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Zillow shares jump, Ulta Beauty rises from strong Q3, DocuSign tumbles

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The Yahoo Finance Live hosts review notable market performances as markets and stocks react to the November jobs report.

Video transcript

JULIE HYMAN: We were just a few minutes before the opening bell. And we, of course, have the big jobs report to contend with. But we also have some big movers to contend with. And one of them is DocuSign. Big mover in how? The stock is down by more than 30% this morning. And what this seems to be reflecting is what's going on with the company's earnings and a return to normalization for this company.

I mean, there are so many companies, obviously, that sort of caught fire during the pandemic, whose services became very necessary. Zoom would be the big example of that. DocuSign very much on that list. And it feels like now that the company is getting back to, you know, what they're calling a more normalized buying pattern. That was what the CEO, Dan Springer, said in a statement. Brian Sozzi, investors, though, I guess they did not expect this or expect the magnitude of this and what we're seeing from the company.

BRIAN SOZZI: I'll write the story in real-time. Three reasons why DocuSigns are getting slammed right now. First up, it is their billings guidance for the fourth quarter. And the third quarter billings up 28%. Fourth quarter, DocuSign looking for about a 20% increase.

Next up here, they are saying-- they said in the the conference calls last night that the market backdrop, quote, "was markedly different" from the first half of the year, in part because people are going back to work, back to the office, so those managers ordering DocuSign software are not having that same sense of urgency to order even more.

And last but not least-- and this is just an anecdotal thing-- CEO Dan Springer noting that he took his eye off the ball. And my interpretation of that comment was that they didn't go-- they didn't stay hungry to bring in new business, and instead, just focused on the business that was coming to them during the pandemic. And as a result, also announced on that earnings call, you had a little bit of a C-suite shake-up at the company, some management changes here as they try to reignite their growth for next year.

And I'm looking at this note right now from Wedbush's Dan Ives. He said the quarter was, quote, "a debacle." Now I have known Dan for some time. I have never seen him write or criticize a company to the extent he did this morning with DocuSign. He came out here, also downgraded his rating from neutral-- I mean from buy to neutral, joining the likes of UBS, JP Morgan, a few others downgrading their ratings on the stock.

BRIAN CHEUNG: Yeah, I mean, I imagine that's a big reason why there was a tone of humility from Dan Springer there. But I mean, look, I mean, the numbers aren't even just about future guidance, but the fact that they missed existing guidance, right? Their own guidance was for 585 million to 597 million. They clocked in nowhere in that range. It was well short of it at 565 million.

But I think just even from an anecdotal perspective, right, the whole idea about DocuSign, especially in 2020, was the play that, well, people shouldn't need in-person documents anymore in this virtual world. And especially in the future world of web 3 and Metaverse, why would anyone ever have any printers or need to sign anything in person?

But I think that what's kind of overlooked in that is that the biggest things that require signatures are often things that require you to meet person to person anyway. It really doesn't have anything to do with the document. Think about when you're signing a mortgage or even when you're signing a lease for an apartment.

Those are things that you're already forced to engage with a person in real life in the form of the realtor, in the form of the banker, sitting down with them, getting to know them. Why not just also sign it in person while you're there meeting with them? So the use case for DocuSign, I think, is a little bit muddied in terms of what the post-pandemic play is going to look like. That's something management's got to figure out.

BRIAN SOZZI: Well, I'll just quickly add, too, I think this is more of a guidance-- a major guidance snafu from the company. I still view-- I hear what you're saying, Brian. I happen to view DocuSign as just an incredibly useful tool in post-pandemic life. I just think this is-- they got the guidance wrong here, and the market probably ran out too far ahead of where the fundamentals were. But this is a very useful tool. And now you have to wonder, does someone come in here and make a play for DocuSign? If you like the technology here, why not come out here and make a play for it with the stock down about 33%?

JULIE HYMAN: And I would just push back real quick. I mean, even pre-pandemic, like, if you've ever had to sit through a closing, like, I'd be very happy to sign all that stuff remotely. Yes, I already met my person in person, whatever. I'd rather not have to sit through all that. But maybe that's just me. All right, we want to turn back to jobs.

