Currently Obsessed With...Major Moves in the Market.

COMMENTARY FOR WEEK OF July 23, 2018


Facebook stock took a dive last week from the high board. Did you shake your head, or did you buy?

When prices go down in the department store it’s called a sale. When prices go down in the stock market people get scared. Why? Remember, when a stock price declines that means you can buy it for a lower price. So, the stock is on sale. That’s what Wall Street nerds call a buying opportunity.  Facebook (FB)stock was $174.89 at the close on Friday.

#FBDontKillMyVibe

Stocks finished higher for the week as earnings continued to roll in... some shellacked in patent leather and others dipped in glitter. Any combination of the two is always a good thing. Trade news chilled the market as President Trump and European Union President Juncker met and everything seemed Gucci.

The banks continued to report strong earnings and so did tech. But there’s always one in the bunch bringing the whole squad down. Let’s look at who was killin’ everyone’s vibe.

LET'S BE CLEAR...

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Overall earnings reports have been pretty positive. Banks were beginning to outperform tech on Tuesday and if the two sectors work together, they could lift the S&P 500 to its goal of hitting 2850 (it ended the week at 2819).

Google (GOOGL) dropped jewels Monday night as they released their earnings for the second quarter. They reported Ex-TAC of $26.2 billion vs. the Wall Street average of $25.6 billion. Is that like a Tic Tac? Nope. TAC stands for Traffic Acquisition Cost. Internet search companies often pay affiliates to direct traffic to their site. Sometimes techs will talk about earnings Ex-TAC to give investors a sense of what they earned outside of the cost to acquire the traffic. Google’s Earnings Per Share (EPS) was $11.75 vs. the Wall Street average of $9.70 which is all good news.

Microsoft (MSFT) also reported very strong earnings. However, Netflix , not so much. The N underwhelmed fans on expectations for new subscriptions.Amazon (AMZN) reported on Thursday night and the news was solid. While their revenue was so-so, they were definitely profitable. 

The biggest news in tech this week was Facebook . Let’s start with the numbers. The actual earnings press release wasn’t bad. Overall revenue was up 40% to $13.2 billion. There are 1.5 billion peeps using FB everyday. They also introduced a new metric this quarter, reporting on how many people use at least one of their services including: FacebookInstagramWhatsApp, and Messenger . There are an impressive 2.5 billion individual people (rather than active accounts) using at least one app per month. Things got real on the earnings call, though. Mark Zuckerberg, Sheryl Sandberg and CFO, Dan Wehner were in high spirits on the call, though we aren’t sure why. While Mark and the crew continued to throw out a bunch of seemingly impressive numbers, they followed them with all of the problems FB is up against:

  1. They have had to spend a lot of money on security and safety, which is taking away from revenue;

  2. They will continue to spend money on product innovation, which will take away from revenue;

  3. People are all about their social media “stories,” especially on IG, which does’t translate into money for the brand and ultimately doesn’t help revenue.

FB’s executive leadership basically gave us 13 reasons why we shouldn’t get too excited about its revenue over the next six quarters.  Facebook stock took an Olympic dive to -25% before a tiny rebound to a 15-18% loss on Thursday.Facebook’s epic fail didn’t help the S&P 500 at all but it absolutely contributed to the NASDAQ (tech index) finishing the week in the negative.

PBDs (Pretty Big Deals)

  • Amazon (AMZN) – Beyond decent earnings, the online giant sold over 5 million items on its Prime Day last week. It pushed private label lines as well as some of the big names. With over 60 private label names, Amazon is on its way to becoming the largest apparel retailer by next year. But lux is not their forte. The online retailer does best with prices in the lower end of the market. They will have to figure out how to work with lux brands as many are concerned about the potential of counterfeit on the grey market.

  • Lululemon (LuLu) – Calvin McDonald, formerly of the Sephora inner circle, will be running things at Lululemon as CEO. He will be replacing Laurent Potdevin who recently went on a permanent vacation after some #MeToo-like behavior came to light in February. 

  • Under Armour (UA) – Under Armour hasn’t been hot lately as it experienced a few years of performance that quite honestly sucked. But they are acting brand new this year. They have been grinding and are up over 40% since the beginning of 2018. Don’t pop bottles just yet, the stock is still not where is was when it was on top, but we see you UA. 

  • Verizon (VZ) – may be considering an alliance with either Google (GOOGL) or Apple (AAPL) to provide a live TV service. More evidence that the era of cable TV may be on its last leg. 

The Lux List

Luis Vuitton (LVMH) – By now it should be no surprise how much we love LVMH . The conglomerate literally has everything needed to curate a well-luxed life. Earnings were released on Tuesday and the news was money, literally.

As always, the earnings call was led by LVMH’s Director of Financial Communications, Chris Hollis and CFO Jean-Jacques Guiony...we love those guys. Here are the highlights:

  • Revenue and profits up double digits across multiple operations.

  • Asia and U.S. continue to drive growth – duh!

  • Wines and Spirits division is toasting to a great 1st half of the year.

  • Bvlgari and watch brands are killin it’.

  • Sephora is kicking butt and taking names in revenue growth...but of course they are!!!

  • Great momentum at Louis Vuitton

  • New creative talent at several fashion brands including Virgil Abloh as Men’s creative Director at Louis Vuitton and Kim Jones as Men’s Creative Director of Dior Couture

  • Successful Rimowa calabo with Supreme

  • Fendi, Marc Jacobs, Kenzo all having great first year results

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Squad Goals

We Ask and Our Squad Answers
Our squad is comprised of ten Wall Street experts from the top asset management firms. Each week we ask them a question, and they poll in!

Do you think that Facebook stock can weather the storm of all the headwinds mentioned on the earnings call?

50% say YES
50% say FB will experience lower revenues in the near future because of the challenges mentioned

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Agree with the squad? Tell us on Twitter #SavvySquadPoll

Weekly Moves

Heads Up

Marlon Bovell