Tuesday Morning Reads

Tuesday Morning Reads







Seekingalpha Wall Street Breakfast:

Big Tech earnings on tap

Tech continues to lead the charge on Wall Street to start the week, with the Nasdaq closing up 2.6% on Monday and futures pointing to another 1% gain at the open. The move higher follows the WSB/Reddit trader disruption, which saw the market log its worst week since October. New catalysts appear to be on the horizon as the last of the FAANGs report earnings after today's closing bell.

Alphabet (GOOGGOOGL) - Supported by a recovery in digital ad spending during the holiday season, the tech giant is likely to top $50B in Q4 sales. Other areas of Alphabet's business have also been growing strongly, including Google's Cloud business, Search and YouTube. While these are all positive signals, analysts will also be listening closely for commentary on policy developments. Google recently removed Parler from the Play Store, and it will have to deal with upcoming privacy changes being instituted by Apple (and may even unveil its own).

"Our checks with SEMs [search engine marketers] suggest search spending accelerated from 3Q to 4Q," said JPMorgan analyst Doug Anmuth. "Certain verticals heavily affected by COVID-19, including travel that we believe represented 10-15% of search revenue prior to the pandemic, likely remained challenged throughout 4Q given resurgence and related shutdowns. We believe recovery in these verticals will happen through '21 as consumers continue to get vaccinated, driving further acceleration in ad revenue."

Amazon (NASDAQ:AMZN) - An accelerating shift to online shopping will bolster results, especially over "Prime Day" and the holiday shopping season. The e-commerce behemoth is set to report its first-ever quarter doing more than $100B in revenue, bringing full-year 2020 revenue to an astounding $379B, with additional support from the AWS powerhouse. Also be on the lookout for some major expenses. Amazon has earmarked more capital for worker safety during the pandemic and pledged to pour more money back into the company to sustain its growth rate

"Thematic data points we have gathered throughout 2020... collectively point to consumers globally becoming increasingly comfortable purchasing online every day as opposed to every now and then," Credit Suisse analyst Stephen Ju declared. "These factors amount to the following near to long-term potential implications for Amazon: 1) upside to GMV [gross merchandise value] estimates in 2021 and beyond, and 2) moderating customer acquisition/retention costs as greater purchase frequency reinforces Amazon/Prime brand."

Not performing, but transforming

Ugly Q4 results from BP (NYSE:BP) sent shares of the energy giant down 5% in premarket trade as the coronavirus pandemic weighed on demand and slammed earnings. Underlying replacement cost profit, used as a proxy for net profit, fell 96% Y/Y to $115M vs. an expected $360M. For the full year, BP slumped to a loss of $5.7B, its first in a decade, driven by the collapse in energy prices and weaker refining margins, as well as fragile gas marketing, trading results and asset/exploration writeoffs.

"2020 will forever be remembered for the pain and sadness caused by COVID-19. Lives were lost - livelihoods destroyed. Our sector was hit hard as well. Road and air travel are down, as are oil demand, prices and margins," said CEO Bernard Looney, who started in his role last February.

Backdrop: After cutting its dividend in August for the first time since the Deepwater Horizon disaster in 2010, BP returned to a profit in the third quarter. Crude prices and energy demand recovered, but fresh government-imposed lockdowns and travel bans triggered BP to warn of a volatile outlook and cut 10,000 jobs. It will likely become known as the "worst year in the history of oil markets," according to the International Energy Agency.

Outlook: Looking to move past the gloom, Looney has described 2020 as a "pivotal year" for the company, but the "toughest of his career." He has pledged to turn BP into a net-zero emissions company by 2050 by selling assets and reshaping its business for a lower-carbon future. In order to accomplish that goal, BP has already slashed capital spending by billions of dollars, cut costs dramatically, secured new credit lines, issued bonds and stalled exploration activity. The (once) oil major also wants to sell $25B in assets by 2025 to slash debt and fund its green energy push. (14 comments)

Robinhood secures billions in cash

All the volatility in financial markets is having Robinhood (RBNHD) shore up its finances. The brokerage has tapped investors for $3.4B in cash over the past few days, a significant amount of money for a firm that was valued at about $12B just a few months ago.

What's the cash for? Robinhood CEO Vlad Tenev detailed a 3:30 a.m. call last week from its clearinghouse that asked the brokerage to put up a staggering $3B. "This was obviously nerve-wracking," he told Elon Musk during an interview on audio platform Clubhouse. Eventually, the company was able to lower the bill to $700M after putting limitations on certain stocks. Despite all of this, the company realized it was in desperate need of cash, in case similar things happen in the future, so it went to existing investors like Ribbit, Sequoia, Index Ventures and ICONIQ Capital.

Note: Dave Portnoy is still trolling Vlad on Twitter after the latter said the company did not have a "liquidity problem." Vlad says the move was "done preemptively."