Actually, before we turn back to jobs, we have to talk about what we are going to hear from Dan Springer, by the way. We were just talking about him, the CEO of DocuSign. We are going to talk to him at 12:15, so we can ask him about all of those issues. Sorry, got a little ahead of myself and then had to reverse. Let's get back to-- get back on track here.

December jobs. As you can see there, the headline number is 210,000 versus the 550,000 that were estimated, 4.2% unemployment rate versus the 4 and 1/2% estimated. And this jobs report illustrates for us once again, but I think more acutely than ever, it reminds us that we get the jobs numbers from two different places. And I know-- I don't know if Brian Cheung has ever done a Yahoo U on this. I suspect he has. But you ask employers, you ask companies how many people they hired. That is that non-farm payrolls number.

Then you do a household survey. You ask individuals are you working? Are you not working? Are you working part-time? Were you looking for a job and did you stop? All of these various questions that go into the other data points, the wage number as well, I believe. Actually, which number-- which report does the wage number come from, Brian Cheung? You would know this.

BRIAN CHEUNG: Wage number, I believe comes from the establishment survey.

JULIE HYMAN: Establishment survey, which is the house-- no, it's the companies.

BRIAN CHEUNG: That's the companies. Yes, household is the individual workers themselves.

JULIE HYMAN: Figuring all this out-- figuring all this out for you in real-time, folks. So in other words, when you tend to see these kinds of disconnects, it's because for whatever reason, we're getting a different picture from the companies than we are from individuals. So that is what we are in the process of and the markets in the process of and economists are in the process of trying to piece out here this morning, as we get the opening bell on this jobs day.

[BELL]

All right, Local Bounti ringing the opening bell this morning. They are listing today. And as we get underway this morning and as I was talking about the sort of confusion and us trying to figure out what to make of this jobs picture, here's what stocks are making of it. We are seeing some modest gains here for equities in this environment. We've got the Dow trading higher by about a 1/3 of 1%, the S&P up by about 4/10 of 1%, and the NASDAQ, which I think is-- yes, it just opened-- is also up by 3/10 of 1%.

I was also taking a look at the 10-year yield here this morning, which is actually relatively muted as well, right? So the question here, the extrapolation for the market is, what is the Fed going to do with these numbers, if anything, right? And there doesn't seem to be a lot of clarity on that point either, especially when consider we've got a Fed meeting on December 14-- December 15, excuse me. We've got a 10-year yield rate right now about 1.45%.

That doesn't seem to be pricing in a very aggressive Fed, hawkish Fed at this point. But then if you look at things like Fed funds futures and what they're pricing in, there is an increasing likelihood that as soon as June of next year, we will see an interest rate increase. So, Brian Cheung, it's just tough to get a clear picture here.

BRIAN CHEUNG: Yeah, well, I mean, on the bond market story, we have to acknowledge that bond market traders, and will tell you this, that the volatility throughout the course of 2021 has been extremely remarkable and very unusual. And what we've seen was that bond yields spiked very sharply during the spring, and then they came back down. And here we are again, seeing them rise again. And we're starting to see-- and you can ask the technicals-- you can ask Jared Blikre about this, about whether or not there could be this camel hump shape where we should expect to see yields come back down again at some point, as the Federal Reserve starts to talk about the possibility of normalizing in 2022.

All of this is just to say that the messaging from the Fed, especially just even seen by the jobs report this morning, is going to be very noisy. And I think one reason is because these are not epidemiologists-- epidemiologists that are driving policy over on Constitution Ave. They have no idea what's going to happen. They have no idea if omicron is going to be the last variant. It probably won't be. They don't know when the next variant might come.

If those things rise again, that's going to introduce more uncertainty, which is a big reason why I think even bond market traders, generally the most liquid traders out there who kind of have a good eye for hedging against those types of risks, can't seem to figure out where the real kind of momentum is going.

BRIAN SOZZI: Yeah, I'm a little-- I have to admit, guys, I'm a little over the jobs report already. I think the real report is December, given everything with the variant. Let's bring on some more corporate earnings. What do you got, Julie?

