Nvidia (NVDA) Surges 200% YTD While CEO Dumps Shares – Buy or Sell?

Posted on by The INO.com Team

A significant rebound in technology stocks was witnessed in 2023, with the Nasdaq Composite index soaring almost 31% year-to-date. This resurgence can be mainly attributed to the advancements in Artificial Intelligence (AI), notably the advent of large language model-based (LLM) chatbots, which acted as the primary catalyst. The burgeoning excitement around AI has led to the tech-rich Nasdaq surging about 32% during the first six months of the year, marking its best half-year performance since 1983.

The Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) plays an instrumental role in sparking the AI revolution. The company's Graphic Processing Units (GPUs) are indispensable to Generative AI applications, powering their processing needs.

The company delivered outstanding earnings reports in the past quarters in a tremendous stride fueled by intense demand for AI chips. The surge in tech advancements and AI applications has driven NDVA's market cap to top $1 trillion.

This notable achievement made it the sixth U.S. company to reach this significant milestone, besides being the inaugural chip manufacturer to enter the prestigious trillion-dollar club.

Owing to its powerful performance, NVDA reported an annual revenue of $4.28 billion in the fiscal year that ended January 27, 2013, which swelled to an impressive $26.97 billion in the fiscal year that ended January 29, 2023. Over the past decade, the chipmaker's revenue spiraled more than six-fold.

NVDA's executive, Manuvir Das, predicts a substantial growth opportunity in the AI space. He anticipates a total addressable market of $300 billion in chips and systems, complemented by $150 billion each in generative AI and omniverse enterprise software. This impressive $600 billion market potential in AI and the surging demand for transformative technologies will significantly propel NVDA's sales and earnings growth.

The company registered remarkable revenue growth with a 22.7% CAGR over the past 10 years. Factors contributing to this rapid acceleration included dominance in PC gaming and professional visualization, along with a tenacious foothold in the data center sector. These sectors jointly accounted for 56% of the company's total revenue in fiscal 2023.

However, during the same period, the contribution from gaming dwindled from 46% to 34%, and the contribution of the professional visualization segment declined from 8% to 6%.

Shares of NVDA commanded prominent attention from investors, evident from its extraordinary 200% year-to-date surge in stock price. Buoyed by the anticipation that the company will emerge as the chief benefactor of the burgeoning AI revolution, this surge is expected to persist.

Despite these bullish signs, NVDA’s co-founder and CEO Jensen Huang recently undertook an extensive sell-off of his shares in the company, triggering alarm bells for investors. According to Form 4 Filings submitted to the Securities and Exchange Commission (SEC), Mr. Huang unloaded 59,376 shares during trading sessions on September 12 and September 13, translating to a sale of $26.94 million worth of the company's stock.

Notably, this was not the first instance of such an action by the CEO in recent weeks. Earlier in the month, Mr. Huang divested approximately $42.83 million worth of his shares after exercising his options, amounting to total sales of NVDA shares valued at $112 million thus far. Due to the ongoing correction, the stock has been down about 11% since the beginning of September 2023.

Should Investors Panic?

The CEO's recently executed large-scale stock divestment has led some analysts to express concerns over NVDA's stock price stability. The substantial shock to NVDA's stock value, following his significant share sell-off in January 2022, fuels these apprehensions.

Investor wariness typically escalates when a company's CEO offloads shares, a gesture often construed as a sign of dwindling confidence in the firm's future trajectory.

Questions loom about whether AI stocks are experiencing an inflated bubble or are paving the way for a substantial and enduring bullish market trend. Given this speculation-riddled climate, it is plausible that the chip giant has emerged as a contested stock. With sky-rocketing performance expectations, investors are tethered to NVDA's every move.

NVDA posted its second-quarter report on August 23, 2023, shattering projected earnings and sales figures. Analysts collectively predicted earnings per share of $2.07 and sales totaling $11.09 billion. NVDA outperformed these estimates, attaining $2.70 earnings per share and $13.51 billion in sales.

Adding shine to an already resplendent quarterly report, NVDA forecasted approximately $16 billion in revenue for the upcoming quarter, far outpacing average analyst predictions.

Despite these outstanding achievements, NVDA's stock experienced a slight dip post-earnings disclosure.

While at first glance, Mr. Huang's stock divestment may ring alarm bells, insight from NVDA's latest DEF-14A filings detailing insider and institutional ownership stock holdings reveal otherwise. With these data, average shareholders should not be overly concerned about the CEO's recent actions.

