PayPal falls after earnings beat estimates but 3rd-quarter guidance disappoints

  • PayPal shares declined Thursday as third-quarter revenue guidance fell short of expectations.
  • PayPal said eBay’s payments moving off its platform is happening faster than anticipated, dampening its outlook.
  • PayPal’s second-quarter adjusted earnings of $1.15 share beat expectations of $1.12 a share.
  • See more stories on Insider’s business page.

PayPal shares dropped Thursday after third-quarter revenue guidance fell short of expectations as a plan for eBay to migrate its payments off PayPal’s platform is moving faster than anticipated.

PayPal had been processing the online auction company’s payments following eBay’s spinoff of PayPal in 2015. A five-year agreement for such action ended in July 2020. PayPal said late Wednesday it now expects third-quarter revenue of $6.15 billion to $6.25 billion, including a potential “drag” of $465 million from the eBay migration. That outlook is below the $6.45 billion consensus estimate.

PayPal sees an “accelerated pace of merchant migration in international markets, as well as some additional core pressure, which magnifies this result,” the company said during its earnings call late Wednesday.

The stock fell 5% during Thursday’s session and was down by as much as 6.7% to $281.60. The shares fell by more than 5% late Wednesday.

The pullback presents “an attractive opportunity,” Bank of America analyst Jason Kupferberg said in a research note Thursday reiterating its buy rating on PayPal. He said core underlying trends for PayPal remain robust, including second-quarter revenue growing by 32% year-over-year excluding eBay.

“We view the accelerated pace of eBay migration positively, as this headwind will be largely behind PYPL sooner than anticipated,” he wrote.

For the second quarter, adjusted earnings of $1.15 a share beat the estimate of $1.12 a share from a Refinitiv survey of analysts. PayPal’s total revenue climbed to $6.24 billion from $5.26 billion a year earlier but was slightly below the $6.27 billion consensus estimate.

During the second quarter, PayPal added 11.4 million net new active accounts, pushing up active accounts to 403 million. It backed its guidance of adding 52 million to 55 million new active accounts in fiscal year 2021.

So far this year, PalPay shares have gained about 23% and have nearly doubled over the past 12 months.

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Uber slides 5% on report SoftBank will shed a third of its stake in the ride-hailing app

  • Uber’s stock fell 5% on Thursday after CNBC reported SoftBank is offloading a large stake in the firm.
  • The latest share sale could take SoftBank’s holdings in Uber to less than 100 million shares.
  • Reports say the decision is unrelated to SoftBank’s $4 billion loss from its stake in Didi.
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Uber’s stock fell 5% in Thursday’s pre-market session after CNBC reported SoftBank will sell about a third of its stake in the ride-hailing firm.

SoftBank, one of Uber’s largest shareholders, plans to sell about 45 million of its 184 million shares, the report said. Any buyer is said to have a 30-day lockup period.

In January, the Japanese conglomerate sold 38 million Uber shares worth $2 billion.

Further shares were said to be offloaded in June, and SoftBank’s stake could stand at below 100 million shares with the latest transaction, according to a Financial Times report, which cited a person familiar with the matter.

China’s recent crackdown on rival ride-hailing app Didi has reportedly cost SoftBank, its largest shareholder, about $4 billion. It has also suffered losses related to the proposed initial public offering of Alibaba’s Ant Group, which was halted by regulators after Jack Ma publicly snubbed local banking rules.

But reports from Reuters and the FT say SoftBank’s decision to cut its Uber holding is unrelated to its stake in Didi, which went public on the US stock market in blockbuster IPO in late June. The tech conglomerate believed it was the right time to cash out and profit from its holding, a source told Reuters.

SoftBank has been an Uber investor since 2018, when it picked up a 16% stake in the firm through an entity called SB Cayman 2 Ltd. In a filing as recent as March 31, Uber refers to SoftBank as a “large shareholder.”

