FAA to reduce air traffic by 10% at 40 major airports, Unity CEO talks earnings beat

Key Concepts

• Earnings Reports: Financial results released by publicly traded companies, detailing their performance over a specific period.
• Adjusted Earnings Per Share (EPS): A company's profit divided by the number of outstanding shares, excluding certain one-time or non-recurring items.
• Adjusted EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance.
• Outlook/Guidance: A company's projection of its future financial performance.
• Same-Store Sales Growth: A metric used by retail and restaurant companies to track sales performance from existing locations, excluding new openings or closures.
• Marketplace Gross Order Value (GOV): The total value of goods or services ordered through a platform before any deductions.
• Insider Stock Transactions: Purchases or sales of a company's stock by its directors, officers, or major shareholders.
• Vector AI Ad Platform: Unity's artificial intelligence-powered advertising platform.
• Subscription Software Business: Revenue generated from recurring software licenses or services.
• Visualization Tools: Software used to create visual representations of data or designs.
• Output Gap: The difference between the actual output of an economy and its potential output.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Neutral Rate: The theoretical interest rate at which monetary policy is neither expansionary nor contractionary.
• Government Shutdown: A situation where federal government operations cease due to a failure to pass appropriations bills.
• FAA (Federal Aviation Administration): The U.S. agency responsible for regulating civil aviation.
• 30-Year Fixed Mortgage Rate: The interest rate on a mortgage loan that remains the same for the entire 30-year term.

Earnings and Market Movers

DoorDash

• Key Point: DoorDash experienced a significant sell-off in after-hours trading due to an earnings miss and a lower-than-expected Adjusted EBITDA outlook for Q4.
• Details:
  • Adjusted earnings per share (EPS) came in at 55 cents, missing the Street's expectation of 68 cents by approximately 13 cents.
  • The Q4 Adjusted EBITDA outlook was projected to be between $710 million and $810 million, with the lower end of this range being significantly less than Wall Street's expectation of $82.7 million.
• Additional Factor: Director Andy Fang reported insider stock transactions involving approximately 30,000 shares, equating to about $7.33 million.
• Positive Aspects: Despite the sell-off, DoorDash beat revenue expectations and saw a slight beat in marketplace gross order value (GOV). Total orders for the quarter reached 776 million, compared to 771 million in the previous period. The Q4 outlook for marketplace GOV also exceeded street expectations.

Dutch Bros

• Key Point: Dutch Bros' stock was trading higher, showing a different performance compared to DoorDash, driven by strong same-store sales growth and an increased full-year outlook.
• Details:
  • The coffee chain reported same-store sales growth of 5.7%, surpassing the Street's expectation of 4.14% and 1.1% growth.
  • The company also beat on both the top and bottom lines for adjusted earnings and revenue.
• Outlook: Dutch Bros raised its fiscal year outlook, now expecting full-year same-store sales growth to be approximately 5%, up from a previous forecast of 4.5%. This contrasts with low single-digit growth reported by other coffee chains.
• Real-World Application: The interviewer highlighted the unique drive-thru-only experience of Dutch Bros, focusing on energy drinks and catering to espresso drinkers, with a significant portion of sales occurring in the afternoon. The company is also testing food offerings.

Unity Technologies

• Key Point: Unity shares surged over 18% after beating earnings expectations and raising guidance, attributed to the momentum of its Vector AI ad platform.
• Details:
  • Unity reported a strong third quarter, beating both revenue and EBITDA consensus estimates and their own guidance.
  • Strength was observed across the entire business: advertising revenue increased by 11% quarter-over-quarter, and the subscription software business (creation of video games) grew by 13% year-over-year.
• Vector AI Ad Platform:
  • Argument: Analysts see significant margin growth potential in Vector AI.
  • Perspective: Unity's CEO, Matt Bramberg, stated that Vector AI is proving to be powerful for customers, enabling efficient customer acquisition for their games and driving increased spend.
  • Technical Term: Historically, advertising businesses are high-margin, suggesting substantial opportunity for margin expansion as Vector AI grows.
• Expansion Beyond Gaming:
  • Key Point: Unity's business outside of gaming is growing even faster than its core gaming subscription software business.
  • Applications: This includes visualization tools for creating interactive applications, with significant adoption in the automotive industry (in-dash experiences), manufacturing (virtual shop floors), and retail (virtual retail environments).
• Consumer Market Outlook:
  • Concern: Acknowledged concern about a cooling labor market and potential consumer weakness.
  • Unity's Resilience: Bramberg noted that historically, video games, especially free-to-play mobile games, fare well during consumer pressure periods due to their value proposition. Unity is not currently seeing pressure on its consumer base.
• Industry Outlook (2026):
  • Enthusiasm: Bramberg expressed excitement for the video game industry, citing the upcoming release of GTA 6, new handset and phone vibrancy, and continued consumer flocking to games when great devices and games are available.
• Notable Quote: Bramberg highlighted the "explosion of incredible Made with Unity games out there" and noted that there have "never been more new independent games made by Uni developers at this time than ever." He specifically mentioned "Peak," a climbing adventure game that became a bestseller on Steam.

