Market Snapshot
| Dow | 40345.41 | -410.34 | (-1.01%) | | Nasdaq | 16690.81 | -436.83 | (-2.55%) | | SP 500 | 5408.42 | -94.99 | (-1.73%) | | 10-yr Note | +2/32 | 3.71 |
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| | NYSE | Adv 625 | Dec 3102 | Vol 931 mln | | Nasdaq | Adv 1089 | Dec 3123 | Vol 5.5 bln |
Industry Watch
| Strong: -- |
| | Weak: Information Technology, Communication Services, Consumer Discretionary |
Moving the Market
-- Digesting the August jobs report, which was softer than expected
-- Weakness in semiconductor space weighing on S&P 500, Nasdaq
-- Treasury yields volatile after jobs data
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Closing Summary
06-Sep-24 16:30 ET
Dow -410.34 at 40345.41, Nasdaq -436.83 at 16690.81, S&P -94.99 at 5408.42
[BRIEFING.COM] The stock market closed the first week of September on a downbeat note. The major indices registered sizable declines, settling near their lows of the session. The Dow Jones Industrial Average logged a 1.0% decline, the S&P 500 settled 1.7% lower, and the Nasdaq Composite fell 2.6%.
Participants were reacting to this morning's release of the August Employment Situation report.
Hiring activity was lighter than expected in August and there were downward revisions to July and June that left employment 86,000 lower for those months than previously reported. Also, the unemployment rate declined slightly and average hourly earnings increased a stronger than expected 0.4% month-over-month, which should be helpful for spending.
The report was weak enough to fuel more selling on this downbeat week for equities, but not weak enough to convince the market that the FOMC will cut rates by 50 basis points at the September 17-18 FOMC meeting. The fed funds futures market now sees a 29.0% probability of a 50 basis points cut this month, down from 41.0% in front of the data, according to the CME FedWatch Tool.
The negative bias also stemmed from weakness in the semiconductor space. The PHLX Semiconductor Index (SOX) dropped 4.5% after Broadcom's (AVGO 136.99, -15.82, -10.4%) relatively disappointing guidance. Other mega caps also traded lower, leading the Vanguard Mega Cap Growth ETF (MGK) to fall 2.1%.
The 10-yr note yield settled two basis points lower today, and 20 basis points lower this week, at 3.71%. The 2-yr note yield settled 10 basis points lower today, and 28 basis points lower this week, at 3.65%.
- S&P 500: +13.4% YTD
- Nasdaq Composite: +11.2% YTD
- Dow Jones Industrial Average: +7.1% YTD
- S&P Midcap 400: +5.7% YTD
- Russell 2000: +3.2% YTD
Reviewing today's economic data:
- August Nonfarm Payrolls 142K (Briefing.com consensus 165K); Prior was revised to 89K from 114K, August Nonfarm Private Payrolls 118K (Briefing.com consensus 142K); Prior was revised to 74K from 97K, August Avg. Hourly Earnings 0.4% (Briefing.com consensus 0.3%); Prior 0.2%, August Unemployment Rate 4.2% (Briefing.com consensus 4.2%); Prior 4.3%, August Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.2
- The key takeaway from the report is that it was not as good as hoped, but it also wasn't as bad as feared. It was a report, however, that meshes with the understanding that there is a slowdown in hiring activity that should translate into a slowdown for the economy.
Looking ahead to next week, the August Consumer Price Index will be released on Wednesday, the August Producer Price Index will be released on Thursday, and the preliminary September University of Michigan Consumer Sentiment survey will be released on Friday.
Treasury yields settle sharply lower on the week
06-Sep-24 15:35 ET
Dow -375.56 at 40380.19, Nasdaq -389.56 at 16738.08, S&P -87.21 at 5416.20
[BRIEFING.COM] The market is holding steady in front of the close, sitting on solid losses.
The 10-yr note yield settled two basis points lower today, and 20 basis points lower this week, at 3.71%. The 2-yr note yield settled 10 basis points lower today, and 28 basis points lower this week, at 3.65%.
