U.S. Jobs Picture Worsens With Census Survey Showing July Drop By Bloomberg


© Reuters. U.S. Jobs Picture Worsens With Census Survey Showing July Drop

(Bloomberg) — The U.S. labor market’s rebound is increasingly at risk of being cut short after a survey showed employment dropping sharply this month.

The number of employed Americans declined by about 6.7 million from mid-June through mid-July, including a 4.1 million plunge from the first to the second week of July, according to the Census Bureau’s weekly Household Pulse Survey published Wednesday.

While that figure isn’t seasonally adjusted like the main figure in the monthly jobs report, the increase of 5.5 million from mid-May through mid-June — roughly coinciding with the monthly survey for the Labor Department’s jobs report — was in line with the reported rise in unadjusted payrolls from June.

The figures add to signs of a worsening employment picture as a coronavirus surge across the South and West forces officials to pause or reverse reopenings, while business closings multiply and lawmakers clash over how to extend aid programs on the verge of expiring. Analysts were already expecting July’s job gains would — at a minimum — slow significantly from June’s 4.8 million seasonally adjusted increase.

The Census survey suggests that “the July jobs report could be not only weakened, but even possibly negative,” said Ernie Tedeschi, an Evercore ISI economist who highlighted the data Wednesday on Twitter. “That should give us pause, because it implies that the recovery hasn’t taken hold, and in fact may be reversing right now.”

While the Household Pulse Survey is a relatively new poll, it “did quite well” in predicting the June jobs report, Tedeschi said.

The data also precede Thursday’s release on initial jobless claims, which analysts forecast to be unchanged from the prior week at 1.3 million — potentially snapping a 15-week streak of declines dating back to early April. Estimates range from 1 million to 1.55 million.

Meanwhile, Kronos, a software and services company that tracks time-clock punches — and whose data were in line with labor-market pickups in May and June — said growth in worker shifts has slowed in July. Shifts have risen an average 0.7% so far in July, compared with 1.9% in June, a sign the recovery is plateauing, the firm said in a report.

©2020 Bloomberg L.P.

 

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Netflix promotes Ted Sarandos to co-CEO, showing importance of original content


While investors may have paid more attention to Netflix Inc.’s disappointing forecast for the second half Thursday afternoon, the promotion of Chief Content Officer Ted Sarandos to co-chief executive may be the bigger news of the day because of what it says about Netflix and where it is headed.

Netflix
NFLX,
+0.78%

explained the move as confirmation of what has been in place for many years, with CEO Reed Hastings referring to Sarandos as his partner for two decades. What it really says, though, is that Hollywood is just as important, or possibly more so, than Silicon Valley to a company that has developed differently than just about any other high-profile tech startup from the Bay Area.

Sarandos is seen among investors as Mr. Hollywood — the main face of the company in Los Angeles among the movie studios, where he oversees teams cutting deals with existing studios and acquiring content — while Chief Product Officer Greg Peters is Silicon Valley, making sure the company’s streaming technology is working and supporting all its new subscribers and content.

The moves are also clearly succession planning by the company, as co-founder Hastings approaches retirement age.

“Ted has done a phenomenal job with content, and it’s clear that as he approaches 60, Reed would like to spend more time on his other interests, so the transition makes sense,” said Wedbush Securities analyst Michael Pachter in an email.

More from Therese: An obscure court ruling could play havoc with tech companies’ earnings

With this announcement, Netflix is obviously messaging that its next leader will be the man in L.A. lunching with showbiz moguls, not the executive in Los Gatos, Calif., making sure the servers are running and the algorithms are working. Sarandos will retain his title of chief content officer and will also serve as a director on Netflix’s board. Peters was appointed chief operating officer in addition to his chief product officer role, and is set up to be the No. 2 to Sarandos after Hastings takes his leave.

“This change makes formal what was already informal — that Ted and I share the leadership of Netflix,” Hastings said Thursday.

