Why Shopify, Upstart, and Draft Kings Have Fallen Today |  Motley asshole

Why Shopify, Upstart, and Draft Kings Have Fallen Today | Motley asshole

what happened

Dear growth Shopify (a store -11.34%)And the upstart holding (UPST -6.13%)And the kings (DKNG -10.80%) Both were significantly lower today, down 11.9%, 6.9% and 10.8%, respectively, as of 3:35 PM ET.

There was no material news from these companies today. However, after yesterday’s growth stocks rose, they fell just as much today when the May jobs numbers came in stronger than expected. Moreover, investors may have panicked Tesla CEO Elon Musk commented in a company email that he feels “very bad” about the economy right now.

It’s a pretty bad combination of these three stocks, which are all consumer-facing growth stocks. An inflationary environment may reduce the valuations of growth stocks, while a bad economy of consumer spending can also affect their bottom line and bottom line.

so what

The May jobs numbers were released today and came in slightly higher than expected, with 390,000 jobs added versus expectations of 325,000.

Isn’t the number of strong jobs good? Well, yes and no. Right now, inflation is skyrocketing and there aren’t enough workers to meet all the demand. In May, the Federal Reserve raised interest rates by another 50 points in an attempt to cool the economy, but the May jobs numbers showed continued strong employment.

For growth stocks, this can be a case of “good news is bad news.” Strong hiring may indicate that the Federal Reserve may raise interest rates at a stronger pace than expected, and that higher rates will be detrimental to growth stocks, as higher long-term rates drive the intrinsic value of earnings far into the future. If revenue and earnings expectations don’t rise in tandem, stock prices will likely fall as they did today.

Meanwhile, each of these companies has had its own operational problems recently. Shopify has seen e-commerce purchases slow significantly as the economy reopens, and a recent shareholder proposal to give CEO Toby Lutke “founder shares” that would give him more control of the company has come under scrutiny. Upstart sold off hard recently after it had problems selling its loans to third parties amid higher rates, and had to keep some of its loans on its balance sheet.

Meanwhile, DraftKings has been the target of short sellers for the past six months. The change in sentiment was amplified by this earlier rally as investors focused on near-term profitability. That’s not good for DraftKings, which continues to see adjusted EBITDA between $760 million and $840 million this year.

Moreover, rising food and energy inflation due to geopolitical conflict could cause consumers to back away from discretionary purchases, which could affect DraftKings and Shopify. Meanwhile, a tough economy could mean more start-up loan shipments, which are already showing signs of increasing delinquency amid rising inflation. Investors had to deal with c. B. Morgan Chase CEO Jamie Dimon said he saw a “hurricane” looming earlier this week, and a leaked email today from Musk showed that he wants to cut 10% of Tesla’s employees due to near-term economic concerns.

Image source: Getty Images.

so what

Aside from earnings numbers, one can expect high-growth stocks like this to be highly sensitive to incoming economic and inflation data – and random comments from prominent CEOs, too. However, with those stocks already down a lot to start the year, has the hate gone too far?

It’s pretty hard to say, given that none of these industry leaders look “cheap” by traditional standards, despite their low stock prices. Therefore, investors must have an informed view of each company’s competitive advantages and future profitability paths. Since investors are now focusing on value as financial conditions tighten, you will likely try to move away from pricing these stocks on price-to-sales ratios, and perhaps try to create a discounted cash flow model to get a better estimate of their true value. It will help you scrutinize in this very noisy economic environment.

2022-06-03 20:14:40

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