Wayfair convertibles slide outright after earnings disappoint; Western Digital contracts

By Rebecca Melvin

New York, Oct. 31 – U.S. convertibles players were watching different situations on a big earnings day for the market on Thursday.

Wayfair Inc.’s convertibles tanked on an outright basis in active trade but held in on a dollar-neutral basis with the Wayfair 0.375% notes due 2022 expanding as much as 2 points to 3 points on swap, at least initially, market sources said, after the Boston-based furniture and home furnishings e-commerce company reported a wider-than-expected quarterly loss.

The Wayfair 0.375% bonds expanded about 2.5 points on the stock’s pullback but appear to be leaking later in the session as hedged players took profits, a New York-based trader said. By midsession the bond was up only 2 points on swap.

On an outright basis, the Wayfair’s 0.375% convertibles dropped more than 11 points to 105.25 in the early going from 117. They were trading around 108.25 bid, 108.75 offered at midsession, with the underlying shares trading off 14% at $87.20, according to Trace data.

The Wayfair 1.125% notes due 2024 dropped almost 10 points to the 105 area but were seen to have expanded about 0.375 point on the day, and the Wayfair 1% notes were seen to have expanded about a point, according to market sources.

For the three months ended Sept. 30, Wayfair said it lost $272 million, which was almost double the year-earlier period, on higher revenue of $2.3 billion.

Adjusted EBITDA was for a loss of $144.2 million, which was wider than a Reuters’ estimate of analysts for a loss of $139.34 million.

“The W earnings miss is obviously painful for a lot of outright guys,” a New York-based trader said, referring to the company by its stock symbol.

But Wayfair wasn’t the only earnings disappointment in the market.

Western Digital Corp. shares were also down 14% in the early going after the hard disk maker and data storage company disappointed on earnings and guidance. Western Digital’s 1.5% convertibles due 2024 were seen down 2 points to 95.625 on an outright basis, according to Trace data, and were said to have contracted about 0.5 point on a dollar-neutral basis.

Etsy Inc.’s 0.125% convertibles due 2026 tumbled almost 8 points to the 90.75 area. The Etsy shares were down $7.47, or 14%, to $45.36. The company reported earnings that were in line with expectations and a beat on revenue, but it disappointed on margin guidance, according to news reports.

The bond was said to be moving down in line with the underlying shares, or unchanged on a dollar-neutral basis.

Away from Wayfair, Western Digital and Etsy, Pluralsight Inc. was trading on an initial drop in the underlying shares. The Pluralsight 0.375% convertibles due 2024 changed hands at 87.4 on Thursday and were seen to have expanded about 0.75 point on the day. PluralSight is a Farmington, Utah-based online education company. Its shares pared losses to end down only 24 cents, or 1.3% on the day, to $18.08.

Also improving on Thursday was Redwood Trust Inc. Its 4.75% convertibles expanded the most, or about 0.5 point on a dollar-neutral basis, and was said to be the best-performing real estate investment trust convertible.

Also in secondary market action, there was follow-on trading in Exact Sciences Corp.’s convertibles, which remained under pressure. The genomic sciences company reported a third-quarter revenue loss that exceeded estimates on Wednesday.

The Exact Sciences 0.375% convertible notes due 2027 were down to 102 from 106ish on Wednesday and 110ish on Tuesday. Exact Sciences shares were last higher however at $85.21, which was up $1.20, or 1.4%.

The most active mandatory issues on Thursday were Broadcom Inc.’s 8% mandatories, NextEra Energy Inc.’s 4.872% convertibles, DTE Energy Co.’s 6.25% units and Rexnord Corp.’s 5.75% convertible preferred shares.

The DTE units debuted in the market on Wednesday and had performed well, gaining about 80 basis points on a dollar-neutral basis.

Mentioned in this article:

Broadcom Inc. Nasdaq: AVGO

DTE Energy Co. NYSE: DTE

Etsy Inc. Nasdaq: ETSY

Exact Sciences Inc. Nasdaq: EXAS

PluralSight Inc. Nasdaq: PS

Redwood Trust Inc. NYSE: RWT

Rexnord Corp. NYSE: RXN

Wayfair Inc. Nasdaq: W

Western Digital Corp. Nasdaq: WDC

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