Cloudflare and Airbnb Deliver, While a Hot Jobs Report Hits the Dow

Dear readers,

The question we left open ahead of Cloudflare’s report has an answer: the company is being treated like Unity, not like Fastly. Cloudflare and Airbnb both raised their forecasts sharply and are being rewarded for it on Friday.

The October jobs report supplies the counterweight. Strong economic data is feeding fears of a Fed rate hike and weighing on broad indices like the Dow Jones, even as chip stocks only catch their breath after the recent selloff.

Cloudflare: The Fastest Growth in Almost Four Years

The internet infrastructure provider booked third-quarter revenue of $782.5 million, up 39 percent from a year earlier. Analysts had expected a little over $735 million. Adjusted earnings per share came in at $0.38, against a consensus of $0.34.

The outlook matters more than the beat. For the fourth quarter, Cloudflare is targeting revenue of $845 million to $846 million, versus a consensus just under $800 million. Full-year guidance rises to roughly $2.96 billion.

For the first time, the company expects a profit under U.S. accounting rules (GAAP) as early as the fourth quarter. In the third quarter it still posted a GAAP net loss of $34.1 million, weighed down by stock-based compensation.

One blemish remains. Adjusted gross margin fell to 72.4 percent, 2.9 percentage points below the prior-year level. The shares trade around $290 in Friday trading, still well below the early-October high of $370. Truist rates the stock a buy with a $350 price target. Cloudflare is also benefiting from the rise of autonomous AI agents, whose daily requests have grown 1,700 percent from a year ago, according to the company.

The takeaway is that the market currently punishes expensive AI fantasy, not visible revenue growth in security-related software. Holders of such names should pay less attention to data-center headlines and more to margins.

Airbnb: Travel Demand Holds, and Investors Pay for Visibility

Airbnb lifted third-quarter revenue 19 percent to $4.9 billion, its strongest growth in over three years. Gross booking value rose 21 percent to $27.7 billion, and nights booked climbed 16 percent to 155 million. Diluted GAAP earnings per share reached $3.16, against roughly $2.85 expected.

Fourth-quarter revenue guidance of $3.22 billion to $3.28 billion sits well above the consensus of about $3.16 billion. Full-year growth is now seen in the high teens, up from the mid-teens previously. A new buyback program of up to $12 billion rounds out the package.

Rivals, by contrast, are complaining to Reuters about expensive flights in the wake of the Iran war. Airbnb has felt little of that so far. Its shares, at a little over $192, are closing in on their 52-week high of about $193.

Two caveats deserve attention. The cancellation rate rose to 19 percent from 16 percent a year ago. And at an expected price-to-earnings ratio of just under 32, Airbnb is far pricier than Booking at a little over 18. The stock needs more good numbers to defend that premium.

Should investors sell immediately? Or is it worth buying Airbnb?

The Jobs Report: Strength Becomes the Problem

The U.S. economy added 165,000 jobs in October, against expectations of 65,000. Unemployment fell to 4.1 percent, and hourly wages rose 3.1 percent from a year earlier.

The yield on 10-year Treasuries climbed to just under 4.9 percent. The probability of a Fed rate hike in December now stands at about 77 to 79 percent.

That explains the split screen. The Nasdaq is recovering while the Dow Jones gives up a good 1 percent. For valuations, good news about the economy is currently bad news. Oil, meanwhile, slipped below $100 a barrel, and the energy sector is heading for a clear weekly loss.

The rebound in chip stocks belongs to the same picture. IREN is up sharply after revenue above expectations and a lowered capital-spending outlook. Nebius is also firmer on the German trading venue Tradegate. The pattern: companies that burn less cash get rewarded.

Moderna, DraftKings, Atlassian: The Price of Perfection

Moderna reported revenue of $1.31 billion, about 50 percent above the consensus of roughly $885 million. Net income was $162 million, after a loss a year earlier, and full-year guidance was raised. The stock’s gain was still modest. At about $245, the shares are up 925 percent over twelve months, and at that point a beat no longer automatically delivers new highs.

Two losers show the other side. DraftKings missed on revenue, posted a wider adjusted operating loss than expected and cut its full-year forecast. The stock lost 25 percent in premarket trading. Atlassian fell almost 16 percent after its quarterly results. The lesson of this reporting season: good numbers get rewarded, but investors slide quickly once guidance comes down.

Bitcoin: Rate Fears Instead of a Tailwind

Bitcoin is holding around $75,800. U.S. spot Bitcoin ETFs recorded outflows of $430.2 million on Thursday, and the prospect of higher rates adds pressure. One market observer sees a risk of a drop to $72,000 if the data stay strong.

The Takeaway

This week’s sorting mechanism is unchanged: operating delivery beats mood. Cloudflare and Airbnb combined results with raised outlooks, and the market paid. DraftKings and Atlassian did the opposite and paid the price. What is new is the macro overlay. A labor market this firm keeps a rate hike on the table, and that weighs on richly valued stocks regardless of how good the quarter was.

The next test comes quickly. The U.S. consumer price index for October is due Tuesday and is likely to reignite the rate debate. CoreWeave, Applied Materials and Cisco also report that week. CoreWeave and Applied Materials will show whether the chip rebound has legs. Anyone buying in now should look for operating substance, not just a bounce.

Have a great weekend.

Best regards,
The StocksToday.com Editorial