Top US stocks: Disney, Kansas City Southern and Airbnb

Disney beats expectations, Kansas City Southern could delay its takeover vote scheduled next week, Airbnb warns of the threat from the Delta variant, DoorDash orders hit new records, Honest Co’s results disappoint, and Tesla is hoping to produce its first car in Germany within months.

USA (1)

Disney

Disney performed better than expected in the third quarter of its financial year, with Disney+ adding more subscribers than forecast and its theme parks and resorts returning to profit for the first time since the pandemic began.

Revenue rose 45% to $17.02 billion from $11.77 billion the year before and adjusted EPS of $0.80 improved from just $0.08. This was ahead of the $16.76 billion in revenue and $0.55 earnings forecast by Wall Street. Its parks and resorts turned to a $356 million profit from a hefty $1.87 billion loss, but that was enough to counter lower profits from its TV and production studios.

Disney+ ended the period with 116 million subscribers, up from 103.6 million in April and considerably ahead of the 112.3 million expected by analysts. Those 12.4 million additions was ahead of the 8.7 million reported in the second quarter but below the bumper 21 million reported in the first. That will be welcome considering rivals are seeing markedly slower growth, with Netflix having added just 1.5 million subscribers in the second quarter.

Kansas City Southern

Kansas City Southern reaffirmed its recommendation for a $29 billion takeover offer from Canadian National Railway on Thursday and turned down a rival $27 billion bid from Canadian Pacific Railway – but urged for the rail regulator to take swifter action.

Investors are due to vote on the proposed deal offered by Canadian National on August 19 but Kansas City Southern wants the regulator to make a final decision on the structure of the voting trust that will be used to ringfence the company from Canadian National until the deal is formally cleared beforehand. The regulator previously said it would make a decision by the end of August but Kansas City Southern will delay the shareholder vote and reconvene the meeting at a later date if the regulator doesn’t make a decision by August 17 in order to provide everyone more time to digest the update.

The deal has been closely watched by regulators as it would form the first network spanning Canada, the US and Mexico regardless of which Canadian company wins. Canadian National has already agreed to sell off some lines to alleviate competition concerns. Canadian Pacific had argued there were less regulatory concerns with its proposed deal.

Airbnb

Airbnb topped Wall Street estimates when it released second quarter results, with revenue and bookings surpassing pre-pandemic levels as people start travelling again, but warned the spread of the Delta variant will cause bookings to remain volatile going forward.

Revenue rose to $1.3 billion from just $334.8 million the year before and came in 10% ahead of pre-pandemic levels, driven by higher prices. Adjusted Ebitda of $217 million turned from a $397.5 million loss the year before and came in ahead of the $41.2 million profit Wall Street had anticipated.

Airbnb warned that the Delta variant will continue to cause volatility in bookings, impacting how often people book and cancel, which will cause bookings to be ‘more volatile and non-linear’ going forward. Still, the boost in prices is expected to deliver the ‘strongest quarterly revenue on record and highest adjusted Ebitda dollars and margin ever’ in the third quarter.

DoorDash

DoorDash said it took more orders than ever before in the second quarter, allowing it to breeze past analyst expectations and raise its full year targets.

Revenue grew 83% to $1.23 billion, driven by a 68% jump in orders to a new quarterly record and beating the $1.08 billion expected by analysts. Adjusted Ebitda of $113 million also came in higher than the $64.3 million forecast by Wall Street. It said customers were ordering through its app more frequently than ever and that the number of DashPass subscribers continues to grow.

DoorDash said it is expecting adjusted Ebitda of between breakeven and $100 million in the third quarter but upgraded its expectations for the full year. It is now targeting $150 to $350 million in annual earnings compared to a previous target of breakeven to $300 million.

Honest Co

Honest Co missed expectations in the latest quarter as it came up against strong numbers from last year when the pandemic sparked demand for its health and wellness products.

Revenue rose year-on-year for the seventh consecutive quarter to $74.6 million from $72.4 million the year before despite coming up against tougher comparatives from last year when customers stockpiled diapers, wipes and other products. Its net loss widened to $20.0 million from $375,000. Still, that was worse than the $78.8 million in revenue and $14.6 million loss forecast by Wall Street.

‘For the first half of 2021, we were pleased to deliver 8% revenue and volume growth on top of the accelerated COVID stock-up surge of 25% revenue growth that we saw in the first half of 2020 as compared to the first half of 2019. We also exceeded our gross margin expectations for the overall business in the first half of 2021, showing the strength of our business at a time when our entire industry faced a challenging input cost, inventory and supply chain environment,’ said chief executive Nick Vlahos.

23andMe

23andMe, known for its consumer-focused DNA testing and analysis kits, posted strong revenue growth and wider losses as it reported its first set of results since going public.

Revenue in the first quarter of its financial year rose 23% to $59 million, flattered by last year’s figures that were hurt by the onset of the pandemic, and its adjusted Ebitda loss widened to $27 million from $20 million. The net loss at the bottom line swelled to $42 million from $36 million.

23andMe said it is expecting annual revenue of $250 to $260 million, an adjusted Ebitda loss of between $143 to $158 million and a net loss of $210 to $225 million.

SoFi Technologies

Financial management app SoFi posted its eighth consecutive quarter of faster growth in members using its app, allowing it to deliver record revenue.

It ended the period with 79 million accounts on its platform, up from 70 million three months earlier. It sold 981,000 lending products in the period, up from 945,000 in the previous quarter while sales of other financial services jumped to 2.6 million from 2.2 million, with both hitting new all-time highs.

Adjusted revenue rose 74% year-on-year to $237.2 million and adjusted Ebitda of $11.2 million turned from a $23.8 million loss. That marked the fourth consecutive quarter of positive Ebitda and a new record for the company. However, it slipped deep into the red at the bottom-line with a net loss of $165.3 million compared to a $7.8 million profit the year before.

ContextLogic

ContextLogic, the operator of online store Wish, said its performance ‘did not meet our expectations’ when it released second quarter results yesterday, but said it had implemented initiatives to improve the user experience and reignite engagement.

Revenue dropped to $656 million from $701 million the year before, while its net loss widened to $111 million from $11 million. A sharp 29% decline in Marketplace revenue after it failed to retain as many customers as it hoped, and this offset a 126% lift in revenue from its smaller Logistics unit. The fact it came up against strong comparatives from last year emphasised the decline.

JPMorgan downgraded the stock to Underweight yesterday, Credit Suisse slashed its target price to $19 from $24, and Evercore ISI cut its price to $8 from $13.

Arthur J Gallagher and Willis Towers Watson

Insurance broker Arthur J Gallagher said it has agreed to buy the reinsurance business of Willis Towers Watson for an initial $3.25 billion, with potential for another $750 million to be paid if the assets achieve certain revenue targets over the first three years of ownership.

The announcement comes just weeks after a $30 billion merger between Willis Towers Watson and Aon collapsed following regulatory opposition. The assets being bought by Arthur J Gallagher generated $745 million in revenue and $265 million in earnings in 2020.

Arthur J Gallagher said the acquisition would expand its position in the reinsurance brokerage market and broaden its suite of analytics.

Tesla

Tesla is aiming to produce its first electric car from its Gigafactory in Germany in or around October this year, although doubt remains whether it can happen that soon.

‘We're looking forward to hopefully getting the approval to make the first cars maybe in October if we are fortunate,’ said chief executive Elon Musk during a visit to the plant. However, the environmental agency still needs to give the final green light to the deal and reports from Reuters suggest a delay out into 2022 can not be ruled out.

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