Looking ahead to next week, the August Consumer Price Index will be released on Wednesday, the August Producer Price Index will be released on Thursday, and the preliminary September University of Michigan Consumer Sentiment survey will be released on Friday.
Stocks remain at session lows
06-Sep-24 15:05 ET
Dow -337.89 at 40417.86, Nasdaq -381.96 at 16745.68, S&P -85.20 at 5418.21
[BRIEFING.COM] There wasn't much up or down movement at the index level in recent trading.
All 11 S&P 500 sectors show losses ranging from 0.1% (consumer staples) to 2.5% (communication services). Seven sectors are down by more than 1.0%, reflecting broad selling interest.
Separately, growth stocks are lagging compared to value stocks. The Russell 3000 Growth Index is down 2.3% and the Russell 3000 Value Index is down 1.1%.
Super Micro Computer slides on downgrade, Dollar General pares recent losses in S&P 500 action
06-Sep-24 14:30 ET
Dow -408.75 at 40347.00, Nasdaq -442.47 at 16685.17, S&P -96.52 at 5406.89
[BRIEFING.COM] The S&P 500 (-1.75%) is in second place on Friday afternoon, little changed over the last half hour.
Elsewhere, S&P 500 constituents Albemarle (ALB 76.06, -6.54, -7.92%), Super Micro Computer (SMCI 388.04, -26.56, -6.41%), and Wells Fargo (WFC 53.71, -3.15, -5.54%) pepper the bottom of the standings. Specialty chemical stocks including ALB are weaker today, SMCI caught a downgrade to Neutral out of JPMorgan, and WFC gaps below the 200-day MA (54.80) following a cautious Evercore ISI note.
Meanwhile, Dollar General (DG 82.19, +1.78, +2.21%) is narrowly atop the average, paring hefty declines from the prior week.
Gold flips from weekly gains to losses on Friday
06-Sep-24 14:00 ET
Dow -359.54 at 40396.21, Nasdaq -415.03 at 16712.61, S&P -89.00 at 5414.41
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-2.42%) is down now about 415 points, a hair lower compared to the last half hour.
Gold futures settled $18.50 lower (-0.7%) to $2,524.50/oz, flipping gains to losses to end -0.1% lower on the week, as investors gauged this morning's mixed August Employment Situation report.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $101.15.
Braze plunging lower as slowing growth and steadfast spending plans spark selloff (BRZE)
Despite topping Q2 EPS and revenue expectations and achieving its first profitable quarter on a non-GAAP net income basis in its history, customer engagement and marketing platform provider Braze (BRZE) is crashing lower. Similar to competitor Sprinklr (CXM), which released its Q2 earnings report on Tuesday, BRZE issued underwhelming Q3 and FY25 guidance, amplifying concerns that the same macro-related headwinds that are afflicting CXM and other peers, like Salesforce (CRM) and HubSpot (HUBS), are taking a greater toll on the company.
- The root issue that's sending BRZE spiraling lower revolves around slowing growth and the company's plan to keep its foot on the gas in terms of investing in its brand and business. In Q2, revenue growth slowed to 26.4% from the low-30% level that BRZE had generated over the past five quarters. Further, the midpoint of its Q3 revenue guidance of $147.5-$148.5 mln indicates that growth will slow further, dipping just below the 20% mark.
- Amid this downtrend in its growth rate, BRZE has no intention of scaling back its operations and playing defense. To the contrary, CEO Bill Magnuson commented during the earnings call that out of difficult environments arise opportunities to create competitive moats and long-term differentiation from its competitors. Accordingly, the company will continue to invest in its global teams and products, while improving its system performance.
- With growth concerns in general mounting, BRZE's more ambitious spending plans are likely spooking investors. While the company did lift its FY25 EPS guidance higher to $0.06-$0.07 from its prior outlook of $(0.10)-$(0.06), most of that increase simply incorporates the EPS upside that BRZE posted in Q2.
