>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • JILL -46.1%, (J. Jill issues downside Q3 guidance citing lower than expected sales trend across both our retail and direct channels),NSTG -9.8%, HAWK -8.6%, DPZ -6.2%, LSCC -4.3%, RIC -4.1%, JCOM-3%, T -1.8%, (reiterating 2017 guidance of mid-single digit adj earnings growth (vs +3.8% CapIQ estimate), adjusted op margin expansion, CapEx in $22 billion range and free cash flow at low end of $18 bln range), LNN -1.1%, ATI -0.8%
Other news:
  • ACRX -59.8% (receives Complete Response Letter from the FDA regarding its New Drug Application for DSUVIA
  • TRVN -11.8% (to streamline operations to focus on approval and commercial launch of OLINVO; halting its investment in early stage research)
  • PTGX -11.7% (prices 3.53 mln shares of common stock at $17.00 per share)
  • HMNY -10% (affirms satisfying MoviePass transaction financing condition, increases investment in MoviePass and acquires option for additional investment; also Forbes yesterday reported that MoviePass is having difficulties servicing customers following the August ramp up )
  • KNDI -6.1% (files for $300 mln mixed securities shelf offering)
  • AZRX -4.4% (thinly traded; files for $10 mln mixed securities shelf offering)
  • CHS -4% (light volume; following J Jill guidance)
  • KL -3% (Kirkland Lake Gold reports Q3 gold production +4% y/y (+29% excluding production from mines currently on care/maintenance); on track to achieve improved full-year 2017 guidance of 570,000-590,000 ounces)
  • GM -2% (reports that company may idle a Detroit factory amid slowing demand)
  • SRNE -1.4% (continued strength after 48% move higher today)
  • CSCO -1.2% (following JNPR guidance)
  • F -0.9% (in sympathy with GM)
Analyst comments:
  • VIAB -2.4% (downgraded to Neutral from Buy at Guggenheim)
  • WSM -1.9% (downgraded to Underperform from Neutral at Credit Suisse )
  • MNRO -1.6% (downgraded to Hold from Buy at Jefferies)
  • DIS -0.9% (downgraded to Neutral from Buy at Guggenheim)

FT : WPP steps up criticism of ADK board over sale to Bain

WPP steps up criticism of ADK board over sale to Bain
Ad group with big stake asks about other offers and attacks management record

WPP has hit back at its long-term Japanese partner’s defence of a planned sale to Bain Capital, in a statement that questions whether board members at Japan’s third largest advertising agency have prioritised their own future over the interests of the business.

The UK-listed ad giant holds a 24.7 per cent stake in Asatsu-DK (ADK), which has agreed a $1.3bn tender offer with the Boston-based private equity house.

Sir Martin Sorrell’s advertising group on Thursday reiterated its view that the tender offer “significantly undervalues” ADK, after the Japanese agency on Monday published a document responding to questions about the Bain deal.

“Have the board ever considered or discussed any alternative bona fideoffers or proposals for the company which may be of greater benefit to the stakeholders in the business including its clients and its people or has the only consideration been management’s concern about their own position in the future?” the WPP statement asked.

“Has Bain Capital ever given ADK’s management reassurance about their own position as part of this transaction and, if so, should not those terms be disclosed?”

The UK agency said ADK’s management had “consistently resisted opportunities to improve the performance of its overseas operations . . . preferring to invest in disastrous acquisitions and consolidations such as Gonzo and Bungeisha, the costs of which have not been fully exposed”.

ADK had said that while its alliance with WPP — which included cross-shareholdings as well as a business partnership — had “initially provided a certain level of results”, a “concrete plan for collaboration” that contributed to both groups’ interests had not been attained, and there had been no “business synergy that expands mutual interests” as originally intended.

The Japanese firm added that it had differing views from the British group on changes to the advertising industry and that it had become “difficult to make swift and flexible decisions” in that environment. Instead, it had decided to move to an open network with a range of different partners.

WPP said ADK had “improperly attempted” to terminate the groups’ agreement, “which it knows full well that it cannot do”, and that the effective sale by ADK of its holding in WPP “attempted to circumvent the stock purchase agreement and contradicts explicit advice from key shareholders that doing so would trigger damaging and ill-advised tax charges”.

ADK did not immediately respond to a request for comment. Bain could not immediately be reached for comment.

FT Lex : China/US 5G: wavelength warfare

FT Lex : China/US 5G: wavelength warfare
Chinese push for bigger share in design of next spectrum should worry Qualcomm

Qualcomm is under attack for its dominant position in intellectual property for mobile chips. On Wednesday the US chipmaker was hit with a T$23.4bn (US$774m) fine by Taiwan’s Fair Trade Commission.

A lower-profile skirmish over chips for the forthcoming 5G standard could be more consequential, however. China is pushing for a bigger share in the design of the next generation of mobile data services. If it succeeds, Qualcomm will be hurt, equipment makers such as ZTE will benefit and operators such as China Mobile will pay the bill.

