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Lululemon and Broadcom upbeat revenue forecast, Universal Music nearing record SPAC deal

Julie Hyman, Brian Sozzi, and Myles Udland discuss some of Friday's early movers, including: Lululemon raising its 2021 revenue forecast after increased demand, Broadcom forecasting higher revenue as 5G adoptions rise, and Universal Music nearing a $40 billion deal with William Ackman's SPAC.

Video Transcript

JULIE HYMAN: Well, we're just about a few minutes-- two minutes, let's call it, till the opening bell, and about an hour now from the jobs report. But we also have some earnings related news to contend with. And you see that hinted at by Lululemon, which is up on your screen. That company coming out with earnings that beat estimates, and also a forecast that is ahead of what analysts had been anticipating.

You guys, I saw some really interesting commentary on these numbers. Basically, the outlook is good. There are some questions about the valuation. I was also intrigued by some commentary from John Zolidis, who's an analyst at Quo Vadis Capital, who covers it, who talks about the Mirror deal that they did.

Remember they own that Mirror app and hardware, I guess, that's an at-home workout system. And they said it-- maybe it's-- he said, maybe it's a super smart deal that will be ultimately great for profitability and shareholders. But we can't help thinking this stock would be higher today without this drag. You kind of forget that they even own the thing, because it seems like the-- the core business is pretty solid.

Myles, you got a lot of Lululemon in your closet, I know. How are you viewing these numbers?

MYLES UDLAND: Well, it's interesting. Now that I'm-- now that I'm exercising in the garage, I can just buy the Nike stuff, which Sozzi knows is cheaper, but definitely a lot junkier. I don't have to look as good going into the Equinox.

Look, I think the thing with LULU is that it was such a strong story ahead of the pandemic. And it had such a clear stay-at-home trade emphasis to it. But the stock has kind of gone sideways here for the last year. And Julie, that Mirror deal is very interesting to think about, because, Sozzi, obviously Mirror should be the Peloton-like growth driver inside of a Lululemon.

But for a company that hasn't really acquired and then grown acquired businesses over time, I think it remains a show me part of a story that-- that otherwise couldn't look healthier.

BRIAN SOZZI: Yeah. And we're just coming up against the opening bell here, guys. And look, Lululemon, to your point, Mirror, supposed to get about $275 million in sales this year, but be up to as much as 5% dilutive to earnings. So that's why I think you're seeing some of this pre-concern.

And there we have the opening bell on Wall Street on this jobs report Friday-- certainly investors going to be searching all over the place-- Dow, S&P 500, NASDAQ, NEM stocks-- to see how investors and traders embrace this jobs report, which as we've talked about, guys, was being seen in the early going as somewhat Goldilocks. But just getting back to Lululemon here, and, Julie, just looking at some of the analyst's comments out this morning, there is some concern. I know, the stock was up in the premarket. There is some concern about the company's margins in 2022.

They're debuting a new footwear line. They're going to be investing aggressively in Mirror. And here, you have a stock trading at about 50 times forward earnings. Margin pressure-- that valuation, not a good recipe for potential further gains in the stock.

JULIE HYMAN: Yeah. There was also some question about sort of whether they're at peak e-commerce in terms of that penetration into the rest of the business. Some other movers that we were watching-- Broadcom, one of the biggest chip makers in the world, out with a forecast that is above what analysts had been anticipating. Broadcom, basically, has been growing through a series of big acquisitions. And the company, of course, talking about the demand, the hot demand that we have seen for semiconductors. Their chips are used in Apple products and other devices.

And, you know, Brian, we continue to see the dynamic, of course, in the semiconductor industry persists. That demand is hot and supply is low.

BRIAN SOZZI: Yeah. The only thing I really care about in this Broadcom earnings call last night was, really, what are they saying about the enterprise? Enterprise sales are coming back. We heard that from HPE's CFO, Tarek Robbiati, yesterday. Companies are stepping up, investing in their offices again to support return to work. Also, CEO Hock Tan over at Broadcom noting the companies or enterprises are in fact in recovery mode. Next up.

And finally, got one that we got to talk about that's not an earnings related story. And that is what could be the largest SPAC deal yet. Bill Ackman's SPAC, which is called Ton-- Pershing-- what is it called? Pershing Square Tontine Holdings Limited, which is not the strangest name of the SPACs, by the way, is in talks-- confirmed it is in talks to buy 10% of Universal Music, which is owned by Vivendi. It would value that-- the total of that entity-- at about $40 billion. So that means it would cost Ackman about $4 billion here to get a piece of that.

So, you know, it's interesting that this is-- this is happening. It's not surprising, the size, necessarily, because Ackman's, back when it went public, was the largest SPAC that had yet come public. But, you know, we'll see what ends up happening with this monetization here of the music business, which has been challenged in some areas. And you can see that that SPAC's actually trading lower by 10% today. Myles?

MYLES UDLAND: Yeah. I mean, you know, a couple of interesting things with this SPAC. And we talked about SPACs yesterday broadly on the show, and I said, because I believe this is true, the SPAC structure is a great structure for the right, you know, investor to take over the right company. Bill Ackman brought Burger King public through a SPAC back in 2012, which we were all reminded of in-- in all the coverage of this deal. So Ackman formed the SPAC last summer and said explicitly he wanted a big target.

So here you have it with Warner Music as his big target. The guessing game of what Ackman will go out and try to SPAC back to the public markets, that game can now end. And another thing-- we talked about it a little bit with Adam Aron in the way that he's going directly to shareholders with his message. Bill Ackman, of course, more measured, but did tweet out cryptically-- not cryptically, but quite briefly last night, he said, don't forget that we have the technology.

And he tweeted it from his iPhone. So I don't know where he's sitting-- sitting in a meeting, sitting at dinner, sitting around. And so he's-- he's saying that the deal isn't just about the library of music and future artists that they're going to acquire with more media, but the technology behind that. I don't know exactly what he's driving at. But, you know, it's always good to see people taking their message right to the internet.

JULIE HYMAN: Yes. That seems to be the theme of the morning, doesn't it, Myles?