- By no means, though, is BRZE's business falling off a cliff, as the stock's plunge today might suggest. In particular, the company is having success on the enterprise side, as its $500,000+ ARR customers increased by 28% yr/yr to 222. A significant factor driving the large customer increase is the strong upsell activity as customers adopt more channels, deploy more use cases, and add new business segments and geographies to the mix.
- From a broader perspective, BRZE is well-positioned to continue capitalizing on an ongoing vendor replacement cycle and the consolidation of customer management tools among enterprises. As new AI advancements emerge, the company believes that corporations will place even greater emphasis on customer engagement tools as they look to capitalize on those AI technologies.
The main takeaway is that BRZE delivered solid Q2 results, but with investors shifting to a "sell first, ask questions later" mindset, the company's underwhelming guidance and slowing growth has sparked a nasty selloff.
Smartsheet maintains healthy enterprise customer growth in Q2; sends shares to 52-week highs (SMAR)
Lifted by sustained growth within the enterprise software industry, Smartsheet (SMAR +6%) registered healthy numbers in Q2 (Jul), delivering another earnings beat in what has become commonplace for the cloud-based work management software developer. As has been the case for several periods, enterprise software spending has been lumpy. For instance, Salesforce (CRM) issued soft quarterly revenue guidance recently, as did Asana (ASAN), reflecting the wobbly spending environment. On the flip side, Monday.com (MNDY) recorded a solid beat-and-raise in Q2 (Jun), pointing to continuous growth from enterprises.
This mixed climate added to the uncertainty ahead of SMAR's Q2 report yesterday after the close, leading to a huge sigh of relief following its energetic results, pushing shares to fresh 52-week highs today.
- Robust enterprise demand manifested in healthy large customer expansion in Q2, touting a 50% jump yr/yr in customers with annualized recurring revenue (ARR) over $1.0 mln to 77, SMAR's largest quarterly expansion ever. In total, ARR jumped 17% higher yr/yr to $1.093 bln. On the backs of sustained enterprise spending, SMAR delivered adjusted EPS of $0.44, a 175% improvement yr/yr, and revs of $276.41 mln, a 17% increase.
- During the quarter, SMAR instituted its new pricing and packaging model. Since launching it in June, SMAR has observed thousands of new customers transacting on the model, driving high engagement and additional provisional members. SMAR remains on track to migrate its existing customer base to the new model in January, which it expects will ultimately bring more users and greater ARR.
- SMAR is also extracting gains from generative AI, commenting that the technology has provided a key differentiator for its business. During Q2, SMAR enjoyed a nearly 50% bump qtr/qtr in the number of users utilizing its AI tools. The healthy adoption rates are already benefiting SMAR's customer base, noting that around 47,000 users have saved an estimated 1.0 mln hours due to AI automation. The company anticipates this momentum will persist, projecting a meaningful uptick in customer adoption as it expands its assortment of AI tools.
- With the wind at its back, SMAR felt comfortable increasing its FY25 (Jan) adjusted EPS guidance to $1.36-1.39 from $1.22-1.29. However, it kept its FY25 revenue guidance unchanged at $1.116-1.121 bln. The root cause was throttled service revenue growth. Management noted that with a higher percentage of services delivered by its partners, it projected FY25 services to comprise 4.5% of total revs, down from its previous forecast of 5.0%.
SMAR kept the good times rolling in Q2, maintaining excellent enterprise growth despite operating in a shaky spending climate. Gen AI continues to resonate with customers and may remain SMAR's ticket to return to accelerating revenue growth over the long term. While the heightened uncertainty embedded in the macroeconomic environment can create turbulence, SMAR's consistency over the past couple of quarters showcases a competitive edge and the capacity to remain a winner in the enterprise software market.