Softbank’s $100 billion Vision Fund has been hit hard by China’s regulatory crackdown on the tech sector, with the value of its holdings sliding $11 billion since July, compared to a $1.1 billion gain in the April-to-June quarter, according to data seen by the FT.

SoftBank didn’t immediately respond to Insider’s request for comment.

Uber’s stock, down 9% so far this year, had risen slightly a week ago after announcing its $2.25 billion acquisition of logistics tech company Transplace from TPG Capital.

Didi Global’s shares are fallen 37% since its first day of trading.

Read More: Wall Street’s 10 most accurate analysts say you should buy these 10 stocks right now for immense upside over the next 12 months

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Language app Duolingo jumps 36% in its public-market debut

Duolingo, the Pittsburgh-based startup whose free, gamified approach to language learning has already made it one of the most popular education apps in the world, is jumping into language testing.

  • Duolingo closed up 36% in the language-app maker’s trading debut Wednesday after pricing its IPO at $102 a share.
  • The IPO price was higher than an estimated range that was raised to $95-$100.
  • Duolingo, which offers courses for 40 languages, raised $521 million from the offering.
  • See more stories on Insider’s business page.

Shares of Duolingo soared during their trading debut Wednesday, with the language-learning app maker raising $521 million after its IPO priced higher than anticipated.

The company, which offers courses in 40 languages, along with some of its investors sold more than 5.1 million shares. The IPO late Tuesday was priced at $102.

The Nasdaq-listed stock closed up by 36% to $139.01, on volume of more than 2.8 million shares. The shares jumped to a high of $145 after opening at $141.00. The stock trades under the ticker DUOL.

The IPO price exceeded an estimated price range of $95-$100 per share that had already been bumped up from a previous estimate of $85-$95.

Duolingo’s debut carried an implied valuation of $3.7 billion. Its last confirmed valuation before going public was $2.4 billion.

Duolingo comes to market with 1.8 million paying subscribers and 40 million monthly users. The company in its regulatory prospectus said revenue climbed by 97% to $55.4 million in the first quarter of 2021, compared with $28.1 million a year earlier.

72% of its revenue came from subscriptions, which allows users to learn in an ad-free environment, along with other features.

Duolingo is backed by CapitalG, an investment fund under Google’s parent company Alphabet.

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US stocks log record highs as investors look to Big Tech to sustain earnings growth

NYSE Traders
  • Dow industrials push further beyond 35,000 in Monday’s record-setting highs for stocks.
  • Tesla and Facebook earnings are among those on deck for this week’s earnings wave.
  • The Federal Reserve will start its two-day meeting on Tuesday.
  • See more stories on Insider’s business page.

Stocks finished at record highs Monday as investors set their sights on earnings reports from major technology companies and appeared to set aside concerns about economic recovery in the face of rising coronavirus cases.

The Dow Jones Industrial Average pushed further above 35,000 after crossing that threshold for the first time on Friday. Stocks overcame losses earlier in Monday’s session to build on record highs notched Friday, capping a rebound from a rout last week. Stocks have seen points of weakness in recent sessions on worries about increasing COVID-19 cases around the world as the highly transmissible Delta variant spreads.

Investors will start to plow through this week’s earnings reports, with more than one-third of S&P 500 companies set to release results. Tesla’s report is due after the bell Monday, followed by Alphabet, Apple, Microsoft on Tuesday, and Facebook on Wednesday.

Here’s where US indexes stood at 4:00 p.m. on Monday:

S&P 500 companies are on track for their best earnings growth since 2009, with profit expected to increase 78.1% year-on-year in the second quarter.

“What we’re looking for is what are companies doing with these strong earnings, what are they doing with their cash flow,” Tom Hainlin, national investment strategist at U.S. Bank Wealth Management, told Insider on Monday.

“If they’re optimistic about the future, we’re looking for them to invest that cash flow … new businesses, new initiatives, new factories,” he said. “We’re looking for what are companies doing with these proceeds to give us some insight from the corporate side into where we think the economy is going in the second half and into 2022,” he said.