The US chip group owns 12.5 per cent of patents essential for the current 4G standard, according to Jefferies. Qualcomm recorded royalty revenues of $4.4bn in the nine months to June. China is the largest mobile market — China Mobile alone has 873m customers — but the nation’s share of intellectual property has historically been small.

The intellectual future involves more Sino influence. China owns a tenth of essential 5G patents, Jefferies notes. The country has moved to strengthen its role in the international regulatory bodies. So much so that US officials have complained about efforts by “authoritarian governments” to influence future networks.

The future of the standard rests in large part on the international co-operation necessary to make sure devices and protocols work across borders. The most basic difference between the approaches of the two countries concerns which frequencies 5G should use. US companies claim an advantage in high frequency millimetre waves. China will likely aim to be a first mover with its lower frequency approach, in hopes of swaying undecided countries.

Mobile operators will have to bear most of the costs of implementation — estimated at Rmb1.65tn ($250bn) to 2025 by government researchers. Equipment manufacturers and patent owners will benefit via higher royalties. Shares in ZTE more than doubled this year. Investors betting on the group must simultaneously believe in the success of China’s patent push.

>>> Citigroup beats by $0.12, beats on revs

Citigroup beats by $0.12, beats on revs
  • Reports Q3 (Sep) earnings of $1.42 per share, excluding non-recurring items, $0.12 better than the Capital IQ Consensus of $1.30; revenues rose 2.3% year/year to $18.17 bln vs the $17.87 bln Capital IQ Consensus.
  • Credit Reserve Build was $194 mln
  • Net Credit Losses $1.77 bln, +17% y/y due to integration of COST credit card portfolio. Citigroup's cost of credit in the third quarter 2017 was $2.0 billion, a 15% increase, driven by an increase in net credit losses of $252 million, primarily in North America GCB, as well as a higher loan loss reserve build, which included approximately $100 million of hurricane and earthquake-related loan loss reserve builds across North America GCB and Latin America GCB, as well as the legacy portfolio in Corporate / Other.
  • Citigroup's net income increased to $4.1 billion in the third quarter 2017, as the higher revenues and lower expenses more than offset higher cost of credit.
  • Citigroup's operating expenses decreased 2% to $10.2 billion in the third quarter 2017.
  • Citigroup's book value per share was $78.81 and tangible book value per share was $68.55, each at quarter end, both representing a 6% increase.
  • Investment Banking revenues of $1.2 billion were up 14% versus the prior year period, reflecting continued wallet share gains across products, with particular strength in equity underwriting. Advisory revenues decreased 1% to $237 million, equity underwriting revenues increased 99% to $290 million and debt underwriting revenues increased 1% to $704 million.
  • Fixed Income Markets revenues of $2.9 billion in the third quarter 2017 decreased 16%, primarily reflecting lower G10 rates and currencies revenues, given low volatility in the current quarter and the comparison to higher Brexit-related activity a year ago, as well as lower activity in spread products. Equity Markets revenues of $757 million increased 16%, reflecting client-led growth across cash equities, derivatives and prime finance.

>>> Netflix target raised to $230 at Stifel ahead of earnings

Netflix target raised to $230 at Stifel ahead of earnings
Stifel raises their NFLX tgt to $230 from $200. Firm forecasts 753k domestic net streaming subscriber additions in 3Q, narrowly below Street consensus of 800k and in-line with the company's forecast of 750k. For int'l streaming, they est 3.65mm net adds, in-line with consensus (3.69mm) and company guidance (3.65mm). Last quarter, Netflix exceeded its forecasted net adds by ~2mm (for a total of 5.2mm), which mgmt attributed to a strong content slate and strong global acquisition trends. Firm ests +30% y/y revenue growth in 3Q (in-line with guidance of 29.6%) as Netflix continues to benefit from last year's price increase. On the profitability side, they expect an operating margin of 6.8% in 3Q (also in-line with guidance of 6.9%). In 4Q:17, they est Netflix will add 1.6mm domestic streaming subscribers and 5.0mm int'l streaming subscribers (versus consensus of 1.6mm and 4.7mm, respectively). They slightly trimmed their ests to account for a modest amount of pricing-related churn.

>>> US Early premarket gappers

Early premarket gappers
Gapping up:
  • ARDX +43.5%, ONCS +21.1%, BW +8.9%, KPTI +7.7%, SRNE +5.4%,NMIH +5.2%, FPRX +4.6%, SIGM +3.8%, VNTR +3.6%, KTOV +3.5%,ACLS +3.2%, XL +2.9%, DXC +2.8%, DBVT +2.2%, HMY +2.1%, ASNA+1%, HLF +1%, GAIN +0.9%, RY +0.9%, ZTO +0.8%, SAH +0.7%
Gapping down:
  • JILL -37.4%, PTGX -12.7%, PTGX -12.7%, HMNY -11.6%, NSTG-9.8%, TRVN -8.9%, HAWK -8.6%, KNDI -6.7%, AZRX -4.4%, LSCC-4.3%, RIC -4.1%, KL -3%, ENDP -2.2%, CSCO -1.4%, CHS -0.9%, T-0.9%, FEYE -0.5%, JPM -0.4%