Shares of Peloton are down 28% so far this year versus a 12% gain for the S&P. But if you think you have finally found an attractive entry point, you might want to douse yourself in some cold Gatorade.
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After a wild 434% run-up in its shares last year, Peloton’s Chief Executive
continued to stoke the fire, telling investors in September at the company’s analyst day he believed 100 million subscribers was a reasonable goal for the company, capturing half the number of gym goers world-wide.
The time horizon on that goal is a bit fuzzy. In a note this week, BMO Capital Markets analyst
points out that, in a presentation for the same investor day, Peloton pegged its own serviceable addressable market, or estimated number of households interested in purchasing current Peloton products at current prices, at just 15 million, something he feels Peloton’s most fervent fans have perhaps overlooked.
By Mr. Siegel’s math, Peloton’s current fully diluted market value implies investors already are giving the company credit today for capturing 16.5 million subscribers, or 110% of that addressable market size. Wall Street is forecasting Peloton will have roughly 2.3 million connected fitness subscribers as of June. But even at 5 million subscribers, to justify Peloton’s current market value investors are effectively betting those customers will be paying to sweat and bleed Peloton for the next 24 years, his estimates show.
Peloton fiends better pace themselves.
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ARK Investment Management LLC is bearing the brunt of the stock market’s faltering technology trade, again.
Ms. Wood was crowned a star stock picker last year thanks to her exchange-traded funds’ hefty exposure to many of the coronavirus pandemic’s work-from-home winners. But her funds have sunk further than the broader market during May’s selloff in shares of technology and other fast-growing companies, suggesting their midwinter pullback was no fluke.
Her flagship innovation fund has fallen 13% in the first eight trading sessions of May. That is more than what the ETF shed in February and March when worries about a sharp rise in bond yields began to dent the allure of growth stocks. Shares of the fund are now down roughly a third from their mid-February high after more than doubling last year.
The Nasdaq Composite, in comparison, has stumbled 5% in May and set a record as recently as April 26, while the S&P 500 is off 1.2% and continues to hover near its record highs.
Many of the stocks that sit in ARK’s funds are unprofitable tech and biotech companies whose lofty valuations are tied to bets that they will one day dominate their industries. Those stocks have stumbled lately on worries about rising inflation and an eventual tightening of monetary policy. The latest sign of inflation came Wednesday when the Labor Department said its consumer-price index jumped 4.2% in April from a year earlier, the highest 12-month level since the summer of 2008.
Analysts and money managers also say there are rampant concerns over the rich valuations of companies that boomed during the pandemic but whose growth now appears unsustainable as the economy moves closer to a full reopening.
“You have a pretty clear trend of the frothiest and costliest corners of the market needing to be repriced,” said
chief investment officer of the Bahnsen Group, a $2.8 billion money-management firm. “And the darlings of 2020 have a ways to go.”
Several of those darlings litter ARK’s funds and have given up a chunk of the large gains they racked up last year.
—have suffered declines of about 4.3% to 7.8% this month.
The tech behemoths reported blowout earnings for the latest quarter, but many investors say the economic winds have shifted away from the group. For starters, the economy is getting back on firmer footing as more Americans get vaccinated and businesses fully reopen, creating a more conducive environment for a wider variety of stocks to run.
“The quick money is gone,” said
head of asset allocation at Pacific Life Fund Advisors, which manages $32 billion in assets, of the tech trade. “When growth is abundant in an economy, that’s when lower growth stocks, such as value, do better because you don’t need to pay a premium for growth.”
Mr. Gokhman said Pacific Life’s funds remain tilted toward value stocks, such as regional banks, energy firms and consumer staples that trade at low multiples of their book value, or net worth.
Investors said any chatter about a potential rate increase puts tech stocks on unstable footing, especially after last year’s gangbusters performance. That is because interest rates are a significant variable in often-used valuation models that discount cash flow. Higher rates, under those models, diminish the value of future cash flows, lowering the ceiling on valuation projections.
“The outperformance in megacap tech stocks has likely run its course,” said
a senior vice president at UBS Private Wealth Management. “We believe the next leg of the equity rally will be driven by value stocks, and small and midcap segments of the market.”