As evidenced in files provided to the SEC, reflecting holdings recorded on April 3, 2023, Mr. Huang held 86,878,193 shares of the company stock, attributing him a 3.5% ownership stake and qualifying him as the largest individual shareholder.

While his position is significant, heftier investment companies like Vanguard, BlackRock, and Fidelity Investments possess larger portions of 8.3%, 7.3%, and 5.6% of the company's shares, respectively. The recent divestiture of stocks by Mr. Huang insignificantly makes up less than 1% of his overall holdings in the company.

Furthermore, it is pertinent to note that the stock sale originated from options awarded through his executive compensation plan; hence, his total ownership did not decline. These latest transactions only represent a minor fluctuation in an otherwise stable ownership portfolio.

Despite this month's recent sale, the CEO remains significantly invested in the firm. His significant stake motivates him to adopt actions and strategies directly benefitting the wider shareholder community.

The decision of a CEO to dispose of company shares can be associated with various reasons. While it is vital to monitor insider activities, NVDA shareholders could also focus on the broader organizational performance rather than overanalyzing what is essentially a minor movement from Mr. Huang's end.

Here are some other factors that could influence NVDA’s performance in the upcoming months:

Recent Developments

Understanding that strategic partnerships are key to their success, NVDA’s CEO is pursuing a cooperative collaboration strategy, gaining traction among tech leaders.

This month, NVDA joined forces with India’s Tata Group and Reliance Industries Limited to collaboratively build an AI computing infrastructure and platforms for producing AI solutions.

NVDA's strategic move into India, the fastest growing economy, fortifies its global dominance in AI, deploying its design language to establish a benchmark enduring enough to make it challenging for rival chip manufacturers' attempts to succeed.

Last month, NVDA announced a deal with Google Cloud, which would lead to a deeper integration of the two tech giants' hardware and software products. Mr. Huang said, “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace. Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software, and services that supercharge energy efficiency and reduce costs.”

Moreover, the increased partnership of the U.S. with Vietnam, predominantly in fields like technology, semiconductors, and tourism, could serve as a boon for NVDA. The chip behemoth is partnering with Vietnamese firms FPT, Viettel, and VinGroup to bring AI to the cloud, automotive, and healthcare industries.

Mixed Financials

NVDA’s net revenue for the fiscal second quarter that ended July 30, 2023, increased 101.5% year-over-year to $13.51 billion. NVDA's performance was driven by its data center business, which includes the A100 and H100 AI chips needed to build and run AI applications like ChatGPT.

The company reported $10.32 billion in data center revenue, up 171% year-over-year. Its non-GAAP operating income was $7.78 billion, up 486.9% year-over-year.

Its non-GAAP net income and non-GAAP net income per share stood at $6.74 million and $2.70, up 421.7% and 429.4% year-over-year, respectively. Also, its free cash flow grew 634% year-over-year to $6.05 billion.

However, for the same quarter, net cash used in investing activities stood at $447 million, compared to net cash provided by investing activities of $1.62 billion in the year-ago quarter. Also, net cash used in financing activities grew 35.5% year-over-year to $5.10 billion. Moreover, as of June 30, 2023, its total current liabilities stood at $10.33 billion, compared to $6.56 billion as of January 29, 2023.

Stretched Valuation

NVDA’s forward non-GAAP P/E and EV/Sales of 40.55x and 19.95x are 82.1% and 637.1% higher than the industry averages of 22.27x and 2.71x, respectively. Likewise, its forward EV/EBIT and Price/Sales multiples of 35.53 and 20.04 are 94.4% and 658.8% higher than the industry averages of 18.28 and 2.64, respectively.

Robust Growth

Over the past three and five years, NVDA’s revenue grew at 35.8% and 22.4% CAGRs. Its EBITDA, EBIT, and net income grew at 41%, 42.8%, and 45% over the past three years, whereas, over the past five years, these grew at 21.7%, 19.6%, and 19.1%, respectively. The company’s levered free cash flow has grown at 39.7% and 31.7% CAGRs over the past three and five years.

High Profitability

NVDA’s trailing-12-month net income margin of 31.60% is significantly higher than the industry average of 2.03%. Likewise, its trailing-12-month Return on Common Equity (ROCE) of 40.22% is significantly higher than the industry average of 1.01%. Its trailing-12-month cash from operations of $11.90 billion is significantly higher than the industry average of $60.08 million.

Growing Institutional Ownership

NVDA’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their NVDA stock holdings.

Institutions hold roughly 66.2% of NVDA shares. Of the 3,666 institutional holders, 1,562 have increased their positions in the stock. Moreover, 430 institutions have taken new positions (13,151,499 shares).

