in an email Friday that the internal share price was about $29, compared with $40 in the most previous internal valuation, known as a 409A valuation, the people said. The move lowered the implied valuation of those shares to $74 billion, according to one of the people, which is calculated separately from the stock owned by major shareholders.
Stripe said in the email that the board approved the lower share price effective June 30, the people said. The payments processor to startups and fast-growing internet companies didn’t explain the decision to lower its internal valuation, the people said.
The decision comes amid a prolonged market selloff that has slowed down the pace of private fundraising and pushed startups to slash costs and cut jobs.
Last year, Stripe became one of the most valuable U.S. startups after raising a $600 million round at a $95 billion valuation. But the share prices of publicly traded fintech companies have plummeted in the past few months, making Stripe look overvalued. Payments processor PayPal Holdings Inc., which investors often compare to Stripe, has seen its stock decline by over 60% since Jan. 1.
Private companies often update their 409A valuation to more appropriately assess the best price to issue new stock options to employees. The metric is separate from the valuations investors assign to startup shares, which is usually based on the price of the last financing round but can change based on changes in a company’s performance or external market shifts.
Stripe isn’t the first high-profile startup to lower its 409A valuation. Earlier this year, Instacart Inc. marked down its internal valuation to $24 billion from $39 billion, a decision the company said it made to help with retention and recruiting.
Elliott Sets Sights on Pinterest
Activist investor, which has built up a stake of over 9%, has been in discussions with social-media company
Activist investor Elliott Management Corp. has taken a big stake in Pinterest Inc., PINS -2.44% according to people familiar with the matter, as the once-hot social-media company grapples with a decline in users and other challenges.
Elliott has told the company that it is the biggest investor in Pinterest, having built a stake of more than 9% in recent months—partly in common stock, one of the people said. The activist has been in discussions with Pinterest over the past several weeks. It couldn’t be learned what they have been discussing.
It has been a time of turmoil for Pinterest, which operates a free online platform for sharing images that inspire projects such as planning weddings, completing home renovations and creating recipes.
In June, Ben Silbermann stepped down as chief executive, becoming executive chairman. The company named Bill Ready, who had been president of commerce at Alphabet Inc.’s Google since 2020, as his replacement.
The moves came after several Pinterest executives departed in recent months, including its head of global business operations and its investor-relations chief.
Mr. Silbermann, one of three Pinterest co-founders, has a roughly 37% voting stake in the company, according to its latest proxy filing from April, which could limit Elliott’s ability to force changes.
Pinterest’s business grew dramatically during the pandemic, and in February, the company reported its first full-year profit and more than $2 billion in annual revenue. But while revenue grew 18% in the quarter that ended in March from a year earlier, global active monthly users fell 9% and the company posted a net loss of $5 million, as Covid restrictions eased and people began spending more time offline. Changes to Apple Inc.’s privacy rules and a slowdown in ad spending also weighed in on the company’s results.
Shares in Pinterest, which has a market valuation of about $12 billion, are down around 50% year-to-date, worse than the tech-heavy Nasdaq Composite Index, which has fallen by about 30%. The company went public in early 2019 at $19 a share; the stock surged above $80 last year but is now below the IPO price, trading at $17.43 Thursday afternoon.
In recent years, Pinterest has been looking to boost revenue beyond its advertising-centric model by expanding into e-commerce. The company partnered with Shopify Inc. in 2020, giving its users the ability to purchase products they find on its platform by clicking on a link to a merchant’s website. In June, Pinterest acquired the Yes, an artificial-intelligence platform that customizes the fashion-shopping experience for users.
Pinterest faces challenges in this area, though, as online consumer spending has lately been on the decline, and the tech sector has been grappling with the combined weight of macroeconomic factors such as rising interest rates, the war in Ukraine and growing inflation, which have weakened the online ad market.
Last year, PayPal Holdings Inc. was in talks to buy Pinterest but backed out after the payments company’s shareholders balked.
Elliott is known as one of Wall Street’s toughest activist investors, with a history of taking on tech companies and others and forcing changes such as sales or executive shake-ups.
Last year, Twitter Inc. co-founder Jack Dorsey stepped down from the top job after facing pressure from Elliott. The activist took a roughly $1 billion stake in Twitter in 2020 and later reached an agreement to appoint two new members to what was an eight-person board.
In 2019, Elliott and fellow activist Starboard Value LP criticized the performance of online marketplace eBay Inc. Elliott’s Jesse Cohn was among three members added to eBay’s board. Six months later, Chief Executive Devin Wenig resigned.
Elliott, with more than $50 billion under management as of the end of last year, also has a private-equity arm, Evergreen Coast Capital, that sometimes bids on companies that are targets of the firm’s activist campaigns.