Why is Aterian Stock Dropping? Exploring the Reasons Behind the Decline

Economic

Summary:

Aterian's stock has been on a downward spiral due to declining revenues, persistent losses, high cash burn rate, supply chain issues, underperforming acquisitions, valuation concerns, and risks of dilution.

Aterian's stock has been experiencing a significant decline due to several factors related to the company's financial performance and growth prospects. Here are the key reasons behind the drop in Aterian's stock price:

Declining Revenues and Negative Net Income

Aterian positions itself as a technology-enabled consumer products company, acquiring and operating online brands. However, this seemingly straightforward model faces several challenges that have impacted investor confidence.

Aterian's revenues have been declining, dropping from $248 million in 2021 to $221 million in 2022. This revenue contraction raises concerns about the company's ability to sustain growth through its acquisitive strategy. Additionally, Aterian has been reporting negative net income, with a net loss of $198 million in the last twelve months as of June 2023. Persistent losses and declining revenues have eroded investor confidence, leading to a sell-off in the stock.

High Cash Burn Rate

Aterian has been burning through cash at an alarming rate, with an operating cash flow deficit of $13.2 million in Q1 2022. At this burn rate, the company's $44 million cash pile could be depleted by the end of the year. This raises concerns about Aterian's ability to fund its operations and growth initiatives without resorting to dilutive equity or debt financing, which could further pressure the stock price.

Reverse Stock Split

In March 2023, Aterian resorted to a reverse stock split to maintain its listing on the Nasdaq. This maneuver often indicates financial difficulty and can further erode investor confidence.

Supply Chain Issues and Underperforming Acquisitions

Aterian cited supply chain issues across its product portfolio and deteriorating results from some of its recent acquisitions as reasons for the revenue decline in Q1 2022. These operational challenges have undermined the company's growth strategy and called into question the effectiveness of its AI-driven business model in identifying and capitalizing on market opportunities.

Investor Concerns Amplify the Slide

Aterian's financial woes have triggered a domino effect, leading to a decline in investor confidence:

Loss of Investor Confidence: The negative financial performance has led to a loss of investor confidence. As investors lose faith in the company's ability to turn things around, they sell their shares, driving the price down.

Delisting Fears: The continued decline in share price raises the specter of delisting from the Nasdaq exchange. This possibility further discourages investors from holding onto the stock.

Valuation Concerns and Profitability Questions

Despite the stock's decline, some analysts still view Aterian as overvalued, with a price-to-sales ratio of 0.3x compared to the industry median of 0.6x. The lack of consistent profitability and recent revenue declines have raised questions about the company's long-term potential and its ability to justify its valuation.

Dilution and Balance Sheet Risks

Aterian has a history of diluting shareholders through equity offerings to raise capital. With its high cash burn rate and mounting losses, the company may need to turn to the capital markets again, further diluting existing shareholders. Additionally, Aterian already has a significant debt load on its balance sheet, limiting its financial flexibility.

In summary

Aterian's stock has been dropping due to a combination of declining revenues, persistent losses, high cash burn, supply chain issues, underperforming acquisitions, valuation concerns, and the risk of dilution and balance sheet strain. These factors have collectively eroded investor confidence in the company's growth prospects and financial stability, leading to a significant sell-off in the stock.

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Warren Takunda

Economic

Francesco Pesole, FX Strategist at ING Bank, says investors are underestimating the number of cuts to come from the Bank of Canada, and this makes CAD "the least attractive commodity currency in G10."

The Bank of Canada cut interest rates by 25 basis points on Wednesday, and Governor Tiff Macklem said further cuts were possible.

The Canadian Dollar fell in response but pared most of its losses against its G10 peers by the time the day ended.

"Weakness in the Canadian dollar was rather limited and short-lived," says Pesole. He says the Bank of Canada's messaging was relatively guarded and the Canadian Dollar had already been weak heading into the event, which explains the relatively soft FX impact.

But ING economists see 75 basis points of further cuts from the Bank of Canada this year, which is more dovish than the market's anticipation for 50bp.