Price Performance

As a result of such increased attention, NVDA’s shares have gained 233.1% over the past year to close the last trading session at $439.66. Over the past six months, the stock gained 70.9%.

Moreover, NVDA’s stock is trading above its 100-day and 200-day moving averages of $406.55 and $309.93, respectively, indicating an uptrend.

Wall Street analysts expect the stock to reach $636.32 in the next 12 months, indicating a potential upside of 44.7%. The price target ranges from a low of $475 to a high of $1,100.

Favorable Analyst Estimates

For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 171% and 477.10% year-over-year to $16.07 billion and $3.35, respectively.

Moreover, for the fiscal year ending January 2024, its revenue and EPS are expected to come at $54.10 billion and $10.83, indicating increases of 100.6% and 224.1% year-over-year, respectively. Furthermore, it has surpassed the consensus revenue estimates in each of the trailing four quarters and EPS in three of the trailing four quarters, which is impressive.

Bottom Line

Rising apprehensions relating to inflation, soaring interest rates, and escalating bond yields may threaten NVDA’s stock price performance in the near future. The escalating geopolitical strain between the U.S. and China additionally muddles this precarious scenario.

Considering these dynamics, CEO Huang's recent bout of stock sales might be misconstrued as another bearish pointer. However, upon closer examination, these actions appear far less alarming than initially presumed.

Furthermore, while some skeptics argue that NVDA's shares have undergone a swift uptick, they seemingly overlook the dawn of the AI revolution. Consequently, it is feasible that NVDA could enjoy several more years of vigorous growth.

Strategic collaborations between countries are anticipated to spur AI adoption worldwide, amplifying the demand for NVDA's chips, software, and services.

NVDA's enthusiasm for AI has translated into an encouraging outlook for the third quarter. In addition to projecting revenue of $16 billion in the third quarter of fiscal year 2024, it also predicts a non-GAAP gross margin of 72.5%.

However, despite NVDA's extensive potential, the stock has already witnessed nearly a 200% rally this year, placing it at a rather costly valuation. Acknowledging these elements, it could be wise to wait for a better entry point in the stock.

Is Apple (AAPL) Stock Facing Major Trouble Soon?

Posted on by The INO.com Team

The rapid advancement of groundbreaking technologies and a significant surge in digital development have considerably heightened the attraction towards tailored hardware solutions. Yet, not all technology hardware enterprises are reaping the benefits.

Tech titan Apple, Inc. (AAPL), renowned for its history of transforming product sectors, including personal computers, smartphones, and tablets, has added another feather to its cap by being the first-ever company to surpass a $3 trillion market capitalization as of last month.

Despite being a leading consumer electronics brand consistently offering returns to its investors, AAPL has recently navigated through a volatile phase. Last month’s uninspiring earnings report led to a 2% dip in its stock prices, which now trade below the crucial 50-day moving average of $185.06, dampening investor sentiment.

Undoubtedly, several corporations and their affiliates are making strides toward significant transformations with Generative artificial intelligence (AI). However, to expand the innovative capacities of these technologies beyond the existing hype, it is paramount to impact consumers' lives in integrated ways that extend beyond launching an array of game-changing announcements.

In contrast to other firms seeking notable AI revolutions, AAPL is leveraging this cutting-edge technology to augment fundamental features in its latest devices.

The tech giant recently unveiled a new range of iPhones and a watch equipped with enhanced semiconductor designs powering fresh AI capabilities. Most significantly, these enhancements target primary operations such as managing calls or capturing superior photographs.

The tech giant has announced its pioneering entry into the AR/VR market with the Apple Vision headset, signaling the beginning of a new chapter in its success narrative. Slated for release early next year, this product will retail at $3,499.

AAPL has a commendable record of executing enormous share repurchase plans in the last decade, having invested over $573 billion in buybacks since 2012. Despite witnessing a third consecutive quarter of dwindling revenues, the company shelled out an additional $18 billion for buybacks in the most recent quarter.

However, despite such positive strides, AAPL is anticipated to encounter significant obstacles soon. Let’s delve deeper and examine the factors that could contribute to such a scenario.

Mixed Financials

Tarnishing AAPL’s image is its disappointing financial results of the fiscal third quarter, which ended July 1, 2023. Total net sales dropped by 1.4% year-over-year to $81.80 billion, largely due to a 4.4% year-over-year decline in product revenue to $60.58 billion.

iPhone sales, which traditionally account for nearly 50% of the company's total income, suffered a 2.4% setback from last year, dropping to $39.67 billion. Mac and iPad sales also fell 7.3% and 19.8% from the prior-year quarter to $6.84 billion and $5.79 billion, respectively.

