- Coinbase has suspended its affiliate program in a bid to cut costs while under pressure from falling crypto prices.
- Earnings season is in full swing with many companies, including Netflix, Goldman Sachs and Snap, all missing analyst forecasts.
- In a difficult market for investors, factor investing offers a way to find pockets of outperformance and is our theme for the week
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Major events that could affect your portfolio
More concerns arose this week in the crypto industry, with the world’s third largest exchange by volume, Coinbase, announced it would be suspending its affiliate program. It’s the latest in a series of cost cutting measures that the company has made, in an effort to stabilize their business amidst crashing crypto prices.
Earlier this year Coinbase slashed the commission paid to its affiliates, from an average of around $40 per new sign up down to between $2-$3, and they’ve now canceled the program altogether. The company has stated that it will return in 2023, but no firm date has been provided.
The suspension comes off the back of comments from Coinbase CEO Brian Armstrong back in June, when he announced that the company would be laying off 18% of its workforce. This decision was made due to the volatile crypto markets causing trading volumes and fees to fall, with Armstrong stating that “We appear to be entering a recession…(which) could lead to another crypto winter.”
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Some commentators have raised concerns about the future of Coinbase given the recent collapse of Three Arrows Capital, Voyager Digital and Celsius, however as a publicly traded company the financial health of Coinbase is much more clear to both investors and customers.
While it remains a very challenging environment for Coinbase which could get worse, they currently have a significant amount of cash on hand and strong revenue. All eyes will be on the company when they release their Q2 earnings announcement on August 9th.
Earning season has begun in earnest with some big names already providing investors with their latest figures. There have been some notable announcements over the past few days. Goldman Sachs announced a $2.8 billion second quarter profit on Monday, however this is down over 40% from the $5.49 billion achieved at the same time last year.
Netflix announced that they had lost subscribers in two consecutive quarters for the first time ever, with 970,000 fewer accounts compared to Q1. This was an improvement from their initial guidance which had suggested they could lose as many as 2 million subscribers. Revenue was up 8.6% year on year, however Net Income was down over the period.
The Snap stock price plummeted 25% off the back of their earnings call, with the company missing analysts expectations across many measures. Earnings per share hit -$0.02 against expectations of -$0.01 and revenue was $1.11 billion compared to the $1.14 billion expected, despite an 18% increase in Dai DAI ly Active Users.
It highlights the challenges facing companies in an environment of high inflation, rising interest rates and wavering consumer confidence. It’s just as difficult for investors. Some companies have been performing well, such as energy producers, while others are having a tough time, like in tech. There is value to be found, but you need to know where to look for it.
This week’s top theme from Q.ai
Factor based investing is a way of designing a portfolio based on investments that meet certain characteristics. Some examples include filtering a portfolio based on stocks with positive momentum, companies that are undervalued or those that show great fundamentals such as low debt and stable earnings.
In the current economy, factor based investing can be a great way to find winners within a difficult environment. In a bull market, the majority of stocks will rise with the market. While some will grow more than others, there is a lower chance of picking outright losers.
In a bear market, the opposite is true.
The majority of companies will be dragged down by a poorly performing market, however there will be themes that resist this. A recent example was mentioned above, which is the energy sector and producers such as BP, Shell and Exxon Mobil.
We use factor investing in our Smarter Beta Kit, which invests into U.S. stocks by using factor based ETFs. Our AI automatically rebalances the weightings of the Kit based on which factors are expected to perform the best. In some weeks it might be Value stocks that are looking good, in others it might be Small or Mid Caps. The aim is to capture the area of the market that is going to perform the best, at a time when the market as a whole isn’t consistent.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Prog Holdings Inc (PRG) – The financial technology and credit provider is on our Top Buys for next week with an A rating in Quality Value and a B In Technicals. The company’s EPS numbers have grown by 8.43% over the past 12 months.
Brickell Biotech Inc (BBI) – The pharmaceutical company is a Top Short for next week with our AI rating them an F in our Low Momentum Volatility factor. They had Gross Profit of -$27.7 million in the 12 months to the end of Q1 this year.
W&T Offshore Inc (WTI) – Natural gas producer WTi is a Top Buy for next month with an A in Quality Value and an A in Low Momentum Volatility and analysts are projecting revenue growth of 61.11% in 2022.
Calithera Biosciences Inc (CALA) – The biopharmaceutical business is a Top Short for next month and our AI rates it as an F in Quality Value and a D in Low Momentum Volatility. Net income was -$108.58 million in the 12 months to the end of Q1.
Our AI’s Top ETF trade for the next month is to invest in microchips, consumer discretionary and the retail sector, while shorting fixed interest. Top Buys are VanEck Semiconductor ETF, SPDR S&P Retail ETF and the Vanguard Consumer Discretionary ETF. Top Shorts are SPDR Bloomberg Barclays Investment Grade Floating Rate ETF and the iShares Floating Rate Bond ETF.
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