The Fed’s two-day meeting that begins Tuesday and ends on Wednesday will likely produce commentary about its outlook on domestic and global economic recovery and investors will gauge when the Fed may begin tapering asset purchases or start raising interest rates.

Around the markets, billionaire investor Jeremy Grantham’s firm GMO says stocks are overvalued by every metric.

Warren Buffett’s Berkshire Hathaway is facing a legal battle with Volkswagen after rejecting a settlement deal with the German auto giant related to its emissions scandal.

Gold fell 1.3%, to $1,798.06 per ounce. Long-dated US Treasury yields slipped, with the 10-year yield at 1.27%.

Oil prices turned slightly higher. West Texas Intermediate crude was fractionally higher at $72.09 per barrel.

Bitcoin jumped 13%, to $38,955.23. The digital currency rose above $38,000 for the first time in about six weeks, partially on a report that Amazon is considering accepting bitcoin payments.

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Twitter could rise another 30% as ad spending is set to soar, Bank of America says

Jack Dorsey
Twitter CEO Jack Dorsey.

  • Twitter stock could rise by almost 30% to $90 per share, according to Bank of America analysts.
  • BofA sees Twitter expanding in its advertising growth which took a hit during the COVID-19 pandemic.
  • BofA reiterated its buy rating on the stock.
  • See more stories on Insider’s business page.

Twitter stock could rise by about 30% as the social media platform stands to see further growth in advertising sales which have been recovering after the onset of the coronavirus pandemic, Bank of America said Friday.

Twitter’s own outlook for the third quarter points to optimism about its business prospects, the investment bank said in a research note in which it raised its price objective and reiterated its buy rating on the stock.

The bank’s new price objective of $90 follows Thursday’s closing price of $69.57, implying a 29% increase. BofA increased its price objective from $82 after Twitter late Thursday posted a 74% jump in second-quarter revenue, to $1.19 billion. That beat expectations of $1.07 billion in a Refinitiv poll of analysts. It also marked the fastest rate of top-line growth since 2014.

Shares of Twitter were up 4.2% on Friday after rising as much as 5.4% to $73.34 during the session.

Twitter’s outlook “suggests more optimism,” for the third quarter and revenue looks quite strong, BofA analyst Justin Post said in the note. Twitter projected revenue of $1.22 billion to $1.3 billion, higher than the $1.07 billion expected in a FactSet poll of analysts.

The social media site posted an 87% spike in advertising revenue year over year to $1.05 billion, citing a broad increase in demand and improvements in its brand and direct response ad products.

“We reiterate our positive view on Twitter for 2H based on increased brand advertising rebound,” and, among other things, continued traction in its offerings for Mobile Application Promotion, said BofA. MAP is a technology that aids advertisers in promoting their mobile apps. Twitter said Thursday it had launched its playable ad pilot that’s designed to help mobile gaming advertisers gain new customers by allowing them to experience gameplay before installing an app.

“[We] are optimistic that the MAP product ramp can drive solid 23% q/q 4Q growth, better than Twitter’s historical pre-pandemic average,” said the analyst.

Twitter’s advertising dropped 23% to $562 million in the second quarter of 2020 on a year-over-year basis as the COVID-19 pandemic drove down global demand in the face of widespread economic recession.

“While user growth will remain a question, we maintain our optimistic view that Twitter can increase its still (very) limited reach as a differentiated news and content platform, with strong distribution on other media,” said BofA’s Post.

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The S&P 500 is vulnerable to a correction of up to 15% with tech-stock valuations at dot-com bubble levels, Morgan Stanley says

Trader worried
  • The odds of a 15% stock market correction are rising, according to Morgan Stanley Wealth Management’s Lisa Shalett.
  • The CIO noted that technology stocks that dominate the S&P 500 are at levels not seen since the peak of the dot-com bubble.
  • The tech sector’s profitability and earnings are vulnerable and could pose a risk to the broader market, she said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The odds of a stock market correction of up to 15% are rising as lofty technology stock valuations leave the broader market vulnerable, according to Morgan Stanley Wealth Management’s chief investment officer.