On the contrary, the company's services segment boasted an 8.2% year-over-year increase, fetching $21.21 billion, contributing to the company's third-quarter profit. However, the weaker-than-anticipated iPhone sales disappointed investors.

Stretched Valuation

AAPL trades at a considerably premium valuation compared to its competitors, evident from its forward non-GAAP P/E and EV/Sales of 28.73x and 6.96x, which are 28.9% and 156.5% higher than the industry averages of 22.29x and 2.71x, respectively. AAPL’s forward EV/EBITDA multiple of 21.26 is 47.7% higher than the 14.39 industry average.

AAPL’s Recent Developments and Their Implications

Reinvestment of Funds

Despite the advent of a VR headset and the possibility of an autonomous car, the iPhone remains AAPL’s primary product and chief revenue generator. In 2022, global smartphone shipments reached a staggering 1.23 billion units, whereas the number of AR and VR devices shipped worldwide reached just 9.11 million units – a scale difference of 135 times.

In June, AAPL introduced its first major product since 2014, the Vision Pro, an AR headset priced at $3,499. Despite signaling an expansion into new tech landscapes for the company, industry analysts predict that this new offering is unlikely to impact its revenue needle for several years. It is expected to generate annual revenue of over $20 billion by 2037 – more than a decade away.

Meanwhile, the company has spent tens of billions of dollars developing this product. Some analysts believe that Vision Pro production and shipments are expected to be “quite small” for 2024, having negligible benefits for AAPL stock price.

If the company had halved its share repurchases over the past decade, it would have had an additional $250 billion in investment capital, potentially leading to an even superior product at this stage.

iPhone Ban

China has proven instrumental to AAPL's growth and expansion. Over 95% of AAPL's globally acclaimed products – iPhones, AirPods, Macs, and iPads - are manufactured in China. AAPL’s CEO, Tim Cook, cited China's proficient skill sets as a compelling reason for this reliance on Chinese manufacturing.

In the fiscal year 2022, revenues generated from China reached $74 billion, accounting for roughly 19% of AAPL's total earnings. Greater China segment sales accounted for 20% of AAPL’s third quarter sales in 2023, and its Greater China sales rose 7.9% year-over-year to $15.76 billion.

However, the growing geo-political tension between the United States and China represents potential challenges for AAPL. The Chinese government recently banned using iPhones in workspaces, citing security issues, marking a new chapter in the ongoing trade and technology conflict between the world's two biggest economies.

Nikkei reported that some state-owned entities have prohibited employees from bringing any AAPL devices into their work premises, particularly those with access to trade secrets. Consequently, this move, seen as minimizing security risks tied to AAPL's gadgets, caused AAPL's market capitalization to shrink by over $200 billion within the last week.

In terms of iPhone shipments, China surpassed the U.S. as the largest single market in the second quarter of 2023. This trend persisted in the third quarter with a noteworthy surge in iPhone net sales in Greater China.

Some predict that the government restrictions may not significantly impede AAPL's sales but could signify forthcoming issues for the company in China, which ranks as the world's second-largest economy. The uncertainties surrounding AAPL’s future manufacturing and sales in China have sent its stocks spiraling downwards.

The recent launch of the iPhone 15 series has garnered mixed reviews among Chinese consumers. Some critics have highlighted the lack of groundbreaking new features and unfavorably juxtaposed the latest iPhones with Huawei’s 5G Mate 60 Pro and Mate 60 Pro+ models, which feature advanced Chinese-manufactured processors.

Despite the perceived lack of hardware upgrades, AAPL continues to deliver an unmatched user experience that makes transitioning to Android devices less appealing for users. Experts remain confident regarding AAPL’s dominance in the over-$800 smartphone segment. Although Huawei's re-entry into the 5G phone market may imply some level of competition, the company's ongoing supply chain problems could limit its overall sales appeal.

M&A Activity Could Escalate AAPL’s Innovations

Rising interest rates yield gains for cash-loaded enterprises such as AAPL. However, they pose significant challenges for burgeoning technology firms that hinge on financing for their growth and prosperity.

One critique leveled at AAPL is the waning innovation. Excluding advancements in camera technology, AAPL's lineup has been lacking groundbreaking technological leaps in recent years.

The current monetary policy landscape could induce a spike in mergers and acquisitions within the tech arena. AAPL's substantial cash reserves render it a probable suitor for tech firms, potentially fueling its growth and innovation via successful, value-adding acquisitions.

