🔒 The Cybersecurity Divergence

MARKET UPDATE

Good Morning Investor! Shares of the cinematic giant Disney (DIS) were as flat as a pancake, after annoucning that Pixar will be laying off 14% of its workforce as the company scales back its content production. Meanwhile, shares of solar panel producer First Solar (FSLR) rallied almost 7%, shining brighter than a summer’s day. This came after an analyst at UBS labelled the stock an “AI“ play that will benefit massively from big tech’s spending.

TODAY’S BIG HEADLINES

• The Cybersecurity Divergence

• Home Improvements Suffer Dramatic Slowdown

• Victoria Secret Returns to its Roots

CYBERSECURITY

The Cybersecurity Divergence🔒

Palo Alto’s Party Pooper: Despite reporting a beat on both the top and bottom line, cybersecurity firm Palo Alto Networks (PANW) threw a bit of a damp squib into the investor party. The company provided a forward bookings guidance for the full fiscal year that was weaker than a cup of British tea, and a fourth-quarter revenue softer than a marshmallow. Shares of the company took a nosedive, shedding over 8% in value. Interestingly, Palo Alto has managed to exceed earnings expectations in ten out of the previous ten quarterly earnings calls. Talk about consistency!

Pelosi’s Pet Project: Here’s a fun fact to lighten the mood: Palo Alto Networks is currently owned by none other than the legendary investor, Nancy Pelosi! The former House Speaker has been buying long-dated, in-the-money calls expiring in January 2025 with a strike price of $200.

Cybersecurity’s Rollercoaster Ride: This initial reaction in share price is as common amongst cybersecurity stocks as rain is in London. Peers Fortinet (FTNT), Zscaler (ZS) suffering declines of over 8% after earnings, while Okta (OKTA) rose a whopping 25% after earnings back in late February. And the market leader Crowdstrike (CRWD)? It’s up a jaw-dropping 41% year-to-date thanks to its stellar performance. So, what went so wrong for Palo Alto Networks? Did they forget to update their antivirus?

Financial Fiasco: Palo Alto grew revenue by 15% to $2 billion, while growing earnings by 20% to $1.32 per share. This exceeded expectations of $1.25 and $1.97 billion respectively. But here comes the ugly — Billings only grew 3.4% to $2.334 billion, shy of the 3.7% expected. The equivalent to expecting a chocolate cake and getting a bran muffin. Management also provided some guidance that was as exciting as watching paint dry, forecasting earnings per share in the quarter ending July of $1.41, revenue of $2.16 billion, both of which were inline with analyst expectations. The big villain of the story is the slowing firewall network appliance sales, caused by bundling and discounting in the industry. Despite the plot twists, cybersecurity remains a very attractive sector from an investment standpoint, and grabbing any of these companies on a dip could be a savvy move.

REAL ESTATE

Home Improvements Suffer Dramatic Slowdown🔨

Hammer Time Halt: The home makeover market has been partying like it’s 1999 for the past decade, but now it seems the music has stopped. This is, of course, to be expected, given the interest rates have climbed higher than a cat stuck in a tree and consumer spending across the economy is cooling faster than a popsicle in the Arctic. The elevated mortgage rates have meant that there are fewer people buying homes, and as a result, fewer people are looking to renovate their homes with the expectation of selling anytime soon. Nothing great lasts forever, and boy, was it great! Last year, consumers spent a record-breaking $481 billion on home improvements, which is expected to drop down to a more reasonable $448 billion this year.

Retail Rumble: This month, we’ve been treated to earnings results from both Home Depot (HD) and Lowe’s (LOW), which have provided as much drama as a soap opera. Lowe’s reported a beat on both the top and bottom line, yet despite this, both earnings and sales were down year-over-year. Meanwhile, Home Depot missed on revenue expectations. As a result of this plot twist, both stocks have underperformed the market this year with Home Depot and Lowe’s being down 3.45% and up 1.72% respectively. It’s gotten so bad that same-store sales have been in a downward trajectory for six consecutive quarters for both retailers, like a DIY project gone wrong.

Decking the Halls: In a plot twist worthy of a Hollywood movie, deck maker Trex (TREX) is actually investing significant sums of capital into expanding its infrastructure through the construction of a new $450 million factory in Arkansas. The deck maker is clearly anticipating that when rates do inevitably begin to decline, the $31.8 trillion saved up in home equity will be refinanced and plowed into home improvements. It’s like they’re betting on a home improvement renaissance.

CONSUMER DISCRETIONARIES

Victoria’s Secret Returns to its Roots👙

Victoria’s Secret’s Vanishing Act: The famed sexy underwear maker Victoria’s Secret (VSCO) is trying to turn back time faster than Cher, by bringing back its decades-old fashion show. And boy, could the company use a bit of nostalgia after its recent failed buisness pivot, which earned the company the title of being “too woke”. Shares of the lacy retailer are currently down 24% year-to-date, and a whopping 51% since its high back in August of 2021. It’s like a clearance sale nobody asked for.

Memory Lane or Dead End?: For decades, the company has been branded as a sexist brand, more out of touch than your grandpa trying to use a smartphone. The company thus began to shift itself into a more feminist-oriented and inclusive brand, starting with the placement of its first-ever female CEO, who has since stepped down. Now, the company seems to be grasping at straws to find any means necessary to rescue the dying brand, turning to its famed fashion show as if it were hidden behind a “break the glass in case of an emergency” display case.

The Comeback Kid?: The million-dollar question remains, can the fashion show spark a turnaround for the once-beloved lingerie company? According to a rep from inside the company, the fashion show’s return will be a much more inclusive affair, despite the company having claimed that “sexy is back”. It’s like saying you’re on a diet while eating a donut. There is a clear indication that the company is positioning themselves more towards their original male-dominated audience after the stock had its worst day ever in March, plunging 26% due to disappointing holiday sales. The industry at large has also suffered declining sales for four consecutive quarters, leading many to believe that this event could have as much impact as a whisper in a hurricane.

The Underwear Underdogs: Victoria’s Secret’s recent performance has been as shaky as a pair of high heels on a cobblestone street, exacerbated by its competitors who have managed to steal market share without taking such a political stance. American Eagle’s (AEO) and Urban Outfitters (URBN) are two such brands. But here’s the kicker: who’s to say that the angels can even spark a turnaround given the stiff competition the company faces? Almost all of its major competitors have launched a show of their own, often with a more modern and progressive approach. It’s like showing up to a costume party, only to find out everyone else got the memo to dress casual!

MORE NEWS

Additional market-moving events🌎

On Your Feet, Lose Your Seat: Airbus are set to profit massively from the misfortune of rival aircraft manufacturer Boeing, as Saudi Arabia are set to place a $15 billion order for its jets. (Telegraph)

Greed is Good: Ivan Boesky, the infamous insider trader who inspired the character of Gordon Gekko from the film “Wall Street” and coined the term “greed is good“, died yesterday at the age of 87. (nytimes)

Price Wars: Retailer Target have launched a war on inflation, aiming to reduce prices on 5,000 of its products. (Fortune)

The Flippenning: Morgan Stanley's Mike Wilson known as “Wall Street’s biggest bear“ has just flipped and placed a 20% upside price target on the market. (YF)

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