"Markets are also seemingly turning a blind eye to Governor Tiff Macklem’s reluctance to rule out a July cuts," says Pesole. Macklem said the Bank will take decisions "one meeting at a time". ING thinks another fall in inflation may put them on the spot already in July,

Economists at Commerzbank say they can imagine a kind of "frontloading", i.e. two rate cuts in quick succession so that the Bank does not have to cut rates more sharply later if the real economy weakens more significantly without stronger support.

"For this to happen, however, inflation will have to play along and the risks cited by the BoC, such as wage pressures, inflation expectations or the still high price pressure on housing, will have to abate. If these factors develop favorably, the next meeting at the end of July promises to be just as exciting as yesterday's," says Michael Pfister, FX Analyst at Commerzbank.

"We think CAD continues to look like the least attractive commodity currency in G10. NOK, AUD and NZD can all count on hawkish domestic central banks, are more undervalued, and should rally faster in a scenario where USD rates decline this summer," says Pesole.

"Overall, monetary policy divergence supports the downtrend in CAD versus AUD, NZD, and NOK. Unlike the BOC, the RBA, RBNZ and Norges Bank are in no rush to loosen policy," says Elias Haddad, Senior Markets Strategist at Brown Brothers Harriman.

Stephen Brown, Deputy Chief North America Economist at Capital Economics, says the June interest rate cut from the Bank of Canada will be the first of many, and the dovish tone of the accompanying communications suggests that another rate cut in July is already nailed on.

Source: Poundsterlinglive

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Alex

Economic

China is tightening its grip on the country’s stock market with a set of new guidelines, hoping to arrest the protracted slump in share prices, improve the quality of listed companies, and restore investor confidence. Market observers, however, warn that the measures could jeopardize the landmark overhaul of the IPO system introduced five years ago and shut out innovative small companies in emerging industries.

The guidelines, released by the State Council on April 12, focus on improving oversight and regulation of the equity market and cover a host of issues including listing standards, delisting rules, oversight of intermediaries to reinforce their role as gatekeepers, and supervision of high-frequency trading.

They aim to provide targeted solutions to regulatory shortcomings and loopholes exposed by previous market turbulence, and also serve as a solution to some of the longstanding and deep-rooted conflicts in the market, Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), said in an interview with state-run broadcaster CCTV that day.

“The guidelines aim to promptly address weaknesses, respond to investor concerns, resolve deep-seated contradictions accumulated over time in the capital markets, and accelerate the development of a safe, standardized, transparent, open, dynamic, and resilient capital market,” Wu said.

The commission has issued several rules since the publication of the guidelines to flesh out details and help with implementation, and the country’s stock exchanges have revised their business regulations to comply with the State Council requirements.

Known as the National Nine Articles, the guidelines followed relevant State Council opinions issued in 2004 and 2014 to support and direct the development of China’s capital markets. But while the previous versions focused on stable and healthy development, the latest one emphasizes strict supervision and management.

IPO tightening

“Although the core content of the new National Nine Articles is a continuation of recent regulations, the comprehensiveness of the policies set out by the State Council, the CSRC and the exchanges, plus the detail of the requirements have rarely been seen in recent years,” Liu Jiawei, an analyst focused on the nonbanking financial sector at Dongxing Securities Co. Ltd., wrote in an April 15 report. “If all market participants can be mobilized to implement the requirements of the new policies comprehensively, quickly, and efficiently, we can expect a qualitative change in the market.”

One of the most significant changes in the guidelines is the tightening of criteria for IPO candidates as part of efforts to improve the quality of listed companies. The exchanges have raised the thresholds of key financial indicators, such as revenue, net profit, net cash flow, and market value. They also give more weight to a company’s value attributes, emphasizing its ability to generate stable returns and withstand risks.

The new guidelines also aim to enhance the responsibility of the exchanges in the pre-IPO review process and improve the approach to setting up and running committees overseeing new listings. A retrospective accountability mechanism for IPO reviews will be established, the quality and effectiveness of guidance provided to candidates will be improved, and onsite inspections of companies and their intermediaries will be stepped up.

Following the release of the guidance, the CSRC published an updated checklist on April 30, which increases the random inspection rate to 20% of IPO candidates from 5%.

