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Spotify, and Duluth Holdings have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL –July 18, 2024 – Zacks Equity Research shares Spotify Technology S.A. (SPOT - Free Report) , as the Bull of the Day and Duluth Holdings Inc. (DLTH - Free Report) , as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SLB (SLB - Free Report) , Baker Hughes Company (BKR - Free Report) and Halliburton Company (HAL - Free Report) .
Spotify Technology S.A. changed the music industry forever. Spotify has remained the streaming music powerhouse despite competition from Apple, Amazon, and Alphabet, closing last quarter with 615 million monthly active users, up 19% YoY.
Spotify’s newfound commitment to efficiency and profits, mixed with a string of price hikes are leading to soaring earnings growth. SPOT is also set to double its revenue between 2020 and 2025.
Spotify shares have soared roughly 300% off their 2022 lows. Yet, the recent big-tech pullback has Spotify trading 20% below its all-time highs, with enticing valuation levels.
Spotify’s Bullish Basics
Spotify kickstarted the paid streaming music industry in 2008. The firm was the vanguard of paid streaming, reshaping the music industry as much as Netflix forever altered TV and movies. Spotify is thriving despite streaming music competition from Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL), as users flock to the service for music, podcasts, and more recently, audiobooks.
SPOT nearly doubled its revenue between 2019 and 2023. Spotify grew its monthly active users by 19% YoY in the first quarter of 2024 to 615 million across 184 markets, expanding its paid Premium Subscribers by 14% to 239 million. Spotify grew its Premium Subscribers by 84% between Q1 FY20 and Q1 FY24, while monthly active users surged 115%.
Spotify in the summer of 2023 raised its monthly prices for its ad-free Premium plans to match competitors such as Apple and Amazon. The streaming music firm announced in June 2024 another price hike to help keep up with inflation and boost profits. Spotify raised the price for its individual Premium subscriptions by a dollar to $11.99 a month, while Duo plans climbed by $2 to $16.99 a month. Meanwhile, family plans were hiked by $3 to $19.99 a month.
Spotify is focused on efficiency, having trimmed its workforce among other efforts. The company boosted its ad-supported gross margin to 6% last quarter vs. -3% in the year-ago period, as revenue growth outpaced rising content costs. Premium gross margin climbed to 30% vs. 29%, primarily driven by sales growth outpacing music royalty costs.
Looking ahead, some Wall Street analysts project Spotify will grow its total user base by almost 50% by 2028 to 900 million. Spotify’s user growth expansion is key to helping it continue to negotiate favorable rights deals with artists.
Growth Outlook
Spotify grew its revenue by 21% last quarter and swung from an adjusted loss of -$1.24 a share to +$1.05, crushing our bottom line estimate. The company is now firmly committed to profits amid the new interest rate environment, alongside the likes of Amazon.
SPOT’s adjusted earnings outlook has skyrocketed over the past 12 months, up 723% for FY24 and 215% for FY25. The streaming music firm’s upbeat EPS outlook helps it land its Zacks Rank #1 (Strong Buy). Spotify’s most accurate/recent EPS estimates came in slightly below consensus, but SPOT stock's recent pullback will help account for that.
Zacks estimates call for SPOT to grow its sales by 18% in 2024 and another 15% next year to soar from around $14 billion in FY23 to nearly $20 billion next year—doubling revenue between FY20 and FY25.
Spotify is projected to swing from an adjusted loss of -$2.95 a share last year to +$5.02 per share in 2024 and then surge another 44% next year. The earnings expansion is driving the stock, with Wall Street convinced that Spotify has reached an inflection point on profits.
Performance, Technical Levels, and Valuation
Spotify stock has climbed around 100% since its 2018 IPO, lagging the Zacks Tech sector’s 190% run. But Spotify shares have soared roughly 300% off their 2022 lows (around the stock market’s 2022 bottom), including a 55% YTD climb, blowing away Apple, Amazon, and Alphabet during those stretches.
SPOT has faced some selling pressure recently, alongside plenty of other first-half big tech winners. Spotify is down around 11% from its early June highs, putting it 20% off its 2021 peaks.
