Wayfair convertible notes in focus, gain as stock jumps post-earnings; Upwork crunches

By Abigail W. Adams

Portland, Me., Aug. 3 – It was another active day in the convertibles secondary space on Thursday with earnings-related volatility driving trading volume.

While equity markets rebounded despite continued selling in Treasuries, earnings drove outsized moves in convertible issuers’ stocks.

Equity indexes opened the day in the red, pared their losses to turn mixed in intraday activity, but fell back to negative territory by the close.

The Dow Jones industrial average closed Thursday down 67 points, or 0.19%, the S&P 500 index closed down 0.25%, the Nasdaq Composite index closed down 0.10% and the Russell 2000 index closed down 0.28%.

Wayfair Inc. was the name of the day with the notes jumping outright and expanding dollar-neutral as stock popped double digits on the heels of a large earnings beat.

While Upwork Inc.’s stock was among the best performers in equity markets on Thursday, the company’s 0.25% convertible notes due 2026 did not participate in the rally.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB/BBB-) improved on hedge as stock sank double digits post earnings.

Wayfair in focus

The convertibles secondary space was firmly focused on Wayfair on Thursday, the home decor e-commerce company whose future viability was at one time questioned.

Wayfair’s convertible notes jumped outright and expanded dollar-neutral after the company posted a surprise profit while analysts had projected heavy losses.

Wayfair’s 3.25% convertible notes due 2027 jumped 18 points outright with stock up almost 20%.

The notes were changing hands at 156 versus a stock price of $86.39 early in the session, according to a market source.

They were trading at 155 heading into the market close.

The notes move on a theoretical delta of 88, a source said.

Wayfair’s 1% convertible notes due 2026 gained 6.875 points outright. They were trading at 92.875 versus a stock price of $86.73 early in the session. They were wrapped around 92 heading into the market close.

The 1% notes trade on a theoretical delta of 57.5%, a source said.

Wayfair’s most recently priced 3.5% convertible notes due 2028 further solidified its position as one of the best performing new deals of 2023 and broke above double par.

The 3.5% notes jumped 29 points outright. They were seen at 204.75 versus a stock price of $84.63 early in the session. They were trading at 202.25 heading into the market close.

The notes trade on a theoretical delta of 93.5%, a source said.

Wayfair priced a $690 million issue of the 3.5% notes at par in May.

Wayfair’s convertible notes expanded about 1 point dollar-neutral across the board, a source said.

Wayfair’s stock traded to a high of $90.71 and a low of $79.15 before closing at $84.67, an increase of 16.16%.

The home decor e-commerce company blew past analyst expectations to report a surprise profit.

Wayfair reported earnings per share of 21 cents versus analyst expectations for losses of 73 cents.

Revenue was $3.17 billion versus analyst expectations for revenue of $3.10 billion.

Upwork crunches

Upwork’s 0.25% convertible notes due 2026 saw little movement despite the company’s stock ranking as one of the best performers in equity markets on Thursday.

The 0.25% convertible notes rose 0.5 point outright with stock up more than 40%.

The notes remained on an 83-handle and were changing hands at 83.75 heading into the market close, according to a market source.

The yield was about 6.25%.

While the high-premium notes do not trade on a delta, the lack of movement was a surprise.

“They’re crunching,” a source said.

Upwork’s stock traded to a low of $12.50 and a high of $14.50 before closing at $14.38, an increase of 44.23%.

Stock exploded after the freelancing platform reported earnings per share of 10 cents versus analyst expectations for a breakeven.

Revenue was $168.61 million versus analyst expectations for revenue of $162.54 million.

Expedia improves

Expedia’s 0% convertibles due 2026 improved on hedge as stock dropped double digits following earnings.

The 0% convertible notes were off about 2.5 points outright with stock down more than 15%.

The notes were seen at 87.5 heading into the close.

The notes improved about 0.5 point dollar-neutral on the move down, a source said.

Expedia’s stock traded to a low of $97.27 and a high of $109.54 before closing at $98.67, a decrease of 16.38%.

Expedia reported mixed results with the company beating on the bottom line but missing on the top.

Expedia posted earnings per share of $2.89 versus analyst expectations for earnings per share of $2.36.

Revenue was $3.36 billion versus analyst expectations for revenue of $3.37 billion.

The company’s expectations for gross bookings also fell well short of expectations.

Mentioned in this article:

Expedia Inc. Nasdaq: EXPE

Upwork Inc. Nasdaq: UPWK

Wayfair Inc. NYSE: W

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