Market scorecard
US markets had a rough day yesterday after muted earnings from mega-caps led to a significant sell-off in big tech. The S&P 500 experienced its worst day since December 2022, ending a long run without a 2% drop, the best since the global financial crisis. Losses were even more pronounced in the Nasdaq, semiconductor companies like Super Micro Computer (NASDAQ:SMCI) (-9.1%), Broadcom (NASDAQ:AVGO) (-7.6%), Nvidia (NASDAQ:NVDA) (-6.8%), Qualcomm (NASDAQ:QCOM) (-6.4%), and AMD (NASDAQ:AMD) (-6.1%) led the slide.
In company news, Visa (NYSE:V) dropped 4% on marginally disappointing results. Meanwhile, Tesla (NASDAQ:TSLA) fell 12% due to a profit miss and delays in its Robotaxi project. Elsewhere, Enphase Energy (NASDAQ:ENPH) was a bright spot, jumping 13% after a bullish update from management at its earnings call.
In summary on a nasty day, the JSE All-share closed down 0.14%, the S&P 500 dropped 2.31%, and the Nasdaq was kiboshed by 3.64%. Oh dear.
Michael's musings
Sometimes, it is a tough day in the office. On Tuesday night, Google (NASDAQ:GOOGL) posted results that handily beat analyst exceptions on both revenue and profits. Disappointingly, the stock dropped 5% yesterday. The only letdown in Google's results was that YouTube's revenue grew slightly slower than expected, by 13% instead of 16%.
YouTube has spent 17 months as the top US video streaming service. Interestingly, sports streaming hours grew 30% over the last year. When you think of the platform, sport isn't the first thing that comes to mind, but Google is investing in sporting content to keep more customers coming back.
Google is a beast. They grew revenue by 13% for the year, at widening profit margins, so earnings per share shot up 31%. Looking forward, they are investing heavily into AI infrastructure, which you might think would cause a short-term drop in profitability, but it won't. Google is forecasting a continued growth in profit margins.
Google is the cheapest of all the mega-cap tech companies, trading on a forward price to earnings ratio of just 23. It's good to see that their cloud services, YouTube and AI revenues are strong, making the group less reliant on search advertising sales. The company looks relatively cheap given that it is expecting to continue to grow revenue and profit by double digits for the foreseeable future. We should all be accumulating these shares.
One thing, from Paul
You may be looking at your portfolio and wondering why it's pulled back a little from its recent highs. You may be feeling punch drunk from too many dramatic news stories in recent days. Is it time to panic? No, definitely not.
Sam Ro reminds us that market turbulence is normal, and it can hit suddenly. If you take the worst intra-year drawdown from each of the last 70 years and average them, you get 14%.
"In the same way it's smart to keep your seat belts buckled for an accident that may never happen, it can be wise to be mentally on guard for that next big stock market sell-off. Because in investing, market volatility is just part of the deal."
The big picture remains positive. The global economy is expanding. Interest rates are coming down. Companies are doing well. As we always say at times like these, keep calm and carry on.
Byron's beats
Most successful people I know have passions outside of work that they pursue wholeheartedly. Whether it is fishing, a sports club, charity, conservation, golf, running, riding, traveling or birding, an engaging passion is a key ingredient of success and happiness.
For it to really count, you need to also embrace the community that surrounds that passion. At the end of the day, it's the people that share the same interests as you that are the most engaging. Because you genuinely love what you are doing, it is hard not to grow within that community.
This is where success and passion come together. The kind of networks, relationships, confidence, happiness and reputation you will build within that community will help you in your career in so many ways. All because you are doing what you love. It is a win-win.
Bright's banter
Spotify (NYSE:SPOT) just reported a record quarterly profit, pushing its shares up more than 14%. The Swedish audio-streaming giant reduced costs through right-sizing and marketing budget cuts last year, while growing its user base through promotions and new investments in podcasts.
In the second quarter of 2024, Spotify's paying subscribers rose to 246 million, up 12% year-on-year. CEO Daniel Ek attributed this to the variety of subscription plans now available, catering to different demographics like students and shared households.
Profit increased by 45% year-over-year to 1.11 billion euros ($1.21 billion), beating analysts' expectations. Revenue rose an impressive 20% to 3.81 billion euros. Spotify got its groove back!
However, Spotify fell short of its target for monthly active users (MAUs), reaching 626 million, rising by just 14% year-over-year. Still impressive in my books! Spotify's profitability appears sustainable, it's not just a passing trend.
Signing off
Asian markets are mostly lower this morning, as expected. Equity benchmarks dropped in Hong Kong, India, Japan, mainland China, and South Korea. Taiwan's stock market is still closed as Typhoon Gaemi is taking its sweet time to pass the island.
In local company news, Vodacom (JO:VODJ) reported a 1.5% increase in group revenue for the June quarter, with service revenue rising 10%, surpassing the group's medium-term target. This growth was driven by a strong performance in Egypt. Elsewhere, the Citrus Growers Association of Southern Africa (CGA) has cut its 2024 export projections by 19% due to the Western Cape facing severe droughts, floods, and coastal erosion. Farmers are experiencing fewer container exports because of bad weather and other supply chain issues.
US equity futures are marginally lower premarket. The Rand has weakened to around R18.40 to the US Dollar.
Today we'll see earnings reports from AbbVie (NYSE:ABBV), AstraZeneca (LON:AZN), and TotalEnergies (EPA:TTEF).
Keep your chin up. Better days lie ahead.