Other Notable Earnings and Market News

Snap Inc.

• Key Point: Snap shares soared due to strong third-quarter results and a significant AI deal.
• Details:
  • Announced a $400 million deal with Perplexity AI, integrating Perplexity Search into the Snapchat platform.
  • Third-quarter results beat expectations.
  • Announced a $500 million share buyback program.

ELF Beauty

• Key Point: ELF Beauty shares plunged despite topping earnings expectations, due to a lower-than-expected full-year forecast and a missed Adjusted EBITDA outlook.
• Details:
  • Second-quarter net sales missed Wall Street estimates.
  • Provided a lower-than-expected forecast for full-year earnings and revenue.
  • The Adjusted EBITDA outlook also missed expectations.

Figma

• Key Point: Figma shares jumped on strong earnings, with results topping estimates and an improved full-year revenue forecast.
• Details:
  • Topped estimates on both the top and bottom lines.
  • The outlook was driven by the adoption of new products, leading to a raised full-year revenue forecast.

Federal Reserve and Labor Market

ADP Private Payrolls Report

• Data: The ADP report indicated that the economy added 42,000 jobs last month.
• Fed Governor Steven Myron's Perspective:
  • Caution: Emphasized caution in reading too much into any single report, especially during a government shutdown where data is limited.
  • Alternative Data: Views alternative data sources like ADP as welcome, especially when they come in better than expected.
  • Pre-existing Trends: Believes pre-existing trends in the labor market (modest job creation, moderating wages, potentially weaker labor demand) seem to be continuing at a similar rate despite the shutdown.
  • Monetary Policy Implication: Suggests that rates could potentially be lower than current levels based on these observations.

Structural vs. Cyclical Job Market Factors

• Myron's View on Policy Changes:
  • Output Gap Neutrality: Argues that policy changes like immigration (large-scale immigration or closed borders) are typically "output gap neutral." This is because while they affect the number of people working, they also affect consumption, keeping supply and demand relatively balanced.
  • Monetary Policy's Role: The role of monetary policy is to balance supply and demand to prevent extreme inflation or deflation. It doesn't automatically respond to changes in overall job numbers driven by demographic shifts like immigration.
  • Impact of Border Policy: Low levels of growth can be a result of changing border policies. An increase in migrants can flatter job numbers, and a decrease will reflect that change, but this isn't necessarily a direct target for monetary policy.
• Impact of Investment and Supply-Side Policies:
  • Myron's Belief: Acknowledges that the supply side of the economy matters.
  • Expansionary Policies: Policies like full expensing on PP&E (Property, Plant, and Equipment) from the tax bill incentivize investment in new factory equipment and structures.
  • Short-term vs. Long-term Effects: This investment demand pushes demand up in the short run and expands the economy's productive capacity (supply side) in the longer run.
  • Regulations: Regulations also shape the supply side by determining what and how industries can produce. Changes in regulations can alter the supply side and potentially expand output gaps that monetary policy should address.
  • Monetary Policy Response: Monetary policy typically responds to three factors: the output gap, the outlook for inflation, and changes in the neutral rate. These supply-side policies need to be analyzed for their impact on these three areas.

Government Shutdown and Air Travel

• Key Point: The government shutdown is set to impact air travel more severely.
• FAA Action: The FAA will reduce air traffic by 10% at 40 major U.S. airports, starting Friday morning.
• Reasoning: Federal Aviation Administration Administrator Brian Bedford stated that pressures are building, and unchecked, they cannot guarantee the safest airline system in the world.
• Context: The government shutdown has become the longest in history, exceeding 35 days.
• Market Reaction: Airline stocks were modestly lower in after-hours trading.

What to Watch: Thursday, November 6th

• Tesla: Shareholders will vote on Elon Musk's controversial pay package, valued at up to $1 trillion. The outcome could significantly impact Musk's future at the company and investor confidence.
• Earnings: Major reports expected from AstraZeneca, Kico Phillips, and Warner Brothers Discovery. AstraZeneca's Q3 results are anticipated to be challenging to match after strong first-half growth, but management might raise full-year guidance due to potential pricing cuts in China.
• Federal Reserve Commentary: A significant batch of commentary from multiple Fed officials is expected, following Fed Governor Steven Myron's statement that policy is too restrictive.
• Mortgage Rates: New data from Freddie Mac on mortgage rates will be released. The current 30-year fixed rate stands at 6.17%, having dropped for four consecutive weeks.

Synthesis/Conclusion

The broadcast covered a busy earnings day with mixed results for consumer-facing companies like DoorDash and Dutch Bros, highlighting the impact of earnings misses and beats on stock performance. Unity Technologies demonstrated strong momentum, driven by its AI ad platform and expansion into new verticals, while also showcasing resilience in the face of potential consumer weakness. The discussion on the labor market and monetary policy, featuring Fed Governor Steven Myron, delved into the complexities of structural versus cyclical factors, the impact of government policies, and the Federal Reserve's approach to balancing supply and demand. Finally, the broadcast touched upon the escalating impact of the government shutdown on air travel and provided a preview of key market events for the following day, including significant shareholder votes and further economic data releases.