Spotify convertible notes in focus, gain on swap; Snap under pressure; Lumentum active

By Abigail W. Adams

Portland, Me., Feb. 3 – It was an active day in the convertibles secondary space as several convertible issuers saw outsized moves in their equities – to the downside.

Heavy selling in equities resumed with the tech sector again leading losses after a slew of disappointing earnings reports, most notably from Meta Platforms Inc., formerly known as Facebook Inc.

The Dow Jones industrial average closed the day down 518 points, or 1.45%, the S&P 500 index closed down 2.44%, the Nasdaq Composite finished down 3.74%, and the Russell 2000 index closed down 1.90%.

Spotify Technology SA’s 0% exchangeable notes due 2026 were among the top traded issues in the secondary space as stock cratered after the company’s earnings report.

While the notes were down on an outright basis, they were holding up well and expanding on hedge, a market source said.

Snap Inc.’s convertible notes were under pressure in active trading as stock cratered in anticipation of poor earnings following Facebook’s carnage.

However, Snap surprised the market and reported its first ever profit, which sent its stock soaring in afterhours trading.

Lumentum Holdings Inc.’s convertible notes were also active with the notes seeing heavy losses outright but largely unchanged dollar-neutral as its stock nosedived following earnings.

Spotify active

Spotify’s 0% exchangeable notes due 2026 saw heavy volume as stock cratered following its earnings report.

While the notes were lower on an outright basis, they were performing well on hedge.

The 0% notes were down about 1.5 points outright with stock off 16% after reporting earnings.

The notes were marked at 86.375 bid, 86.875 offered versus a stock price of $162 early in the session, a source said.

They were wrapped around 87 in the late afternoon.

The notes expanded about 0.75 point to 1 point dollar-neutral, sources said.

Spotify’s stock traded to a high of $174.40 and a low of $155.57 before closing the day at $159.76, a decrease of 16.76%.

Stock was crushed after the audio streaming and media services provider reported fourth-quarter earnings.

While the company beat analyst expectations on the top and bottom lines, stock sold off after the company declined to provide annual guidance.

Spotify reported a loss per share of 20 cents versus analyst expectations for a loss of 40 cents; revenue was $2.69 billion versus analyst expectations for revenue of $2.65 billion.

The media company has also been mired by a recent controversy surrounding its star podcaster Joe Rogan with several musicians pulling their music from the service due to some of Rogan’s anti-Covid vaccination statements.

Snap under pressure

Snap’s convertible notes were under pressure on Thursday as stock cratered in anticipation of a negative earnings report following Facebook’s results.

The 0% convertible notes due 2027 were down about 3 points outright with stock off more than 20%.

They were changing hands on an 83-handle throughout the session.

While down outright, they were largely moving in line dollar-neutral.

Snap’s 0.75% convertible notes due 2026 sank more than 18 points outright to trade at 138 in the late afternoon.

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

However, the notes were previously trading about 3 points rich, the source said.

Snap’s stock traded to a high of $26.49 and a low of $24.32 before closing the day at $24.50, a decrease of 23.53%.

However, stock skyrocketed afterhours following the release of the camera and social media company’s earnings.

Snap’s stock was up more than 54% to $37.76 shortly before 5 p.m. ET.

Snap trounced analyst expectations and reported its first profitable quarter on a net income basis, CNBC reported.

Snap reported earnings per share of 22 cents versus analyst expectations for earnings of 10 cents. Revenue was $1.3 billion versus analyst expectations for revenue of $1.2 billion.

Lumentum’s earnings

Lumentum’s convertible notes were active as stock cratered following the company’s earnings report.

The telecommunication equipment company’s 0.5% convertible notes due 2026 were down more than 8 points with stock off 14%.

The 0.5% notes were changing hands at 111 in the late afternoon.

The 0.25% convertible notes due 2024 fell 20 points outright to 150 in the late afternoon.

While the notes were taking a hit on an outright basis, they were largely unchanged dollar-neutral, sources said.

Lumentum’s stock traded to a high of $93.78 and a low of $85.18 before closing the day at $86.37, a decrease of 14.44%.

While Lumentum beat analyst expectations on the top and bottom lines, stock was trading down on weak guidance with the company warning that supply-chain issues will impact revenue in the coming quarter.

Lumentum reported earnings per share of $1.60 versus analyst expectations for earnings of $1.60. Revenue was $446.70 million versus analyst expectations for $444.72 million.

Mentioned in this article:

Lumentum Holdings Inc. Nasdaq: LITE

Snap Inc. NYSE: SNAP

Spotify Technology SA NYSE: SPOT

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