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The latest downdraft has cut valuation multiples in half for some of the pandemic’s biggest winners. Tesla shares now trade at 121 times future earnings, down from nearly 220 earlier this year, according to FactSet. Online marketplace
whose shares quadrupled last year, trades at 51 times earnings versus more than 100 times in January. Its shares have fallen 17% this month.
Both stocks remain relatively pricey. The S&P 500’s consumer discretionary sector, where the stocks reside, trades at 36 times earnings, while tech is at 25. The S&P 500 stands at 21 times earnings, above its five-year average of 18.
The tech sector’s repricing has shaken billions of dollars out of growth and tech funds, including those run by Ms. Wood. Investors have pulled $1.6 billion from the ARK’s ETFs over the past month, with nearly $600 million coming out of the innovation fund, according to FactSet. That’s on top of about $7 billion investors have pulled from other U.S. growth and tech funds so far this year. Over the same period, more than $30 billion has flowed into U.S. value funds.
Ms. Wood has repeatedly brushed off worries about the losses and outflows, saying the firm invests in stocks for at least five years, and nothing has changed other than their cheaper price tags. In fact, ARK has taken advantage of the selloff to add to its positions in some beaten-down stocks such as
“Many consider what has happened in the last three months to be the beginning of another, or the equivalent of the tech and telecom bust,” Ms. Wood said in a Tuesday webinar. “We do not believe that’s the case in the least. The kinds of growth that we’re going to see coming out of these technologies, we believe, the kind of growth is going to be astonishing.”
Other investors have followed Ms. Wood’s lead—they stepped in to buy the dip in tech stocks Tuesday, helping the Nasdaq erase nearly all of a 2.2% intraday decline by the end of the session. ARK, in this case, tracked the market, with its innovation ETF closing up 2.1%.
But the tug of war in the stock market will likely continue, with several money managers saying they have no intention of leaning back into the tech trade soon.
“I don’t think there’s any place in the tech space where there will be easy growth or cheap growth,” said Mr. Bahnsen. “I believe we’re living in an era that favors cash-flow generating companies.”
rose 12.5% in their market debut, capping off a two-year effort by the entertainment firm to go public.
Endeavor’s stock began trading at $27, compared with its initial public offering price of $24. More recently, shares traded at $24.29, giving the company a valuation of $10.44 billion.
The company, known for representing Hollywood’s biggest talents such as Dwayne Johnson and Charlize Theron, also owns the giant sports and modeling agency IMG Worldwide Inc. and the Miss Universe pageant. In 2016, Endeavor bought part of Zuffa LLC, owner and operator of the Ultimate Fighting Championship.
“As far as where the world is going, we’re in every right sector right now,” Endeavor’s Chief Executive
said in an interview Thursday. He said the company is well positioned to attract investors interested in stocks that stand to benefit from a global economy that is reopening.
and Space Exploration Technologies Corp., known as SpaceX, had been nominated to the company’s board.
Alongside the public offering, Endeavor has engaged in a separate private placement that includes a mix of high-profile investors such as Fidelity Management & Research Co., Dragoneer Investment Group LLC and Elliott Management Corp. That funding will go toward buying out the 49.9% it doesn’t already own of UFC.
Mr. Emanuel said that securing the financing outside of the IPO took about six months, but doing so took some of the risks out of the IPO process. After their attempt at a public offering in 2019, he said: “We decided to take a big chunk of the variability of that process out.”
Endeavor expects $1.8 billion in proceeds from the offering and concurrent private placements.
The company, along with other major Hollywood agencies, has begun producing content because the entertainment industry looks much different than at the company’s founding in 1995, when the power wielded by agencies was more pronounced than now.
Endeavor’s biggest source of revenue now is its entertainment and sports division, which negotiates media-distribution deals on behalf of more than 150 clients, including the International Olympic Committee and the National Football League.
Major news in the world of deals and deal-makers.
Endeavor’s shares are listed on the New York Stock Exchange under the symbol EDR.
