Zoom Dead Money So Far in 2021

Zoom Video Communications Inc. (ZM) reports fiscal Q1 2022 earnings after Monday’s closing bell, with analysts looking for a profit of $1.16 per-share on $990.2 million in revenue. If met, earnings-per-share (EPS) will mark a 26% profit increase compared to the same quarter last year. The virtual meeting provider has beaten estimates every quarter since coming public in April 2019, posting a 191.4% year-over-year revenue increase in the quarter ending May 31st.

Growing Competition in a Post-Pandemic World

The company continues to diversify its product catalog after 2020’s historic uptrend, driven by pandemic lockdowns around the world. Meanwhile, multiple competitors are offering alternatives to the Zoom platform at the same time that lockdowns have drawn huge political opposition, despite the rise of the Delta variant. It’s been a race against time for Zoom, seeking to replace lost income to maintain its rich valuation and high stock price.

Morgan Stanley analyst Meta Marshall upgraded Zoom to ‘Overweight’ last week, noting “we think that enterprise momentum, combined with margin headwinds dissipating, creates a positive setup into FQ2. While revenue expectations are not low, we believe they are doable, which combined with upcoming Zoomtopia and FY23 guidance in a couple of quarters, leaves us more optimistic on the stock at current valuation”.

Wall Street and Technical Outlook

Wall Street consensus has improved in the last three months, now standing at an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $242 to a Street-high $525 while the stock ended Friday’s session more than $75 below the median $416 target. This low placement highlights investor apathy toward pandemic beneficiaries, most recently illustrated by Peloton Interactive Inc.’s (PTON) steep post-earnings slide.

Zoom broke out above the 2009 high at 107.34 in February 2020, entering an historic uptrend that hit an all-time high at 588.84 in October, just weeks before Pfizer Inc. (PFE) and BioNTech SE (BNTX) announced the success of their vaccine. The stock has posted a long series of lower highs and lower lows since that time, crisscrossing the 200-day moving average and 50% rally retracement repeatedly since March.  Accumulation fell to an 8-month low last week, highlighting slow-motion profit-taking that could easily stretch into the fourth quarter.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Peloton Delivers Poor Earnings Report, Gets Subpoenaed By The DOJ and DHS

The past 24 hours haven’t been kind to Peloton, with the company reporting poor earnings for the previous quarter, and it is now in trouble with the authorities.

Peloton’s Q4 Earnings Report Was Poor

Peloton reported poor earnings for the fourth fiscal quarter yesterday, performing below what analysts had expected. The company’s revenue for the previous quarter was $936.9 million vs. the $927.2 million that was expected. However, the loss per share was $1.05 vs. the 45 cents that was expected.

In the last quarter, the fitness commodity manufacturer recorded a net loss of $313.2 million, or $1.05 per share. This is poor compared to the net income of $89.1 million, or 27 cents a share recorded in Q4 last year.

Although the total revenue of $936.9 million surpassed the analysts’ estimate of $927.2 million, it has slowed down from the $1 billion recorded in the third fiscal quarter. According to Peloton, its earnings could further be hurt in the short term as the company will reduce the pcost of its original Bike Machine by nearly 20%. In addition to these, Peloton said it would also be focusing some of its attention on its treadmill business, which has shown to be less profitable than its bicycles.

DOJ And DHS Subpoena Peloton

Peloton got into further trouble after the company revealed that the United States Department of Justice (DOJ) and the DHS (Department of Homeland Security) had subpoenaed it. The company has submitted documents and other data related to injuries reported by some of its customers.

The case stretches as far back as earlier this year when Peloton issued a recall of its treadmill machines, the Tread and the Tread+. The recall came after a child was killed in an accident, with several other users reporting injuries. Peloton resisted recalling the treadmill machines at the time despite regulatory pressure to do so. The company also revealed that it is currently being investigated by the SEC for its public information regarding the said injuries.

PTON stock chart. Source: FXEMPIRE

The poor earnings report and the investigation by authorities have sent Peloton’s stock price tumbling over the past few hours. PTON is down by over 7% in the past 24 hours and could slip lower if the negative press continues.

Year-to-date, PTON is down by over 30%. The stock began 2021 trading at $151 per share, but it is now trading around $106 per share.