In a Monday note, Lisa Shalett highlighted how low rates have helped prop up tech stocks to dot-com era valuations. The price to sales ratio of the technology sector is at a level not seen since the peak of the dot-com bubble in 2000, she said.

In addition, the tech sector now makes up a much larger weight in the S&P 500 than in 2000, and has subsequently driven the price to sales ratio of the benchmark index to a level 50% higher than it has ever been.

“The problem with this setup is that tech sector profitability and earnings are vulnerable,” said Shalett. “While secular growth trends may support resilience against small changes in economic growth, the sector now faces unprecedented headwinds from rising input costs, a weaker US dollar, fiercer competition, higher taxes, stricter regulations and customer backlash.”

If those headwinds come to fruition for the technology sector, the broader market will be at risk.

She noted that markets tend to be strongest when they are broad based and there is a consensus narrative around what could go wrong in terms of economic outcomes, policy, geopolitics, and regulation.

“As we have noted for the past two months, the market continues to grind to all-time highs on narrowing breadth, while the narrative has also grown increasingly muddled. Thus, the risks of a correction are rising,” she said.

The chief investment officer of wealth management told clients to focus on stock-picking using earnings fundamentals. She also said investors could consider adding to financials stocks as a value-oriented hedge to rising rates.

price to sales ratio chart
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Steve Ballmer joins the $100 billion club after Microsoft’s stock gains give the ex-CEO’s wealth a big boost

Former Microsoft CEO & LA Clippers owner Steve Ballmer.
Former Microsoft CEO & LA Clippers owner Steve Ballmer.

A jump in Steve Ballmer’s net worth has landed the former Microsoft CEO a spot in the exclusive $100 billion club, spurred by gains for the software-maker’s shares this year.

Ballmer’s fortune has risen to a hefty $101 billion, making him the ninth person to reach that level of wealth, according to the Bloomberg Billionaires’ Index. The 65-year-old American businessman’s fortune grew by $20 billion this year alone.

Windows-maker Microsoft last month became the second US-listed company ever to hit a $2 trillion valuation, second only to Apple in reaching that milestone. Its shares have gained 25% year-to-date, outperforming tech peers Apple and Amazon.

A self-described “loyal dude” who still owns Microsoft stock, Ballmer is estimated to own a 4% stake in the company, or about 333 million shares, according to Bloomberg.

Ballmer, who joined Microsoft as its 30th employee in 1980, stepped down as CEO in 2014 after 14 years in the role. Over the years, he acquired a reputation in the tech community for being eccentric and high-energy.

He now owns the Los Angeles Clippers basketball team, valued at $2.6 billion, and is involved in philanthropy with his wife, Connie.

Seven members of the $100 billion club have seen their fortunes surge this year, led by a rally in tech shares. Jeff Bezos, who stepped down as Amazon’s CEO on July 5, has gained the most. His net worth has risen above $200 billion, making him the richest person in the world.

The nine members of the elite club have together added about $245 billion to their wealth pile since the start of 2021, giving them a collective worth of $1.36 trillion, according to Bloomberg.

Read More: It’s coming home: Deutsche Bank breaks down the 3 ways the UK economy will benefit from UEFA Euros soccer

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Investors shouldn’t rush back to big tech stocks as reflation and reopening trades are better near-term bets, says UBS

Facebook CEO Mark Zuckerberg.

  • Investors shouldn’t rush back into buying stocks in big tech companies, the wealth management team at UBS said in Monday note.
  • Tech stocks will face another rise in bond yields and the industry will be dealing with near-term regulatory headwinds.
  • House lawmakers last week introduced five bills at aimed addressing antitrust concerns.
  • See more stories on Insider’s business page.

