SNAP And The Market Leaders Of The Future, CLX Ravished By Inflation

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While Amazon (AMZN) hogged all of the attention after the close Thursday, there were a number of other earnings reports worth looking at. One of the most interesting was Snapchat (SNAP).

SNAP is a social media app favored by the younger generation that has been overshadowed by Facebook (FB) (and its subsidiary Instagram). However, a couple of factors are converging to make SNAP interesting IMO.

First, as I have written about for many months, there has been a “stealth bear market” that has hammered important but not leading stocks like SNAP while the generals like Apple (AAPL) and Google (GOOG/GOOGL) have held up and propped up the major, market cap weighted indexes. SNAP was one of the victims of this stealth bear market, having dropped 70% from its closing high on September 4, 2021 through yesterday Thursday February 3, 2022.

Second, SNAP’s fundamentals continue to be strong as evidenced by its 4Q21 earnings report Thursday afternoon. Daily Active Users (DAUs) increased to 319 million from 306 million in 3Q21. Average Revenue Per User (ARPU) hit an all time high of $4.09 resulting in 22% sequential revenue growth. SNAP even earned 22 cents on an adjusted basis. As a result, its stock is up almost 50% in the premarket currently – though that barely starts to recoup the vicious losses it has suffered over the last four months. While by no means cheap, SNAP looks like a potential leader of the future and is worth a look here IMO.

More broadly, it may be time to start picking through the wreckage of the stealth bear market for the market leaders of the future. The Apples (AAPL) and Googles (GOOG/GOOGL) of the world are great companies but they are maturing. They will almost certainly not be the stock market leaders of the future.

While the nasty stealth bear market of the last few months is creating some opportunities to pick through the wreckage for the market leaders of the future, Clorox (CLX) earnings Thursday afternoon reinforced that inflation is vicious. CLX’s quarter was wrecked by increasing costs that caused its gross margin to shrink by a whopping 1240 basis points! Combined with an 8% decline in organic sales for its cleaning products as the pandemic winds down, adjusted EPS declined by 67% to 66 cents. CLX lowered its FY22 adjusted EPS guidance to $4.25-$4.50 from $5.40 to $5.70. This stock is in a world of pain and I see no end in sight.

So there are a lot of crosscurrents in this market. Indeed, as I write the stock futures are giving up much of the euphoria they showed in the wake of AMZN’s earnings report. At the end of the day, while opportunities are starting to emerge in the leaders of the future, tread carefully because we are in a bear market.

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