🛵 Uber The Ugly Stepchild

Good morning Investor! "You have power over your mind — not outside events. Realize this, and you will find strength."

— Marcus Aurelius

MARKET UPDATE

Shares of Lyft (LYFT) surged 4% after reporting an increase in demand for its services. While Robinhood (HOOD) surged 6% in after hours following their earnings release, and finally, chip licenser ARM (ARM) sold off over 7% in after hours trading despite beating expectations.

TODAY’S BIG HEADLINES

• Uber The Ugly Stepchild

• Airbnb’s Forecasts Overshadow Results

• Shopify’s Profits Are Set to Dry Up

• Sweden Cuts Interest Rates

INFORMATION TECHNOLOGY

Uber The Ugly Stepchild🛵

Demand Crisis: Ride-hailing platform Uber (UBER) unveiled its earnings on Wednesday morning. The results were akin to a child receiving a broccoli cake for their birthday - a damp squib. Uber fell short of profit expectations and gross bookings numbers, leaving investors as disappointed as a cat in a dog show. This is in stark contrast to its main rival, Lyft (LYFT), who managed to forecast strong earnings due to a surge in demand. It seems there are two sides to every coin.

Financial Cocktail: The food-on-demand platform served up a platter of earnings that left investors with a bitter aftertaste, much like biting into a Big Mac only to find it’s a McFish! Here’s the breakdown:

• Revenue was served with a side of smiles at $10.13 billion, marginally above expectations of $10.11 billion. Despite a 15% growth rate, no tips were left on the table this time.

• EPS really crashed the party, coming in at a loss per share of $0.32, a far cry from the anticipated positive EPS of $0.22.

• Income from operations was as cold as yesterday’s pizza, at $172 million, versus the warm and sizzling $600 million expected.

• Gross bookings also missed the mark, coming in at $37.65 billion vs the $37.93 billion expected. The company’s Q2 guidance for this metric was the cherry on the disappointment cake, at $39.5 billion vs the $40 billion expected.

• Monthly active users (MAU) was the silver lining in the cloud, with this figure growing 15% YoY, reaching 149 million.

Burden of the Courtroom: A significant factor in this profitability plunge has been legal costs. Uber recently settled a dispute in Australia with taxi drivers, forking out $178 million just last month. It is currently facing a $300 million lawsuit from more than 10,000 black-cab drivers in London, filed just last week. This, in our view, is one of the inherent risks involved with businesses such as Uber or Airbnb (ABNB).

Stock Picking Failures: Management also highlighted a $721 million net headwind from unrealized losses related to the reevaluation of its equity investments. Clearly, the company hasn’t been taking notes from Peter Lynch’s book!

REAL ESTATE & TRAVEL

Airbnb’s Forecasts Overshadow Results🌩️

Late Checkout: Airbnb (ABNB), the short-term rentals company that’s more popular than your high school prom queen, reported earnings after the market shut on Wednesday night. Despite these fantastic results, shares of Airbnb traded down over 8% in after hours trading, like a kid who’s just been told bedtime is 8pm, not 9pm. This was due to the company’s weaker-than-expected second quarter guidance. Although, the company does have a history of outperforming expectations, with Airbnb beating earnings estimates in nine out of its last ten earnings reports. Like a student who always aces a test, even when they don’t study!

Booking a Stay: Airbnb reported earnings which would make any investor as happy as a cat with its catnip, until it gets lost behind the couch, reporting its highest ever free cash flow. Below is what was reported:

• Revenue booked a stay, coming in at $2.14 billion, increasing 18% year-over-year and outpacing estimates of $2.06 billion.

• Earnings per share got a five-star review, coming in at $0.41, significantly above expectations of $0.24. This represents a staggering 127% growth rate that could even make Ant-man gasp with awe!

• Net Income almost doubled, coming in at $264 million, resulting in a net income margin of 12%, which has also doubled from last year’s 6%.

• Free Cash Flow extended its stay and came in at $1.9 billion, well above the $1.1 billion expectations.

Growth Drivers: One driver of these fantastic results, was of course, the demand for short term rentals generated by the lunar eclipse which took place earlier this year. Interestingly, Airbnb’s app downloads during the first quarter in the US increased 60%. Rising faster than a runaway birthday balloon!

Segment Performance: Airbnb’s “Nights & Experiences” segment of the business reached 133 million bookings, a roughly 9.5% increase year-over-year. Hey, who invited all these people to the party?

Time For the Ugly: The company has provided guidance for Q2 which was worse than many inestors had been expected. CEO Brian Chesky outlined three “sequential headwinds“ which will be the cause. The timing of the Easter holiday, Leap Day during the first quarter, and the impact of FX rate changes. It’s like planning a picnic and then realizing it’s going to rain, there’s a swarm of bees, and you forgot the sandwiches. The forecasts provided for revenue were a range of between $2.68 billion and $2.74 billion, while analysts were expecting the high end of the range. Additionally, the company guided for an adjusted EBITDA margin of 35%, below the 36% expected by analysts.