Spotify is trading below its 21-day and 50-day moving averages and at some of its most oversold RSI levels over the last five years. Any pullback to SPOT’s 200-day moving average (around $240 per share) would mark a screaming buy opportunity.
Spotify is trading at 48.1X forward 12-month earnings, which is hardly cheap. But it has traded as high as 175X earnings over the last year. SPOT’s PEG ratio, which factors in its long-term EPS growth outlook, comes in at 0.6, offering a 67% discount to the Tech sector.
Bottom Line
Spotify’s recent downturn could set up SPOT stock for a potential break out in the coming weeks, especially if it impresses Wall Street with strong guidance on Tuesday, July 23.
Duluth Holdings Inc. is a workwear-centric lifestyle brand hit by slowing consumer spending and other headwinds.
Duluth’s earnings outlook has tumbled for 2024 and 2025, helping send DLTH stock down 30% YTD. Duluth’s recent disappointing performance is part of an 80% drop over the past three years.
Duluth Basics
Duluth is a lifestyle brand designed for the ‘modern, self-reliant American.’ The Wisconsin-based firm sells quality, solution-based workwear and casual wear, alongside accessories for men and women. Duluth sells everything from rain jackets and vests to flannels and underwear. Duluth also sells supplies such as toolboxes and much more.
Duluth posted a nice stretch of growth between its IPO in late 2015 through 2019. DLTH still posted solid top-line expansion for a few years after that run. But DLTH has faded recently, with sales down 6.5% in 2022 and 1% lower in FY23. The company also tumbled from adjusted earnings of +$0.07 a share in FY22 to a loss of -$0.28 per share last year.
Duluth posted an adjusted loss of -$0.24 per share in the first quarter of FY24, falling well short of our -$0.14 estimate. “Despite some key quarter wins, we are not satisfied with our first quarter results which fell short of our internal expectations,” CEO Sam Sato said in prepared remarks.
“Our top-line quarter performance, at a decline of 5.7%, was hampered by challenging traffic and a sub-par in-stock position following stronger than expected unit selling late in the fourth quarter. We took swift action to improve our in-stock position in core items, which improved throughout the quarter and into the second quarter to date.”
Duluth’s FY24 earnings outlook has tumbled from +$0.20 a share a year ago to -$0.23 per share today. On top of that, DLTH’s FY25 estimate has dropped from +$0.05 as recently as April to -$0.05 today.
Bottom Line
Duluth’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. Duluth stock has fallen 80% over the past three years to trade near its Covid selloff lows.
DLTH stock is trading below its 50-day and 200-day moving averages, and its Textile – Apparel industry is in the bottom 22% of over 250 Zacks industries. Therefore, it might be best to stay away from Duluth right now.
Additional content:
Buy, Sell or Hold SLB Ahead of Q2 Earnings?
SLB is set to report second-quarter 2024 results on Jul 19, 2024, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is pegged at 83 cents per share, implying growth of 15.3% from the year-ago reported number. The estimate was revised upward by one analyst in the past 30 days against two downward movements, making the earnings estimate remain the same at 83 cents per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $9.1 billion, indicating an 11.9% uptick from the year-ago actuals.
SLB beat the consensus estimate for earnings in all the trailing four quarters, with the average surprise being 1.6%.
Our proven model does not conclusively predict an earnings beat for SLB this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is not the case here.
The company has an Earnings ESP of -0.50%. This is because the Most Accurate Estimate currently stands at 82 cents per share, lower than the Zacks Consensus Estimate of 83 cents. SLB currently carries a Zacks Rank #4 (Sell).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
According to the U.S. Energy Information Administration, the average spot prices for West Texas Intermediate crude at Cushing, OK, were $85.35 per barrel in April, $80.02 per barrel in May, and $79.77 per barrel in June. This indicates that the crude pricing environment in the second quarter was highly favorable for exploration and production activities. Despite this favorable pricing, drilling activities declined both domestically and internationally.
Baker Hughes Company reported in its quarterly rig count that the number of rigs operating in North America during the June quarter was 738, down from 831 rigs in the first quarter. In the international market, the count was 963 in the second quarter, which also declined from the prior quarter.