Sarandos has been with Netflix since 2000, and like one of the main characters in Netflix’s popular Canadian sitcom “Schitt’s Creek,” he made his name in business first in the video-rental market. Before he joined Netflix, he was vice president of product and merchandising at the video-rental chain Video City/West Coast Video, but grew quickly into a key role at Netflix after he joined. He also is credited for getting Netflix started in original content.

When asked during the company’s analyst interview if his promotion meant that Hastings would now have more time to relax, Sarandos said that was unlikely.

“We should start by saying that the chances that Reed is going to relax a little more are very low,” he said, adding that Hastings has been his role model for the past 20 years. “We have navigated some of the toughest decisions the company has made over the years, decisions from mailing DVDs around the U.S. to streaming around the world,” he said.

Full earnings coverage: Netflix adds more than 10 million new subscribers, but stock is tanking

While the two executives have guided the streaming giant to where it is today, there are clearly new challenges ahead, as the company’s big subscription lift from sheltering in place appears to be over. One of those may be the co-CEO structure, which Chaim Siegel of Elazar Advisors LLC pointed out can be difficult for companies to navigate.

“Reed Hastings is the genius behind Netflix. Succession plans mean at some point he’s leaving,” he said. “Sarandos has done an incredible job, of course, on the content side, but there’s no replacing Reed. Co-CEOs are also not an amazing structure for companies.”

Netflix will have to navigate some treacherous waters in the next year with the two executives sharing the helm. In June, the number of paid net additional subscribers was actually down, Siegel pointed out. Adding additional pressure, for the first half of next year, new content will be slower in coming, as production for new shows has been disrupted due to the coronavirus pandemic.

“Year-to-date numbers are only supposed to build through the year. So based on end-of-quarter net cancellations, their guide for member growth is actually not conservative. If they were to see more net cancellations in July, August, this is going the wrong way.”

Netflix said as the world reopens slowly from COVID-19 lockdowns, its priority is to restart production safely and in a manner consistent with local health standards. Programming for 2020 remains largely intact, but for 2021, paused productions will lead to big titles launching in the second half.

Those titles were largely a result of Sarandos’s work in Southern California, and he is being rewarded with a prime placement at the top of one of the biggest names in tech. If he is able to navigate the rest of the COVID-19 pandemic along with Hastings, it appears Netflix will be led by its Mr. Hollywood for years to come.



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Hubspot: Showing Strength On All Fronts (NYSE:HUBS)


Hubspot Inc (NYSE:HUBS) is a good long-term investment choice due to its strong revenue growth from the company’s land-and-expand model. Successful product launches have helped grow the company’s number of customers and their spending levels over the years. Hubspot is entering the downturn in a position of strength due to its strong balance sheet and positive free cash flow generation. At an 11.8 price-to-sales multiple, the stock is not cheap but it is not trading above historical highs.

Hubspot had a strong quarterly result

Hubspot delivered a strong quarter where the company’s revenue increased to $199M, representing a 13% year-on-year growth. Subscription revenue makes up $191M, which is 96% of Hubspot’s total revenue for the quarter. This high level of predictability means that the company can expect consistent cash flows compared to software companies that take in a one-time large license fee.

The company has also been successful with its land-and-expand model. Hubspot grew total customers to 78,776 as at March 2020, up 30% year-on-year. Existing customers have also been spending more each year, with total average subscription revenue per customer 2% higher year-on-year.

Hubspot’s revenue has also been powered by its international growth, which now makes up 42% of Q1 2020 revenue compared to 22% in Q3 2014. This is an important metric as it shows the scalability of Hubspot’s platform on a global level. From this growth, it is likely that Hubspot’s value proposition is attractive all over the world.

(Source: Investor Presentation)

Our view is that the smaller companies are being underserved by enterprise software providers, as the smaller deal sizes make it difficult to serve them efficiently. As such, Hubspot’s focus has been serving this niche in a meaningful manner. We think the company has a long runway for growth as it gains new customers while increasing their usage of Hubspot services gradually through multiple hubs that the company provides.