Lack of Strategy for Generative AI

Data in today’s world has emerged as a vital asset, and Generative AI is leveraging it to drive unprecedented innovations. The rise of Gen AI could mark a seismic shift in the industry, potentially transforming market dynamics by allowing for novel product creation and cost reductions. AAPL could face formidable challenges as the tide turns toward this new technology.

AAPL's vulnerable position can be attributed to its need for a robust strategy centered around GenAI and Large Language Models (LLMs). LLMs drive services like ChatGPT; without incorporating them, AAPL's leadership in the tech space may be threatened.

As AI continues to burgeon, AAPL risks being surpassed by three powerhouse players—Microsoft Corporation, Alphabet Inc., and Amazon.com Inc.—all of which boast more established footholds in the rapidly expanding AI sphere.

The delay in AAPL's development of a computing platform implementing cloud-based LLMs has resulted in the company trailing slightly behind its competitors. The challenge of catching up is compounded by customers' hesitancy to change providers due to the necessity of reprogramming their existing models.

Meanwhile, relentless competitiveness marks the landscape as companies like Amazon and Microsoft persist in unveiling new AI solutions. These advancements are anticipated to strengthen their AI division’s revenue, reinforcing their position and assertiveness within AI development.

Mixed Outlook

As the company looks toward the fourth quarter, it anticipates a deceleration in total revenue, with both Mac and iPad projections showing double-digit declines.

For the fiscal year ending September 2023, Analysts expect AAPL’s revenue and EPS to decline 2.8% and 0.8% year-over-year to $383.33 billion and $6.06, respectively.

However, for the first quarter ending December 2023, its revenue and EPS are expected to increase 5.3% and 11.6% year-over-year to $123.31 billion and $2.10, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.

Wall Street analysts expect the stock to reach $207.39 in the upcoming 12 months, indicating a potential upside of 18%. The price target ranges from a low of $167 to a high of $240.

Bottom Line

Despite AAPL stock dipping 2.1% over the past month, its year-to-date gain holds steady at an impressive 35.3%, closing its last session at $175.74.

The tech behemoth securely holds its footing within China's high-end smartphone market. However, it is anticipated to experience growing competition from domestic brands such as Huawei, which continues to enhance offerings with progressive upgrades. Additionally, lackluster initial iPhone 15 sales could present a challenge for the company.

AAPL remains profitable, although the emerging GenAI might cast a shadow over the tech deity. Fresh industry players could leverage LLMs, thereby revolutionizing the entire sector.

Moreover, given the strained relations between the United States and China, vital to AAPL’s manufacturing and market strategies, and AAPL’s potentially stretched valuation, investors should wait for a better entry point.

Roku (ROKU) Stock: A Year-Long Analysis and Insights

Posted on by The INO.com Team

The landscape of television has dynamically evolved in recent years, marked by an accelerated launch of various streaming TV options. A vast selection of subscription-based internet TV services are now at consumers' fingertips, making streaming entertainment a commonplace fixture in American households.

As consumers devote an ever-increasing proportion of their time to streaming media, TV providers rapidly shift their advertising onto these digital platforms.

The leading streaming platform provider, Roku, Inc. (ROKU), witnessed an upsurge in engagement metrics, such as active accounts and streaming hours, over the past few years. This heightened engagement has significantly echoed in the company's financial performance.

The company has seen a remarkable surge in stock prices, which have doubled since the year's onset. This uptick has notably surpassed gains in the S&P 500 and outstripped the year-to-date returns recorded by streaming giant Netflix, Inc. (NFLX).

To fully understand the factors underpinning ROKU's stellar performance in recent months, it's essential to analyze its progress comprehensively. Understanding the factors that catalyzed this growth will provide us with a more informed perspective for predicting potential future directions for ROKU, both as a company and in terms of its stock-price performance.

Recent History

The COVID-19 pandemic significantly boosted the adoption of digital streaming services. As millions of households worldwide had to spend the majority of their time indoors, there was a surge in first-time subscriptions to streaming platforms in 2020.

In July 2021, ROKU’s shares soared to a remarkable peak near $480, predominantly driven by an escalating demand for video-on-demand platforms, a trend amplified by pandemic-enforced home isolation. However, following this zenith, ROKU has experienced a slowdown in momentum, contributing to the company's stock price diving to roughly $39 by the close of 2022.

In 2020, ROKU’s users streamed nearly 59 billion hours of content, marking a 55% surge over 2019. This success solidified ROKU’s position as the custodian of streaming content within the U.S. market.

