In some ways it feels like earnings season was hijacked by the constant talk about economic stimulus and the coming elections. The stock market is supposed to be a live bet on where things are heading in three or six months. However, the news of the present does matter, and that so-called efficient market theory where all current news is factored in has been proven wrong year after year.
Third-quarter earnings have dominated October’s corporate news flow. There were some very negative surprises that brought some pain, as well as some very positive surprises that drove shares much higher.
24/7 Wall St. has tracked multiple earnings reports this earnings season, and here we feature seven reports that stood out the most. Some of these did not have the craziest moves, but they should signal some key lessons for their sectors and peers. Other reports were followed by big moves.
Remember that investors love chasing trends. Companies that beat earnings expectations and raise guidance tend to attract more positive attention over time. With companies that miss expectations, trying to pick bottoms in a stock can sometimes feel like a game of catching daggers falling from tall buildings.
Here are seven top earnings shocks that stood out the most so far in October.
Fastly Down the Drain
Fastly Inc. (NYSE: FSLY) may not seem like a very important stock. Yet, it was one of the top-performing high-flying cloud stocks, up 400% year to date before earnings. Fastly has become a warning siren for investors not to blindly trust that cloud and software stocks valued at 20, 30 and 50 times trailing sales and that are losing money will never fall back to earth.
The company’s new revenue target of $70 million to $71 million was barely under its prior guidance of $73.5 million to $75.5 million, but Fastly also withdrew all prior guidance, spoke about its top customer not meeting expectations with a significant revenue disappointment, and disclosed that a few of its customers had lower usage than it had estimated.
Fastly had risen “fastly” to above $120 a share prior to the October 14 confession. With a $13.7 billion market cap at that time, this valued it at close to 35 times its prior expected 2021 sales expectations, and Refinitiv had its consensus estimates showing a three-cent loss per share in 2020 and a three cent per-share earnings for all of 2021.
Fastly initially saw its $123.18 pre-earnings stock price fall 27% to $89.70. To prove that things can get worse when a stock is priced for perfection and disappoints, this stock fell to under $80 on Wednesday, and Friday’s drop of more than 4% to $75.60 was in the making for a seven-day consecutive losing streak. Its stock was down over 38% in just over a week.
The House of Morgan and Dimon
JPMorgan Chase & Co. (NYSE: JPM) is still the nation’s most prestigious bank. Even so, analysts and most other investors were expecting larger loss provisions. The big trends were that some of JPMorgan’s numbers were stronger than they had been a year earlier, which seems hard to fathom this early in the recovery and with the stimulus package not having come yet (75 days late and counting).
CEO Jamie Dimon reported $2.92 EPS on revenue of $29.94 billion, versus $2.68 EPS on managed revenue of $30.01 billion in the same quarter a year earlier. Refinitiv’s consensus estimates were just $2.23 EPS on revenue of $28.29 billion. The bank’s average loan balance of $991 billion was also up 1% from a year earlier, and the $1.2 billion in net charge-offs was down from $1.6 billion a quarter earlier and down from $1.4 billion in the third quarter of 2019.
JPMorgan shares initially pulled the “let’s trade lower on good news” reaction, but after drifting to just under $100, the stock was back up above $103.00 as stimulus talks looked positive.
Logitech Loves the Stay Away From the Office
Logitech International (NASDAQ: LOGI) reported its most recent quarterly results on Monday, and the stock surged from $80 to $95 before backing off the rest of the week. The computer peripherals maker reported $1.87 EPS and $1.26 billion in revenue. This report blew away the consensus estimates of $0.57 in EPS and revenue of $834.55 million, and it compared to $0.50 EPS and $719.69 million in revenue for the same period in 2019.
While the stay-at-home trend may fade after a coronavirus cure and vaccine, the trend is not expected to dwindle any time soon, as the number of cases keeps rising in the United States and elsewhere. This also marked Logitech’s first time that quarterly sales exceeded the billion-dollar mark. Logitech’s CEO also talked up 2021 guidance.
Some investors may feel disappointed that the stock was down closer to $87 on Friday afternoon, but this is now up nearly 200% from the panic-selling lows of March.
Mattel Investors Visit Toy Land
Mattel Inc. (NASDAQ: MAT) has been a down and out stock for longer than anyone would care to remember. Despite a rough economy, parents are indulging their kids like there is no tomorrow while everyone is having to play alone at home. The toymaker knocked the ball out of the park with $0.95 EPS on $1.63 billion in revenue. Consensus estimates had been only $0.38 EPS and $1.46 billion in revenue, and the year-ago results were $0.26 EPS and revenue of $1.48 billion.
What matters here now is that this should set up Mattel for a very strong Christmas spending season. Sales of dolls rose 22% and the category for action figures, building sets and games rose by 14%. This was offset by a 6% drop in the infant, toddler and preschool sales, while vehicles gained 6%.
Mattel shares were up almost 14% at $14.72 late on Friday, and the stock’s 52-week high of $14.83 was almost hit. While a 52-week high may be impressive, this traded above $30 in 2016, and it had peaked above $45 back in 2013.
Netflix Subscriber Woes
Netflix Inc. (NASDAQ: NFLX) has been a very strong winner of the stay-at-home economy and with movie theaters shut down for months on end. When it gave very lackluster subscriber expectations ahead, analysts dismissed the forecasts as conservative on one end and sandbagging on the other. Analysts raised targets over the summer, but they then doubled down and raised their targets even more in September and October.
It turns out that Netflix was just being honest. We had even pointed out a classical triple-top stock chart pattern, and now Netflix is down about 15% from its peak. Some targets were still raised after earnings, but much more mixed, and now analysts are calling for Netflix to announce another round of price hikes to juice up the earnings.
Netflix had fallen to under $483.00 on Friday. Maybe it should have considered that stock split after all.
Snap’s “Camera Company” Journey
Snap Inc. (NYSE: SNAP) was the first of the big social media players to report. So far, Snapchat has little to no regulatory issues nor any election controversies hanging over its head. Snap reported a mere $0.01 EPS and $678.67 million in revenue on Tuesday, but Refinitiv had called for a net loss of $0.05 per share and $549.99 million in revenue. The same period of last year had a net loss of $0.04 per share and $446.2 million in revenue.
The company’s daily active users (DAUs) surged during 2020 in the pandemic, rising to 249 million from 211 million in the third quarter last year. DAUs increased sequentially and year over year on both iOS and Android platforms. The company also communicated that 40% of the U.S. Gen Z population watched sports Discover content on Snapchat last month, and that its average revenue per user increased 28% year over year to $2.73.
Snap closed Tuesday at $28.41 a share ahead of the report, but it surged more than 28% to $36.50 the first day after the earnings on more than 250 million shares in a single day. Even the next day, the stock was up another 6% at $38.65 shortly before the closing bell. Suddenly, this was up 36% in two trading days and then it was up another 8% at $42.25 mid-Friday. Overall, Snap added close to $20 billion in market capitalization this week.
24/7 Wall St.Travelers Flying High
Travelers Companies Inc. (NYSE: TRV) is the one Dow Jones industrial average stock that almost everyone sort of forgets about. The insurance and financial services giant has just lagged all year long, and its valuations were stubbornly low. That sets a springboard for any unexpected good news.
Travelers showed that its third-quarter net income hit $827, its financial ratios improved, it had favorable reserve developments, its catastrophic losses were not high as some might have expected, and it said that net written premiums rose 3% sequentially to $7.771 billion with strong renewal rate changes in all three segments.
Travelers traded at $111.84 per share on Monday, but by Thursday afternoon it was up at $126.25, before less than a 1% pullback on Friday. It still has a market cap of less than $32 billion. With a 52-week trading range of $76.99 to $141.87, it may be more than just analysts who bet that the stock will head higher with a valuation that is barely 13 times next year’s expected earnings.
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