Stride convertible notes jump post-earnings; Zendesk active; Upstart trades down again

By Abigail W. Adams

Portland, Me., April 20 – It was a relatively quiet day in the convertibles secondary space on Wednesday on a mixed day for equity markets.

While the Dow Jones industrial average and Russell 2000 index closed Wednesday in positive territory, the S&P 500 index and Nasdaq Composite index were negative.

The Dow closed Wednesday up 250 points, or 0.71%, and the Russell 2000 index closed up 0.54%.

However, the S&P 500 closed down 0.06% and the Nasdaq Composite index closed down 1.22%.

The Nasdaq led losses on Wednesday following Netflix Inc.’s earnings report.

Netflix’s stock was getting hammered following an earnings miss and the first reported decrease in subscribers in a decade.

Stock closed the day down 35% with the results dragging down other growth stocks.

However, the sell-off in growth stock in equity markets did not translate into trading activity in the convertibles secondary space, sources said.

However, Upstart Holdings Inc.’s 0.25% convertible notes due 2026 saw some activity with the notes giving back their outright gains from Tuesday’s rally.

Stride Inc.’s (formerly K-12 Inc.) 1.125% convertible notes due 2027 were the major winners of the session with the notes making large gains on an outright and dollar-neutral basis following earnings.

In a carry-over from the previous session, Zendesk Inc.’s 0.625% convertibles due 2025 remained active.

Stride gains

Stride’s 1.125% convertible notes due 2027 made large gains in active trading on Wednesday following the online education company’s earnings report.

The 1.125% notes jumped 6 points outright with stock up more than 13%.

They were changing hands at 102.75 in the late afternoon.

The notes expanded 0.5 point dollar-neutral on the move up, a source said.

There was $10 million in reported volume.

Stride’s stock hit a new 52-week high on Wednesday. Stock traded to a high of $41.20 and a low of $37.37 before closing the day at $40.60, an increase of 14.66%.

Stock jumped after the company bested analyst expectations with earnings and announced new educational offerings.

Stride reported earnings per share of $1.02 versus analyst expectations for earnings of 88 cents.

Revenue was $421.72 million versus the $410.73 million expected.

The positive earnings report was bolstered by Stride’s announcement of three new medical certification programs.

Zendesk in focus

Zendesk’s 0.625% convertible notes due 2025 remained active on Wednesday after making gains in high-volume activity the previous session on news of a potential sale of the company.

The notes were down 1 point outright with stock off 2%.

The notes were wrapped around 131 early in the session as stock wavered between gains and losses but came in as the session progressed.

They were changing hands at 130.25 in the late afternoon.

Zendesk’s stock traded to a high of $130 and a low of $125.69 before closing the day at $126.15, a decrease of 2.30%.

Zendesk’s convertible notes have been in focus since news broke on Tuesday that the company had hired an adviser to help it explore a potential sale.

The convertible notes gained 3.5 points outright and 0.5 to 0.75 point dollar-neutral during Tuesday’s session.

The company has long been the source of takeout speculation.

The activity in the notes was partly in response to the stock move and partly positioning if a takeout of the notes does materialize, a source said.

Upstart lower

Upstart’s 0.25% convertible notes due 2026 returned to a 79-handle on Wednesday after climbing to 80 the previous session.

The 0.25% notes were down about 1 point to trade at 79.75 in the late afternoon.

The notes were carrying a yield of 5.5%.

Upstart’s stock traded to a high of $88.72 and a low of $78.44 before closing the day at $79.63, a decrease of 8.99%.

Stock was under pressure alongside other growth stocks following Netflix’s earnings report.

The convertible notes opened the week on a 79-handle, marking a new outright low for the notes.

They regained their footing following Tuesday’s rally but were unable to maintain their outright gains.

Mentioned in this article:

Stride Inc. NYSE: LRN

Upstart Holdings Inc. Nasdaq: UPST

Zendesk Inc. NYSE: ZEN

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