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Technology Stocks : Semi Equipment Analysis
SOXX 380.89-1.1%Dec 2 4:00 PM EST

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To: Return to Sender who wrote (88838)8/12/2022 10:52:21 PM
From: Return to Sender2 Recommendations

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Market Snapshot

Dow 33671.28 +332.73 (1.00%)
Nasdaq 12801.99 +22.12 (0.17%)
SP 500 4265.02 +57.68 (1.37%)
10-yr Note

NYSE Adv 2474 Dec 602 Vol 758 mln
Nasdaq Adv 3025 Dec 1260 Vol 4.7 bln

Industry Watch
Strong: Communication Services, Information Technology, Real Estate, Materials

Weak: --

Moving the Market
-- Upside leadership from mega caps

-- S&P 500 crosses 4,231 level, which is a 50% retracement of the losses suffered from Jan. 3 close and June 16 close

-- Falling oil prices

-- Import-Export Price Index for July points to possible peak inflation, piling on to CPI and PPI earlier

Closing Summary
12-Aug-22 16:25 ET

Dow +424.38 at 33762.93, Nasdaq +267.27 at 13047.14, S&P +72.88 at 4280.22
[BRIEFING.COM] The stock market opened on a high note and extended its gains the whole session, closing at or near session highs. The S&P 500 logged its fourth consecutive winning week and closed above the 4,231 level, which marked a 50% retracement of the losses the market incurred from the Jan. 3 closing level (4796.56) and June 16 closing level (3666.77). Falling oil prices and the better-than-expected preliminary August University of Michigan Consumer Sentiment reading underpinned today's buying efforts.

Also, the Import-Export Price Index for July piled on to the CPI and PPI reports this week, pointing to possible peak inflation.

The S&P 500 was up 3.3% week-to-date; the Nasdaq was up 3.1% week-to-date; the Dow Jones Industrial Average was up 2.9% week-to-date. Including this week's gains, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are up 17.7%, 23.5%, and 13.7%, respectively, from their mid-June lows.

The buying effort today was broad based with all 11 S&P 500 sectors closing in the green with gains ranging from 0.8% (energy) to 2.3% (consumer discretionary).

Energy brought up the rear amid falling oil prices. WTI crude oil futures settled the session 2.1% lower to $92.34/bbl. Natural gas futures fell 1.3% to $8.86/mmbtu. Unleaded gasoline futures fell 0.02% to $3.06/gal.

Meanwhile, consumer discretionary (+2.3%), information technology (+2.1%), and communication services (+2.0%) rose to the top of the leaderboard thanks to their outperforming mega cap components. Information technology was also boosted by its semiconductor related constituents, which had a strong showing today. The PHLX Semiconductor Index closed up 3.0%.

Mega caps led the market higher with the Vanguard Mega Cap Growth ETF (MGK) up 2.0% at the close versus a 1.6% gain in the Invesco S&P 500 Equal Weight ETF (RSP). Small and mid cap stocks were not left out of the rally, however. The Russell 2000 (+2.0%) and S&P Mid Cap 400 (+1.5%) closed with sizable gains.

Two names that were left out of the rally effort were Alibaba (BABA 94.77, -0.10, -0.1%) and Pinduoduo (PDD 48.80, -0.82, -1.7%) following news today that five other Chinese ADRs plan to delist at the NYSE.

Separately, the Treasury market was mixed today with the 2-yr note yield rising six basis points to 3.25% while the 10-yr note yield fell four basis points to 2.85%.

Looking ahead to Monday, market participants will receive August Empire State Manufacturing Index ( consensus 5.0; prior 11.1) at 8:30 a.m. ET, August NAHB Housing Market Index ( consensus 55; prior 55) at 10:00 a.m. ET, and June TIC Net Long-Term Transactions (prior $155.3 billion) at 4:00 p.m. ET.