Why Peloton Stock Is Down By 8% Today

Peloton Stock Declines After Quarterly Report Misses Analyst Estimates

Shares of Peloton gained downside momentum after the company released its quarterly results. Peloton reported revenue of $936.9 million and GAAP loss of $1.05 per share, beating analyst estimates on revenue and missing them on earnings.

The company stated that Connected Fitness Subscriptions grew to over 2.33 million while paid Digital Subscriptions increased to over 874,000.

In the next quarter, the company expects to report $800 million of total revenue. Connected Fitness Subscriptions are projected to grow to 2.47 million. Peloton has also stated that it reduced the price of Peloton Bike to $1,495 across all markets after it noted that price remained a barrier for some customers.

What’s Next For Peloton Stock?

The report was disappointing as the company missed analyst estimates and reduced the price of Peloton Bike. In the current inflationary environment, investors want to see prices grow rather than fall.

The guidance for the next quarter also looks modest which is not good for the company whose valuation depends on fast growth. The stock is currently trading at more than 200 forward P/E, and traders may start to ask questions about this sky-high valuation.

It remains to be seen whether Peloton will be able to convince traders that the recent decision to reduce the price of Peloton Bike was a smart move. Theoretically, lower price could expand the customer base and bring more subscription revenue, but weaker pricing in the inflationary environment may also be interpreted as a sign of slowing demand.

According to the report, Connected Fitness Subscription Workouts averaged 19.9 monthly workouts in the quarter, which indicated that customers remained engaged with the product. The market will likely pay close attention to this metric in the upcoming quarters to see if cracks start to appear in Peloton’s growth story. Meanwhile, the company will have to come up with new positive catalysts if it wants to see its stock go up from current levels.

For a look at all of today’s economic events, check out our economic calendar.

Peloton Could Rally After Earnings

Peloton Interactive Inc. (PTON) reports fiscal Q4 2021 earnings on Thursday, with analysts expecting the fitness provider to post a $0.34 per-share loss on $923.5 million in revenue. If met, the loss will mark a turnaround from the $0.27 profit booked in the same quarter last year. The stock ended a five month slide in May after beating Q3 top and bottom line estimates, despite a loss of $0.03 per-share, but remains stuck in the lower half of an 11-month trading range.

Shaking Off Headwinds

The stock fell with other COVID beneficiaries at the start of 2021 and turned higher when the Delta variant hit American news headlines. Controversies about treadmill recalls and injured kids are receding but fitness centers have remained open during the latest outbreak and they’re jammed with customers tired of working out in private. Peloton has responded with initiatives that include armband heart rate monitors and partnerships with corporate wellness providers.

Hedge funds are also moving back into Peloton, as evidenced by recent SEC disclosures. Tiger Global, Viking Global, and Third Point Management all increased position size during the quarter, suggesting comfort with the company’s long-term outlook. That buying pressure has shown up on technical charts as well, with accumulation readings lifting above 2020 levels, even though the stock is still trading more than 60 points under January’s all-time high.

Wall Street and Technical Outlook

Wall Street consensus has dipped in the last three months and is now standing at an ‘Overweight’ rating, based upon 20 ‘Buy’, 2 ‘Overweight’, 5 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $45 to a Street-high $185 while the stock closed Friday’s session more than $25 below the median $135 target. This humble placement should support higher prices if Peloton beats top and bottom line estimates this week.

Peloton rallied above the 2019 peak at 37.02 in May 2020 and took off in a powerful uptrend that posted an all-time high at $171.09 in January 2021. It got cut in half into May and bounced, reversing again after mounting the 50% selloff retracement. The stock is now wrapping up the third month of testing at the 200-day moving average while weekly Stochastic readings have hit oversold levels. This is a potent combination for a relief rally after this week’s confessional.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Peloton (PTON): Fear or Cheer?

Since its January peak at just over $167, it’s down nearly 50% to roughly $86 as of this writing. Below you can see that Peloton saw buying in the shares in late 2020 and January.

Recently, it’s fallen far:

Source: www.mapsignals.com, End of day data sourced from Tiingo.com

Recent news broke that Peloton is recalling its Tread and Tread+ treadmills. This is due to 70+ safety incidents and a child’s tragic death.

Investors who bought into the growth story might be wondering if it was a colossal mistake.