Guidewire Software continues to defy tough IT spending climate as cloud migrations accelerate (GWRE)
After delivering another impressive earnings report for 4Q24 in which Guidewire Software (GWRE) exceeded top and bottom-line estimates and guided Q3 and FY25 revenue well above expectations, the company further distinguished itself as a clear winner within the enterprise software space. Coming off the better-than-expected results in Q3, the back-to-back strong performances have catapulted shares of this insurance software provider to all-time highs.
- Many leading enterprise software companies, including Salesforce (CRM), Palo Alto Networks (PANW), Oracle (ORCL), and ServiceNow (NOW), have recently commented that heightened deal scrutiny continues to characterize the IT spending environment. GWRE, however, has been mostly immune to the macro-related headwinds due to combination of industry and company-specific factors.
- Working in GWRE's favor is the fact that many companies within the property and casualty (P&C) insurance industry are still using inefficient and out-of-date systems, particularly in their back-office operations. In this current business climate, companies are looking to drive stronger productivity and to achieve gains through better efficiencies and agility, putting GWRE's products in the sweet spot for modernization programs in the P&C industry.
- From a company-specific standpoint, GWRE's transition from an on-premise software company to a cloud software company is now paying major dividends after it navigated through a more turbulent period earlier this year and in 2023. During the earnings call, GWRE stated that it continues to see an acceleration in the number of conversions around cloud transitions and modernizations, which is reflected across its financial metrics.
- Most notably, total Cloud ARR grew by 28% yr/yr and now represents 66% of GWRE's total ARR. During the quarter, GWRE closed 16 more cloud deals, pushing the year-to-date total to 42 cloud deals.
- This cloud migration is having a ripple effect across GWRE's financials, driving both margins and profits higher, as the greater scale and investments made in the cloud business lead to improved efficiencies. Overall gross margin expanded by 8 percentage points yr/yr to 63% and GWRE is targeting gross margin of approximately 65% for FY25. In turn, the company is forecasting FY25 non-GAAP operating income of $157-$171 mln, representing estimated yr/yr growth of 65% at the midpoint of the guidance range.
The main takeaway is that GWRE continues to buck the unfavorable IT spending trends, and its outlook remains bright, as illustrated by its FY25 ARR guidance of $995 mln to $1.005 bln (+16% at the midpoint). There are few, if any, blemishes in the Q4 earnings report, but we would point out that the stock is quite rich with a P/S just north of 12x, so GWRE will have little room for error moving forward.
DocuSign higher as large EPS beat and big margins offset somewhat disappointing billings (DOCU)
DocuSign (DOCU +4%) is trading higher following its Q2 (Jul) report last night. The e-signature/contract creation giant reported a huge beat on EPS as margins were quite strong. Revenue rose 7.0% yr/yr to $736 mln, which was also better than analyst expectations. DOCU also guided to upside revenue for Q3 (Oct). DOCU said its Q2 results continue to show stabilization in its core business as it saw yr/yr improvements in usage, utilization and customer growth.
- Billings is a closely watched number. Billings in Q2 was a bit of a disappointment as they rose just 2% yr/yr to $724.5 mln, at the high end of $715-725 mln prior guidance. DOCU is known for lowballing billings guidance then reporting nice beats. In fairness, DOCU had warned investors that Q2 was going to be its lowest quarterly growth rate for billings in FY25 because it was lapping last year's strong on-time renewal performance. However, this was a bit of a letdown and the Q3 guidance at $710-720 mln was not super great either. But again, DOCU tends to be conservative with billings guidance, so we are not as worried about that.
- DOCU achieved a milestone in Q2 as it shipped the first version of its Intelligent Agreement Management platform. DOCU described this as its most important launch in recent history. The Docusign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products (eSignature, CLM) with new platform services, including Docusign Maestro, its new agreement workflow builder which automates the creation of agreements without using code.
- IAM addresses the massive $2 trillion in lost economic value each year experienced by organizations when managing agreements. In Q2, IAM launched to small and mid-sized commercial customers in the US, Canada, and Australia. It's very early days, but initial feedback is promising. Thus far, IAM customer win rates are higher, average deal sizes are larger, and time to close with customers is faster.