Hubspot is entering the downturn from a position of strength

As some companies had to layoff employees, Hubspot has actually hired more people. Its employee count is at 3,578, which is 30% higher year-over-year. The company also adapted quickly due to their remote presence before the pandemic:

In mid-March, we moved quickly to shift our entire workforce to a remote working environment to protect our employees and our communities. Prior to the pandemic, remote was already our third largest office, and I believe our systems and employees have adapted well. As a reminder, we plan for higher headcount growth in the first half of 2020 as a result of our strong hiring last fall.

Hubspot has also been helping its customers and prospects by giving its team a lot of flexibility in offering discounts and flexible payment terms. The company also lifted e-mail and calling limits and added a collection of features, including meetings, bots and 1:1 video into their free CRM. They have also reduced the price of their starter growth suite by over 50% late in the quarter. This helps to reduce the financial strain on companies that are facing difficulties during this period. For those companies that are transitioning online with cash flow difficulties, the concessions make it easy to start using Hubspot as well.

Hubspot has also introduced its CMS hub, which helps make managing websites at scale easier. It provides features like dynamic content, adaptive testing and 24/7 security monitoring, which adds value for growing companies. The creation of more hubs helps Hubspot continue its land-and-expand model and we should expect higher average revenue per customer increasing in the future.

These moves might result in some short term volatility in Hubspot’s financials, but it creates a long-term tailwind for the company as customers continue to stick with Hubspot after they transition online. Hubspot also has the financial capability to support these concessions as it has $968M of cash and cash equivalents and only $346M of long term debt. The company also generated $60M of free cash flow in the latest fiscal year, which reduces the need for Hubspot to raise more capital to support these initiatives.

Long term prospects look good for Hubspot

We expect a 20-25% compound annual growth rate over the next five years, driven largely by subscription growth. Given Hubspot’s recent growth rates of over 30% and the launch of more hubs, we believe this growth is achievable. Hubspot also expects its operating margin in the long term to be roughly 20-25%. We expect HubSpot’s non-GAAP operating margin to rise from its current 10.3% to around 20% in the next 5 years. This is mostly driven by operating leverage in expense items such as research and development, and sales and marketing.

Valuation

With the recent spike in stock price, Hubspot is now up 22% year-to-date. This is reflected in a higher price-to-sales ratio at 11.82 currently. This is trading near the top in the past 6 months. Hubspot is not the steal that it was in the middle of March 2020 but its strong fundamentals might make this a buy in the long run. The highest price-to-sales ratio over the past 5 years for Hubspot was in the high 13s. Hence, there is a case that the stock is fairly priced for investors willing to hold through the volatility.

(Source: Seeking Alpha)

Conclusion

While Hubspot has customers of all sizes, the bulk of them falls in the smaller or mid-market segment. These customers typically have a higher churn rate due their failure rate and lower cash flows. During the downturn, it is likely that the company would face a higher churn rate compared to previous years as companies go out of business.

For Hubspot to continue its strong performance, it has to continue innovating and serving its customers well. This will improve the odds that customers will stay on its platform for the long term. Up till now, Hubspot appears to be executing well on all fronts.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Visa sees ‘significant deterioration’ in spending but some areas are showing improvement


Visa Inc. saw a “significant deterioration” in spending toward the end of March amid the COVID-19 crisis, but some areas of the business seem to be improving.

The company topped profit and revenue expectations Thursday afternoon, earning an adjusted $1.39 a share for the fiscal second quarter on revenue of $5.85 billion. Analysts surveyed by FactSet were modeling $5.72 billion.

Shares
V,
-1.68%

were down 0.7% in after-hours trading.

Visa also shared data points from beyond the March quarter, indicating that U.S. payment volumes in the U.S. were down 19% through April 28, with debit down 6% and credit down 31%. E-commerce volume was up 18% in April, while card-present volume was off 45%.

