Money & Markets‘ Week Ahead for the week of October 26, 2020: Big tech earnings and more.
This week is a huge week for corporate quarterly earnings reports.
I’ll get to that in a bit.
We also have another sizable initial public offering (IPO) set to launch later in the week.
Here are some things investors to watch on Wall Street next week:
On the IPO Front
A few companies are launching IPOs for this week.
One in particular, Root Inc., plans to go live on Thursday.
The company will trade on the Nasdaq under the ticker ROOT.
What is the company: Root has strong ties to the auto insurance industry, but it identifies as a technology company.
However, deep down, Root is in the insurance business.
Its model allows customers to get a quote, make a claim and review coverage … all online.
One big difference is that Root allows drivers to track their driving through usage-based car insurance.
For the six months ending on June 30, 2020, Root reported net income losses of $144.5 million on revenue of $245.4 billion.
The same period a year ago, the company had a net loss of $97 million on $104.1 million in revenue.
The financial skinny: The company offers 22 million shares and another 2.1 million shares offered by selling shareholders at a price range of $22 to $25 per share.
The company hopes to raise around $695 million with its IPO.
At the high end of the estimate, the IPO would give Root a market valuation of between $5.5 billion and $6.2 billion.
Following the IPO, Root will look for private placement investing of around $500 million — primarily from Dragoneer Investment Group and Silver Lake Technology Management.
Drive Capital owns 26.6% of Root voting power before the IPO and Ribbit Capital has 16.5%.
My thought bubble: This isn’t necessarily a bad time for Root to go public.
Lemonade (NYSE: LMND) is considered one of Root’s competitors and launched its IPO earlier this summer.
The share price for Lemonade was around $29 per share and, as of earlier last week, those shares are up to around $60 per share.
Another competitor, SelectQuote (NYSE: SLQT) also launched earlier this year, but its shares are down about 1% since May and the company has a market capitalization of $3.2 billion.
Now, Root is going to likely be much larger than either Lemonade or SelectQuote, in terms of valuation.
Launching their IPO now will give them new equity, which can be used for further expansion and a reinforcement of its technology infrastructure.
Big Tech Earnings to Watch
As I said from the top, this is a massive week for big tech earnings.
Several well-known companies that drive the market will be reporting:
- Microsoft Corp. (Nasdaq: MSFT).
- Apple Inc. (Nasdaq: AAPL).
- com Inc. (Nasdaq: AMZN).
- Alphabet Inc. (Nasdaq: GOOG).
- Facebook Inc. (Nasdaq: FB).
- Moderna Inc. (Nasdaq: MRNA).
- Alibaba Group Holding Ltd. (NYSE: BABA).
While I’m not going to specifically focus on big tech earnings, I do want to talk about trading during earnings.
We actually discussed this during our last The Bull & The Bear podcast.
Trading on earnings is a risky move. Even when you are talking about big tech.
There are a lot of factors involved with how a share price can move after earnings.
Of course, logic tells us that if a company beats Wall Street earnings projections, the stock may go up.
However, even though earnings are good, they may not be good enough … which could send the stock downward.
Also, if the company releases next-quarter guidance that is lower, that can offset a strong earnings season and push the stock down.
Some people trade options on earnings, but that’s an even bigger gamble.
I try very hard not to trade or recommend a stock that is up against earnings because of those potential downsides.
I would caution any trader from making portfolio moves surrounding earnings. It’s just too risky of a proposition.
Money & Markets Week Ahead: Data Dump
It’s another full week of data for investors to go over this week.
On Monday, we’ll get a look at the housing industry as new home sales for September will be released.
In August, new home sales were reported at just over 1 million.
Forecasts for September are right at 1 million, which would indicate a very slight slowdown.
Month-over-month home sales from July to August were up about 4.8%. I expect to see a slightly lower or flat percentage from August to September.
The Federal Reserve Bank of Dallas will unveil its monthly manufacturing survey on Monday.
This assesses the manufacturing activity in the state of Texas.
In September, the general business activity index jumped six points to 13.6 — its highest reading since November 2018.
The Federal Reserve Bank of Richmond will release its manufacturing index on Tuesday.
It surveys manufacturing sentiment along the middle Atlantic coast.
In September, the index showed improved sentiment with a score of 21. Like the Dallas Fed report, I expect both readings to tick up, but only slightly.
Investors will get a glimpse into heating oil and gasoline inventories on Wednesday.
The data dump continues on Thursday when the Labor Department releases its initial and continuing jobless claims.
Last week, claims were around 787,000.
Third-quarter gross domestic product (GDP) analysis is expected on Thursday.
The median forecast for Q3 is for GDP to grow 31.9% following a loss of 31.4% in the second quarter.
Earnings Reports
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out next week:
Monday
Twilio Inc. (NYSE: TWLO)
Hasbro Inc. (Nasdaq: HAS)
Simply Good Foods Co. (Nasdaq: SMPL)
Tuesday
Microsoft Corp. (Nasdaq: MSFT)
Pfizer Inc. (NYSE: PFE)
Eli Lilly & Co. (NYSE: LLY)
Wednesday
Visa Inc. (NYSE: V)
Mastercard Inc. (NYSE: MA)
Boeing Co. (NYSE: BA)
Gilead Sciences Inc. (Nasdaq: GILD)
General Electric Co. (NYSE: GE)
Thursday
Apple Inc. (Nasdaq: AAPL)
Amazon.com Inc. (Nasdaq: AMZN)
Alphabet Inc. (Nasdaq: GOOG)
Facebook Inc. (Nasdaq: FB)
Newmont Corp. (NYSE: NEM)
Moderna Inc. (Nasdaq: MRNA)
Friday
Alibaba Group Holding Ltd. (NYSE: BABA)
Exxon Mobil Corp. (NYSE: XOM)
Chevron Corp. (NYSE: CVX)
That’s all for this week.
Until next time…
Safe trading,
Matt Clark
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.