- Non-GAAP operating margin was a bright spot at an all-time record of 32.2%, nicely above the 27-28% prior guidance and well ahead of 24.7% last year. However, approximately 150 basis points was attributable to one-time items associated with professional fees. Nevertheless, margins were impressive in Q2, especially as DOCU was also launching IAM. The upside margins played a key role in the strong EPS upside.
Overall, we think the large EPS beat, big margins and revenue guidance is offsetting a somewhat disappointing billings number and billings guidance. We also think investors are reacting positively to what sounds like a successful IAM launch. Nevertheless, the stock has been rangebound in the $50-60 area since early February as there does not seem to be a lot of conviction either way. We suspect investors want to see DOCU not just stabilize but get back on a better growth trajectory.
Broadcom down on a soft Q4 sales forecast; AI revs still buoyant while non-AI demand recovers (AVGO)
The demand for AI continued to flourish in Q3 (Jul), supporting Broadcom's (AVGO -10%) increased FY24 (Oct) AI revenue outlook. However, non-AI semiconductor revenue remained a drag, dampening the company's overall sales forecast for Q4 and causing it to fall shy of analyst estimates. As a result, shares of the semiconductor and software giant are enduring hefty selling pressure today.
AVGO's softer-than-expected Q4 revenue guide of approximately $14.0 bln, which still represented an over +50% improvement yr/yr, is clouding an otherwise solid quarterly report. Alongside accelerating AI demand, which lifted AVGO's FY24 AI revenue guidance by $1.0 bln to $12.0 bln, VMware continues producing tremendous benefits. Meanwhile, and perhaps most importantly, CEO Hock Tan commented that non-AI product revs have stabilized, with recoveries across some businesses already underway while others are expected to recover in 2025.
- AVGO's earnings and revenue figures in Q3 remained sound, expanding its bottom line by nearly 18% yr/yr to $1.24 per share (AVGO implemented a 10-for-1 stock split during the quarter) on a 47% jump in revenue to $13.07 bln, an acceleration from the +43% posted in Q2 (Apr) and +34% in Q1 (Jan).
- VMware continued to shine brightly, contributing $3.8 bln to AVGO's $5.8 bln software revs in the quarter, a 200% pop yr/yr. Bookings accelerated, translating to a 32% improvement in annualized booking value compared to the previous quarter. Meanwhile, AVGO is driving down costs in VMware, putting it on track to achieve or exceed its initial adjusted EBITDA target of $8.5 bln by next year.
- AI demand held firm, illuminated by a 43% increase in networking revs to over $7.0 bln. AVGO remarked that hyperscalers (Amazon, Microsoft, Google, etc.) continued to pour capital into the technology, purchasing AI networking and custom AI accelerator products, which grew by 3.5x yr/yr. Furthermore, Ethernet switching products saw an over 4.0x increase while PCI Express Switches more than doubled.
- However, non-AI products within AVGO's networking division languished, tumbling by 41% yr/yr. However, non-AI networking revs climbed by 17% sequentially, underscoring strong recovery dynamics. AVGO anticipates further sequential growth in Q4, keeping the yr/yr decline to a more moderate 30%.
- Similar characteristics were displayed across AVGO's other businesses. In server storage, revenue fell by 25% yr/yr but inched 5% higher from Q2 and is expected to sustain this momentum in Q4. In wireless, where Apple (AAPL) comprises most of the revenue, sales crawled only 1% higher yr/yr but increased by 6% sequentially. With new iPhones prepared to launch during Q4, AVGO anticipates a 20% leap in revs sequentially next quarter. Finally, broadband remained weak, plunging by 49% yr/yr. However, AVGO sees a recovery unfolding in 2025.
AVGO's downbeat Q4 revenue projection is taking center stage today, igniting a meaningful pullback. However, items taking a backseat to the Q4 guidance were encouraging. Non-AI revenue is already recovering, and at the same time, AI revenue is snowballing, pointing to outsized strength over a longer timeframe.
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