Many analysts say that the tightened regulations on IPOs walk back much of the reform to a new system announced in 2018 aimed at dismantling barriers that had been preventing up-and-coming companies from listing on domestic stock markets. A shift to a registration-based system from one based on regulatory approval was rolled out for the new STAR Market in 2019, a transformational change that took much of the responsibility for IPOs away from the CSRC and put it into the hands of companies and investors.

The main responsibility for reviewing whether a company meets IPO conditions and information disclosure requirements was shifted to the stock exchanges, while the CSRC would decide within 20 business days whether to allow an IPO registration based on the exchanges’ review.

New rules were introduced lowering requirements for listing criteria including revenue and profitability that had effectively shut the door to many young, high-growth companies because they were money-losing.

The updated Securities Law, which took effect in March 2020, established the legal foundation for implementing the registration-based system across all domestic exchanges. The system was rolled out to Shenzhen’s ChiNext in 2020, and to the Beijing Stock Exchange when it was launched the following year. In February 2023, the Shanghai and Shenzhen stock exchanges issued rules for implementation on their main boards after gathering public feedback.

Although the registration-based IPO system simplified and shortened the previously lengthy approval process that companies had to go through before they were allowed to list, problems emerged. The quality of information disclosure mandated for listing candidates and their intermediaries — such as sponsors, accountants and law firms — was often inadequate and sometimes fraudulent, forcing some companies to withdraw their applications. Many ordinary investors often weren’t equipped to judge the merits and risks of an IPO and its investment value.

Concerns grew that China’s stock market was not mature enough for such a system and that the CSRC needed to step back in to take back some control.

“Moderately raising the threshold for the main boards and ChiNext is an essential and urgently needed step to optimize the registration-based IPO regime,” analysts from Soochow Securities Co. Ltd. wrote in a report published on April 14. “Although China has completed the registration-based reform, the market still cannot rationally price the value of listed companies.”

There has been a trend of gradually returning to the approval-based IPO system, a former employee at a stock exchange told Caixin.

The exchanges’ IPO reviewers “have to continue to increase their standards and scrutiny, so, in essence, the system is still approval-based,” the person said. “Coupled with stricter retrospective accountability, reviewers would rather reject 100 applications than let one potential bad apple through.”

The application process is getting more difficult, and the reviews are increasingly stringent, Shi Donghui, a professor of finance at the International School of Finance at Fudan University, wrote in an analysis last year. “Regulators have once again intervened in a forceful way in the market-oriented operations of the registration-based IPO system,” wrote Shi, who is also a former director of the Shanghai Stock Exchange’s Capital Market Research Institute.

Although the new guidelines are aimed at addressing shortcomings in the registration-based IPO system and weeding out weak companies, some analysts say they will make it more difficult to list.

Hopes dashed

Companies wanting to join the STAR Market, a board for companies specializing in science and technology innovation, for example, now have to meet higher requirements for the amount of funding allocated to research and development and the number of patents obtained.

The changes have ended the IPO hopes of some companies. A report by analysts at Guotai Junan Securities Co. Ltd. released on April 14, which evaluated companies whose IPO applications were pending review as of that day, found that 28 out of 155 main board listing hopefuls could be disqualified under the guidelines. For the STAR Market, the analysts estimated the new rules could impact at least 10% of the companies waiting for review.

A person from a mutual fund firm told Caixin that previous financial requirements such as profits and revenue for IPO candidates on ChiNext and the Shanghai and Shenzhen main boards were relatively low. There have been a number of occasions when companies amended the numbers soon after listing, notably those with low profitability and a weak risk profile. Tightening the IPO entry criteria could allow more truly good companies to go public, the person said.

The new measures appear to discourage companies from even applying for IPOs, a person from a private equity firm told Caixin. “It’s like saying: ‘Don’t bother submitting an application. IPOs have been tightened up for now and the threshold will be higher. You might as well just withdraw.’”

Against this backdrop, the market is widely anticipating a continued decline in IPO financing this year. An April 17 report published by a Beijing-based research institute expects a sharp decrease in the number of IPOs in the current year. “Assuming one to three companies per week can be listed in Shanghai or Shenzhen, a moderate forecast would expect a total of 100 companies can go public this year raising 102.5 billion yuan ($14.1 billion). That would represent a year-on-year decline of 56% and 71%, respectively,” the report said.

