The Week Ahead Of Us 🔍 |
Welcome back! |
This is the week! The Fed is set to cut rates by 25bps on Wednesday from its current fed funds rate of 3.75% to 4%. Futures are little changed tonight. Let's get right into it. |
Here's a look at earnings this week. |
Monday: Toll Brothers Tuesday: AutoZone, GameStop, Dave & Buster's, Lands' End, The Campbell's Company, Ferguson Enterprises, Cracker Barrel, Designer Brands Inc. Wednesday: Oracle, Adobe, Chewy, Synopsys, Vail Resorts Thursday: Broadcom, Costco, Lululemon, Vera Bradley, Lovesac Friday: Rent the Runway, Johnson Outdoors
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Here's a look at economic data this week (estimates are in quotations). |
Monday: US Consumer Inflation Expectations Tuesday: NFIB optimism index (98.3), Job openings (7.2M) Wednesday: Employment cost index (0.9%), FOMC interest-rate decision, Monthly U.S. federal budget (-139.6B), Fed Chair Powell press conference, MBA 30 Year Mortgage Rate, MBA Mortgage Applications Thursday: Initial jobless claims (220,000), U.S. trade deficit (-61.6B) Friday: Wholesale inventories
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Earnings Corner 📈 📉 |
Kroger $KR ( ▼ 0.68% ) Results fit the broader grocery theme of resilient but slow demand as shoppers stay price sensitive. With limited catalysts and a promotions driven backdrop, analysts are guiding expectations lower despite stable fundamentals. |
HPE $HPE ( ▲ 1.88% ) Results underscored a familiar AI theme: demand is strong, but revenue is arriving late as big AI deals slip into later quarters because customers aren't ready and government spending slowed. Management kept its outlook intact, saying the push outs are timing related rather than a sign of softening demand. |
Ulta $ULTA ( ▲ 12.65% ) Raised outlook again as beauty spending stayed resilient, with fragrances and skincare driving strong demand. The quarter underscored that beauty remains one of the few discretionary categories holding up despite tighter consumer budgets. |
Dollar General $DG ( ▲ 5.65% ) Raised its outlook after another quarter of shoppers trading down, with demand staying strong across income levels as people look for cheap essentials. Its back to basics focus on sharper prices and tighter costs is clearly landing, helping drive steadier traffic even as most of retail cools. |
Docusign $DOCU ( ▼ 7.64% ) Beat across the board, but shares slid as growth and billings stayed steady rather than accelerating. AI adoption is improving and the platform is scaling, yet the market is waiting for that to translate into faster top line growth. |
Victora Secret $VSCO ( ▲ 17.99% ) Surged after delivering a cleaner quarter, with an 8% comp gain and a narrower loss paired with a solid revenue beat. Management lifted Q4 and full year guidance, giving investors a rare sign of traction in the turnaround and easing fears that the brands recovery had stalled. |
Our latest piece, on Curiositystream $CURI ( ▼ 3.0% ) dropped last week, access it here. |
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Can the Netflix and Warner Bros deal get done?🔍 |
Netflix has agreed to acquire the studio and streaming assets of Warner Bros Discovery for $82.7B, $27.75/share with $23.25 in cash and $4.50 in Netflix shares. Wall Street was caught off guard, as this type of megadeal was rarely something the streaming giant has ever actually executed on. But David Ellison's bids drove Warner Bros to run a fast, formal process. |
Netflix has lined up $59B of financing, including $25B of bonds and $20B of a delayed-draw term loan. Wells Fargo, Netflix's advisor, ended up a big winner in this mega deal. |
HBO is arguably my favorite place to stream content, with prestige TV shows like The Sopranos, The Wire, and Succession, plus valuable IP like DC Comics and Harry Potter. Adding Warner Bros content to Netflix's portfolio would provide the streaming giant with serious IP, something it frankly lacks outside of the recognizability of Stranger Things and Squid Game. |
The tie up your competitors theory: Many are saying this deal is anticompetitive, so challenges are to be expected. But some business writers have laid out the theory that even if the deal falls through, this is a massive win for Netflix. While Netflix is on fire, smaller peers are struggling to differentiate and desperately need consolidation. Netflix taking Warner Bros off the chessboard makes the standalone products of peers like Peacock and Paramount Plus continue to look weak. The deal comes with a massive $5.8B breakup fee, which IMO, shows some conviction in this deal getting through regulatory hurdles. |
David Ellison might go hostile: However, Warner Bros was reportedly concerned about how Paramount could even finance the initial offer. Paramount's offer included financing from Apollo and several Middle Eastern funds, with language from the Ellisons backstopping the deal. Even with the Ellisons upping the price, board uncertainty around financing reliability would probably halt this RJR Nasbico rival in its tracks. |
