WEEKLY ISSUE: Earnings Season Making Waves in the Options Market Too
KEY POINTS FROM THIS ALERT:
- We continue to have a Sell rating on Funko (FNKO) shares and a short position on the Tematica Options+ Select List. Our buy stop order remains in place at 10.00.
- As we assess the degree of the EPS expectation reset for 2018 over the coming days, we’ll continue to keep our Sell rating and Short position for Facebook (FB) shares on the Tematica Options+ List intact for now. We will keep our buy stop order at $180.
- After the reverse split for MoneyOnMobile (MOMTD) shares, we continue to have a bullish view on this long-term speculative play.
It’s earnings season and we’re seeing the market rise and fall based on the day’s, given the blaze of reports this week that has the market gyrating, we’re holding off adding a new position this week. Even so, there is much to get to given several of our holdings so here we go…
Funko: Hasbro’s 1Q 2018 earnings put some details on the Toys R Us fallout
Earlier this week we had our first confirmation of the pain to be had from the recent Toys R Us bankruptcy and subsequent liquidation sales. On Monday, toy company Hasbro (HAS) reported 1Q 2018 results that included revenue and EPS dropping 16% and 81%, respectively, compared to the year-ago period. The company attributed the declines to the “liquidation of Toys R Us in the U.S. and U.K., along with uncertainty in its other operations, as well as retail inventory overhang, primarily in Europe.”
Hasbro management went on to add the following:
The liquidation began in the first quarter and will continue with increasingly lower liquidation pricing in the second quarter. We anticipate the revenue impact will be most pronounced in the first half of the year with a lesser impact in the third and fourth quarters, including the important holiday season. We expect the U.S. liquidation will conclude at the end of the second quarter.
To me, this would suggest that not only is Funko poised to have a challenging 1Q 2018, but its outlook for the current quarter is likely to be suspect as well. After the market close today, Mattel (MAT) will issues its 1Q 2018 results, and this should give us further confirmation for our short position in Funko shares.
Then next week is May 1, which is the date of Funko’s lock up expiration, which for those who have not heard the term refers to the amount of time following a company’s IPO where large shareholders, such as company executives and investors representing considerable ownership, are restricted from selling their shares. With FNKO shares essentially in line with their IPO price, we could see the lock up result in pre-IPO shareholders looking to monetize their holdings.
To me, the combination represents more risk to the downside than upside to be had in the near-term. As such, we will continue to have a Sell rating on Funko (FNKO) shares and a short position on the Tematica Options+ Select List.
- We continue to have a Sell rating on Funko (FNKO) shares and a short position on the Tematica Options+ Select List. Our buy stop order remains in place at 10.00.
Facebook: A 1Q 2018 beat, but not out of the woods just yet
Last night social media company Facebook (FB) reported better than expected 1Q 2018 results that popped the shares 7.5% or $12 to $171.50 in aftermarket trading as advertising revenue grew 50% year over year and user growth met consensus expectations. To be fair, advertising revenue fell compared to 4Q 2017 but was down less compared to the 8.8% drop that occurred comparing 1Q 2017 vs. 4Q 2016. In short, it was a sigh of relief as the company shrugged off advertising and user metric concerns for the quarter following privacy and user data issues that brought CEO Mark Zuckerberg to testify in front of Congress.
During the earnings call and as I had expected, the company signaled that its expenses and capital spending will be at the higher end of its previously guided range. To me, this signals the company is indeed ramping up its spending to address the issues that brought Zuck before Congress.
As this ramp is happening, Facebook and others will have to contend with Europe’s sweeping privacy law GDPR that goes in to effect on May 25th. This law is forcing Facebook to push users through new agreements to terms of service changes required to comply with the law. This prompted Facebook to share that its monthly active user and daily active user metrics could be down sequentially in the current quarter. That led the shares to pull back off their post-market close trading high last night.
While Facebook delivered for 1Q 2018, the combination of ramping spending and GDPR compliance are likely to weigh on 2018 expectations, and lead Wall Street to cut its consensus EPS forecast for the year. As of last night, the consensus expectation for Facebook’s 2018 earnings sat at $7.20 per share.
- As we assess the degree of the EPS expectation reset for 2018 over the coming days, we’ll continue to keep our Sell rating and Short position for Facebook (FB) shares on the Tematica Options+ List intact for now. We will keep our buy stop order at $180.
MoneyOnMobile – A reverse split and temporary symbol change, don’t alter the story
On the housekeeping front, I wanted to make sure you knew that as last night’s market close MoneyOnMobile is trading under the symbol MOMTD after having affected a 1 for 20 reverse split (if you owned 200,000 shares at $0.35, you now own 10,000 shares at $7.00). After a period of 20 business days, the symbol will revert to MOMT. One of the reasons for reverse split surrounds the company’s desire to up list to NASDAQ, a key milestone that management has been focused in an effort to create more “tradability” and liquidity for current and future shareholders. In my experience, many investors tend to shun penny stocks, while others pass on those trading below $5.
I see this move by the company as a smart one to remove any such objections from investors, which will allow them to focus more on the driving story that is capitalizing on the under banked in India. I’ve been told that over the next two weeks, the management team is expected to hold 11 days of meetings with investors and financial advisors. The combination of these items is likely to open fresh interest in the shares. I continue to like the long-term, fundamental story of the company, which resonates with the crosshairs of our Rise of the Middle Class and Cashless Consumption investing themes. I also continue to see the company as a takeout candidate as larger financial companies sharpen their focus on the India market.
- After the reverse split for MoneyOnMobile (MOMTD) shares, we continue to have a bullish view on this long-term speculative play.
