Upstart convertibles jump post-earnings; Shopify below par; Wix.com down outright

By Abigail W. Adams

Portland, Me., Feb. 16 – It was an active day in the secondary space for convertible bonds as volatility continued to roil equities.

Equity indexes closed the day mixed after clawing their way back from deep in the red following the release of the Federal Reserve Open Market Committee minute notes.

The Dow Jones industrial average closed Wednesday down 55 points, or 0.16%, the S&P 500 index closed up 0.09%, the Nasdaq Composite closed down 0.11%, and the Russell 2000 index closed up 0.32%.

There was $619 million in reported volume about one hour before the market close with several convertible issuers active as their stock saw outsized earnings-related moves – both to the upside and downside.

However, one issue dominated Wednesday’s session – Upstart Holdings Inc.’s 0.25% convertible notes due 2026.

The 0.25% notes made large gains on an outright and dollar-neutral basis as stock surged following a large earnings beat.

However, Shopify Inc.’s stock tanked double digits following earnings, which sent its 0.125% convertible notes due 2025 below par for the first time since the notes hit the aftermarket in September 2020.

Wix.com Ltd.’s convertible notes were also down on an outright basis as stock tanked following earnings. However, the notes were moving in line dollar-neutral.

Upstart dominates

Upstart Holdings’ 0.25% convertible notes due 2026 dominated activity in the secondary space with the notes posting large gains on an outright and dollar-neutral basis as stock surged following a surprise earnings beat.

The 0.25% notes climbed about 9 points outright with stock up more than 30%.

They were changing hands just shy of 94.5 versus a stock price of $142.60 early in the session, according to a market source.

They traded up to 95 versus a stock price of $145.68 by the late afternoon.

The notes expanded between 1.5 points and 2.5 points dollar-neutral based on the delta played, a source said.

If the notes were played on a 40% delta, “they were a 2.5-point winner,” a source said.

There was $77 million in reported volume heading into the market close.

Upstart’s stock traded to a low of $133.03 and a high of $150.10 before closing the day at $148.01, an increase of 35.65%.

Stock surged following a large earnings beat and an upbeat forecast that came in above expectations.

The company reported earnings per share of 89 cents versus analyst expectations for earnings of 51 cents.

Revenue was $304.85 million versus the $262.85 million expected. The company also beat expectations with its forward guidance and announced a $400 million stock buyback.

While stock surged on Wednesday, Upstart ranks among the high-momentum growth stocks that have been badly beaten in the market’s downturn.

Stock is still down 26% since the convertible notes priced.

Shopify below par

Shopify’s 0.125% convertible notes due 2025 dropped below par in active trading as stock hit a new 52-week low following earnings.

The 0.125% notes fell about 3.5 points outright with stock off 16%.

The notes traded down to 98.25 versus a stock price of $725.94 heading into the market close.

The trading level marked the lowest for the notes and the first time they traded below par since they hit the aftermarket in September 2020.

While the notes were down outright, they expanded 0.5 point dollar-neutral on the move, a source said.

There was $18 million in reported volume.

Shopify’s stock traded to a high of $800 and a new 52-week low of $720 before closing the day at $746.85, a decrease of 15.95%.

While the e-commerce company beat on both the top and bottom-line, weak guidance that warned of a post-pandemic slowdown and increased spending on marketing and capital expenditures caused a run on the stock.

Shopify reported earnings per share of $1.36 versus the $1.31 expected. Revenue was $1.38 billion versus the $1.34 billion expected.

Wix.com’s earnings

Wix.com’s convertible notes were down outright but unchanged dollar-neutral as stock dropped double-digits following its earnings report.

Wix.com’s 0% convertible notes due 2025 fell about 2 points outright.

They were changing hands at 86.25 versus a stock price of $84.61 in the late afternoon.

While down outright, the notes were moving in line on a 20% delta, a source said.

There was $13 million in reported volume.

The software company’s 0% convertible notes due 2023 sank more than 8 points outright to return to par.

They were changing hands at 100.5 versus a stock price of $88.55 in the late afternoon.

There was $10 million in reported volume.

While down outright, the 0% convertible notes due 2023 were also unchanged dollar-neutral, which was a disappointment given the move in stock, a source said.

“They should have had a better prem out but they didn’t do anything,” a source said.

While both notes were unchanged dollar-neutral, Wix.com’s 0% convertible notes due 2025 outperformed their shorter-duration counterpart, due to the expected expansion in the 2023 notes that did not materialize, the source said.

Wix.com’s stock traded to a low of $81.60 and a high of $98.10 before closing the day at $89.06, a decrease of 23.06%.

While Wix.com beat on the bottom line, it missed top line expectations.

Wix.com reported a loss per share of 37 cents versus analyst expectations for a loss of 42 cents per share.

However, revenue was $328.34 million versus analyst expectations for revenue of $332.80 million.

Mentioned in this article:

Shopify Inc. NYSE: SHOP

Upstart Holdings Inc. Nasdaq: UPST

Wix.com Ltd. Nasdaq: WIX

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