Reviewing today's economic data:

  • August Univ. of Michigan Consumer Sentiment - Prelim 55.1 ( consensus 52.1); Prior 51.5
    • The key takeaway from the report is that consumers' inflation expectations were little changed, dipping to 5.0% from 5.2% for the year ahead (but above 4.6% seen a year ago) and edging up to 3.00% from 2.9% for the five-year outlook.
  • July import prices fell 1.4% after the revised increase of 0.3% in May (from 0.2%). Import prices, excluding oil, fell 0.5% after the revised decrease of 0.6% in May (from -0.5%). Export prices fell 3.3% after the 0.7% increase in May. Export prices, excluding agriculture, fell 3.3% after a revised 0.8% increase in May (from 0.9%)
Dow Jones Industrial Average: -7.1% YTD
S&P 400: -7.9% YTD
S&P 500: -10.2% YTD
Russell 2000: -10.2% YTD
Nasdaq Composite: -16.6% YTD

Market climbs into the close
12-Aug-22 15:35 ET

Dow +365.33 at 33703.88, Nasdaq +247.54 at 13027.41, S&P +64.32 at 4271.66
[BRIEFING.COM] The major indices continue their steady rise heading into the close.

On the week, the 2-yr note yield was little changed, up two basis points to 3.25% while the 10-yr note yield is up one basis point week-to-date to 2.85%.

Looking ahead to Monday, market participants will receive August Empire State Manufacturing Index ( consensus 5.0; prior 11.1) at 8:30 a.m. ET, August NAHB Housing Market Index ( consensus 55; prior 55) at 10:00 a.m. ET, and June TIC Net Long-Term Transactions (prior $155.3 billion) at 4:00 p.m. ET.

Market steadily climbs
12-Aug-22 15:00 ET

Dow +332.73 at 33671.28, Nasdaq +22.12 at 12801.99, S&P +57.68 at 4265.02
[BRIEFING.COM] The stock market continued to inch higher in the last half hour.

Every S&P 500 sector trades in positive territory with gains ranging from 0.3% (energy) to 1.8% (information technology). Energy has been the weakest performer the whole session amid falling oil prices. WTI crude oil futures settled 2.1% lower to $92.34/bbl. Natural gas futures fell 1.3% to $8.86/mmbtu. Unleaded gasoline futures fell 0.02% to $3.06/gal.

Separately, the 2-yr note yield is up five basis points to 3.25% while the 10-yr note yield is down four basis points to 2.85%.

PENN, Generac outperform in S&P on Friday
12-Aug-22 14:30 ET

Dow +285.98 at 33624.53, Nasdaq +198.30 at 12978.17, S&P +51.12 at 4258.46
[BRIEFING.COM] The benchmark S&P 500 (+1.22%) is firmly in second place on Friday afternoon.

S&P 500 constituents PENN Entertainment (PENN 37.40, +1.80, +5.06%), Generac (GNRC 278.43, +12.08, +4.54%), and Etsy (ETSY 118.65, +3.97, +3.46%) pepper the top of today's standings despite a dearth of corporate news.

Meanwhile, aside from earnings-related losses in Illumina (ILMN 207.13, -20.31, -8.93%) there's only modest weakness in the index.

Gold extends weekly winning streak
12-Aug-22 14:00 ET

Dow +301.66 at 33640.21, Nasdaq +191.51 at 12971.38, S&P +50.07 at 4257.41
[BRIEFING.COM] With about two hours remaining on Friday the tech-heavy Nasdaq Composite (+1.50%) is in the lead among the major averages.

Gold futures settled $8.30 higher (+0.5%) to $1,815.50/oz, finishing up about +1.4% this week to extend its weekly winning streak to four.

Meanwhile, the U.S. Dollar Index is up now approx. +0.5% to $105.66.

Rivian Automotive stuck in neutral as mounting losses offset reaffirm of production target (RIVN)

For upstart electric vehicle (EV) maker Rivian (RIVN), its current financial performance is mainly inconsequential for investors since the company is in the very early days of its growth curve. The fact that it edged past bottom-line expectations for Q2 has little relevance compared to its outlook, particularly as it relates to production and profitability improvements. In that regard, the news was mixed for RIVN as the company reaffirmed its FY22 production target of 25K vehicles but lowered its adjusted EBITDA guidance to ($5.450) bln from ($4.750) bln.