Outlook: Raising $3.4B in a matter of days may be a bullish signal from investors in the free-trading app, but the debt does not come free. It's structured as convertible debt, which can be swapped for discounted shares when the company goes public, but those plans may be on the back burner right now. If Robinhood does eventually go public at a lower valuation - many are angry at the recent trading restrictions - servicing the debt could be fairly expensive for the company. Existing investors, however, look at the infusion as a chance to double down on one of the fastest-growing fintech companies in the world. (123 comments)

Is the saga over when they make a movie about it?

Separate film projects are now in development about the past week's WSB/Reddit phenomenon on Wall Street, according to Deadline. Netflix (NASDAQ:NFLX) is in talks with Mark Boal - the Oscar-winning screenwriter of The Hurt Locker and Zero Dark Thirty - for a movie that would include Noah Centineo, while MGM has landed rights to a book proposal by Ben Mezrich about the GameStop trading frenzy.

Bigger picture: Media companies generally move quickly to secure directors and a cast to discourage competition. Similar stories in the past have included the collapse of Silicon Valley startups like WeWork and Theranos, as well as the Michael Lewis bestseller The Big Short. That movie, which told the story of traders who foresaw the financial crisis of 2008, grossed $70M at the domestic box office and was nominated for five Academy Awards.

While some say the David vs. Goliath battle between hedge funds and WSB/Reddit traders is still playing out, the latter appears to be on the back foot after a major plunge on Monday. GameStop (NYSE:GME) shares tanked 31% and are down another 24% premarket, while AMC Entertainment (NYSE:AMC) was able to end the day flat, but is off 23% in early trade.

Go deeper: Another interesting event was the silver trade, which was initially seen as another WSB/Reddit theme, before word started getting out that it was a "false squeeze." According to data compiled by Bloomberg, Citadel Advisors owned about 6M shares of the iShares Silver Trust (NYSEARCA:SLV) as of Sept. 30, equivalent to a 0.93% stake, and the hedge fund holds shares in at least 17 other silver companies and ETFs. In premarket movement this morning: First Majestic Silver (NYSE:AG-12%, Pan American Silver (NASDAQ:PAAS-7%, Coeur Mining (NYSE:CDE-12%. Coordinated efforts may have limited effectiveness on an anonymous forum and tactics may have to switch to sustain the highly speculative trading strategy. (20 comments)

First civilian crew to space

In one small step for private citizens, SpaceX (SPACE) has announced plans for the world's first all-civilian mission. It's being targeted for the fourth quarter of 2021 and will be commanded by Shift4 Payments (FOUR) CEO Jared Isaacman, who is an accomplished pilot.

Bigger picture: The expedition, known as Inspiration4, is part of a charity initiative to raise money for St. Jude Children’s Research Hospital. In addition to giving $100M to St. Jude, Isaacman said he'll donate the three other seats in the Dragon spacecraft to crew members who "represent the mission pillars of leadership, hope, generosity and prosperity."

Other details: The mission will launch from the Launch Complex 39A at NASA’s Kennedy Space Center in Florida and will be carefully monitored at every step by SpaceX mission control. Isaacman and the Inspiration4 crew will undergo commercial astronaut training by SpaceX on the Falcon 9 launch vehicle and Dragon spacecraft, including a specific focus on orbital mechanics, operating in microgravity, zero gravity and other forms of stress testing.

Interest in space has been growing at an exponential rate, especially in the public markets. Space-related names took off last month after ARK Invest said it was launching a space ETF, while Virgin Galactic (NYSE:SPCE) soared 21% yesterday after announcing a new flight window for a "rocket-powered test of its SpaceShipTwo Unity." The stock, which has climbed nearly 200% over the past year, is up another 11% premarket to $59.75. (53 comments)

What else is happening...

Google (GOOGGOOGL) shuts down internal Stadia game development.

Another case of mistaken identity: Clubhouse Media (OTCPK:CMGR).

Forecasts for frigid February lift natural gas prices.

Boeing (NYSE:BA) at risk of losing a third of 777X orders - SEC filing.

AT&T (NYSE:T) enters $14.7B loan with BofA to fund spectrum spending spree.

Tech isn't topping amid Reddit mania, says Wedbush, still has 25% to go.

Today's Markets

In Asia, Japan +1%. Hong Kong +1.2%. China +0.8%. India +2.5%.
In Europe, at midday, London +0.5%. Paris +1.7%. Frankfurt +1.2%.
Futures at 6:20, Dow +0.8%. S&P +0.9%. Nasdaq +1%. Crude +2.4% to $54.81. Gold -0.7% at $1851. Bitcoin +2.5% to $34991.
Ten-year Treasury Yield +3 bps to 1.1%

Today's Economic Calendar

Auto Sales
8:55 Redbook Chain Store Sales
1:00 PM Fed's Kaplan Speech
2:00 PM Fed's Mester Speech



Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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