The decrease in drilling activities in both domestic and international markets suggests that explorers and producers likely spent less on upstream activities. Lower spending by customers is likely to have affected the demand for services provided by the leading oilfield service provider SLB. The Zacks Consensus Estimate for the company’s operating earnings before tax from the Well Construction business is pegged at $727 million, lower than $731 million in the year-ago quarter. Notably, the Well Construction business unit, which focuses on maximizing drilling efficiency and optimizing well placement and performance, is the major revenue contributor among all the business segments.
Price Performance & Valuation
SLB's stock has exhibited a downward movement in the year-to-date period. The stock has lost 5.8% against the industry’s growth of 5.5% in the same time frame. Halliburton Company , another leading player in the oilfield service space, gains a nominal 0.5% over the same time frame.
YTD Price Performance
Despite the recent price decline, SLB still appears relatively overvalued, indicating the potential for further price decreases. The company's current trailing 12-month Enterprise Value/Earnings Before Interest, Tax, Depreciation, and Amortization (EV/EBITDA) ratio is 9.56X, which is trading at a premium compared to the broader industry average of 7.81X.
Investment Thesis
The underperformance of the stock price compared with the industry is a clear reflection of the company-specific risk. Weakness in the North American market is probably affecting the stock price performance. The potential for a cut in capital spending by the explorers and producers in the major basins in North America and the end of the U.S. shale revolution will continue to lower demand for products and services offered by SLB.
Huge dependence on the international market is also posing a significant threat to the company’s operations. This is because exposures in the Middle Eastern markets introduce significant geopolitical and operational risks to its operations.
Last Word
SLB's overall business is expected to remain in a bearish phase due to declining drilling activities among upstream companies globally. This reduction in capital expenditures by SLB's customers has likely dampened demand for the company's products and services throughout the second quarter, with indications that this trend will persist. Consequently, given its current overvaluation, it would be prudent to sell this stock.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Spotify, and Duluth Holdings have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL –July 18, 2024 – Zacks Equity Research shares Spotify Technology S.A. (SPOT - Free Report) , as the Bull of the Day and Duluth Holdings Inc. (DLTH - Free Report) , as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SLB (SLB - Free Report) , Baker Hughes Company (BKR - Free Report) and Halliburton Company (HAL - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Spotify Technology S.A. changed the music industry forever. Spotify has remained the streaming music powerhouse despite competition from Apple, Amazon, and Alphabet, closing last quarter with 615 million monthly active users, up 19% YoY.
Spotify’s newfound commitment to efficiency and profits, mixed with a string of price hikes are leading to soaring earnings growth. SPOT is also set to double its revenue between 2020 and 2025.
Spotify shares have soared roughly 300% off their 2022 lows. Yet, the recent big-tech pullback has Spotify trading 20% below its all-time highs, with enticing valuation levels.
Spotify’s Bullish Basics
Spotify kickstarted the paid streaming music industry in 2008. The firm was the vanguard of paid streaming, reshaping the music industry as much as Netflix forever altered TV and movies. Spotify is thriving despite streaming music competition from Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL), as users flock to the service for music, podcasts, and more recently, audiobooks.
SPOT nearly doubled its revenue between 2019 and 2023. Spotify grew its monthly active users by 19% YoY in the first quarter of 2024 to 615 million across 184 markets, expanding its paid Premium Subscribers by 14% to 239 million. Spotify grew its Premium Subscribers by 84% between Q1 FY20 and Q1 FY24, while monthly active users surged 115%.
Spotify in the summer of 2023 raised its monthly prices for its ad-free Premium plans to match competitors such as Apple and Amazon. The streaming music firm announced in June 2024 another price hike to help keep up with inflation and boost profits. Spotify raised the price for its individual Premium subscriptions by a dollar to $11.99 a month, while Duo plans climbed by $2 to $16.99 a month. Meanwhile, family plans were hiked by $3 to $19.99 a month.