In the initial stages of the registration-based IPO reform, officials lauded the system for having “no [regulator] intervention” as part of its core principles to give more autonomy to the market in the process of listing.

Disrespect for market rules has been a long-standing issue in the Chinese stock market, a finance veteran told Caixin.

“One cannot use the banner of protecting investors as an excuse to control everything, as protecting investors does not mean controlling (stock) index fluctuations or guaranteeing returns,” the person said. “‘Paternalism’ and ‘overbearing regulation’ will only push the A-share market further away from market-driven principles.”

Source：Caixin

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Economic

Full Video Transcript Below:

CONWAY GITTENS: So tell me, easy ratio, home affordability down, home prices up. If you got called in into a meeting on how to fix this problem, what would your strategies be?

RYAN SERHANT: Affordability and pricing is affected in three ways. It's supply, demand and interest rates. So number one is rates are just too high. So rates have to come down that fix a lot of the problems because it will also fix inventory, a significant amount of the homes that should be on the market today. I think we're short like two million nationally are just not coming to market because people can't afford where they want to go because rates are too high on the next purchase. So that's why, you know, we have a huge presence in Florida. You know, we list a home for $6.2 million yesterday. It's fully in contract by yesterday, you know, and that's it. You know, it shouldn't be that fast.

That's OK. Right? it's fine. And so I think as you have rates start to come down and as you have incentives get created in a lot of especially urban markets to create new housing, then affordability will become much, much better. There will be more options for more people and you'll have more sellers go through that life cycle of moving. You have a whole Baby Boomer generation that's saying, no, I think we're just going to stay because your loan is a financial asset. It's not debt anymore.

CONWAY GITTENS: But what about the supply side of that equation? Because I mean, we're here in New York and there are other places that have this problem, you know, not in my backyard. They come up with these plans to build more housing because we don't have enough supply. So how do we address that issue?

RYAN SERHANT: Supply is getting better now. You know, even in some of the hottest markets in New York City, the entire state of Florida, you actually have supply ticking up for the first time in four years. So more and more people are coming to market as rates start to stabilize. So rates coming down, not going down to where we were pre-covid, but coming to a point where people say, OK, this is the new normal, I'm either going to move or I'm not going to move.

That creates more supply, more home builders going into the market as land prices hopefully start to stabilize and come down, brings more homes to the market and increases supply. Labor costs, right construction costs, you know, material costs, cost of lumber, the cost of appliances. As costs stabilize, as inflation starts to cool a little bit. All of that is going to help create more supply. It's just not going to do it tomorrow. But we'll look back in a year from now, probably at this moment. We'll also be post-election and we'll say, OK, that's when it started.

Source: The Street

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Economic

Cryptocurrency

Debut US exchange-traded funds for the Ether cryptocurrency may generate much less demand than spot-Bitcoin products, according to analysts, muddying the outlook for the second-largest token.

BlackRock Inc. and Fidelity Investments are among the issuers seeking to list Ether funds pending final Securities and Exchange Commission approvals. JPMorgan Chase & Co. strategists expect far smaller Ether ETF net inflows versus the $15.3 billion that has poured into Bitcoin vehicles this year.

The five-month-old Bitcoin ETFs benefited from a controversial narrative that pitches the market-leading token as digital gold, a spin that Ether lacks. The Ether funds also won't offer so-called staking rewards for blockchain maintenance, a return that can be harnessed by owing the token directly.

“Ether doesn't have the profile of Bitcoin,” said BTC Markets Pty Chief Executive Officer Caroline Bowler, adding that Bitcoin's market value of $1.4 trillion is three times larger than Ether's. “It won't have the same impact.”

Surprise Pivot

The SEC last month surprisingly pivoted toward approval of spot-Ether ETFs after grudgingly allowing Bitcoin funds in the wake of a court reversal in 2023. The shift boosted Ether's price but over the past year the token's 109% advance still lags a 169% surge in Bitcoin that included a record high in March.

JPMorgan strategists led by Nikolaos Panigirtzoglou have estimated that the prospective Ether portfolios will attract a “modest” $1 billion to $3 billion of net inflows over the rest of the year. The products may struggle to get 20% of Bitcoin ETF assets in the US, which currently stand at $62.5 billion, according to Bloomberg Intelligence Senior ETF Analyst Eric Balchunas.

