Risk-off mood sours start to week – Crypto News

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• S&P 500 still trades below July 27 range high of 4,607.
• Arm files for largest IPO in years, valuation leaked at over $50 billion.
• US ISM Services PMI for August comes out Wednesday.
• Market closed for Labor Day on September 4.
• Zscaler, Docusign, Asana, C3.ai and UiPath all release quarterly earnings this week.

Standard & Poor’s 500 (S&P 500) has drifted 0.35% lower early Tuesday, while the NASDAQ Composite is fairing worse. The weakness comes following a string of poor reports from China, the UK and Germany that has led to a risk-off posture to start the week. Each country’s Purchasing Managers Index (PMI) for the Services sector showed a slowing rate from July. Germany’s PMI for August dropped five points from July to 47.3. China’s Caixin Services PMI fell from 54.1 to 51.8. The UK’s Services PMI for August fell two points to 49.5.

The S&P 500 experienced its best performance last week since the second full week of June in percentage terms. The index of the 500 largest US public companies rose 2.5% last week, mostly owing to a major rally on Tuesday, August 29.

With the Labor Day holiday shutting down the market on Monday, the week in economic data is rather weak. The US ISM Services PMI for August arrives on Wednesday, and nothing else bears the same significance. The indicator is expected to show a services sector that is still expanding, albeit at a slower pace.

Software week is here, with Cathie Wood-favorite UiPath (PATH) releasing results for the second quarter on Wednesday. Before that, Tuesday offers up earnings calls from Asana (ASAN) and Zscaler (ZS). Docusign (DOCU) earnings come out on Thursday. Then further talk about the Arm IPO – the chip design company owned by SoftBank – is sure to occupy much of the conversation this week.

S&P 500 News: Software earnings are eating the calendar

You’ll remember Asana as the workplace platform founded by early Facebook employee Dustin Moskovitz that has many competitors in the project management software space such as Monday.com (MNDY). Wall Street analysts are shooting for adjusted earnings per share (EPS) of $-0.12 on revenue of $157.8 million. All analysts covering Asana in the quarter ending in July have raised their earnings expectations for this report.

Zscaler, a cloud security firm, also announces fiscal Q4 results after the market close on Tuesday. The company has beaten every Wall Street consensus for adjusted EPS and revenue over the last 20 quarters. The streak goes all the way back to 2018. For this quarter, the Street has a consensus target of $0.49 in adjusted EPS and $430.6 million. That would mean a 96% increase for adjusted EPS and a 35% annual growth rate for sales.

UiPath is next up on Wednesday. The process automation company has lost 78% of its value since going public in early 2021 but has never really left the conversation. It still has major backers on Wall Street, and others wonder if it might make a good takeover target. The market has a consensus forecast for $0.03 per share in adjusted EPS on $282 million. This would amount to a 16.5% annualized growth rate, and the receding growth rate is a primary reason the stock has lost so much value.

Another pandemic darling, Docusign reports on Thursday. The notary replacement service has a consensus estimate for $0.66 in adjusted EPS on $677.4 million. Sixteen out of 17 analysts covering the company have raised their earnings estimate for the quarter. Like UiPath, the stock price has been damaged since the Federal Reserve began raising interest rates and the revenue growth rate has come down to earth. The revenue growth rate forecast for this quarter is just 9% YoY, but Docusign is clearly moving toward better profitability.

Arm IPO could lead to overall market rally

More words will be spilled about the proposed IPO of Arm this week than any of these software firms. That’s because Arm’s IPO should sell at a valuation exceeding $50 billion and could be one of the largest IPOs in quite a while. 

Arm designs a special class of chips found in 99% of the world’s cellphones and then licenses these designs to most of the largest firms in the world, including Apple (AAPL) and Nvidia (NVDA). The latter famously tried to buy Arm for $40 billion in 2021 but gave up in early 2022 when it was clear that regulators did not like the combination.

Japan’s Softbank (SFTBY), which purchased the UK-based Arm in 2016 for $32 billion, wants to spin it out. Arm’s revenue, close to $2.7 billion annually, has sputtered recently. Some analysts have even questioned whether the important company is really a good bet anymore. Some other chip designers have begun shopping around alternatives to Arm’s stranglehold on the smartphone chip market. 

A Reuters report over the weekend claimed that talks are not focused on offering shares in the $47 to $51 range. This means Arm would be initiated at a valuation between $50 and $54 billion. Not too long ago, the expectation was that Arm would retail in the low $60-billion range. Although nearly all the major banks on Wall Street are helping to run the IPO, several analysts have publicly questioned whether Arm is past its prime and now requires too much R&D spending in order to stay ahead of the competition.