JULIE HYMAN: I got more earnings, but I'm not quite over the jobs report. Luckily, we'll talk about it a few more times before we're through with you, Brian Sozzi, including, by the way, with the Labor Secretary coming up in the next hour. But I know you're hot to talk about Ulta Beauty. You're still burning up from the lousy haircut you got there earlier in the year. If you look, though, at the numbers, the sales outlook, the company raising its sales outlook. The shares are up 4 and 1/2%. I don't know if you ever got to go back and get a better haircut there, but the company is expecting huge increases in its comparable store sales for the year of 36% to 37%, Brian.

BRIAN SOZZI: No, I have not taken up the Ulta team on their offer to go back there and get a haircut. I'm still a little weary here. Part of my job, of course, is always to look nice and fresh for you all. So I'm going to wait a little bit. I'm going to wait until I feel comfortable, but overall, a pretty good quarter here from Ulta, a 25.8% comp increase versus a 8.9% decline a year ago. Of course, as essentially the whole world was wearing masks, definitely didn't need makeup.

Margins up, gross margins up 450 basis points. The Street's out here this morning here, raising their estimates, really, across the board. Fun comment here by the team on the earnings call last night, noting, quote, "Engagement with false lashes and lash growth serums combined with innovation like creamy eyeshadow sticks are driving continued growth within the eye category." I have to be honest with both of you. I have never heard of lash growth serums. And I definitely do not know what creamy eyeshadow sticks are. In fact, but they're driving sales at Ulta. Hat tip to them.

BRIAN CHEUNG: Go do some research, Brian. You got to try them out.

JULIE HYMAN: Yeah, why not?

BRIAN SOZZI: I'm not looking up creamy eye sticks. Not doing it. Not right now.

JULIE HYMAN: We were just showing, by the way, they also talked about adding Olaplex, which is another recent entrant to the stock market. And they make the various hair products. They are adding Olaplex in the store, so we'll see what that does both for Olaplex, as well as for Ulta itself.

And let's also talk about one other mover here. And it's one of the worst movers of the year. But it's going up this morning. Talking about Zillow here. The company said it is authorizing a share buyback of up to $750 million, but probably equally as important, if not more important, is what is going on with its housing inventory that it had bought.

Remember, the stock was down this year, in part because of the big bust that happened when it bought a bunch of houses, wanted to flip them and sell them, and then said, uh-oh, we can't sell them for as much as we thought we could. But the company is now saying it's made, quote unquote, "significant progress" on the wind-down of that inventory. And Brian Cheung, this has just been a really interesting story to watch here, given the backdrop of the housing market with prices going up. The fact that this company could not take advantage of that is fascinating.

BRIAN CHEUNG: Yeah, and to be clear, I don't know if it's that they couldn't make enough money on them so much as the logistics of doing this were apparently a lot more difficult than they had originally thought. So they're going to make money when they do sell the homes. I think it was under 10,000 or so that they had on book that when they do sell them, and the big reason why the stock is going up is purely a financial story because they're using the proceeds from the sales of winding down that business line, selling all of those homes, which they will make money on, into share buybacks. So you reduce the float, share price is going to go up. So this is just a reset for the company.

But I think it is kind of funny to see a whole company, especially of the scale of Zillow, close down an entire revenue stream, and then just take all the money and say, we have all this capital. There's nowhere for us to redeploy it in this company into a possible new business line or into R&D or to expanding something that we already have. We know that shareholders are upset with us. Let's just buy back those shares.

So I think this would make for a great, like, Matt Levine column or a Myles Udland rant. Basically, it's just a company acknowledging like, yo, we got to throw-- we've got to throw the towel in on this one. We're getting blown out by 30 points on the court here. Let's just call it quits and try to reset again maybe sometime in the future.

BRIAN SOZZI: Well, this would be make a great Yahoo Finance award because this gets my Worst Company of the Year Award. Zillow just an absolutely embarrassing year for this company. No clue how CEO Rich Barton still has his job. Absolutely bewildering. Makes no sense to me. Worst company of the year, Zillow. Terrible.

JULIE HYMAN: Whew.

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