The free money virus has left investors’ brains in mush. But the healing has started, interest rates have recovered, QT is here and look what you got.
Written by Wolf Richter for WOLF STREET.
Let’s take a look at some of the already imploded stocks that implode further on Friday. As is usually the case during earnings season, there were quite a few, but we’ll take a look at just a handful. They imploded even when the market rallied on the day. On Friday, the Nasdaq rose his 1.3%, and his losses for the week fell to just 5.6%. But there are many that plummeted after reporting “earnings.” I use this term loosely.
CalvanaAn online used car dealer, is one of my first entries into the Pantheon of Imploded Stocks. Earnings were reported on Thursday evening. Everything went wrong. Fewer vehicles sold to retail customers, declining revenues, soaring cost of goods sold, plummeting gross margins, soaring selling and administrative expenses, more than tripling interest expenses, net Losses soared to $508 million.
In April 2022, I wrote that used-car startups Carvana, Vroom, and Shift were “on the verge of survival.” This is due to the changing dynamics of the used car market, the waning appetite of investors to keep fueling cash burn machines, and the fact that even the hottest used car market in 2021 is designed to make money. by the used car startups themselves who weren’t smart and couldn’t figure out how to make money.
They were designed to burn investors’ cash. And investors no longer want their cash to be burned. And that existential crisis is now.
Carvana when it issued an existential crisis warning in April 2022 [CVNA] 73% drop from high to $100. Since then, they have plummeted further with their relentless brutality. On Friday, Carvana rose 39% to $8.76, down 98% from its August 2021 peak and down 41% from his April 2017 IPO price.
This chart shows how the Fed’s multi-trillion dollar QE and interest rate suppression (the free money era began in 2009) has mutated into a virus over the years, turning investors’ brains into mush. It shows a now classic pattern. Mushy, they pushed asset prices to ridiculous levels.
But the healing from the free money virus has begun. Interest rates are returning to some sort of normal, QT is now working and look at the results obtained. Almost all charts of my implosion stocks are similar (data via YCharts).
Years ago, the stock would have been destined for penny stock territory because Carvana couldn’t sell used cars and make a profit in a market where investors’ brains function normally.
After the stock plunged 73% in April 2022, an army of falling knife catchers who thought they could make a profit plummeted another 91% before their beloved fingers were chopped off. Stocks have collapsed so far, and we can hardly see his 38% plunge on Friday, a small dip at the end of the collapse.
Twilio [TWLO], the cloud communications platform reported “earnings” on Friday morning. Part of the problem was that revenue increased 32% to $983 million and net loss increased 115% to $482 million. The company also issued disappointing earnings guidance.
A company that has been 7 years public, 14 years old, and has made $3.5 billion in revenue in the last 12 months can lose $482 million on revenue of $983 million. Huh? That was a rhetorical question.
Each year, the company is generating larger and larger net losses, reaching nearly $1 billion in 2021 and well over $1 billion this year, following the free-money virus-ridden Silicon Valley model. they lose.
People who run companies in this way have no idea what it’s like to run a profitable company. It wasn’t in their sights, and it wasn’t in their investors’ sights. But it’s starting to happen.
The stock fell 34.6% on Friday, down 91% from its infamous February 2021 high. Notice the now typical implosion stock bubble and bust pattern. It’s a simple fact: free money makes an investor’s brain mush (data via his YCharts).
Atlassian K.K. [TEAM]Australian collaboration and productivity software company traded on the Nasdaq .
In other words, it’s just buying revenue. And for a while, that was the only thing that mattered to investors whose brains were torn apart by the free money virus.
But when it reported earnings on Friday, the company said it was feeling the effects of the global economy.A slowdown in hiring among existing customers is slowing demand for collaboration software.The version has cooled. rice field. The company gave a disappointing outlook, saying it would slow its headcount growth going forward.
The stock rose 29% to $124.01 on Friday, down 74% from its frenetic peak last October. This chart looks very close to Carvana’s chart where he plummeted to $100 in April. Each implosion had a different start date, and each crash had a dip buyer show up and have his finger cut off. It also happens again because there are still dip buyers who have fingers left wanting to slice. Off (data via YCharts):
cloudflare, the cybersecurity firm reported earnings late Thursday — yep, another big loss. The more they sell, the more they lose – following the growth model of Silicon Valley during the free money virus era.
But the free money virus is waning and the brain is recovering from it, and its stock surged 18.4% on Friday, dropping 81% from its peak last November to $41.09.
Stocks are about eight months behind the first batch of Heroes in my pantheon of imploding stocks, which began to unleash in February 2021 (data via YCharts).
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