Q3 earnings will be a critical stress test. Nearly a year of unexpected inflation continues to dampen demand and this rapidly rising rate environment has sharply compressed the circle of priorities for business spending. With the CFO now firmly in the driver’s seat, we expect few positive surprises on guidance for the remainder of the year. Key themes and debates for 3Q are:
- Budget cuts continue
- Network Defects
- Streaming race for the bottom
- Big-ticket purchases on hold
- Return-to-office resistance withering
Key trends reflect companies where data trended directionally opposite and/or at a magnitude above or below implied expectations. These include:
- SHOP is showing a surprise uptick in total powered visits, driven by a combination of large merchant and organic user growth, and aided by easing comps.
- PINS is showing an inflection point heading into 3Q, with ad portal engagement showing an acceleration after four quarters of deceleration.
- ABNB bookings improved throughout the quarter, but the quarter started soft enough to warrant some caution. Bookings weakness is likely to be offset in large part by rise in ADRs as hosts pass through inflationary pressure
- LZ checkout data suggests a sharp slowdown in transactions, which worsened throughout the quarter
- AMZN AWS trends face resistance in the SMB tail, with deceleration in new active accounts contributing pressure
- MELI conversions sequentially decelerated in Q2, largely due to competitive pressure, while consensus called for stabilization in GMV growth. Meanwhile, fulfillment and payment initiatives have largely stalled out in recent quarters, suggesting limited upside in take rates
- PTON continues to face headwinds despite efforts to deplete inventory, showing further deceleration in total product shop visits heading into the quarter.
OSTK & W continue to feel the pressure of a softening home goods market. Overstock struggled early in the quarter, while Wayfair softened late. Given the prevailing trends, we expect both management teams to lean more conservative in guiding 4Q.