Silver Lining: On a more positive note however, management did state that they’re expecting accelerated growth in the third quarter, thanks to both the summer Olympics in Paris and the company’s summer travel backlog. A feeling akin to finding out your favorite show has been renewed for another season.

ECOMMERCE & RETAIL

Shopify’s Profits Are Set to Dry Up🚱

Return to Sender: Shares of ecommerce behemoth Shopify (SHOP) took a nosedive in pre-market trading on Wednesday morning, plummeting almost 20% after the company reported its quarterly earnings, forecasting doom and gloom for its profit margin.

Enter Payment Details: Shopify’s earnings have caught the market off-guard, much like a cat in a cucumber video. Let’s do a quick express checkout of what was reported, faster than you can say “free two-day shipping”:

• Shopify beat expectations on both revenue and earnings per share, reporting revenue of $1.9 billion vs $1.843 billion expected, up 23% YoY. That’s like finding an extra fry at the bottom of your takeout bag.

• Earnings per share came in at $0.20 vs $0.16 expected, representing a twentyfold increase from 1 cent in the prior year. Talk about going from zero to hero!

• Now for the ugly, the Q2 guidance. Management said it expects revenue to grow at a high-teens percentage rate, while its gross margin will drop by 50 basis points. That’s like expecting a pizza delivery and getting a salad instead.

Devil in the Details: The culprit? Shopify announced it has sold its logistics business to Flexport. A move which is meant to soothe investors’ concerns regarding rising capital expenditure, like a lullaby for a cranky baby.

MACROECONOMICS

Sweden Cuts Interest Rates✂️

The First Domino Falls: In an unexpected turn of events, the Swedish central bank (SCB) has decided to cut interest rates for the first time in eight years, highlighting a divergence in monetary policy between the US and Europe. You’re sipping on a kale smoothie while they’re indulging in a meaty, cheesy delight. The guilt is real, folks.

The Nitty-Gritty: The Riksbank (SCB) have cut interest by 25 basis points, taking rates from 4% down to 3.75%. Additionally, the bank forecasted an additional two rate cuts in the second half of 2024 if inflationary pressures remain tame in the same time period. It’s like promising to go to the gym twice a week, but only if your favorite show isn’t on.

Economic Backdrop: After Sweden’s inflation rate hit 10% back in 2022, economic data has strongly hinted that inflation is looking increasingly more likely to come back down to the 2% target rate. The focus is now going to shift from when the rate cut will happen, to how fast rates will fall and how low we will see them drop down to. Almost like watching a movie, but you’ve already seen the first half of it. “Oh, I wonder if the hero will save the day? Oh wait, I already know. Pass the popcorn.”

Headaches, and Other Side Effects: The Swedish Crown, which suffered a decline in value after the SCB’s decision was published, is currently trading at roughly the exact same level against the euro as during the global financial crisis of 08’. It’s like a bad flashback to that one embarrassing high school photo that just won’t disappear. The Riksbank has outlined its intention to move with caution in an effort to avoid breaking anything. It’s like tiptoeing around a room full of sleeping cats. A different strategy to the tech gurus down in Silicon Valley, who like to “move fast, and break things”. They’re more like a bull in a china shop.

The Contagion: Traders are widely expecting rate cuts in the coming months from the European Central Bank, the Bank of England as well as the Fed. A great analogy would be waiting for your favorite band to drop their new album. Only time will tell if this plays out as expected. One important factor to pay attention to, is that the market has historically only rallied higher after a rate cut, if a recession doesn’t take place in the following twelve months. This highlights the importance of a resilient economy.

MORE NEWS

Additional market-moving events🌎

• Banking Crisis: Billionaire Barry Sternlicht says that he’s expecting atleast one bank failure a week due to real estate loans. (Fortune)

• Climate Hero: The world’s largest carbon removal plant named “Mammoth” has been built in Hellisheiði, Iceland and is run by Swiss climate tech company Climeworks. (The Verge)

• AI-Medicine: Google’s AI wing Deepmind has announced its next generation drug discovery AI model. (Reuters)

• Chinese Timeout: Uncle Sam has prohibited its chipmakers Intel and Qualcomm from exporting their products to China. This is just one of many moves aimed at preventing China from racing ahead in the AI race. (Reuters)

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EARNINGS

This Week’s Earnings Calendar📅

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500.

Here’s how the two stocks have performed since then:

• Evolution AB: 1,235.00 SEK (📉-5.90%)

• Hims & Hers Health: $12.05 (📉-16.72%)

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