👓 DTC in the Dumps

POWERED BY CAMPY GEAR

Hi all, happy Sunday. Just a quick note for you today. We have a new section called “Street Treats” below. Every Sunday we’re going to curate deals and discounts on products we think you’ll like. If you have any items in mind that you want us to track down, just respond directly to this email. We hope you enjoy it moving forward, please send any feedback our way.

REVIEW

US stocks rose Friday, continuing the market’s rally into its fourth day. The session was choppy as all three major indexes opened in the red, but ultimately rebounded to post their best week of the year. Investors are attempting to digest last week’s rate hike from the central bank. On Friday, Fed Governor Christopher Waller indicated a 50-basis-point hike may be appropriate at some point this year in order to tackle inflation. Wall Street is also continuing to monitor the ongoing Russian invasion of Ukraine. President Joe Biden and Chinese President Xi Jinping reportedly spoke on the phone for two hours in regards to the armed conflict. Meanwhile, one of the latest concerns for investors is a subvariant of the Omicron variant, which may be to blame for a rise in COVID-19 case numbers in Europe. Some market observers maintain that volatility will be a central theme for 2022, because there are so many different factors contributing to uncertainty right now. On the economic front, existing home sales fell by 7.2% in February from the previous month. Analysts say bad weather across the country in January and the Omicron variant likely led to the decline. Additionally, rising mortgage rates could limit a rebound. In company-specific news, shares of FedEx fell despite the company reporting net operating income that grew 32% year-over-year during the previous quarter. Some market observers attribute this to diminished growth during the holiday season due to the pandemic. Speaking of COVID-19, Moderna has requested authorization from the FDA for a second vaccine booster shot for adults. Elsewhere, Boeing is in talks to build up to 100 of its 737 MAX 10 jets for Delta Air Lines. On the downside, US Steel saw its share price move lower after it issued weaker-than-expected guidance for the current quarter. For the week as a whole, the Dow Jones Industrial Average gained 5.5%. The S&P 500 jumped 6.2% and the Nasdaq Composite climbed 8.2%.

PREVIEW

On Monday, the Federal Reserve Bank of Chicago releases its national activity index for February. It’s a monthly survey designed to analyze overall economic activity and inflation, which is of course on many investors' minds. January’s reading was higher than December’s, indicating an uptick in economic growth.

Tuesday, the Johnson Redbook Index is published, which samples around 9,000 large retail locations to provide advanced estimates of same-store sales growth. The index has been on the decline since early February, which could indicate rising prices are weighing on consumer spending. 

Wednesday, new home sales are due for February. January’s number fell 4.5% from the previous month to 801,000 units. Analysts attribute the decrease to higher prices and rising mortgage rates.

Thursday, be on the lookout for jobless claims, which moved lower last week amid the tight labor market. In total 214,000 people filed initial unemployment claims, less than the 220,000 economists expected. Also set for release are February’s durable goods orders and Markit’s flash manufacturing and services indexes for March.

On Friday the National Association of Realtors will publish its February pending home sales index, which is based on signed contracts to purchase previously-owned homes. The index fell by 5.7% in January, marking the third straight month of declines. Market observers say this is largely a result of record-low inventory.

Keep your eyes open for these companies reporting earnings this week:

Tomorrow, sports apparel and sneaker giant Nike (NKE) will publish its latest results after beating analyst expectations for revenue and profit in November of last year. Tuesday, Adobe (ADBE) posts its first-quarter earnings. The software company issued sales guidance that missed analyst expectations in December of last year, sending share prices down 10% for the company’s second-worst day in ten years. Wednesday, Tencent Holdings (TCEHY) will hand in its latest report card after dealing with a number of challenges. The company announced plans to lay off thousands of workers as the industry faces a regulatory crackdown. Thursday, Darden Restaurants (DRI) (owner of Capital Grille, Olive Garden, and Longhorn Steakhouse, among other brands) will share its quarterly earnings data. Friday, Bombardier Recreational (DOOO) reports its results for the most recent quarter after exceeding analyst expectations for profit but missing on revenue in December 2021.

POWERED BY CAMPY GEAR

Be Prepared With This 2-in-1 Heater and Stove

Whether you’re going camping, ice fishing, or just want to improve your emergency preparedness, this product from Campy Gear is for you. Simply click a button to toggle back and forth between cooking and heating mode.

The unique 360° design will keep the entire group warm and toasty on even the coldest nights. Enjoying the great outdoors when its cold is not impossible, but you better have the right gear. Campy Gear’s 2-in-1 Heater & Stove is compatible with butane, isobutane, and propane fuel canisters. 

The adjustable frame is suited for various cooking purposes. Its sturdy construction support up to 12-inch pans and pots. Fast heating, clean-burning, and precise cooking. What more could you need? Grab yours here.