Spotify is focused on efficiency, having trimmed its workforce among other efforts. The company boosted its ad-supported gross margin to 6% last quarter vs. -3% in the year-ago period, as revenue growth outpaced rising content costs. Premium gross margin climbed to 30% vs. 29%, primarily driven by sales growth outpacing music royalty costs.
Looking ahead, some Wall Street analysts project Spotify will grow its total user base by almost 50% by 2028 to 900 million. Spotify’s user growth expansion is key to helping it continue to negotiate favorable rights deals with artists.
Growth Outlook
Spotify grew its revenue by 21% last quarter and swung from an adjusted loss of -$1.24 a share to +$1.05, crushing our bottom line estimate. The company is now firmly committed to profits amid the new interest rate environment, alongside the likes of Amazon.
SPOT’s adjusted earnings outlook has skyrocketed over the past 12 months, up 723% for FY24 and 215% for FY25. The streaming music firm’s upbeat EPS outlook helps it land its Zacks Rank #1 (Strong Buy). Spotify’s most accurate/recent EPS estimates came in slightly below consensus, but SPOT stock's recent pullback will help account for that.
Zacks estimates call for SPOT to grow its sales by 18% in 2024 and another 15% next year to soar from around $14 billion in FY23 to nearly $20 billion next year—doubling revenue between FY20 and FY25.
Spotify is projected to swing from an adjusted loss of -$2.95 a share last year to +$5.02 per share in 2024 and then surge another 44% next year. The earnings expansion is driving the stock, with Wall Street convinced that Spotify has reached an inflection point on profits.
Performance, Technical Levels, and Valuation
Spotify stock has climbed around 100% since its 2018 IPO, lagging the Zacks Tech sector’s 190% run. But Spotify shares have soared roughly 300% off their 2022 lows (around the stock market’s 2022 bottom), including a 55% YTD climb, blowing away Apple, Amazon, and Alphabet during those stretches.
SPOT has faced some selling pressure recently, alongside plenty of other first-half big tech winners. Spotify is down around 11% from its early June highs, putting it 20% off its 2021 peaks.
Spotify is trading below its 21-day and 50-day moving averages and at some of its most oversold RSI levels over the last five years. Any pullback to SPOT’s 200-day moving average (around $240 per share) would mark a screaming buy opportunity.
Spotify is trading at 48.1X forward 12-month earnings, which is hardly cheap. But it has traded as high as 175X earnings over the last year. SPOT’s PEG ratio, which factors in its long-term EPS growth outlook, comes in at 0.6, offering a 67% discount to the Tech sector.
Bottom Line
Spotify’s recent downturn could set up SPOT stock for a potential break out in the coming weeks, especially if it impresses Wall Street with strong guidance on Tuesday, July 23.
Bear of the Day:
Duluth Holdings Inc. is a workwear-centric lifestyle brand hit by slowing consumer spending and other headwinds.
Duluth’s earnings outlook has tumbled for 2024 and 2025, helping send DLTH stock down 30% YTD. Duluth’s recent disappointing performance is part of an 80% drop over the past three years.
Duluth Basics
Duluth is a lifestyle brand designed for the ‘modern, self-reliant American.’ The Wisconsin-based firm sells quality, solution-based workwear and casual wear, alongside accessories for men and women. Duluth sells everything from rain jackets and vests to flannels and underwear. Duluth also sells supplies such as toolboxes and much more.
Duluth posted a nice stretch of growth between its IPO in late 2015 through 2019. DLTH still posted solid top-line expansion for a few years after that run. But DLTH has faded recently, with sales down 6.5% in 2022 and 1% lower in FY23. The company also tumbled from adjusted earnings of +$0.07 a share in FY22 to a loss of -$0.28 per share last year.
Duluth posted an adjusted loss of -$0.24 per share in the first quarter of FY24, falling well short of our -$0.14 estimate. “Despite some key quarter wins, we are not satisfied with our first quarter results which fell short of our internal expectations,” CEO Sam Sato said in prepared remarks.
“Our top-line quarter performance, at a decline of 5.7%, was hampered by challenging traffic and a sub-par in-stock position following stronger than expected unit selling late in the fourth quarter. We took swift action to improve our in-stock position in core items, which improved throughout the quarter and into the second quarter to date.”
