Housing Dreams Dashed?

In this issue of the peel:

• ?? I wish my mood was more like home prices—nonstop on the rise. Homeowners love it, but for home buyers—and builders too—it’s a problem.
• ?? V.F. Corp and Adidas answered the question of where all of Nike’s sales are going, while JetBlue and Ford failed to rev investor’s engines and cause shares to take off.
• ?? The following is a factual statement: Truth Social is now worth more than X (formerly Twitter). Find out how on Earth that’s possible below.

Market Snapshot

Banana Bits

• AI isn’t the biggest revenue driver at Alphabet just yet—the cloud is still on top .
• Alright, do these sentiment readings matter at all, or even make any sense at all? Somehow, American confidence is spiking heading into the election .
• Elon Musk’s xAI is in talks to raise funds at a $40bn valuation .
• The only sector hotter than AI right now? Vending machines .
• A down bad outlook and poor sales from HeyDude wallop Crocs , leading to downgrades from firms like BofA .
• Somehow, people are still getting C-19 shots, leading Pfizer shares to not fall as much as they should have post-earnings .
• SoFi shareholders are taking profits after the bank reported its “best quarter ever.”
• PayPal posts a weak quarter, missing revenue estimates, leading shares to decline .
• Nudes must be back in vogue as Snap (owner of Snapchat) shares rip on solid earnings .
• Don’t expect many cowboys and cowgirls to come trick or treating this year with Boot Barn shares looking like this .

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Macro Monkey Says

The Big Problem

They say that smoking weed before going to sleep will kill your dreams .

If it’s true that getting high will prevent you from dreaming like Biggie Smalls’s teachers did to him, then the entire American economy must’ve just taken a big bong rip.

The idea of the “American Dream” hinges almost entirely on the goal of being able to afford a house someday. As all of you wise apes know, that’s only getting more and more challenging for young Americans.

And it got harder last month. Let’s get into it.

The Numbers

Yesterday, the catchy-named S&P CoreLogic Case-Shiller United States National Home Price Index (I’m out of breath already) was updated to include August’s data.

Home transactions take their sweet time factoring into national data, but according to the index, home prices declined from July to August by 0.13%.

That’s the first monthly decline since January when home prices fell for 3 months in a row.?

Annually, home prices grew 4.25% in August. Over the past decade, the only time home prices declined on an annual basis was in May 2023, down 0.27% from the heights seen during the spring/summer of 2022.

In fact, annual growth in home prices is so consistent that you can’t help but wonder, “Is this rigged?” The only way I can answer that is by saying, “Does the Pope sh*t in the woods?”

Luckily, recent weeks have given us the latest earnings reports from the two largest homebuilders in the United States—D.R. Horton and Lennar. Lennar’s data covers the three months through August 31st, while D.R. Horton’s is through September 30th.

Both firms reported similar industry trends yet widely varying impacts of those trends. Still, markets reacted alike on earnings, with both down >5%. Lennar fell 5.33% after reporting on September 19th, whereas D.R. Horton was down 7.24% yesterday.

I can’t imagine why…

Source

Home building has yet to catch up to pre-GFC numbers nationwide. You won’t see this born out in D.R. Horton’s nor Lennar’s deliveries data, as the industry has consolidated since then, but declining industry-wide volume is never ideal.

Pair declining volume with nonstop growth in demand translates to price rises.

From a shorter-term perspective, rangebound mortgage rates haven’t declined enough to spur the uptick in applications we’d expect to see.?

However, in the long term, the population of Americans in their homebuying years and household formation rates are a much better predictor of housing demand. According to a 2020 presentation from Lennar, long-term demand is going through the roof:

Source ?

So, needless to say, these homebuilders are aware of these trends and are incentivized to squeeze every possible dollar out of the American housing demand equation.

The strategy both seem to be pursuing off the bat is diminishing their involvement in the starter home space, choosing to focus on more expensive houses in which they can earn higher margins:

Source

Hyping up the fact that a nice 69% of homes sold came in under $400k might look great to ESG analysts. But, for those of you who use your brains, you might notice that 76% of homes sold were done above $301k.?

In the Northeast, California, and nestled areas of the country, $300k is cheap. But, for much of the country, that’s not the case, so we can’t just assume that homes below $300-400k are automatically “starter homes” as much as D.R. Horton pretends.

The Takeaway?

It seems plausible that homebuilders ignoring the lower-end, starter home segment of the housing market is creating many of the issues the housing market sees today.

That might be more conspiracy than theory, but the overarching issue remains—there are not enough houses in the United States… and don’t even get me started on other countries like Canada, the U.K., and others even worse off than the States.

If we have to talk about this again, I’m gonna dox my dad’s phone number. He’s a residential contractor, so please feel free to blame him.?

Career Corner

Question

I got connected with a VP at JPM, and when I requested to connect on a call, he replied and said, " Let's talk on LinkedIn." Now, I am not sure how many questions I can ask or how much is too much in a test format, and above all, I am not sure how to take the conversation and convert it to a potential phone call. Any suggestions?

Answer

It could be that he doesn't want to chat via email and prefers his recruiting conversations over LinkedIn (not company email). Just continue the conversation on LinkedIn, remind him who you are and that you've already connected via email, and ask for a phone call.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

V.F. Corp (VFC) 27.01%

• Back in my day, a 6% sales decline and a 21% collapse in operating income was a bad thing. Clearly, the woke mind virus has infected Mr. Market, but investors don’t seem to mind.
• Shares stormed higher as the parent company of Vans, North Face, and more reported beleaguered numbers that still managed to beat analyst estimates.
• Surprisingly, China was a strong point for the quarter, with sales up 6% in the APAC region and down 10% and 3% in the Americas and EMEA, respectively. Every brand saw sales declines as well.