Endeavor diversified the scope of its business beyond traditional Hollywood deal-making as A-list stars’ salaries have contracted in recent years—reducing agency revenue. However, the decision to expand into sports, music and live events has hurt the company amid the coronavirus pandemic, which has entailed the cancellation or postponement of large public gatherings.
shares dropped 6.8% ahead of the bell. A federal safety agency over the weekend told people with young children or pets to stop using the company’s treadmills. The move by the Consumer Product Safety Commission comes after its investigation into the death of a child involving one of the machines turned up dozens of instances of injuries. Peloton called the report “inaccurate and misleading.”
shares rose 6.6% premarket. The biopharmaceutical company on Monday said it received FDA approval to begin a Phase I/II clinical trial of its new drug candidate, XB2001, in patients with pancreatic cancer.
Money has poured into two iShares ETFs that track the S&P Global Clean Energy index. Combined with the gains for the stocks they hold, the funds quintupled in value over roughly five months to $14.2 billion at their January peak, before falling back to about $10 billion.
As investors weigh the prospects of a return to normal, share prices of denim maker Levi Strauss have soared about 45% year to date, while the stock of legging juggernaut Lululemon Athletica has deflated by 6.9%.
On this day in 1933, the day after President Franklin D. Roosevelt devalued the U.S. dollar, the stock market soared, with the Dow Jones Industrial Average leaping 5.66 points, or a near-record 9%, to close at 68.31.
up 4.6%. But they’ll have to move a lot further to overcome yesterday’s drops of 42% and 21%, respectively. For our live blog of the action, follow this link.
—Pinterest and Snap are jumping in opposite directions after the platforms added millions more new users than expected in their latest quarters, showing strong growth in social-media use during the pandemic.
‘s results offered more evidence of people killing time through the pandemic playing videogames. The game maker’s shares shot up more than 8% premarket to $100.35 a share after its holiday sales and revenue outlook topped expectations. KeyBanc raised its price target on the stock to $120 from $102.
‘s stock dropped 7.1% after it reported sales and subscriptions more than doubled in the latest quarter despite long shipping delays that the company has promised to address as would-be customers vent their anger online.
shares lost 2.2% premarket after the wireless provider said its nearly year-old merger with Sprint will saddle the combined company with more costs this year as its engineers shift more subscribers onto a single network.
shares nudged up 2.6% before the open after the Detroit auto maker said its fourth-quarter earnings were dented by lower truck output, and it vowed to nearly double its investment in electric and driverless cars.
‘s online bond-trading platform topped $1 trillion in January, the company said Thursday. That marks the busiest month on record, beating March 2020 when plunging stock markets pushed investors into the safety of government debt.
—U.S. jobless claims, due at 8:30 a.m. ET, are expected to fall to 830,000 in the week ended Jan. 30 from 847,000 a week earlier. Labor productivity data, also due at 8:30 a.m., is expected to fall 2.8% in the fourth quarter from the prior quarter. Factory orders for December at 10 a.m. are expected to rise 0.7% from a month earlier.
Market Movers to Watch
—Moves in the stocks favored by Reddit users were relatively subdued Thursday morning, giving traders a moment to exhale.
‘s gained 1.9%. Allstate’s earnings benefited from a sharp reduction in car wrecks, while MetLife’s results were bolstered by people skipping dentist visits.
Trading volumes on the New York Stock Exchange on Wednesday were at their lowest since Jan. 21, as 4,900,085,470 shares changed hands. That’s less than half the number of shares that traded on the highest volume day this year on Jan. 27.
Chart of the Day
The Reddit-fueled frenzy in stocks such is prompting calls for regulators to reconsider a decades-old practice in the U.S. stock market: payment for order flow.
made a stock-market debut so stunning that its chief executive was briefly left speechless on live television.
These are things that would be easy to imagine in boom times. But 2020 has been anything but that for the world outside Wall Street. The cold reality is that the market’s rally has occurred in the midst of a catastrophic pandemic that has killed more than a million people, halted business and travel and wreaked havoc on the economy. Although there are plenty of reasons for the market’s comeback, not the least of which is the Federal Reserve’s massive intervention, the staggering rally is still difficult to comprehend for many investors.
“The path we took to get here is something we never, ever, ever would have foreseen,” said
head of equities for North America at Aberdeen Standard Investments.
Here are the lessons investors say they have learned from an unforgettable year.
Markets Don’t Perfectly Reflect the Economy
When stocks bottomed March 23 and began to race higher, many observers were perplexed. Coronavirus cases were surging. Restaurants, stores and theaters went dark and millions of Americans queued up outside of career centers to apply for unemployment benefits. How could the market be doing so well when the world seemed to be doing so badly?
The answer: The stock market often begins to recover far sooner than the economy. In the case of the financial crisis, U.S. stocks hit their nadir March 9, 2009. But it took seven years from that point for the unemployment rate to fall below precrisis levels.
Similarly, while stocks managed to charge higher in 2020, many economists don’t expect the U.S. to recover all of the jobs lost during the pandemic until 2023 or later.
“A lot of people said the market is disconnected to reality, but stocks are pricing in what’s going to happen in six months to a year,” not what the economy looks like today, said
managing director and portfolio manager at Morgan Stanley Investment Management. In the pandemic, investors who began betting on a stock recovery in the spring weren’t assuming the economy was about to come roaring back—they were assuming things would be better some months down the line than they were at the time. And they were right.
“It’s not until you have this huge rally that suddenly people realize, ‘Oh, the stock market isn’t wrong, I’ve been wrong,’” Mr. Slimmon said.
It Pays Not to Try to Time the Markets
With both the pandemic and the financial crisis, those who sold on bad news and waited for the economy to recover to get back into the market would have missed out on the bulk of stocks’ upside. As emotionally harrowing as sizable selloffs may be, history shows that the vast majority of investors are better off not trying to hop in and out of the market.
The returns of a hypothetical investor who put $10,000 into an S&P 500 index fund at the start of 1980 and missed the market’s five best days through the end of August 2020 would be 38 percentage points lower than those of someone who stayed invested the whole period, according to a Fidelity Investments Inc. analysis.
“What the long-term investor needs to think about is over the next year or next two years, is the economy going to grow? Are corporate earnings going to grow? We think the answer to those points is yes, and because of that, we think the market has a pretty good foundation,” said
vice president for RBC Wealth Management’s portfolio advisory group.
Forecasts Are Just Forecasts
This time last year, Wall Street’s top strategists identified the biggest risk to the markets as deteriorating trade relations between the U.S. and China. Trade all but fell off the radar for many money managers this year, quickly replaced by concerns about the coronavirus pandemic and the ensuing economic shutdown.
They also widely predicted modest gains for the S&P 500. But by March, analysts at BMO Capital Markets and Oppenheimer Asset Management said they would suspend their year-end targets because of how difficult predicting the market’s path had become. Others slashed their targets after the spring selloff, only to bump them up again after the summer rally.
cut its year-end target to 3000 in March, then raised it to 3600 in August and to 3700 in November.
Then of course, the elections brought their own missed predictions, most notably that the Democrats would take control of Congress in a “blue wave.”
If anything, myriad examples of calls gone wrong show there is plenty of humility to be learned from markets, which regularly prove the smartest investors and strategists wrong.
“You always think about things trending through the influence of typical variables like macroeconomic policy, fiscal policy, global growth…but what tends to happen with big moves is unseen shocks,” Aberdeen’s Mr. Bassett said.
The Tech Trade Is Only Getting Bigger
Investors predicting value would finally unseat growth were proved wrong yet again.
Appetite for newly listed technology stocks has been even more striking—so much so that a few companies, including Roblox Corp., decided to delay their planned IPOs to try to better understand how to price their shares.
It is the type of scenario that can make investors feel like the most reliable stock market play is simply betting on the fastest-growing technology stocks.
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To be sure, an investor fixated on growth might have missed out on a number of cheaper, more “old-school” stocks that benefited from the pandemic, such as
had one of their worst days of the year Nov. 9, logging double-digit percentage declines, although they quickly made up ground in the weeks that followed.
But none of that necessarily means 2021 will be the year that growth stocks take a back seat to value. Society as a whole was becoming more technology-oriented, even before the pandemic, Mr. Bassett said. The end of the coronavirus pandemic won’t be a panacea to companies in already struggling sectors such as oil or bricks-and-mortar retail.
“I don’t recommend buying companies that were tarnished goods before Covid,” Mr. Slimmon said.
The holiday season is almost over, but for many gift-givers, the tab won’t come due until well into 2021.
