Snap edges up amid volatile shares; NextEra units active after earnings; Workday better

By Rebecca Melvin

New York, Oct. 22 – Snap Inc.’s convertibles traded actively on Tuesday ahead of the social media company’s third-quarter earnings report, which beat expectations but guided toward a weaker fourth quarter, sending shares lower in after-hours action after the market close.

Snap shares were shedding some of their Monday pop in the early going on Tuesday, and then dropped 5% to $13.29 after the close. The Snap convertible was the most actively traded name of the day, with $20.5 million of bonds having changed hands, according to Trace data, and fully $5 million more than the next most active name, Zendesk Inc.

There was $15 million of the Zendesk 0.25% convertibles due 2023 that traded on Tuesday. The note was down 0.3 point to 122.48 at the end of the day with shares fractionally lower at $63.73.

The Snap 0.75% convertibles due 2026 changed hands at 98.6 around 4 p.m. ET when shares were about $14.00. Earlier in the session, the Snap convertibles traded at 99.9, according to Trace data.

Shares of the social media company have mostly sold off since late September, but they are still more than double where they started the year. A higher delta in this name would have profited arbitrage market players that were long the bond and shorted the stock.

NextEra Energy Inc.’s 4.872% convertible equity units were active in the mandatory space after the utility focused on renewable energy sources reported strong earnings. The paper gained 1.2% during the session, closing the day at $50.58. The NextEra common shares were up $3.44, or 1.5%, to $236.24 on the day.

NextEra “did report pretty good earnings,” a New York-based source said. The utility’s adjusted earnings and those segments focused on renewables grew in the third quarter amid investments in new wind and solar energy projects. The company remains on track to hit the high end of its full-year outlook.

Market players are expectantly awaiting the earnings reports of more convertibles issuers, but as of yet there haven’t been a lot, and the convertibles space was seen to have gotten off to a dull start for the week so far.

“Everyone is waiting for earning, and no one wants to stick their neck out,” said a New York-based trader, calling the start of the week “boring.”

Away from earnings, Atlassian Corp. plc, saw its 0.625% convertibles due 2023 trade down 6.25 points to 149 as shares fell $6.00, or 5%, to $110.10 on Tuesday.

The San Francisco-based developer of collaborative software reported quarterly earnings after the market close last Thursday, which sent shares sharply lower that day.

Workday Inc.’s 0.25% convertibles due 2022, or the series C convertible notes, traded up to more than 125 on Tuesday morning and were last at 124.70 with the underlying shares up as high as $157.84 at the open. That level was higher outright but looked about unchanged on a dollar-neutral basis, a New York-based trader said.

Workday shares have since tracked lower, but they were still positive at late morning and were last at $154.59. That compares to Monday when the Workday bonds were 123.75 bid, 124.124 offered with shares up about 50 cents at $155.00.

Snap trades below par

Snap posted a smaller-than-expected loss for the third quarter and beat expectations for user growth and revenue. The loss per share was 4 cents per share, compared to a 5-cent-per share loss forecast by Refinitiv.

Revenue was a bit higher than expected at $446 million, compared to $435.1 million; and both global daily active users and average revenue per user were a little bit better than expected, at 210 million and $2.12, respectively for those two metrics.

Looking ahead Snap said fourth-quarter revenue is expected to be $540 million to $560 million, a disappointment relative to expected sales of $555.4 million.

Analysts had expected a loss per share on revenue of $435.1 million, with global daily active users of 207 million and average revenue per user of $2.10. After a slide in 2018, Snap bounced back this year. The company also reported better-than-expected earnings in the second quarter.

Mentioned in this article:

Atllassian Corp. plc Nasdaq: TEAM

Nextera Energy Inc. NYSE: NEE

Snap Inc. Nasdaq: SNAP

Workday Inc. Nasdaq: WDAY

Zendesk Inc. NYSE: ZEN

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