Earnings preview for the week of 11/11

Shopify, On Running, China stocks, Spotify and others

Last week was dominated by the election. There was one company’s earnings that went below the radar that I think is worth paying a bit of attention to, and that was of the (formerly) high flying growth chemical material company Celanese Corp. They reported, missed on every line item, slashed the dividend 95% and the stock was the worst preforming stock in the S&P 500 the following 3 days after their earnings release.

The actual issue with their results wasn’t slowing business (which is a BIG problem), it was their massive overpayment of the M&M division of DuPont a few years ago. They need to roll the next set of bonds related to that purchase, but because of said slowing business and higher than expected yields they won’t be able to fund the dividend and roll the bonds without dropping their credit rating.

CE is a pretty quiet stock, volume is low and it deep in the materials space, so its not one well covered by non industry specific investors and funds. It is important to pay attention to though, as its a major player in all forms of chemicals that ends up in cars. With a dominate share in EVs. This is why I’m bringing them up. While everyone knows EV sales have been weak, the CE weakness and managements projection of future cash flows is a red alert sign for the new car sales around the globe.

Listen, Lori is one of the best CEOs in the space. This issue (debt) and their fix (cut dividend to focus on debt) are somewhat self inflected. But the fact that she thinks that business the next 3 - 6 quarters is going to be so bad that there’s no real near term hope for CE ex-aggressive action, speaks to either continued weakness in the auto space, or future more aggressive weakness. Depending on where this weakness appears it could be great for car buyers as auto makers will not be able to protect their margins forever if there continues to be slack in the market. I say where because CE was doing business all over the world, so their issue could be the EV market in China. That doesn’t real help USA prices and buyers.

Much like how McDonald’s is now running a permanent $5 menu because prices were getting way to high, if CE is an industry read through, and I think it is, auto companies will be doing similar things soon. Another sign of deflationary pressures coming through the system near-ish term. This one is unrelated to Trump though. That’s why I wanted to highlight this story.

Also, because I know some people will ask, I’ve been long CE since the 60s in 2016, and they just broke below a 16 year uptrend (chart below). You might be able to catch a little bit of a bounce near term once the dividend cut selling abates either Tuesday or Wednesday, but I think the whole material sector is a no touch until we get through the near term deflationary pressures. Likely a sector to revisit/pay attention to more in Q2 2025 at the earliest. Or when CE finally starts basing around $70 a share.

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In other earnings notes, Hubspot and FiveNine both reported last week and both crushed the ‘AI is destroying the company’ thesis. I like Hubspot more than FiveNine on a longer term basis, but FIVN has two activists in the name, so we’ve likely seen the lows for that name near term and they’ll going to hopefully get it higher quickly. Both of these and others, like DoubleVerify going up on bad earnings or even Twilio being weird and going up for the first time in 2+ years, all points to the bottom being in for most of the software space.

I’m not in love with the current big software name, Oracle, as that’s almost more of an AI play right now than software, but given its weight in the IGV it should do well.

Hubspot is a SMID biz CRM software solution. Think Salesforce but for smaller companies. They’ve been growing alongside a lot of their clients and the stock price is reflecting that high growth. The stock price has mostly recovered back to where it was prior to Google’s announcement that it wasn’t buying Hubs. If it can clear through this $660~685 zone, it’s heading to a new all time high. Its somewhat thinly traded, but its one I’m glad I own, even though it moves aggressively up and down due because of lower liquidity.

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That’s a great place to start our earnings preview for the week of 11/11. More really, the companies I’m watching and going to consider as longs (or shorts).

The flywheel story on Hubspot is that they help digital first, often DTC based companies scale via their SAAS solutions. That makes them a solid read through of a few companies.