Our hot take: We think this deal gets done. Netflix meeting with President Trump in advance of the deal probably gave them enough certainty that their argument would be heard, in addition to the argument that Netflix is competing against Google/YouTube, as opposed to other streamers. Still, we table it at like 60%-70% odds, because just as we were writing this, Trump came out and said he'd be involved in the decision and said that the big market share "could be a problem". We ultimately believe the dinner in advance of Netflix pursuing the deal, as well as the incredibly lax regulatory environment, still tilts this towards getting done. |
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Today's Headlines 🍿 |
First Brands' Business Flails as Customers Don't Know Who to Pay: A tangled web of debts and factoring deals has left First Brands' customers unsure where to send payments, freezing roughly $150M the bankrupt auto-parts supplier "desperately needs" to survive. With cash burn soaring and even its DIP loan trading down to 90 cents (the 1L is trading at 5 to 7 cents), the company is pleading with the court to create a framework to unstick funds and prevent an imminent liquidity crisis Is OpenAI's burn sustainable? Deutsche Bank Analyst Jim Reid has stated that OpenAI is in "uncharted territory" with $140B in losses expected between 2024 and 2029. Here's how it compares to other fast-growing, money-losing startups:
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Apollo's 5 Biggest Risks for 2026: According to Apollo, inflation moving higher from an already high level is the main risk for next year. Inflation could increase as the economy starts to re-accelerate because of the fading trade war shock and the One Big Beautiful Bill. The other risks Apollo highlighted included the following: More countries focusing on homeshoring advanced manufacturing The Fed cutting for purely political reasons The AI bubble bursting and leading to less capex and lower high-end consumer spending A dramatic increase in the supply of fixed income putting upward pressure on rates and credit spreads
Apollo is worried about AI: Apollo's John Zito warns that rampant AI spending will lead to a messy future, stating that "it's undoubtedly probably going to be the most violent cycle we've ever had." Zito says that nobody knows what the value of GPUs will be 5-7 years from now, and that adding a lot of leverage to an uncertain situation is "kind of scary." Zito noted that Apollo has been quieter on that front and has stayed more short-dated to limit its exposure BofA's Hartnett Warns Dovish Fed Cut Could Derail Stock Rally:
Strategist Michael Hartnett says a too-dovish tone from the Fed next week could signal a sharper economic slowdown, triggering a selloff in longer-dated Treasuries and threatening the S&P 500's year-end momentum. Despite markets betting heavily on a quarter-point cut, Hartnett argues that softer data and upcoming jobs and inflation reports could challenge the "Santa Claus rally" 2026 Fed Expectations: Economists expect the Federal Reserve to cut rates again next week and follow with two more reductions in 2026 as policymakers shift focus to signs of labor-market deterioration. But deep divisions remain inside the Fed, raising the likelihood of dissents as officials balance softening job conditions against lingering inflation pressures
Zuck to Slash Metaverse Budget by Up to 30% as Losses Top $60B
Meta plans to cut nearly a third of spending in its Metaverse division, a move likely to include layoffs as early as January, after Reality Labs burned more than $60B since 2020. The shift comes as Zuckerberg pivots aggressively toward AI, with Meta committing up to $72B in capital spending this year SoftBank Group is in talks to acquire DigitalBridge Group, a PE firm that is very data center focused. Shares of DigitalBridge, which were down 13% this year, soared 45% on the news to give the company a valuation of $3.4B. DigitalBridge and its $108B of AUM would help SoftBank to capitalize on the fast growing demand for computing capacity and digital infrastructure Blue Owl Raises $1.7 Billion for Data Center Fund: The firm closed its latest digital-infrastructure vehicle, launching an evergreen REIT that immediately acquired stakes in 11 U.S. data centers. The firm, now a major player in hyperscale infrastructure, continues its aggressive expansion after financing more than $50B in data-center projects for Meta and Oracle this fall KKR Eyes Majority Stake in Arctos to Deepen Sports Investment Push: The mega-fund is in advanced talks to buy a controlling stake in Arctos Partners, aiming to accelerate its expansion into assets like teams, leagues, media rights and financing. Arctos already holds stakes in major franchises including the Warriors, Jazz, Dodgers and Astros, while KKR sees sports as a fast-growing frontier aligned with its existing portfolio in gaming, media and entertainment Private Credit Profits Come Under Threat: Loan margins across the $1.7T private credit market have dropped sharply as Wall Street banks undercut spreads with cheaper broadly syndicated financing. The median private credit loan is now