ECB Hikes, Markets Respond | The Daily Peel | 7/22/22

 

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Market Snapshot

Futures yesterday were mixed as the ECB decided to hike rates for the first time in a very, very long time. WTI Crude softened, shedding 3% before the opening bell and closing around $96. ETH is still hovering around $1450, and BTC is in a trading range of around $23k.

Earnings reports keep rolling in. The Nasdaq kept its streak alive, climbing more than a percentage point three days in a row now.

Markets were mixed in the morning but had a strong closing push in the afternoon. The DJIA was up 0.51%, the S&P was up 0.99%, and the Nasdaq climbed 1.36% when all was said and done.

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Let’s get into it.


Banana Bits

  • The ECB raised rates by a half percentage point for its first hike in more than a decade
  • Becoming a CFA charterholder can set you apart in your career, and we’ve found the fastest way to get there
  • The yield curve is still inverted, and this leading indicator has preceded every recession for the last 50 years
  • With sh*tcoins now being offered in retirement accounts, it begs the question: just because you can, should you?
  • Your work inbox is probably a dumpster fire. Here are some ways to manage it

Banana Brain Teaser

Yesterday — Two people were born at the same moment, but they don’t have the same birthday. How?

They were born in different time zones.

Today — It’s 30 days of trial access to our WSO Company Database for the first fifteen correct respondents. Let’s go, Apes!

What never asks questions but is often answered?

Shoot us your guesses at [email protected] with the subject line "Banana Brain Teaser" or simply click here to reply!


Macro Monkey Says

A Delicate Balance — Unless you live under a rock, you know that gas prices are way, way up.

Even if the average price per gallon has pulled back by about 40 cents a gallon in the last few weeks, that’s only a four-buck saving on a full tank for your average sedan.

Gas prices have risen from about $2.15 in November of 2020 all the way up to above a fiver per gallon and now hover around $4.45.

In this process, refiners have raked in historic levels of cash flow. We are talking the level of Usher and his crew in the movie Hustlers.

Margins are at their highest levels, maybe ever. But have they peaked already?

Expensive gas kicks the middle class and the working poor in the States right in the wallet. Now, consider driving in Europe, where gas can cost as much as seven bucks a gallon or more depending on where you live and the taxes levied on your fillup.

It’s happening everywhere. It incentivizes people to, well, drive significantly less. Even during what we call the busy summer driving season, demand for gas has softened about 10% compared to last year. This is a substantial pullback; factor in an inbound recession, and some of these energy names are already going to see a major slowdown.

When you have a public relations and image management problem, it’s hard to gloat about a fabulous quarter for some of these names.

To combat pressures from the current White House, refiners might invest their cash into clean diesel projects or solar and wind complementary businesses. It’s hard when everyone hates you because you’re doing well.


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What's Ripe

Tesla ($TSLA) — Apparently, Apes, Tesla can do no wrong. They significantly topped bottom line estimates in their earnings call this go ‘round.

They’re focused on increasing battery production. That’s more or less their limiting factor when it comes to producing vehicles. After lots of big talk, shares of $TSLA led the S&P, popping 9.78% yesterday.

Amazon ($AMZN) — Is it the summer of 2021 or what? Here we are, writing about some of our old tech faves again.

While Amazon’s stock didn’t pop 10% like Tesla’s, something significant did happen. They’re pushing to acquire a primary care healthcare company, which inevitably could give new meaning to the idea of Amazon Prime.

Shares of $AMZN were up 1.52%.


What's Rotten

United Airlines ($UAL) — Despite huge demand, United Airlines missed on the top and bottom lines this quarter.

Higher costs and capacity cuts really hampered the travel name, which basically anchored the entire sector, pulling down tons of travel names that I would have thought were having a fantastic summer of 2022.

On their crappy earnings, shares of $UAL lost 10.17%.

AT&T ($T) — When it comes to broadband service and mobile subs, the telecom giant had a good quarter. It ended up beating on both the top and bottom line for its earnings call.

However, it significantly chopped its free cash flow outlook for the remainder of the year, and it also cut its dividend. This sent shares tumbling. On a less than palatable earnings call for the Street, shares of $T lost 7.62%.


Thought Banana

SaaS Headwinds — You all know me: I love to bash pre-profitability software-as-a-service companies, particularly as they have weighed on the Nasdaq this calendar year. Some of these businesses are as insane as penguin JPEGs or sh*tcoins going to the moon.

In the last six months, we’ve watched a ton of these names absolutely crater, shedding between 30 and 60% of their value. If you want to justify the Nasdaq’s dump down to 11k, look no further than this industry.

But some SaaS offerings are different. They meet a set of customers’ needs, accomplishing a series of valid use cases that have legit value in today’s business environment.

The issue for these companies is that if you’re not at scale and bringing in revenue, it’s hard to remain afloat in a fiscal environment not beneficial for growth.

Recently, the founder and CEO of Salesroom, Roy Solomon, said something that I interpret to be somewhat prescient: typically, these SaaS names have been successful in raising funds almost annually. Those days are over. That well is dry.

Expecting to burn through cash via talent acquisition or developmental investments is not doable anymore. You need to better conserve cash, operate efficiently, and deliver value to the market, all the while expecting to only have 24 months of runway available at any point in time.

In a tough macroeconomic environment, there is a realization amongst SaaS names that in order to survive, the business needs to scale. Both its mission and its product need to be flexible to enable scalability.

That’s not to say that founders should empower their engineers to bite on any shiny object. Oftentimes these “SQUIRREL!” moments are simply a distraction from operations that detract from a business’s march towards eventual profitability.

SaaS offerings are unique in that much of imparting your value to a customer comes through the sales process. Many cloud-based services don’t get this right. The software itself needs to either function in a way that provides value, like some consulting firms do, or provide support like a subject matter expert in the space for its slew of use cases.

Microsoft, Adobe, Salesforce… These cats aren’t going away. They have a nearly unlimited runway and smart money backing their every move.

But who will be the next can’t-live-without platform?

To find the next investable SaaS name, you need to make sure they meet the above criteria while not sporting a valuation that requires Alan from the Hangover to do the math for you.


Wise Investor Says

“I wish it grew on trees, but it takes hard work to make money.” — Jim Cramer



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