How Rate Hikes Impact You

The Double-Edge Sword of Rising Interest Rates 

Aiming to combat soaring inflation, the Federal Reserve raised interest rates this past Wednesday by a quarter percentage point — the first hike since 2018. It's the first of what could ultimately be a total of seven rate hikes this year. The Fed hopes the move will cool down the economy by increasing the cost of borrowing. This in turn could put downward pressure on everything from the housing market to growth stocks.

Although reining in inflation and rising prices is something everyone can applaud, these rate hikes don’t happen in a vacuum. Rising rates will also affect other parts of consumers’ finances. Regarding things like credit cards and mortgages, Americans are going to be paying more.

Variable Rate Debt Holders to Feel the Impact 

The cost of borrowing will increase across the board as the Fed raises interest rates. That's true for credit cards, auto loans, mortgages, student loans, and other types of debt. How quickly the cost of debt rises and by how much depends on the type of loan and its structure. 

Credit card holders are at the biggest risk. Users who carry revolving debt from month-to-month are typically charged variable interest, which means the rate changes when the Fed’s benchmark rate shifts. In this sense, your APR is somewhat pegged to the central bank’s target rate.  

Most auto loans and federal student loans have fixed rates, so these won’t be impacted by rate hikes. It shouldn’t have much impact on new car loans either. Bankrate’s chief financial analyst Greg McBride says a quarter percentage point increase will add $3.00 to the monthly payment on a $25,000 car loan. If you have a private student loan with a variable rate, your monthly bill could start to go up rapidly. Now may be time to consider refinancing and moving into a fixed-rate loan.

Mortgage Rates Already Rising 

Mortgage rates have been moving higher recently, with the average rate hovering around 4.14% for a 30-year fixed home loan. With the Fed raising rates, that number is likely to increase further. If you have an adjustable rate mortgage or home equity line of credit (HELOC) your rate will likely change. HELOCS change immediately, while ARM’s, or adjustable rate mortgages, adjust once a year. 

Savings accounts and the interest they pay aren’t likely to change immediately. Fed moves are not directly tied to the depository rate at banks, which is why they are slower to shift. As it stands, banks are paying on average just 0.06%.

The Fed is trying to tame inflation by cooling off the economy through a series of rate hikes. For consumers, it's a double-edged sword. Prices may come down, but the cost of borrowing will go up. By how much is still unknown. 

DTC Downfall

DTC Stocks Tank Amid Mounting Losses

Direct-to-consumer darlings Warby Parker (WRBY), Allbirds (BIRD), Stitch Fix (SFIX), and Figs (FIGS) have had a remarkably tough stretch recently. The notion of selling directly to consumers, and cutting out the retailer middlemen, seemed like a great idea at first. After all, these companies were able to leverage Meta’s (FB) Facebook and Instagram platforms to market their products, and process sales on their websites. Ads were cheap and, by extension, so was the personal data they collected to retarget consumers later.

Then, thanks to Apple’s (AAPL) iOS 14.5 update and current privacy push, Facebook's ad prices became less precise and more expensive. Meanwhile, shipping costs soared as well thanks to supply chain snags. The one-two punch took a toll on the direct-to-consumer businesses’ bottom lines. Now, these companies are seeing their revenue shrink, their margins narrow, and their losses mount. Plainly stated, investors seem to be losing interest in the sector. Year-to-date, Warby Parker’s stock is down 33%, while Allbirds is 58% lower, and Stitch Fix is off 42%. Figs is faring the best of the group by only being down 29% so far this year.

Facebook Ads Cost Increases Hurt the Bottom Line 

By far the biggest hit to the DTC business model is Facebook’s rising ad fees. With fewer storefronts and retail recognition, these companies rely on Facebook ads to reach potential customers. The affordability has changed in recent years, with ad costs doubling and even tripling in some cases. On average it costs about $18 to reach 1,000 people through a Facebook ad, up from $6 two years ago.

The problem is largely being driven by Apple’s (AAPL) privacy changes to its iOS operating system. Users are now being prompted to opt-in to tracking by apps. As a result, it's more difficult for many companies, but especially direct-to-consumer brands, to make their ad-targeting as precise as it used to be. The companies are spending more money to target consumers and are seeing worse results. That’s weighing on margins and ultimately the bottom line.

Supply Chain Pain 

The beleaguered supply chain is adding to direct-to-consumer companies' costs. Expenses associated with importing from China have skyrocketed, outweighing any price increases or potential gains in order volume. That’s bad news since many of these direct-to-consumer companies get their products from China. Right now, just a single container shipment from China costs roughly $15,000. Prior to the pandemic it was $2,000. The cost is still rising, prompting some companies to move operations out of Beijing. It's also resulting in losses for the direct-to-consumer sector.