Millions of U.S. consumers, looking to stretch their dollars and avoid taking on new credit-card debt during the coronavirus pandemic, flocked in recent months to “buy now, pay later” offers from financial-technology companies including Affirm Holdings Inc.,
In November, the cumulative number of U.S. shoppers that had opened an Afterpay account exceeded 13 million, and 7.5 million of them had made a purchase using Afterpay in the previous 12 months. Also in November, purchase volume among Afterpay’s U.S. users reached more than 1 billion Australian dollars, equivalent to more than $770 million and roughly triple the level a year earlier. (Afterpay is based in Australia and reports its figures in the local currency.) Klarna had counted 11 million total U.S. users as of October, two million of which used the Klarna app in the preceding month. The number of annually active Affirm users reached 3.9 million as of Sept. 30, up 63% from a year earlier.
“You think of the Zooms of the world, for example, the delivery services of the world—some businesses were really lucky to do well during Covid, and I think we were one of those really fortunate businesses,” said
the head of Klarna’s U.S. unit.
Investors are taking notice. The price of shares in Afterpay, which trade in Australia and the U.S., has quadrupled since the start of 2020. Affirm filed paperwork last month with the Securities and Exchange Commission for an initial public offering that could value the San Francisco startup at as much as $10 billion, The Wall Street Journal previously reported. Klarna recently became one of Europe’s most valuable privately held tech companies after a fundraising round pegged the worth of the Swedish company at $10.65 billion.
“Buy now, pay later” applies to a variety of payment plans, but among the most common is an option to split the cost of a small to midsize online purchase into four equal installments over the course of a few weeks or months, interest-free.
Shoppers are attracted to fixed payment schedules and simplified checkout processes, according to consumer surveys. Some providers, such as Affirm, structure these offers as zero-interest loans, which involve credit checks. Others, including Afterpay, consider their services not to be loans but instead regard them as sales contracts to which some state and federal consumer-credit rules don’t apply.
Purchases made on buy-now-pay-later plans are accelerating as banks’ credit-card balances have fallen and their credit-card spending volumes are just starting to rebound to pre-pandemic levels. Consumers’ reluctance to take on new revolving debt during economic uncertainty, and the move by banks to toughen approval standards, are among the reasons for the decline in card volumes, bank executives have said.
In the absence of interest income, buy-now-pay-later companies make the bulk of their revenue from fees they charge to merchants, though some also charge consumers fees for late payments. Merchant fees can range from 2.5% to 4% of the purchase price, according to analysts at Bank of America, and can sometimes be higher.
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stationary bikes, merchant-network revenue in the three months ended Sept. 30 was $93.3 million, or about 6% of Affirm’s $1.48 billion in gross merchandise volume during that period.
For merchants, such costs are often worth it because Affirm, Afterpay and Klarna can encourage younger, debt-averse consumers to complete a sale and increase the amounts they are willing to spend. The companies also help drive online sales after the pandemic caused foot traffic at physical outposts to drop.
and thousands of other merchants have added these payment options in recent months.
“Now, if you don’t have a solution like ours, you’re almost at a competitive disadvantage,” said Klarna’s Mr. Sykes.
Foot Locker introduced Klarna as a payment option on its North American websites in October. It quickly became one of the top three ways shoppers were paying for their sporting-good purchases, with more than 2,000 orders a day, Foot Locker Chief Executive
said on a conference call in November.
Klarna has driven a 25% increase in the average order value for customers of the fashion retailer
who use that option to pay since it was made available in September, Express Chief Executive
said on an earnings conference call in December.
“It’s just another way to offer customers, particularly in the economic situation that we’re in right now, flexibility,” Mr. Baxter told investors shortly after the Klarna partnership went live.
The newfound popularity of buy-now-pay-later offers is leading regulators to pay closer attention to the offerings.
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In March, California’s Department of Business Oversight announced it had reached a roughly $1 million settlement with Afterpay to resolve findings that the company structured its product to “evade otherwise applicable consumer protections” and was making loans to California residents without a valid license. An Afterpay spokeswoman said the company was pleased to have the “clarity and pathway for business certainty in the market.”
Just before Christmas, the U.K.’s advertising regulator faulted Klarna for commissioning social-media posts by influencers that appeared to encourage consumers to use the service on purchases of beauty and skin-care products to improve their moods.
Klarna said in a blog post that those ads had been an attempt to recognize the mood of its users during the U.K.’s first lockdown. “We acknowledge that, whilst we had the best of intentions, we missed the mark,” the company said.