Duluth’s FY24 earnings outlook has tumbled from +$0.20 a share a year ago to -$0.23 per share today. On top of that, DLTH’s FY25 estimate has dropped from +$0.05 as recently as April to -$0.05 today.
Bottom Line
Duluth’s downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now. Duluth stock has fallen 80% over the past three years to trade near its Covid selloff lows.
DLTH stock is trading below its 50-day and 200-day moving averages, and its Textile – Apparel industry is in the bottom 22% of over 250 Zacks industries. Therefore, it might be best to stay away from Duluth right now.
Additional content:
Buy, Sell or Hold SLB Ahead of Q2 Earnings?
SLB is set to report second-quarter 2024 results on Jul 19, 2024, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is pegged at 83 cents per share, implying growth of 15.3% from the year-ago reported number. The estimate was revised upward by one analyst in the past 30 days against two downward movements, making the earnings estimate remain the same at 83 cents per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $9.1 billion, indicating an 11.9% uptick from the year-ago actuals.
SLB beat the consensus estimate for earnings in all the trailing four quarters, with the average surprise being 1.6%.
SLB price-eps-surprise | SLB Quote
Q2 Earnings Whispers
Our proven model does not conclusively predict an earnings beat for SLB this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That is not the case here.
The company has an Earnings ESP of -0.50%. This is because the Most Accurate Estimate currently stands at 82 cents per share, lower than the Zacks Consensus Estimate of 83 cents. SLB currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Q2 Results
According to the U.S. Energy Information Administration, the average spot prices for West Texas Intermediate crude at Cushing, OK, were $85.35 per barrel in April, $80.02 per barrel in May, and $79.77 per barrel in June. This indicates that the crude pricing environment in the second quarter was highly favorable for exploration and production activities. Despite this favorable pricing, drilling activities declined both domestically and internationally.
Baker Hughes Company reported in its quarterly rig count that the number of rigs operating in North America during the June quarter was 738, down from 831 rigs in the first quarter. In the international market, the count was 963 in the second quarter, which also declined from the prior quarter.
The decrease in drilling activities in both domestic and international markets suggests that explorers and producers likely spent less on upstream activities. Lower spending by customers is likely to have affected the demand for services provided by the leading oilfield service provider SLB. The Zacks Consensus Estimate for the company’s operating earnings before tax from the Well Construction business is pegged at $727 million, lower than $731 million in the year-ago quarter. Notably, the Well Construction business unit, which focuses on maximizing drilling efficiency and optimizing well placement and performance, is the major revenue contributor among all the business segments.
Price Performance & Valuation
SLB's stock has exhibited a downward movement in the year-to-date period. The stock has lost 5.8% against the industry’s growth of 5.5% in the same time frame. Halliburton Company , another leading player in the oilfield service space, gains a nominal 0.5% over the same time frame.
YTD Price Performance
Despite the recent price decline, SLB still appears relatively overvalued, indicating the potential for further price decreases. The company's current trailing 12-month Enterprise Value/Earnings Before Interest, Tax, Depreciation, and Amortization (EV/EBITDA) ratio is 9.56X, which is trading at a premium compared to the broader industry average of 7.81X.
Investment Thesis
The underperformance of the stock price compared with the industry is a clear reflection of the company-specific risk. Weakness in the North American market is probably affecting the stock price performance. The potential for a cut in capital spending by the explorers and producers in the major basins in North America and the end of the U.S. shale revolution will continue to lower demand for products and services offered by SLB.
Huge dependence on the international market is also posing a significant threat to the company’s operations. This is because exposures in the Middle Eastern markets introduce significant geopolitical and operational risks to its operations.
Last Word
SLB's overall business is expected to remain in a bearish phase due to declining drilling activities among upstream companies globally. This reduction in capital expenditures by SLB's customers has likely dampened demand for the company's products and services throughout the second quarter, with indications that this trend will persist. Consequently, given its current overvaluation, it would be prudent to sell this stock.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.