S+500, compared to S+650 in 1Q23, per Wells Fargo Ares to Lead Loan for Bally's NYC Casino Build: Ares is assembling unitranche financing exceeding $1B to help Bally's finance its $4B New York City casino project on a former Trump-developed golf course. The financing would support Bally's newly approved state gaming license, though final terms are still being negotiated New CNBC Logo Backlash Builds: CNBC's upcoming minimalist wordmark, replacing its iconic peacock due to corporate restructuring, has drawn sharp criticism from designers and viewers. Many argue the fused N–B and upward blue arrow feel disjointed, corporate, and even resemble a "sinking ship," echoing recent rebrand controversies Willow Wealth Rebrand Masks Mounting Losses: Yieldstreet's rebranded successor is facing at least $208M in investor losses as new defaults emerge across real estate projects in Houston and Nashville. The firm has removed a decade of performance data from public view, even as more than 30% of reviewed real estate deals have failed, far above typical private-credit default rates Bond Traders defy the Fed: The Fed has already begun its process of easing, but treasury yields have actually been rising. Yields on both the 10-year and 30-year are up since the first rate cuts, showing that traders aren't buying the idea that faster cuts will send yields down and lower the rates on mortgages and other loans Carvana, CRH, and Comfort Systems will join the S&P 500, effective December 22nd. The trio will replace LKQ Corp, Solstice Advanced Materials, and Mohawk Industries as part of a quarterly rebalance Beef Prices continue to soar: While overall food prices are up 3.1% y/y, beef and veal prices are up a massive 14.7% as the supply of cattle has continued to shrink. However, input costs for ranchers are up over 50% over the past five years, leaving farmers without a clear path to bigger herds
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M&A Transactions💭 |
The Residential Kitchen Business of The Middleby was acquired for $451.35M by 26North Partners. The transaction values the company at $885.0M. Goldman Sachs advised on the sale. |
Spectris, supplies measuring instruments for research, was acquired for GBP 4.8B by Kohlberg Kravis Roberts. EV/EBITDA was 27.39x and EV/Revenue was 3.63x. Barclays, Bank of America, Rothschild & Co, and Goldman Sachs advised on the sale. |
Safaricom (NAI: SCOM), a Kenya-based telecommunications company, has reached a definitive agreement to be acquired for $2.1B by Vodacom Group (JSE: VOD). EV/EBITDA was 6.78x and EV/Revenue was 3.41x. |
PurgeRite, provider of mechanical flushing and filtration services, was acquired for $1.0B by Vertiv (NYS: VRT). Harris Williams advised on the sale. |
PolSolar, operator of renewable energy generation facilities, has reached a definitive agreement to be acquired for HUF 118.0B by MOL Hungarian Oil and Gas (BUD: MOL). |
One Digital, provider of employee benefit services, was acquired for $7.0B by Stone Point Capital and CPP Investment. EV/Revenue was 8.04x. Ardea Partners, Barclays, and Evercore Group advised on the sale. |
GTreasury, developer of integrated SaaS treasury and risk management systems, was acquired for $1.0B by Ripple. Goldman Sachs advised on the sale. |
Dovetail Midstream, operator of a natural gas gathering infrastructure serving production based in Eddy Country, was acquired for $171.0M by Targa Northern Delaware. The company will receive up to an additional $60.0M in cash payments contingent on achieving certain volume-based performance thresholds over a five-year period. |
ViceBio, developer of innovative vaccines, was acquired for $1.6B by Sanofi (PAR: SAN). |
Keystone National Group, operator of an investment advisory and asset management firm, has reached a definitive agreement to be acquired for $200.0M by Virtus Investment Partners (NYS: VRTS). The company will also receive a contingent payout of $170.0M earnout payments subject to the achievement of future revenue targets. Bank of America advised on the sale. |
Foresight Diagnostics, developer of a novel diagnosis technology, was acquired for $275.0M by Natera (NAS: NTRA). Centerview Partners advised on the sale. |
E2S Warning Signals, manufacturer of high performance audible and visual signals, was acquired for GBP 230.0M by Halma (LON: HLMA). EV/Revenue was 5.26x. |
Private Placement Transactions💭 |
Harvey AI, developer of a legal technology platform, raised EUR 160.0M of Series F venture funding led by EQT and Andreessen Horowitz at a pre-money valuation of EUR 7.85B. |
7AI, developer of an agentic security platform, raised $130.06M of Series A venture funding led by Index Ventures. |
Iceye, developer of a radar satellite imaging technology, raised EUR 200.0M of venture funding led by General Catalyst at a pre-money valuation of $2.2B. |
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Odds of the Day 🍒 |
Kalshi traders are pricing in a 75% chance of the Democratic Party winning the house next year. |
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Meme Cleanser 😆 |
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