Vetle Lunde, senior research analyst at crypto specialist K33 Research, is in the optimists' camp. He has predicted $4 billion worth of net inflows in the first five months and a “monumental supply absorption shock” that should boost Ether.

Meanwhile fund manager VanEck — which is seeking to launch an Ether ETF — sees a tailwind from the popularity of the token's underlying Ethereum blockchain for applications such as crypto financial services.

“Over time, we expect investors to conclude that the potential for application and innovation within the Ethereum ecosystem could be much larger than that of Bitcoin,” said VanEck's Head of Digital-Asset Research Matthew Sigel.

Arbitrager Exits

Bitcoin initially sank after nine new US ETFs for the token listed on Jan. 11, the same day the more than decade-old Grayscale Bitcoin Trust — then the largest such portfolio — converted into an ETF from a closed-ended structure.

The retreat reflected uncertainty about likely demand as well as outflows from the Grayscale fund, as arbitragers exited after profiting from a discount in the portfolio's unit price to net asset value that closed when it became an ETF.

Eventually, the strength of demand for the new ETFs overshadowed the Grayscale outflows and Bitcoin resumed its march higher.

This time around, Grayscale Investments LLC intends to convert its $11 billion Ethereum offering into an ETF. As in the case of the Bitcoin fund, a discount to net asset value has closed and arbitragers may depart the largest Ether fund. Grayscale didn't reply to a request for comment about the product's outlook.

“Selling pressure” on Ether due to redemptions from the Grayscale fund is a “reasonable” expectation once the ETFs go live, but the overall market impact from the potential outflows is unclear, research firm Kaiko has said.

Ether was trading at $3,847 as of 9:40 a.m. Thursday in London. While Bitcoin remains in sight of achieving fresh records, Ether is some way off the all-time peak of $4,866 set during a pandemic-era bull run.

“Global investors have been less enthusiastic about Ether, which they have had access to through Europe and Canada for years,” a ByteTree Asset Management team including Chief Investment Officer Charlie Morris wrote in a note.

Source: Bloomberg

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Stocks

Economic

Treasury yields are moving slightly higher early Thursday, looking to break a five-day streak of declines which came amid concerns about waning U.S. economic growth.

What's happening

The yield on the 2-year Treasury climbed by 2.9 basis points to 4.757%. The yield on the 10-year Treasury rose 2.7 basis points to 4.307%.The yield on the 30-year Treasury added 2.1 basis points to 4.453%.

What's driving markets

Before Thursday's mild tick higher, the 10-year Treasury yield had fallen five sessions in a row, shedding 33 basis points, after investors absorbed softer-than-expected manufacturing and jobs data that pointed to a slowing U.S. economy.

The Federal Reserve is expected to leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on June 12th, and also to stand pat in July. But the recent economic news has raised the probability of at least a 25 basis point cut at the September meeting to 68.1% from 49.5% a week ago, according to the CME FedWatch tool.

Also encouraging more bets on the Fed trimming borrowing costs is the sight of monetary easing in other developed economies. The Bank of Canada cut interest rates on Wednesday, and the European Central Bank is forecast to do the same on Thursday.

The German 10-year Bund yield BX:TMBMKDE-10Y rose 1.4 basis points to 2.529% ahead of the ECB's decision, due at 8:15 a.m. The ECB is expected to cut its main deposit rate by 25 basis points to 3.75%. ECB President Christine Lagarde will hold a press conference, starting at 8:45 a.m.

U.S. economic data due Thursday include weekly initial jobless claims, alongside productivity for the first quarter (final revision) and the trade deficit, all at 8:30 a.m. Eastern.

Meanwhile, Bank of Japan Governor Kazuo Ueda on Thursday said it would be appropriate to reduce the central bank's buying of bonds as it strives to exit its ultra-loose monetary policy. However, the 10-year Japanese government bond yield BX:TMBMKJP-10Y fell 4 basis points to 0.965%.

What are analysts saying

"With an onslaught of mixed macro-economic data, recession whispers have gotten louder as Treasury yields edge lower and worries persist that the Fed's higher for longer messaging could inflict more than just an economic cooling," said Quincy Krosby, chief global strategist for LPL Financial.