Investors should hold off on diving back into shares of large technology companies as the industry faces regulatory challenges and will be hurt again by rising borrowing costs, according to the wealth management team at UBS.

Major technology shares overall have recovered from their lows of the year. High-flying tech stocks were ditched by investors earlier in the year as buyers sought companies they believed have more direct exposure to the reopening of the economy. The Nasdaq Composite is up about 10% so far this year and the NYSE FAANG+ index that tracks mega-cap tech stocks has picked up about 9%.

But a move back into tech stock may be a misstep for investors in the short-run, UBS said.

“We don’t think investors should rush back into big tech, with the tactical outlook favoring reflation and reopening beneficiaries like financials and energy,” said Mark Haefele, chief investment officer of global wealth management at UBS, in a note published Monday.

One reason for the view is that UBS expects yields on government bonds to begin rising again. That could spell another round of trouble for tech stocks after the closely watched 10-year yield earlier this year quickly zoomed up to a 14-month high of 1.76%. The jump to the peak in March stemmed from investors selling bonds and pursuing riskier assets as coronavirus vaccinations and government spending plans fostered strong growth prospects for the world’s largest economy. But the higher yields stoked worries that higher borrowing costs would hurt technology companies.

Yields have pulled back from their highs as investors appeared to have embraced the Federal Reserve’s view that hot inflation levels will be temporary and that it will stick with measures to support economic growth. UBS, however, said it believes yields will begin gradually rising again to the detriment of tech shares.

Also, “we think that US antitrust developments could pose near-term headline risk for tech stocks,” said Haefele.

Last week, House lawmakers introduced five bills aimed at giving regulators more power to control tech companies from holding too much market dominance and the bills have some bipartisan support. The legislation is aimed at Amazon, Apple, Facebook and Alphabet, Google’s parent company, which in recent years have faced heavy scrutiny related to antitrust concerns.

“So within a portfolio context, we think investors should consider allocating to growth and technology via private equity holdings,” as the investment case for the tech industry is still sound on a longer-term basis, said UBS.

It said global tech acquisitions within private equity rose to $82 billion in the first quarter, marking an all-time high for a quarter, and were up by 144% compared with the first quarter in 2020.

“With approximately 497,000 global private tech companies, the breadth of investable companies is vast compared to the roughly 8,100 publicly held tech firms,” UBS said.

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Tech stock futures slip as investors brace for a jump in inflation, while bitcoin rebounds after sharp drop

Investors and traders were bracing for key inflation data on Thursday.

Tech stock futures slipped on Wall Street on Thursday as investors around the world awaited key US inflation data, which is expected to show a sharp rise in prices in May.

Meanwhile, bitcoin rallied after its recent tumble as investors were drawn in by the lower price. The dollar and Treasury yields moved slightly higher.

Futures were mostly flat, with the tech-heavy Nasdaq 100 index down 0.2%. S&P 500 futures down 0.05% and Dow Jones futures up 0.03%.

In Europe, the Stoxx 600 was down 0.08% as the European Central Bank prepared to set monetary policy.

In Asia overnight, China’s CSI 300 rose 0.67% while Japan’s Nikkei 225 climbed 0.34%.

Markets have been subdued for much of the last two weeks, with investors happy to see stocks tick slowly higher as economies reopen. The S&P 500 and the Stoxx 600 have been trading around record highs.

Yet the US consumer price index inflation data, due to be released at 8.30 a.m. ET on Thursday, has the potential to shake markets.

Economists expect CPI to have jumped 4.7% year on year in May from 4.2% in April, which was the highest reading since 2008.

Some investors worry that rising prices could force the Federal Reserve to reduce its support for the economy. Inflation also erodes the real returns on financial assets. Tech stocks, which have soared in an environment of low inflation and low interest rates, are particularly vulnerable.