The stock has struggled to gain much traction today despite reaffirming that production target and reporting an 8,000 sequential increase in R1 preorders to 98,000. There are a few possible reasons why RIVN is stuck in neutral.

  • In order to reach its goal of 25K vehicles produced this year, RIVN will need to average about 9,500 vehicles produced in Q3 and Q4. For a reference point, the company produced 4,401 vehicles in Q1. Given that RIVN acknowledged that supply chain constraints are still a limiting factor for production, there's likely some skepticism among investors that it will reach its target.
  • It's unsettling to see the company's Q2 adjusted EBITDA loss balloon to ($1.305) bln from ($559) mln in the year-earlier period, causing it to lower its guidance. Along with costs associated with the ramp up at its Normal, IL plant, raw material inflation and expedited freight costs are battering the company.
    • RIVN is confident in its ability to launch the R2 vehicle in Georgia with its cash on hand, which is quite sizable at $15.46 bln. However, if supply chain issues don't improve, the company will have a difficult time reining in raw material and component costs, potentially chipping away at that cash balance.
  • There also may be some concern revolving around tax credit changes that are included in the Inflation Reduction Act. Specifically, RIVN's vehicles won't qualify for EV tax credits due to lofty sticker prices that exceed $80K.
    • On the positive side, RIVN's Electric Delivery Vehicles (EDVs) may qualify for up to $40K in incentives under the new law. That would be good news for Amazon (AMZN), which ordered 100K EDVs and recently announced that it will begin rolling out these trucks across 100 cities by the end of the year.
While there's still plenty of risks and uncertainties surrounding RIVN, one item that investors can feel confident about is demand. Despite raising prices by 17% in March, the preorder rate actually accelerated in Q2 versus Q1. It was also encouraging to hear that RIVN may be able to add a second shift on the assembly line towards the end of Q3. If that plan comes to fruition, then attaining that 25K production target becomes much more likely. Overall, we expect that RIVN will ultimately emerge as a winner in an EV market that's becoming fiercely competitive, but the bumps in the road that it encountered in Q2 likely won't be the last ones on its journey.

Illumina surprises investors with rare miss and guide down (ILMN)

Illumina (ILMN -8%) shocked investors with a rare earnings miss and guide down. This supplier of genetic sequencing arrays and analysis tools is known for its reliable earnings but that was not the case this time. After five consecutive huge double-digit EPS beats, Illumina missed on EPS. Revenue was also light. ILMN also lowered FY22 guidance pretty sharply, by a good bit more than the Q2 downside, which implies pretty serious downside for 2H22.

So, what happened?

  • The good news is that sequencing activity across its markets was robust. However, the company cited macroeconomic challenges that it expects will play out over the next couple of quarters. Specifically, some customers were hurt by supply chain disruptions which delayed their lab expansions. ILMN also has a large international segment, which was hurt by FX headwinds and COVID-related shutdowns in China.
  • Another issue cited by ILMN was the decision by some customers to hold less inventory in order to conserve capital due to macro concerns. These customers have a lot of confidence in the resilience of ILMN's supply chain, so they are looking to trim back inventory levels that they hold on their own site. However, ILMN is confident that end demand continues to be very robust.
  • In terms of when these issues may get resolved, ILMN expects the factors it saw in Q2 will continue through the rest of this year. On the call, some analysts seemed nervous about potential competitive concerns driving down the 2H forecast, but ILMN sounded confident that it was more about lab expansion delays, inventory shifts, FX and Covid-related issues in China.
Overall, this quarter was a disappointment. Illumina is seen by investors as a high quality company in the genomics space. A miss and guide down, and especially such a large one, is pretty rare for them. Based on the Q&A during the call, there does seem to be concerns from analysts about competitive pressures playing a role here, but ILMN does not seem to be too concerned about that. Also, they say demand remains strong.