Unlike other streaming service providers, the company witnessed an upsurge in active subscribers. For instance, in the second quarter ended June 30, 2020, active accounts reached 43 million, and streaming hours totaled 14.6 billion.

Despite this success, the company is battling to hold its place in the fiercely competitive digital streaming arena. Although sales skyrocketed early in the pandemic and the company briefly entered profitability, the ongoing hurdles of intensifying competition, a saturated market, audiences gradually emerging from lockdown, and inflation strains its once robust performance.

Current Status

At the end of the first quarter of 2023, ROKU unveiled its new in-house television line and rolled out significant updates across its operating system, enhancing features and expanding channel partnerships.

The TVs come in 11 diverse models ranging from 24-inch to 75-inch screens, spanning two different lineups and reasonably priced from $150 to $1,200. This strategy is expected to have aided TV sales, boosting top-line growth in the second quarter of 2023.

For the fiscal second quarter that ended June 30, 2023, ROKU’s total net revenue soared 10.8% year-over-year to $847.19 million with platform revenue, which is mostly ad sales, gaining 11.1% from the year-ago quarter and reached $743.84 million. Device earnings, hitherto hampered by supply chain and inflation issues, rebounded with an 8.6% year-over-year gain to $103.35 million.

In addition, there has been an uptick in ROKU’s engagement metrics as active accounts and streaming hours reached 73.5 million and 25.1 billion, indicating 16.5% and 21.3% year-over-year increases, respectively. This was driven primarily by the domestic and international success of the ROKU TV licensing program, coinciding with a predicted 40% drop by the end of 2023 in U.S. households availing cable TV packages from what was a decade earlier.

The popularity of ROKU's proprietary Operating System (OS) further bodes well for the company, claiming the crown as the best-selling TV OS in the U.S. for the quarter, outperforming some major competing systems combined.

It is also worth mentioning that as of June 2023, ROKU boasts an impressive cash and cash equivalents of $1.76 billion, without any debt.

However, there remain areas of concern for the streaming service provider. Average revenue per user (ARPU) declined 7.2% from the prior year quarter. It was steady with the first quarter of 2023, which also declined year-over-year. Advertisers reducing their budgeting amid an inflationary economic environment dealt a harsh blow to the company's operations.

For the second quarter of 2023, ROKU’s loss from operations stood at $125.96 million, a distressing 14% increase from the year-ago quarter. Its net loss stood at $107.60 million, while the net loss per share reached $0.76. However, it was much better than the past three quarters.

In ROKU's second-quarter results, brand advertising remained pressured as total U.S. advertising came in flat year over year. Spending on traditional TV fell 9.4% year-over-year, while traditional TV ad scatter sank 17.2% year-over-year.

Considering the promising top-line projections unveiled by the company, ROKU’s share prices rose 31.4% to $89.61 as of July 28, 2023, the highest daily percentile expansion since November 2017, which has more than doubled this year. This expansion resulted in an approximate $3 billion upswell in the company's market cap.

Recently, ROKU announced a layoff of 10% of its workforce, about 360 people, to cut costs. This action marks the third round of staff reductions within the past year, following its decision to slash 6% of its workforce (roughly 200 employees) in March and another 200 last November.

To trim expenses further, ROKU is planning several organizational changes. It might slow the hiring rate, consolidate office space, reduce its outside services, and conduct “a strategic review of its content portfolio” to save money. Following the announcement of these cost-cutting measures, ROKU's shares spiked almost 10%.

Despite these financial strategies, the stock is trading at a premium to its industry peers. ROKU’s forward EV/Sales multiple of 2.96 is 58.1% higher than the industry average of 1.88. Also, its forward Price/Sales and Price/Book multiples of 3.29 and 4.95 are 188.1% and 161.9% higher than the industry averages of 1.14 and 1.89, respectively.

Within a year, ROKU's overall price performance presented a decelerating trend until the end of 2022, then transitioned to a stable growth phase at the beginning of 2023. This followed a significant mid-year acceleration, followed again by slight deceleration. A comparison of the current share price with that of a year ago indicates long-term growth.

Yet the stock remains significantly below its zenith recorded two years prior, echoing broader pressure on the streaming category in general to establish profitable business models.

Furthermore, changes have been observed concerning institutions' holdings of ROKU shares. Even though approximately 80.8% of ROKU shares are presently held by institutions, of the 599 institutional holders, 264 have decreased their positions in the stock. Moreover, 81 institutions have sold their positions (1,306,808 shares), reflecting declining confidence in the company’s trajectory.

Future Prospects

ROKU has raised its third-quarter net revenue forecast between $835 million and $875 million, putting aside charges related to severance and removing certain content from its streaming platform. This exceeds the earlier third-quarter estimate of approximately $815 million in revenue.