Markets should be able to digest a consensus rise in inflation, but will start to worry if the Fed begins to shift its position, Alan Ruskin, chief international strategist at Deutsche Bank, said.

“Next week, the [Fed] is going to have a tougher time maintaining exactly the same ultra-dovish posture as the last few meetings, given the inflation overshoot from prior expectations,” he said.

However, Paul Donovan, chief economist at UBS Wealth Management, said he agreed with the Fed’s view that inflation should be transitory.

“The effect of very low prices this time last year and the uncoordinated reopening of the global economy are contributing to reported price increases in specific product markets, but should not last,” he said.

Elsewhere, bitcoin rallied on Thursday as investors moved in to buy the recent dip, after El Salvador’s move to make the crypto asset legal tender restored some positivity to the market.

The cryptocurrency was up 1.4% to $36,900, having fallen to around $31,000 on Tuesday. It remained roughly 43% below April’s record high, but around 25% higher for the year.

Bond yields edged higher on Thursday, with the yield on the key 10-year US Treasury note rising 0.5 basis points to 1.494%. Yields move inversely to prices.

The bond market has, in recent weeks, appeared unfazed by rising inflation. The 10-year yield dropped below 1.5% for the first time in a month on Wednesday. The dollar index climbed 0.15% to 90.26 ahead of the inflation data.

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Nvidia climbs to record high as CEO says he’s confident regulators will approve Arm acquisition

nvidia impressive ceos 2x1
Jensen Huang, CEO of Nvidia

  • Nvidia stock climbed as much as 4% on Wednesday to a record high of $676 per share.
  • The jump came after CEO Jensen Huang said he is confident UK regulators will approve the Arm acquisition by next year.
  • Nvidia’s takeover of the chip designer Arm is under review on “national security grounds” by UK regulators.
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Nvidia stock climbed to a record high of $676 per share on Wednesday after comments from CEO Jensen Huang about the acquisition of the chip designer Arm.

In a video call at the Computex conference in Taipei on Wednesday, Huang said he is confident that UK regulators will approve the Arm acquisition by next year.

“I expect this one to take 18 months so that’s later this year, early next year. I am confident about the transaction,” Huang said. “Our companies are complementary so we’ll bring, by nature, innovations that come as a result of companies that come together and offer complimentary things.”

Huang’s statements come after UK regulators announced in an April Public Interest Intervention Notice (PIIN) that they would be reviewing Nvidia’s takeover of Arm on “national security grounds.”

Digital minister Oliver Dowden released a statement announcing the review of Nvidia’s takeover:

“Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds. As a next step and to help me gather the relevant information, the U.K.’s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions.”

An Nvidia spokesperson said of the move by regulators: “We do not believe that this transaction poses any material national security issues.”

“The regulators are looking for: Is this good for competition? Is this pro-competitive and brings innovation to the market? Does it give customers more choice, does it give customers more offerings and more choice? You could see that on the first principle that our companies are completely complementary,” Nvidia’s CEO Jensen Huang said on Wednesday at the Computex conference

Arm was acquired by the Japanese conglomerate SoftBank in 2016 for $31 billion.

Nvidia has said it will pay roughly $40 billion for the company in the proposed acquisition and has committed to paying SoftBank $2 billion whether the deal goes through or not.

Nvidia stock is up roughly 88% in the past year and 26% in 2021 amid record demand for the company’s GPU products from cryptocurrency miners and gamers.

Nvidia recently landed analyst support after a stellar earnings report as well. Piper Sandler, Wedbush, and a number of other Wall Street firms reiterated their “buy” ratings and increased their price targets.

Specifically, Piper Sandler maintained its “buy” rating and raised its price target $690 while Wedbush reiterated its “outperform” rating and raised its price target to $700. Evercore also maintained its “buy” rating and raised its price target to $750.

Nvidia posted a record-breaking quarter on May 26, with sales jumping 84% year-over-year to $5.66 billion.

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