"The widely-followed ISM Service Sector report, reflecting underlying trends in the broadest component of the economy, suggest prices are edging lower as orders and employment expectations gain, precisely the print needed by a market seemingly enveloped by worry over the economic backdrop. And it's not lost on the market that if prices continue to edge lower, especially with the CPI report due next week, the Fed could soon start telegraphing that it's discussing the possibility of initiating the rate easing cycle," Krosby added.

Source: MarketWatch

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Alex

Economic

While the US Federal Reserve may not want to complicate its policy mandate by incorporating climate considerations, it increasingly needs an understanding of meteorology to see where the economy is headed.

Hurricane season started on June 1, providing a timely illustration of the weather-driven challenges faced by the Fed, which holds a monetary policy meeting next week. The US National Oceanic and Atmospheric Administration is predicting an above-normal rate of 8-13 hurricane-strength storms before the end of November.

Historically, most investors and Fed officials would shrug off this sort of weather event. After all, hurricanes have typically represented one-off shocks that might impede US energy supply in the Gulf of Mexico and regional spending, but only for very short periods. These storms could create tactical trading opportunities for short-term investors, but they weren’t large or sufficiently durable catalysts that they would influence broader economic trends — or require a monetary policy response.

That calculus might be changing, however, as storms grow in frequency and cost and have broader macro implications. As someone who grew up in Florida and still has ties to the state, I’ve seen this meteorological evolution first-hand. The data backs up my observations.

A recent report from Noaa, for example, found that hurricanes, alongside other US weather events with costs of $1bn or more, averaged 3.3 events per year on average during the 1980s. In subsequent decades, that number rose steadily; over the past three years, an average of 22 events per year were recorded. The cost of these events has risen sharply, from an average $21.7bn a year in the 1980s to $146bn a year over the past three years, adjusting for inflation.

Such weather damage is increasingly extending beyond shortlived interruptions to energy supply or postponed consumption, changing both how investors trade weather events but also how policymakers consider them as they think about risks to their economic forecasts. Indeed, one of the biggest financial effects for consumers is something not fully captured in Fed data: homeowner’s insurance. Why the Hurricane Season Matters For The Federal Reserve_1

Why the Hurricane Season Matters For The Federal Reserve_1

US home insurance, especially in parts of the US more prone to weather events, is rising significantly. A March report by the Federal Home Loan Mortgage Corporation, or Freddie Mac, estimated that the annual homeowner’s insurance premium increased between 2018 to 2023 by more than 40 per cent. While a significant part of this reflects higher home and land valuations, Freddie Mac attributes some of the higher cost to greater risks of weather events such as hurricanes.

This particular source of inflation is under-represented in important reports that feed into Fed policy decisions. The consumer price index, or CPI, for instance, only incorporates insurance paid for rental units, not homes. Meanwhile, the Fed’s preferred inflation measure, the personal consumption expenditures index, does include homeowner insurance. However, an estimated sum paid by insurance groups on claims is subtracted from what homeowners pay.

While insurance is a small piece of the broader inflation picture, the change in the rate of price increases is still noteworthy, and brings with it at least three risks for policymakers to consider.

First, the methodology used to calculate CPI and PCE may underestimate the actual inflation being experienced by homeowning households. A second, related risk, is that consumers who need to use more of their income for items such as insurance will have less afterwards to spend on other goods and services. Reduced demand could in turn lead businesses to become more cautious. Such a negative feedback loop could ultimately influence the other half of the Fed’s mandate, the labour market.

Finally, the higher cost of homeowner (and other) insurance is feeding into what is increasingly discussed as a K-shaped economy, with lower-income and wealth groups less able to absorb higher living costs relative to their wages. Freddie Mac’s study, for instance, found that between 2018 and 2023, very low-income borrowers’ homeowner insurance premiums represented 3.1 per cent of their monthly income, double that of middle-income borrowers and about triple that of high-income groups.

For Fed officials, the widening gap between the top and bottom of the US economic “K” means that however they set monetary policy, it will not be optimal for one part of the population. Maybe we’ll avoid a perfect storm this season, but clear economic policy skies don’t seem likely anytime soon.