To answer that, let’s first let’s revisit why Peloton looked like a great setup in the first place:

Peloton boasts:

  • 1-year sales growth of 100%
  • 3-year sales growth of 103%
  • 1-year earnings growth of 62%
  • Gross profit margin of 45%

It’s also owned by the big boys and girls with 78% institutional ownership. Peloton was also collecting lots of Big Money buy signals according to MAPsignals data: logging 12 Big Money buys since July 1st, 2014.

That just means that the shares were increasing in price as volumes increased.

Things looked great for Peloton to continue its massive bull run. But suddenly in mid-February, growth stocks met headwinds. Since then, high-growth stocks fell from grace in favor of value and dividend stocks.

PTON was already falling 30-40% when tragedy struck for some pets and children and their new product is now in recall for repair or refund. They’ve sold roughly 125,000 tread units as high as $4200 each. The company said this will impact Q4 sales by -$165 million.

This is definitely not great for the short-term at least. It’s got a lot of investors spooked and running for the hills.

The question remains though: Is it time to grab it or bag it?

Let’s first look at their most recent earnings report.

Peloton just reported a 3-cent EPS loss, beating the 12-cent loss expectations for their fiscal third quarter. They posted $1.26 billion in sales, beating estimates of $1.1 billion. Revenue grew a shocking 141% from a year ago.

PTON showed $239.4 million in subscription revenue, up 144%. This is a key point. The company looks like it sells exercise equipment, but they sell content. Their classes and content costs are a subscription fee paid monthly.

In a shareholder letter, Peloton explained they have over 4.4 million members (as of December 31, 2020). Total members grew 22.2% since the prior quarter, up from 3.6 million. At $39 a month, that’s $2 billion a year. And it’s growing.

Even with the recall impact, Peloton is still guiding $915 million in revenue for Q4, 2021.

First, the exodus from growth stocks dragged down the stock. Then terrible headlines hit further amplifying the stock’s pullback.

This reminds me of a current titan that was once a volatile young growth story: Tesla, Inc. (TSLA).

In 2013 news broke of a battery fire in the Model S after a driver ran over a large metal object. On October 3rd, 2013 a Reuters article read:

  • Two days after a video of a burning Tesla electric car went viral, the “green car” maker grappled with ways to contain the damage as investors shaved $2.4 billion off the company’s market value.
  • Tesla shares fell 4.2 percent to close at $173.31 on the Nasdaq. That came on top of a 6.2 percent drop on Wednesday.

I remember the media said Tesla stock was done. The story was ruined, and no one would buy their cars. The stock got smoked. Remember: it was trading at $173.

Now look at this chart:

Source: www.mapsignals.com, End of day data sourced from Tiingo.com

The battery and subsequent engine fires from crashes, look tiny in the rearview mirror now. TSLA peaked at around $883 in January and then pulled back to $635 as of this writing. From the bad 2013 headlines the stock is up 267% after peaking up 410%.

Very few companies change the game like Tesla did for cars, or Peloton for exercise.

Remember, there tends to be gloomy headlines from time to time for nearly all stocks. Years later, investors will likely forget them. When you have a great growth story on your hands, it doesn’t always mean a smooth ride.

In the case of Peloton, it’s hit a snag. But times like these could represent potential opportunity for the long-term investor. Only time will tell.

Disclosure: the author holds a long position in TSLA in personal accounts at the time of publication, but no position in PTON.

Learn more about the MAPsignals process here.

For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Peloton Are Up By 5% Today?

Peloton Video 07.05.21.

Peloton Stock Rebounds After Sell-Off

Shares of Peloton gained upside momentum as traders rushed to buy the stock after the recent sell-off.

Peloton has recently provided its quarterly report, beating analyst estimates on both earnings and revenue. However, the market focused on the recall of Peloton’s treadmills, which is projected to cost $165 million.

Previously, the company insisted that its treadmills were safe if used properly, but it has succumbed to regulatory pressure and stated that its initial response to Consumer Product Safety Commission was a mistake. Peloton stopped the sales of treadmills and promised to introduce more safety measures.

What’s Next For Peloton?

Peloton shares tested highs at $171 at the beginning of this year, but company’s internal problems and valuation concerns pushed the shares towards recent lows at $80.48. This is a significant pullback that has clearly attracted speculative buyers who are willing to bet that the company will manage to successfully navigate the treadmill crisis and continue to grow.