Adidas (ADDYY) 3.59%

• I know what you’re thinking, but don’t get excited—we’re not giving out free addy (yet). There’s another Y in that ticker as Adidas’ earnings report tells us why Nike’s sales have fallen off.?
• Adidas is taking them all. The firm reported 10% growth in revenue driven largely by a 14% jump in Adidas brand sales. Margins grew, and the company beat estimates too.
• The firm’s DTC business was the top performer, growing 17% YoY when we excluded the now-discontinued line of Yeezy products. Speaking of which, Adidas and Kanye settled all lawsuits out of court with no payment involved.

What's Rotten

JetBlue Airways (JBLU) 17.08%

• Now, the truth comes out. JetBlue thought they were all cool and hot when they broke up with Spirit, but it turns out they didn’t need help to disappoint investors.
• The airline lost $0.17sh on $2.36bn in sales, barely better than the estimated $0.21/sh loss on the same sales figure. Shares nosedived on an expected Q4 sales decline.
• Analysts already knew Q4 sales would be lower than Q4’23, expecting a 2.2% decline. Execs told them to buckle up and hold their beer, looking for a decline of 3-7%.

Ford Motor Company (F) 8.44%

• I can’t imagine why selling electric vehicles to a customer base that is actively rooting for global warming didn’t work. Sadly, Ford learned that the hard way.
• The good news was limited to marginal beats on sales and earnings estimates. Ford’s “Pro” unit grew revenue by 13%, largely driven by a 30% jump in users of Ford Pro Intelligence software.
• Ford Blue, its most traditional business, grew sales by 3% while the EV unit, called “Model e,” totally killed the vibe on a 33% sales decline.
• Ford also faced higher-than-expected warranty costs in Q3, causing net income to fall 33% to $900mn. Investors are skeptical of Model e and planned cost cuts.

Thought Banana

Solve This Problem For X

Ohh, okay—so that’s why Elon Musk has teamed up with former President Trump. He’s looking for tips on how to grow X into a media empire like Truth Social.

Next, he’ll probably launch his own reality show in a cringey reboot of The Apprentice called “The Engineer” or have his 13th kid with Stormy Daniels or something.

Let’s dive in.

What Happened?

Trump Media is officially worth more than X Holdings (Musk’s social media site formerly known as Twitter).

After more than quadrupling in price over the last month, Trump Media & Technology Group Corp. has a market cap of $10.32bn. According to Fildeity’s latest market value assessment , X Holdings is worth $9.4bn.

Source

So that means Truth Social is worth ~1.1x that of X. Frankly, that’s criminally insane.

Truth Social has no users, no revenue, no truth, and no social compared to other media sites, but investors keep bidding up shares in hopes that the former President will return to the Oval Office and won’t be able to sell his shares.

Let’s find out if there are any good reasons for why this thing is ripping so much.

Getting accurate and timely data on anything to do with Truth Social is like getting a direct answer from a politician—ain’t gonna happen, and, even if it does, you won’t like what you hear.

For user numbers, the most reliable source I could find that didn’t ask me for $345 like Statista did was a CNBC article from May 24th of this year, citing 76.46k as the figure for daily active users.

Source

If that number is true, that means each user on Truth Social is worth $134,836.46 in the market’s view.?

Meanwhile, over at X, with their $9.4bn valuation, the platform boasts 611mn monthly active users and 245mn daily active users. Going by our same metric above of value per daily active user, we find that the market value of an X user is $38.37.

So, according to the market, a Truth Social user’s attention is worth 3,514x that of an X user… yup, math checks out.

The Takeaway?

Outside of Meta and TikTok, few social media platforms are doing what most would call “well.”

It appears that social media networks are plagued by the same consumer-driven impacts as cable media.?

Although most of them don’t do this explicitly, social media sites have largely become siloed by political views. Truth explicitly caters to conservatives, while X does so implicitly, as can be seen by user demographics, ad partners, and the popular content on the site.

Meanwhile, TikTok, Threads, Tumblr, and more implicitly cater to a more progressive audience.

General-purpose media is not a profitable enterprise in 2024. As sad as that is, we’re gonna need some new monetization strategies to get Americans out of their echo chambers.

That’s why America needs unbiased, balanced media… like The Daily Peel.

The Big Question: What will happen to Trump Media if Trump wins? What about if he loses? How can X monetize more effectively to stop valuation cuts?

Banana Brain Teaser

Previous

A company sells radios for $15.00 each. It costs the company $14.00 per radio to produce 1,000 radios and $13.50 per radio to produce 2,000 radios. How much greater will the company’s gross profit be from the production and sale of 2,000 radios than from the production and sale of 1,000 radios?

Answer: $2,000

Today

To order certain plants from a catalog, it costs $3.00 per plant, plus a 5% sales tax, plus $6.95 for shipping and handling regardless of the number of plants ordered. If Company C ordered these plants from the catalog at the total cost of $69.95, how many plants did Company C order?

Send your guesses to [email protected]

?

It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.

George Soros

How Would You Rate Today's Peel?

?? All the bananas

?? Meh

?? Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick