Todays Action, May 10th, 2022
Upstart (UPST) dropped a cool 60% today to $31 on weak guidance. From over $300 to $31 - UPST experienced a -90% drop thank-you-very-much - it has to be up 10x just to re-enter the $300 club. What is interesting is that our systems, prior to today, were showing 2022 EPS estimates of $1.84 and over $3.00 for 2023. UPST is noting that, despite being approved for a loan, some borrowers are balking at higher rates and more importantly delinquencies are starting to tick up. This is starting to feel like a recession to us. UPST earned $0.61 in the quarter (non GAAP ex-stock comp), which had beat expectations of $0.54.
As we noted this morning, the afternoon trading today was more significant than the strong opening. The weak afternoon action is a sign that we are not near the bottom - people are still de-risking. You can manage risk proactively or reactively and this market is seeing reactive risk management selling.
Peleton (PTON), thrown out of the $100 club for not conforming to profitable business practices is trading down -14% to $12. The company just reported and new management said that PTON is "thinly capitalized". We think of PTON as 2 businesses that are tough to separate: bike manufacturing and monthly exercise subscribers. The monthly recurring revenue business should be a good one, and they reported 7 million paying subs. PTON has 2 tiers, the $40 monthly tier and the $12 phone-based subscription. Assuming 3/4 are lower-tier subs, the company makes about $19 a sub on average and at a 30% profit margin, PTON's video business theoretically could throw off $500 million in annual cash, which would be worth $5 billion. PTON has a good balance sheet, but you can bet that they will be borrowing a billion or diluting the stock, so either way, it appears that PTON's video business supports the $12 stock price. Unfortunately, the bike manufacturing part of PTON looks like a disaster. They need lots of marketing to sell one of those, and the market may be over-saturated. They cut the price of their bike $400 to $1495 - with the economy tightening and the pandemic over, how many people are gonna be shelling out $1,495 for a bike?
Regis (RGS) the franchisor of haircutting salons is taking a negative -37% haircut on the day to a sublime $0.78. Last year when the stock dropped below $2, we had a call with management: our impression at the time was - management lacking, board of directors had made poor decisions, too much debt for it to be of interest anywhere above $0.25 and it looked like the company was going to be issuing shares at $0.50 (pathetic for a $2 stock). The new CEO appears ok, but they paid big bucks to get then get rid of the old CEO, which reminds us of McKayla Maroney's self-assessed performance review. RGIS - not impressed:
ARKK trading down big again to $39. ARKK is now below where it was four years ago in May 2018. That's hard to do in such a long and healthy bull market.
This morning we talked about Dr. Copper. Check out our recent post on copper.
Another former member of the $300 club is still in its swan dive: Coinbase reported a stunning 27% y-o-y revenue drop after the close and GAAP EPS loss of $(1.98). To achieve these wonderful results, going from $1.1 billion in EBITDA to $20 million quarterly EBITDA, COIN shelled out $352 million in stock based compensation. Imagine what COIN executives would have been paid had they delivered a flat quarter. As recently as April 20th, COIN was trading at $150, now its trading at $64 in the after hours. COIN also filed a shelf registration statement just in case they need to raise capital $150 lower than they could have just recently. Note that the company's market cap is below the cash on the balance sheet, so it appears to have some near term fundamental support at these levels.