For Immediate Release
Chicago, IL – July 13, 2018 – Zacks Equity Research highlights Match Group MTCH as the Bull of the Day, Papa John’s International PZZA as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Broadcom Limited AVGO, CA Inc. CA and IBM IBM.
Here is a synopsis of all five stocks:
Bull of the Day:
Founded in 1995, Match Group and its flagship product Match.com are far and away the biggest household names in online dating. Growing both organically and through acquisitions, the group now encompasses popular sites and apps across a broad spectrum of potential daters. Match group has 7 million subscribers worldwide and 3 million of them use Tinder - the most profitable segment of Match Group’s business for advertising.
Match Group, while an independent public company, is mostly owned by Interactive, which holds 81% of the economic value and 97% of the voting rights in Match. Originally formed as a television media company, IAC owns approximately 150 brands across a wide swath of media - primarily internet sites. Though many are household names – like Dictionary.com, Investopedia and Angie’s List - IAC is most closely associated with the Match Group because Match contributes as much as 40% of IAC’s revenue and more than half of EBITDA in any given quarter.
In May, Social media giant Facebook fired a huge shot across the bow at Match Group, announcing their own dating functionality - available to their more than 2 billion users, and threatening Match’s stranglehold on the internet dating market. The market pummeled the shares of both Match Group and its majority owner Interactive Corp, selling them down 25% and 20% respectively.
Read about it here>>
Facebook, embroiled in its own issues regarding user privacy and selling data has yet to produce a dating app and Match Group and Interactive Corp have both rebounded sharply with an aggressive media campaign and the earnings to back it up.
Read about that here>>
Bear of the Day:
Papa John’s International is back in the news, and once again - it’s bad.
Founder and former CEO John Schnatter resigned his position as Chairman of the Board after it was reported that he had used racist language on a conference call with representatives from the marketing firm Laundry Service. Ironically, the purpose of the call was to role-play public speaking situations and help Schnatter avoid saying things that might be construed as racist.
Schnatter confirmed the content of the conversation and has apologized, adding, “Simply stated, racism has no place in our society.”
Major League Baseball immediately dropped its “Papa Slam” marketing campaign, which gave baseball fans discounts on Papa John’s pizza after players hit Grand Slam home runs.
This is not the first episode like this for the company. The NFL dropped Papa John’s as its official pizza sponsor last November after Schnatter made comments during an investor conference call that were critical of the NFL’s handling of National Anthem protests at football games. Schnatter also apologized for those comments and resigned as CEO of the company.
Unfortunately for Papa John’s, even after his resignation(s), Schnatter is still seen as the face of the company as its founder and most recognized spokesperson. After all the company is named after him. As is usually the case in a social-media world, blowback has been swift and harsh, with countless public comments about everything from racism to poor food quality and a well-publicized boycott effort on Twitter.
Even before these recent incidents, Papa John’s was already performing poorly, with the shares down 32% over the past year, versus an increase of 16% for the S&P 500.
Here's Why Broadcom (AVGO) Crashed on Thursday
Shares of Broadcom Limited tumbled about 17% in early morning trading Thursday after the chip manufacturer announced the surprise acquisition of CA Inc. in a deal valued at $18.9 billion.
Broadcom will pay that sum in cash for CA, a designer of mainframe software based in New York City. The purchase comes just months after President Trump blocked the chip giant’s proposed $117 million merger with Qualcomm.
Initial reactions to the Broadcom-CA deal are rife with confusion, as analysts and investors alike appear to be struggling to find a rationale for the semiconductor company’s sudden interest in the software space.
“We think investors will likely be disappointed at this deal, which seems more financial engineering/PE driven than due to any strategic rationale,” wrote analyst from Evercore in a note Thursday morning.
CA’s primary business is selling software for massive, mainframe computers, and admittedly, Broadcom will now be a major competitor in that industry. Its new acquisition is second only to IBM in the mainframe software business, and the firm generates a healthy $10 billion in annual cash flow from its operations.
Still, some analysts have already pointed out that such a major bet on mainframe computing makes little sense in a world where customers are choosing cloud services over old-school hardware.
“While CA is a departure from Broadcom's core semiconductor business, it is consistent with its track record of acquiring out-of-favor, market leaders with high cost structures,” said Jefferies analysts. “Importantly, AVGO has consistently demonstrated its ability to drive costs down and margins of its acquisitions up, often measured in 1,000s of basis points.”
This sentiment from Jefferies is in harsh contrast to what some optimistic investors might point to right now: the ambition of Broadcom chief Hock Tan.
Tan has helped grow the company from a relatively minor chipmaker to a worldwide titan through a number of hopeful deals, and the executive as earned the respect of many on Wall Street. Still, today’s move has brought out the most skeptical of voices.
Investors have other reasons to be skeptical too, with Broadcom shares effectively flat lining over the past year despite sizeable gains for others in the semiconductor industry.
What’s more, analyst sentiment was already mixed heading into today’s announcement. The firm’s current fiscal year ends in October, and looking ahead, analysts appear uncertain as to what fiscal 2019 holds for Broadcom.
Over the past 60 days, AVGO has witnessed nine positive revisions to its fiscal 2019 earnings estimates, but five negative revisions have also come in during this stretch. The Zacks Consensus Estimate for fiscal 2019 has gained in the trailing two months but is down from where it started the current quarter at.
This mixed revision activity has kept Broadcom at a Zacks Rank #3 (Hold) for now.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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