This stock has been in a downward trend for much of the past year, but had stabilized this summer and even started to make a modest recovery. However, this report is a setback and makes the next couple of quarters a concern.

Expensify investors are not writing off first EPS and sales misses in Q2 since going public (EXFY)

Expensify (EXFY -11%) is ticking lower today after missing Q2 earnings and sales estimates for the first time since going public last year. Not helping matters is the expense management company's decision to keep its formal guidance suspended, only reaffirming its long-term target of +25-35% revenue growth. Management chalked up its decision to an economy that is currently "nuts," making it hard to predict near-term numbers with much certainty.

  • EXFY is better positioned than some of its competitors to tackle the currently rough economy, plagued by elevated inflation and interest rates, due to its subscription-based model, as opposed to transactional or usage-based. This helped maintain double-digit revenue growth in Q2, climbing 22.3% yr/yr to $43.16 mln.
  • However, not only did revenue miss analyst expectations, but it also represented a considerable slowdown from the +183%, +61.8%, and +72.6% growth in the previous three quarters. It also fell short of EXFY's long-term goal.
  • Meanwhile, EXFY posted its lightest quarter of adjusted EPS since its IPO at just $0.08, below consensus, as gross margins fell over 300 bps qtr/qtr. A couple of factors drove the margin contraction, including increased card processing fees and contractors employed to support customer growth.
Despite the weak headline numbers, there were still some meaningfully positive standouts from Q2. EXFY grew its paid customer count of 6.8% sequentially to 754K. Although this may seem insignificant, EXFY experienced a slight dip from Q4 to Q1, partly due to the Omicron surge, so returning to positive growth makes Q1's decline less concerning. Additionally, interchange derived from the Expensify Card (EXFY's credit card) catapulted 142% yr/yr and 40% from Q1. The exceptional growth is significant since the Expensify Card adds another layer of revenue for the company, helping to pad its bottom line.

It is also worth mentioning that EXFY has not seen default rates spike amongst its customer base. Part of this is because the company tends to lend only to existing customers, helping cushion against default risk due to better insight into each customer's credit profile.

Nonetheless, these silver linings are doing little to remove the cloud over the stock today. We like EXFY's ability to attract and retain customers, offering limited services for free, creating a low barrier for new businesses to enter. However, unless EXFY can return to growing revs in-line with its long-term projections and keep its earnings from shrinking, its shares may struggle to return to all-time highs set shortly after going public.

Toast receives plenty of cheers for beat-and-raise report and prioritization of profitability (TOST)

Toast (TOST), a provider of SaaS products for the restaurant industry, is raising a glass in celebration today after reporting upside Q2 results and improving its FY22 revenue and adjusted EBITDA guidance. In a challenging environment that's beset by inflationary pressures and labor shortages, TOST's platform has become an invaluable tool for many restaurants.

The platform's ability to automate functions, such as invoice processing and bookkeeping tasks, improves a restaurant's efficiency, helping to offset the burden of rising costs. Through last month's acquisition of Sling, TOST can now also offer employee scheduling and communications capabilities, complementing its payroll, tip manager, and PayCard products. As TOST's CEO Chris Comparato proclaimed during the earnings conference call, it seems that the "Toast platform is more relevant and valuable than ever..."

This assertion is reflected in a few key metrics.

  • After adding 5,000 new restaurants last quarter, TOST took it to another level by adding more than 6,000 new restaurants in Q2 for a total of about 69,000. The company attributes this growth to a robust bookings pipeline and a low churn rate. One caveat is that Q2 is TOST's seasonally strongest quarter for new restaurant adds, so a drop-off is expected for Q3. However, the pipeline remains strong, according to Comparato.
    • As TOST's presence grows in established markets, it benefits from a flywheel effect in which customer wins build on top of each other, driven by positive word-of-mouth referrals and leads.
  • TOST describes annualized recurring revenue (ARR) as its core operational metric because it controls for short-term fluctuations in payments volume, while providing an indication of its scale. On this key measure, the company continues to impress as ARR increased by 59% to $787 mln, only slightly below last quarter's 66% increase.
  • Existing customers are consistently adding new products to their lineup. As of the end of Q2, over 60% of TOST's customers used four or more of its products, in addition to its integrated POS and payment solution. Furthermore, even a higher percentage of new customers are starting off with more than four products.
The strong growth is great to see, but what has investors especially excited is TOST's commitment to improving the bottom-line. Adjusted EBITDA for Q2 was ($33.0) mln, easily beating TOST's guidance of ($60)-($50) mln.

Better yet, the company raised its FY22 adjusted EBITDA guidance by $70 mln at the midpoint to ($160)-($140) mln. A key factor behind TOST's improved outlook is that the ramp up in hiring, especially in sales and marketing, is mainly behind the company now. The sales reps that TOST hired last year should become more productive over time, while inbound referrals continue to grow as it increases its presence in existing markets. The combination of these two items is expected lower sales and marketing expense as a percentage of revenue going forward.

The main takeaway is that TOST is ideally suited to help restaurants navigate through this difficult business climate. Concerns that momentum would slow as more people return to in-restaurant dining, potentially impacting demand for TOST's digital ordering and delivery products, have also proved to be unfounded.

Coupang's narrowing losses in Q2 cannot outshine its sales miss as shares reverse from earlier gains

After a top-line miss in Q2, Coupang (CPNG -2%), sometimes referred to as the "Amazon" (AMZN) of South Korea, is reversing its prior gains today. Still, since its March 2021 IPO, CPNG has topped revenue estimates only twice, so underwhelming sales growth is not a huge surprise.

Also, CPNG has repeatedly mentioned how sales growth is not its primary focus. Instead, the company is focused on improving operational efficiency, optimizing its supply chain, and scaling merchant services. Its narrowing losses and first quarter reaching positive adjusted EBITDA prove that this strategy is paying off nicely.

  • CPNG finally achieving positive adjusted EBITDA in Q2 is an excellent step for the e-commerce firm. It also follows CPNG reaching adjusted EBITDA profitability in its Product Commerce segment for the first time as a public company last quarter.
  • This milestone also helped fuel adjusted EPS to expand to $(0.04) from $(0.13) in the year-ago period, showing healthy progress toward operating in the black.
  • Product Commerce was the leader behind CPNG's narrowing losses, as gross margins expanded 380 bps yr/yr and 150 bps sequentially. Meanwhile, revenue in this segment jumped 27% yr/yr and 3% sequentially on a constant currency basis to $4.88 bln.
    • CPNG's share of product e-commerce growth has improved every quarter since going public, driven by increasing customer adoption and engagement across additional offerings.
    • Also, CPNG's grocery delivery service, Fresh, boasts an annual run rate of nearly $3 bln in just three years since launching. CPNG also noted that most of its active customers did not make a grocery purchase in Q2, creating plenty of further upside.
  • The laggard in Q2 was Developing Offerings, which houses CPNG's Eats business. Although revs improved 24% yr/yr (in constant currency) to $160.3 mln, this still represented a sequential decline of 7%.
    • CPNG attributed the sliding sales growth qtr/qtr to its Eats offering, which is facing a post-COVID slowdown in Korea's online food delivery business.
  • Because of Developing Offerings' lighter-than-expected sales growth, CPNG missed the mark on total sales growth in the quarter, seeing revs gain just 27% yr/yr on a constant currency basis to $5.04 bln.
  • Nevertheless, CPNG expects to achieve positive total company adjusted EBITDA for FY22, a remarkable upgrade from its prior guidance of negative $400 mln.
Overall, CPNG's Q2 results continued Q1's positive traction toward profitability. Despite today's reversal, the stock remains in a broader upward trend, appreciating roughly 100% from June 13 lows. Although shares are still down roughly 28% on the year, with CPNG continuing to emphasize operational enhancements, its momentum should remain healthy.

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