Weekly Preview: Earnings to Watch This Week 2-11-24 (ABNB, COIN, CSCO)
If judging by this week’s trading activity, investors are all in on this new bull market, which has been driven by a combination of cooling inflation, strong earnings and a resilient economy. The market remains optimistic about the slew of strong economic news that continues to affirm the belief that a recession is off the table.
On Friday, it was December's revised inflation reading, which came in lower than first reported. That helped push the rally that saw the S&P 500 index close above 5,000 for the first time. S&P 500 stocks are up 6% since the start of the year, while climbing 23% over the past 12 months. But the key 5,000 level is a psychological benchmark which highlights the level of confidence investors have in the market. The index first crossed 4,000 in April 2021.
On Friday the S&P 500 rose 0.57% to end at 5,026.61, while the Nasdaq Composite rallied 1.25% to close at 15,990.66. The Dow Jones Industrial Average, however, slipped 54.64 points, or 0.14%, to end Friday’s session at 38,671.69. For the week, the Dow ended flat. The S&P added 1.4%, while the Nasdaq gained 2.3%. However, all three major averages notched their fifth straight winning week and 14th positive week in the last fifteen.
In securing its all-time high close above the 5,000 level, much of the S&P 500’s gains have been driven by strong earnings and the forward guidance companies have provided thus far, particularly from the mega-cap names such as Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Google parent Alphabet (GOOG , GOOGL) and Microsoft (MSFT), among others. Even Nvidia (NVDA), which has yet to report earnings, jumped 3.6% on Friday. In essence, the theme of the fourth-quarter earnings season has been the winners keep winning.
Investors are also betting on more accommodative fiscal policy. The market is currently pricing in more than a 70% chance that the Federal Reserve will cut rates at its next policy meeting in March. In that vein, the market will look for more direction next week when the consumer-price index for January is released on Tuesday. Expectations are for a year-over-year decline. Will that be enough to compel the Fed to cut rates? In the meantime, here are the stocks I’ll be watching this week.
Airbnb (ABNB) - Reports after the close, Tuesday, Feb. 13
Wall Street expects Airbnb to earn 62 cents per share on revenue of $2.17 billion. This compares to the year-ago quarter when earnings were 48 cents per share on revenue of $1.90 billion.
What to watch: Shares of Airbnb didn’t dominate the market over the past year, but the stock did well enough to keep the investors confident in the company’s long-term direction. The shares are up 8% year date and have risen 27% over the past year, besting the S&P 500 index in both spans. With inflation now on the decline and the economy no longer worried about a recession, the market appears more optimistic about the company’s growth prospects in the next 12 to 18 months. Much of that optimism has had to do with the company’s ability to execute through the tough economic times.
In fact, for all of 2023, the company’s operating momentum remained positive. In the most recent quarter, revenue rose almost 20% year over year, beating Street estimates, while net income of $1.8 billion marked an increase of 26% year over year. These strong numbers not only underscore the continued strength of the business, it also demonstrated the level of discipline the company applies in managing its cost structure. There were initial concerns regarding Airbnb's bookings deceleration, much of which was due to waning travel demand caused by inflation.
However, the company is still growing bookings at a solid double-digit growth rate as well as gross booking value. This level of profitability is notable given the immense pressure Airbnb faced from an economic growth slowdown. If Airbnb can produce better than 20% bookings growth for the just-ended quarter, the shares are poised to rise and may finally break out of their conservative trading pattern.
Cisco (CSCO) - Reports after the close, Wednesday, Feb. 14
Wall Street expects Cisco to earn 84 cents per share on revenue of $12.71 billion. This compares to the year-ago quarter when earnings came to 88 cents per share on revenue of $13.59 billion.
What to watch: What is it going to take to get Cisco stock finally going in the right direction? The network equipment maker has seen its stock decline more than 6% over the past six months, while falling 1.7% year to date. This compares with a 4.6% rise in the S&P 500 Index. While the stock has risen 6% over the past year, it trails the 21% gain in the S&P 500 index. That said, Cisco’s stock performance does not accurately reflect the qualities of the company and its leadership. The company's focus on future growth, namely mergers and acquisitions while executing stock buybacks is another reason to be patient here.
In terms of acquisitions, Cisco has picked off assets to enhance not only its cloud, network performance monitoring, but also to strengthen its broadband network monitoring, among other capabilities. The company recently acquired Splunk (SPLK), a leader in security and observability platforms, in a mega-deal that is expected to close by the time in reports fiscal Q3 results. In an effort to achieve faster network speeds, sustainability in IT, and high network visibility, Cisco management has also focused on strengthening the company’s artificial intelligence capabilities in Ethernet technologies and network fabrics.
It remains to be seen when its AI and advancements in technology will begin to bear fruit and boost the top and bottom lines, but with the stock down almost 15% in five months, and priced at just 12 times earnings estimates, now could be an opportune time to buy. But for any of that to matter, the company on Wednesday must show consistent growth in its pivot towards software and subscription businesses as it scales down the legacy hardware segments.
Coinbase (COIN) - Reports after the close, Thursday, Feb. 15
Wall Street expects Coinbase to earn 25 cents per share on revenue of $811.47 million. This compares to the year-ago quarter loss of $2.66 per share on revenue of $629.11 million.
What to watch: Despite trading at some 50% below its all-time high, there are plenty of reasons to expect Coinbase to bounce back in 2024. When factoring the 17% decline over the past thirty days, COIN stock has fallen some 24% year to date, compared to 4.5% rise in the S&P 500 index. However, that does not tell the entire story. Over the past year, the shares have risen 92%, including 50% gains in six months. Much of the volatility has been tied to the price of Bitcoin, which has swung wildly leading up to the SEC granting approval to Grayscale Investment's application to convert its Bitcoin fund into an ETF, thus allowing U.S. investors to easily buy Bitcoin.
Among others, the SEC also approved applications from BlackRock and Ark Invest, which brings in new funds offering lower fees than Grayscale. These approvals bode well for Coinbase as it can potentially bring another revenue stream. The company’s commitment to regulatory compliance and transparency now more than ever positions Coinbase as leading entity for institutional investors. What’s more, Coinbase itself will now appeal more as an institutional investment, especially when factoring the company’s efforts at offshore expansion aimed at increasing its user base.
All told, Coinbase’s management has done a solid job diversifying the business, transitioning the company’s crypto exchange into a full-fledged financial platform. Assuming the company can deliver a top- and bottom-line beat on Thursday, along with confident guidance, Coinbase could set itself up for having a banner year in 2024.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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