The direct financial impact of the current crisis is not huge since the majority of company’s revenue comes from its popular bikes. The main question is whether Peloton will be able to quickly solve its problems with regulators and come up with a safer treadmill.

While Peloton shares have lost a lot of ground since the beginning of this year, the stock is valued at about 125 forward P/E for 2022 which is a very rich valuation even for the current market environment.

To justify this valuation, Peloton must grow at a fast pace, and it needs the treadmills to boost its revenue and expand its customer base. In this light, I’d expect that the market will focus mostly on the treadmill story rather than on the company’s financials in the next few months. If Peloton manages to solve the problem quickly, the stock will have a good chance to gain solid upside momentum.

For a look at all of today’s economic events, check out our economic calendar.

Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Peloton Are Down By 8% Today?

Peloton Video 19.04.21.

Peloton Stock Dives After CPSC Warns Consumers Not To Use The Peloton Tread+

Shares of Peloton found themselves under material pressure after Consumer Product Safety Commission (CPSC)  warned consumers about the danger of Peloton Tread+ treadmill.

CPSC stated that the warning came after the agency found one death and dozens of incidents of children being sucked beneath the exercise machine.

Peloton called CPSC press release “inaccurate and misleading”. The company stated: “There is no reason to stop using the Tread+, as long as all warnings and safety instructions are followed”.

The market is clearly worried about CPSC warning as shares of Peloton are down by more than 8% in today’s trading sessions. Peloton stock has been under pressure since the beginning of this year as investors and traders exited their positions in high-flying stocks which were boosted by the pandemic. The stock is down by roughly 30% year-to-date, and CPSC warning has served as an additional bearish catalyst for Peloton.

What’s Next For Peloton?

CPSC press release states that consumers should “stop using the Peloton Tread+ if there are small children or pets at home”, but the warning may also have a negative impact on demand from potential customers who have no kids or pets. The market is also worried that some customers may want to return the product after the warnings.

Currently, analysts expect that Peloton will report profit of $0.31 per share in 2021 and $0.71 per share in 2022.  The stock remains very expensive even after the major pullback this year, and it trades at 150 forward P/E for 2022.

Analyst estimates have been declining in recent months, and CPSC warning will likely serve as a catalyst for another downside revision of earnings estimates. Declining earnings estimates may present a serious problem for a high-growth stock like Peloton so the company’s response to the current crisis will be very important for the fate of its shares.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

For a look at all of today’s economic events, check out our economic calendar.

Peloton Breaks Out After Key Acquisition

Peloton Interactive Inc. (PTON) has broken out to an all-time high after announcing the acquisition of fitness equipment manufacturer Precor, in a transaction valued at $420 million.  The at-home workout juggernaut has struggled to keep up with skyrocketing demand in 2020 and the acquisition should ease considerable backlogs. It also gives one of the market’s hottest companies the sophisticated tools it needs to research and manufacture new products.

Surging Momentum

The stock has rallied nearly every session in the last two weeks, returning to October resistance at 139.75 on Thursday of last week. It ticked up to a new high on Monday and rallied another 10% in Tuesday’s pre-market, in reaction to last night’s press release. Accumulation readings have surged to new highs as well, setting the stage for a bull run that could last well into the first quarter of 2021 and lift the stock above 200.

Telsey Advisory Group analyst Dana Telsey raised her target to $180 this morning, pounding the table while noting the acquisition will help Peloton “increase its annual sales, start manufacturing its products in the U.S.A., accelerate production and shorten lead times, increase the flexibility of its manufacturing capabilities, onboard around 100 new research and development employees, and gain access to Precor’s commercial customers, enabling the ability to cross sell.”

Wall Street and Technical Outlook

Wall Street consensus was highly bullish ahead of the news, which should generate a wave of fresh upgrades and higher price targets. Peloton is now rated as a ‘Strong Buy’ based upon 20 ‘Buy’, 3 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $110 to a Street-high $185 while the stock has opened Tuesday’s U.S. session about $13 above the median $146 target and $25 below the high target.

Peloton topped out in October and pulled back in a rounded correction that found support after slicing through the 50-day moving average in November. It spent more than a month reestablishing support that that level and turned sharply higher on Dec. 10. Tuesday’s breakout gap will be hard to fill, given rapidly-increasing momentum, but this is an expensive stock to own, with a market cap higher than one-third of all Nasdaq-100 components.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.