Market scorecard
US markets had an uneventful day. The S&P 500 ended slightly lower, its smallest movement since 2018 according to the statistics boffs. As the first-quarter earnings season approaches its conclusion, FactSet reports that S&P 500 companies grew earnings by 5.3%, the best outcome since the second quarter of 2022. Well done everyone.
In company news, Lyft soared 7.1% following a rise in revenue and a reduction in its losses from last quarter. Its competitor Uber (NYSE:UBER) did not fare as well (pun intended), falling 5.7% after reporting a loss due to some accounting policy changes. Elsewhere, Shopify (NYSE:SHOP) dropped by 19% after the e-commerce service provider projected a slowdown in sales growth. Finally, Arm Holdings (NASDAQ:ARM) tumbled 9% in late trade as the chip designer's lukewarm revenue forecast for the fiscal year sparked concerns that the spending spree on artificial intelligence servers may be slowing down.
In short, the JSE All-share closed up 0.32%, the S&P 500 was basically unchanged, and the Nasdaq fell 0.18%. Nothing to get excited about.
Michael's musings
Starbucks (NASDAQ:SBUX) recently reported quarterly earnings numbers, and they weren't pretty. The market was expecting sluggish growth from the global coffee giant, instead, they went backwards, and the share price plunged by 17%.
Starbucks' suffered a 6% reduction in the number of transactions and the company has attributed that drop to a few problems. It says bad weather in parts of the US accounted for around 3 percentage points of the decline. Added to that, increased competition in China and a mixed US consumer environment dented sales.
China has long been a growth market for Starbucks, but sales there declined by 8%, even though there are 14% more stores.
You can break Starbucks customers into two groups. The first are regular, faithful clients who are locked into the Starbucks ecosystem - rewards membership grew 6% to 33 million people. The second are occasional visitors, which seem to be in decline. Company data suggests that long wait times and product unavailability also caused slow sales.
Has Starbucks lost its way, or is this just one rough quarter, which will be followed by a bounce back? It's been a year since Starbucks founder, Howard Schultz, stepped down from a third stint as CEO. He kept having to come back as CEO to replace people who guided Starbucks down the wrong path. Is this happening again with the new CEO?
The current boss, Laxman Narasimhan said, "We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand" and that they are focusing on "efficiencies in the face of headwinds."
I get very nervous when a CEO talks about focusing on efficiencies and then mentions lost sales due to products being out of stock. Usually the former is the cause of the latter. Mind you, Narasimhan was previously chief commercial officer of PepsiCo (NASDAQ:PEP), and CEO of Reckitt, so he knows a thing or two.
This is a stock that we are watching closely. If we decide to sell it, we will be in direct contact with those clients who have it in their portfolios.
One thing, from Paul
Paul Auster, one of my favourite writers, died last week at the age of 77 at his home in Brooklyn. I read his best-known work, "New York Trilogy", in the mid-1980s.
To some extent, my love for New York and for American culture was born from reading his books. When the opportunity arose to travel to New York in 1998, to seek out a partner firm on Wall Street to set up an investment business focused on managing US stock portfolios, I was ready.
Auster smoked heavily and died of lung cancer.
Byron's beats
There's a theory doing the rounds amongst market pundits that the US economy has been thriving lately because of high interest rates, not despite them. Remember that higher rates are usually a drag on an economy because borrowing costs are more expensive for both businesses and consumers. That means less consumption and less investment.
The theory suggests that there are so many wealthy Americans who are sitting on bucket loads of cash, that higher interest rates mean that they can now spend more. Previously the interest on cash in the bank was close to zero. I guess that makes some sense.
I'm not too interested in debating economic theories here. My main point is that economies and markets are unpredictable. You may have avoided stocks because you believed that rates would stay higher for longer. You predicted the rate cycle correctly but the market still rallied and you missed out. Rather, stay fully invested and ride through the cycles. That's a far easier way to make money.
Bright's banter
Netflix (NASDAQ:NFLX) had a strong start to the year, adding 9.3 million subscribers in the first quarter, surpassing expectations. Revenue grew by 15%, driven by membership growth, pricing adjustments, and the crackdown on password-sharing.
The company expects continued double-digit revenue growth, emphasising additional drivers like plan optimisation and advertising. The infographic below shows subscriber growth over the past five years.
On another note, are you watching Baby Reindeer? What a crazy story!
You will find more infographics at Statista
Signing off
Asian markets are mixed this morning. Benchmarks fell in India and South Korea but rose in Hong Kong, Japan, and mainland China.
US equity futures are flat in pre-market trading. The Rand is stuck at R18.57 to the greenback.
Today Brookfield, Roblox, Endeavor, Warner Music Group, and Warner Bros (NASDAQ:WBD). Discovery report its quarterly earnings.
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