The entertainment giant also anticipates its adjusted EBITDA to conclude between a loss of $40 million to $20 million, which shows improvement from an earlier prediction of a negative $50 million. The Hollywood double strike is anticipated to influence media and entertainment spending adversely for the rest of the year. This scenario poses a relatively severe challenge, given ROKU’s extensive promotions provided for content.

ROKU has noted some recovery hints within specific advertising sectors, including CPG and health and wellness. Yet, the spending on M&E, already facing challenges across the industry, will likely face additional pressure due to limited fall release schedules. Despite these odds, the company remains determined to deliver positive adjusted EBITDA for 2024 with continued improvements.

For the fiscal third quarter ending September 2023, Street expects ROKU’s revenue to increase 11.3% year-over-year to $847.54 million, while its EPS is expected to decline 105.1% to negative $1.81.

Moreover, for the current fiscal year (ending December 2023), the company’s revenue is expected to increase 7.9% year-over-year to $3.37 billion. However, its EPS is expected to come at negative $5.04, indicating a decline of 39.4% year-over-year.

Bottom Line

Streaming service provider ROKU is poised to capitalize on the escalating digital streaming and cord-cutting trend in the upcoming years. This positions the temporary slump it experienced in 2022 as a trifle hiccup rather than an enduring setback.

However, affirming that the company has fully rebounded and is back on its consistent growth path may be premature. Further confirmation of continuous revenue augmentation, ideally substantiated by several successive quarters of enhanced performance, is still needed.

Risk-averse investors would want to keenly observe ROKU for more tangible indications of renewed profitability over the ensuing quarters. There is a potential for the company to continue generating substantial returns, provided it can add persistent value to its platform for users, content producers, and advertisers.

The persistent issue pestering ROKU is its inability to yield regular profits. Furthermore, the company's ad-supported sales infrastructure is stretching back into profitable territory. Yet its recently instituted cost-reduction measures should alleviate some of these financial burdens from 2023 onward.

Seeing ROKU deliver on its projected outcomes would be encouraging. Considering this, all attention will be on the company's performance over the subsequent quarters.

Is Autozone (AZO) a Buy Before Earnings Report?

Posted on by The INO.com Team

Renowned premier retailer and distributor of automotive replacement parts and accessories, AutoZone, Inc. (AZO), will unveil its fourth-quarter results before the stock market opens on Tuesday, September 19, 2023.

Analysts expect the company’s EPS and revenue to grow 11.7% and 4.9% year-over-year to $45.23 and $5.61 billion, respectively.

AZO initially cemented its reputation as the inaugural retailer, providing an expansive inventory of automotive parts. Its sustained emphasis on exceptional customer service, convenient shopping experiences, and diverse product offerings underpins its position at the forefront of auto part retail.

The company harnesses its unique value proposition in the sector, combining remarkable customer service with complementary services and efficient supply chain management. This strategic approach fostered an enduring track record of substantial returns.

During the quarter ended May 6, 2023, AZO inaugurated 22 new stores in the U.S., along with six in Mexico and two in Brazil.

AZO’s Auto Parts Stores segment revenue, accounting for a striking 98.2% of overall revenue, experienced a 5.8% growth year-over-year, equating to $4.02 billion for the same quarter. This division comprises retail and distribution of automotive parts via physical stores operating across the U.S., Mexico, and Brazil.

Each outlet presents an extensive range of products for various vehicles, stretching from new to remanufactured hard parts to various maintenance items, accessories, and non-vehicle products.

AZO's capital allocation policy exalts high return rates from cash flow reinvestment, with the surplus channeled towards share repurchases. Over time, this approach resulted in a stark 80% share count decrease over the past years.

AZO's prodigious share buyback initiative has drawn significant attention since the beginning of the millennium. Following May 6, 2023, and through June 2, 2023, the company repurchased 86.7 thousand shares of its common stock at an aggregate cost of $219.9 million.

AZO's growth trajectory is marked by a dual-pronged strategy that encourages organic expansion of its store network while simultaneously facilitating growth through targeted acquisitions.

This industry giant further bolsters its portfolio by prioritizing commercial sales that include collaborations with professional clients such as auto repair shops and fleet operators. Demonstrating a judicious approach to market diversification, AZO stands resilient against localized economic fluctuations by cultivating a geographically diverse DIY and professional customer base.