Times are tough for the business model, but that doesn’t mean direct-to-consumer companies should all be written off for good. Tik Tok is still seen as a relatively cheap way to reach new customers, and supply chain issues should eventually improve. Some of the brands will achieve higher levels of recognition through their brick-and-mortar push as well. For now, share prices may continue to fall, as a result of present challenges.

STREET TREATS

Keep Track of Fido, Get Your Garage Organized, and Stop Drinking Warm Seltzer

🐕 The ultimate pet tracker — put this on your dog or cat’s collar and secure peace of mind with the Tracki 2022 model. Also highly effective with cars or motorcycles. Add it to a package, put it on your keys, or clip it to a child’s belt loop. Under $17 right here.

🪚 Get your garage or tool shed organized this spring. This is the time to get it done with a low-profile chainsaw wall hanger. Made in the USA, these are highly heat and cold resistant, with durable thermoplastic that effectively resists damage and can hold up to 120 lbs. Grab yours 22% off right here.

📻 Get ready for your next bash. Your party guests will love enjoying some tunes at your next get-together after you snag this portable and waterproof wireless speaker. Featuring hi-fi stereo sound and upgraded Bluetooth 5.0 signal, you’ll enjoy crisp sound wherever you go. Take 30% off at this link.

🍺 Why sip a warm seltzer this summer? Stop drinking beer at room temp. Toss out that tepid soda. Grab a Hopsulator for the best in-hand cooler, with the best style, and icy cold drinks for hours. Grab yours now — over 40% off.

🏋️ Get in shape by adding kettlebells to your workout. BalanceFrom’s set is made of vinyl and filled with cement, so they’ll never rust. Includes a 10, 15, and 20 lbs kettlebell — with wide and comfortable grips, these are ideal for a variety of exercises. Grab your set for 47% off!

Is Jamf's Stock Oversold? Bargain Hunters May Think So

Apple Doesn’t Spell Jamf’s Demise

At first blush, Apple’s (AAPL) announced launch of Apple Business Essentials, a service that provides onboarding of new devices and cloud management tools for small businesses, spelled trouble for Jamf Holding (JAMF). After all, that’s exactly what Jamf offers customers in both the business and education sectors. The news prompted a huge sell off, with Jamf’s share price down about 32% since November 10, when Apple made its seemingly devastating announcement. 

Turns out, Apple sees Jamf as more of a friend than foe. Apple, Salesforce.com (CRM), IBM (IBM), and General Electric (GE) don’t appear to be abandoning Jamf, which could mean Apple’s new business won’t be too much of a drag on Jamf’s revenue.  That presents a potential opportunity for bargain hunters.

Surprisingly Solid Financials

Take results from Jamf’s fourth-quarter as evidence. For the last three months of 2021, Jamf reported a profit of $0.02 per share, which exceeded Wall Street’s estimates for a $0.01 per share profit. Sales came in at $103.8 million, beating analyst expectations for $100.3 million. Annual recurring revenue came in at $412.5 million, up 45% year-over-year, and higher than forecasts. Organic recurring revenue increased by 37%. That’s considered especially important because it represents sales that didn’t come by way of acquisitions or bolt-on buys.

Wall Street now sees Jamf’s annual recurring revenue growing at a compound rate of 24% over the next two years, to hit a total $632 million in sales. Analysts say commercial customers, which fueled previous growth in annual recurring revenue, will continue to push its sales higher.

Commercial Customers are the Holy Grail 

It’s impossible to definitively say Apple won’t have a negative impact of some kind on Jamf, at least in the near-term. It’s likely the tech giant will become a competitor even if it's going after small businesses, which is not an area of focus for Jamf at present.

Jamf recently said customers with 500 or fewer employees contribute to less than 10% of its overall annual recurring revenue. Having larger customers is seen as a bonus, given they’re less quick to switch products. Many of them also use Apple devices and software, meaning they integrate well with what Jamf provides.

The looming question remains: do investors see the stock as enough of a discount in a rising interest rate environment? Growth stocks are out of favor these days, as many investors shift toward value and away from risk. With Jamf trading at 8.2 times 12-month forward sales, some may still view it as an expensive buy. That said, its share price has taken a haircut since Apple’s announcement, which could have some bargain hunters interested.

This communication from The Street Sheet is for informational purposes only. It is not intended to serve as a recommendation to buy, sell, or hold any security and is not an offer or sale of a security.  Information contained within should not be perceived as a research report and is not intended to serve as the basis for any investment decision. Any third-party views reflected herein do not reflect the opinion of The Street Sheet. All investments involve risk and the past performance of a security does not guarantee future results or returns. There is always the potential for financial loss when investing in securities or other financial products. Investors should consider their investment objectives and risks before investing.