The company is seeing “significant differences in how lockdowns have been impacting spend categories” in the U.S., with volume trends at places like drugstores, Walmart Inc.
WMT,
-1.65%

, and Target Corp.
TGT,
-2.10%

stores up about 20% in April.

“Essentially all growth is coming from online spending, up over 100% in the last two weeks of April, assisted by the adoption of curbside pickup and delivery,” Chief Financial Officer Vasant Prabhu said on Visa’s earnings call.

Spending on areas like telecommunications, utilities, insurance and business supplies is “holding up relatively well,” with a 15% drop at the end of March and a recovery to “flat” April growth relative to the year-earlier period.

Those two spending categories each account for about a fifth of Visa’s U.S. volumes, though the company has greater exposure to areas that have been more thoroughly impacted by the COVID-19 outbreak.

Read: Amazon’s CEO tells investors ‘you may want to take a seat,’ as he explains why the company will spend ‘entirety’ of $4 billion profit

A third of Visa’s U.S. volume comes from areas like retail, automotive, health care and education, categories where spending is declining between 15% to 50%, Prabhu said. And about a quarter of domestic volume comes from even harder-hit areas like fuel, travel, restaurants and entertainment, all of which are down at least 50% in March, with travel spending in particular down about 80%.

Prabhu disclosed that debit volumes actually “spiked into positive territory” in the U.S. during the last two weeks of April “as the first wave of economic-impact payments were distributed,” though the company isn’t yet sure if that marks the beginning of a recovery, a plateau, or a trend that may reverse in a few weeks.

“Notably, the company was transparent about being unsure whether this end-of-April improvement — which was likely boosted by government stimulus — will prove sustainable or not,” Barclays analyst Ramsey El-Assal wrote following the earnings call.

Internationally, markets such as Canada and Europe have seen similar trends to the U.S., he said, while Australia has seen “a shallower decline.” Cross-border volumes declined 2% in the first quarter and were down 43% through April 28, or 52% excluding transactions within the European Union.

The card giant is trying to grow adoption of tap payments coming out of the crisis due to heightened concerns about possible germ spread through cash exchanges. It has set up a site where merchants can request signage for their stores indicating that contactless payments will be accepted there and it has been working to increase the transaction limits for tap payments.

The company said in a blog post that 31 million people in the U.S. paid with a Visa contactless card or digital wallet in March, up from 25 million in November. Overall usage of contactless payments is up 150% since last March, according to the post.

Don’t miss: Apple earnings dip amid coronavirus pandemic, but investors set to receive billions more

Visa’s report comes a day after rival Mastercard Inc.
MA,
-3.07%

posted its earnings. Mastercard also showed a slowdown in spending trends as the coronavirus outbreak worsened, though Mastercard’s management sounded upbeat as well about a more recent stabilization. While Mastercard expects travel-related spending to remain stubborn, the company also saw e-commerce make up a greater portion of overall volume as more people gravitate to online services during the pandemic.

Both Visa and Mastercard are making a push to grow the usage of tap payments in the U.S. and around the world as the card companies view contactless transactions as a way to entice consumers to use digital payment methods more often.

“We’re comforted by the fact that Visa is taking solid action around expenses in the back half of F2020 and the reiteration of the buyback program for the remainder of the year, both of which we believe will help to offset some of the headwinds to top-line growth,” Keefe, Bruyette, & Woods analyst Sanjay Sakhrani wrote in a note to clients after the report.

Wedbush’s Moshe Katri expects “strong ancillary services as well as cross border ecommerce to also provide offsets to a weak cross-border vertical.” Visa is seeing interest in services that make use of data and those that help store card credentials.

Visa shares have lost 14% over the past three months as the Dow Jones Industrial Average
DJIA,
-1.17%

has declined 16%.



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America’s housing market is showing the first signs of trouble from the coronavirus pandemic


March started out as a strong month for the U.S. housing market — but by the second half of the month, the first indications that the coronavirus pandemic would weigh on home-selling activity began to emerge, according to a new report from Realtor.com.

In the weeks ending March 21 and March 28, the number of newly-listed properties fell by 13.1% and 34% respectively when compared with the same period a year ago, Realtor.com found. This is an indication that home sellers may be holding off on listing their properties right now.

The pace of home-price growth also slowed notably in the latter half of the month, according to the report. Home list prices were only up 3.3% year-over-year for the week ending March 21, and 2.5% for the following week. This represented the slowest pace of listing price growth since Realtor.com started tracking this data in 2013.

Read more:These mortgage borrowers will be ‘the first canary in the coal mine’ for a coronavirus-fueled foreclosure crisis, regulator says

(Realtor.com is operated by News Corp
US:NWSA
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

“Our inventory and listing data can provide some early insight into how housing markets may be impacted by COVID-19, but the situation and reactions to it are still rapidly evolving,” Realtor.com chief economist Danielle Hale wrote in the report.

“The U.S. housing market had a good start to the year. Despite still-limited homes for sale, buyers were buying and builders were building,” she wrote. “The pandemic and virus-fighting measures appear to be disrupting that initial momentum as both buyers and sellers adopt a more cautious posture.”

Real-estate firms have taken steps to brace for the impact of the coronavirus pandemic. So-called iBuyers including Zillow
US:ZG
and Redfin
US:RDFN
that purchase homes from sellers and then sell them for a profit had wound down their home-buying operations in anticipation of an economic downturn. Real-estate brokers, incuding Redfin and Re/Max
US:RMAX
, had also shifted toward virtual home tours as open houses became verboten in the wake of social-distancing recommendations.

And other recent reports have shown additional signs of a slowdown in the housing market. LendingTree
US:TREE
released an analysis of Google
US:GOOG
search data analyzing the popularity of the search term “homes for sale” across the country’s 50 largest metro areas. Searches for “homes for sale” have fallen across all 50 cities in the study from their peak levels in 2020 thus far.

LendingTree estimated that these Google searches could drop some 63% compared with last year if the impact of the COVID-19 outbreak remains substantial for the next two months. A drop in web searches could presage a decline in home sales.

Also see:‘Landlords are just trying to pay bills like everyone else.’ The coronavirus could hit mom-and-pop landlords hard as tenants miss rent payments

Another sign that home sales will slump this spring: Mortgage applications. The volume of mortgage applications for loans used to purchase homes was down 24% compared with a year ago for the week ending March 27, according to data from the Mortgage Bankers Association. That’s in spite of mortgage rates being near historic lows. Comparatively, the volume of refinance applications was 168% higher than a year ago.

Before the coronavirus pandemic flared up, the U.S. housing market was on relatively solid footing. While the number of homes for sale remained low — constraining sales activity to an extent — demand among buyers was still quite high. Low mortgage rates had fueled an early start to the spring home-buying season, with homes selling four days faster in March when compared with 2019 levels, Realtor.com found.

The jump in jobless claims has stoked concerns of a repeat of the Great Recession and the foreclosure crisis that preceded it. But housing economists argue that this is unlikely to be the case.

Dispatches from a pandemic:‘Would you risk your life for a bagel?’ A New Yorker’s 5-point guide to surviving grocery stores during the coronavirus pandemic

“While housing led the recession in 2008-2009, this time it may be poised to bring us out of it,” Mark Fleming, chief economist for title insurance company First American Financial Corporation
US:FAF
, wrote in a report this week.

Unlike in the 2000s, the housing market in the U.S. is not overbuilt, Fleming argued, making it less likely that a large swath of vacant properties will crater the home values for homeowners. Rising home values and stricter lending standards have also meant that homeowners are sitting on historically high amounts of home equity.

“The housing market will not go unscathed, as consumer confidence and a strong labor market are essential in the decision to purchase a home,” Fleming wrote. “Yet, this time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.”



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