Here’s what could influence AZO’s performance in the upcoming months:

Robust Financials

For the third quarter ended May 6, 2023, AZO’s net sales increased 5.8% year-over-year to $4.09 billion. Domestic same-store sales, or sales for stores open at least one year, increased 1.9% for the quarter. Its gross profit rose 7% from the year-ago quarter to $2.15 billion. The company’s operating profit grew 9.3% year-over-year to $858.48 million.

Its net income and net income per share grew 9.3% and 17.5% from the prior-year quarter to $647.72 million and $34.12, respectively. For the nine months that ended May 6, 2023, AZO’s cash and cash equivalents stood at $274.92 million, up 4.5% year-over-year.

Solid Historical Growth

AZO’s revenue grew at CAGRs of 12.3% and 8.9% over the past three and five years, respectively. Its EBITDA and EBIT grew at a CAGR of 13.3% and 14.3% over the past three years. Moreover, its levered free cash flow grew at 8.7% and 10.3% over the past three and five years, respectively.

High Profitability

AZO’s trailing-12-month cash from operations of $3.10 billion is significantly higher than the industry average of $223.80 million. Its trailing-12-month EBITDA margin of 22.41% is 105.1% higher than the industry average of 10.93%. Its trailing-12-month net income margin of 14.45% is 228.8% higher than the industry average of 4.40%.

Growing Interest

The stock has garnered significant institutional attention recently, evident from the changes made to the holdings of AZO stock by such investors. Institutions hold roughly 92.1% of AZO shares. Of the 1,134 institutional holders, 420 have increased their positions in the stock. Moreover, 88 institutions have taken new positions in the stock with 147,383 shares, reflecting signs of bullishness.

Price Performance

As a result of such increased attention, AZO’s shares have gained 16.8% over the past year to close the last trading session at $2529.68. Over the past six months, the stock gained 7%.

Moreover, AZO’s stock is trading above its 50-day and 200-day moving averages of $2,503.45 and $2,492.19, respectively, indicating an uptrend.

Wall Street analysts expect the stock to reach $2,860.17 in the next 12 months, indicating a potential upside of 13.1%. The price target ranges from a low of $2,670 to a high of $3,020.

Favorable Analyst Estimates

The consensus revenue and EPS estimates of $17.39 billion and $131.65 for the fiscal year 2023 (ended August 2023) represent 7% and 12.3% improvements year-over-year, respectively. Its revenue and EPS for fiscal 2024 are expected to increase 5.6% and 11.3% year-over-year to $18.36 billion and $146.58, respectively.

The company has an impressive earnings surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.

Bottom Line

According to Statista, the size of the U.S. automotive aftermarket is expected to increase to $400 billion by 2023. The continuous increase in the number of automobiles on the roadway, coupled with their higher average age, has cumulatively contributed to a consistent rise in the client base for AZO. This rise has facilitated the steady enhancement of the company's same-store sales by approximately 4% annually for over a decade.

AZO's scale also fortifies its competitive position, enabling it to obtain increasingly superior rates from suppliers. This advantage has subsequently widened its profit margins and enabled the company to increase its market share at the expense of its smaller rivals. These industry tailwinds and competitive strengths have propelled AZO’s net income.

Moreover, as of May 6, 2023, the company boasted a cumulative total of 7,044 stores dispersed across the U.S. (6,248), Mexico (713), and Brazil (83). Anticipations are high as the company continues to expand its retail presence, presumably leading to an escalation in sales figures.

Given AZO's robust financial health, favorable analyst estimates, impressive historical growth trajectory, and high profitability, it would be judicious to take a position in the stock now.

Breaking Down Sony (SONY) Stock's 2023 Performance - The Ups, Downs, and Trends

Posted on by The INO.com Team

Sony Group Corporation (SONY), the Japanese tech giant, recently confirmed raising the prices of its PlayStation Plus (PS Plus) subscription service by more than 30% across all benefit plans.

Implemented on September 6, 2023, the PS Plus Essential tier has gone up to $72-$80/year depending on where you’re located, with the PS Plus Extra increasing to a whopping $134/year. The most significant bump is for the Premium tier, which has increased by $40 to $159 for a year of access. This move has, predictably, not gone down well with the gaming fraternity.

SONY justified this decision, suggesting that the price adjustment is pivotal to ensure that the company can “continue bringing high-quality games and value-added benefits to your PlayStation Plus subscription service.”

Adding to its stance, the Tokyo-based company emphasizes the cost efficiency of its 12-month subscription plan, stating it provides a significant discount when compared to the cumulative cost of purchasing several one- or three-month plans during the same period.

After the PlayStation Plus price hike announcement, SONY’s stock has risen the most since July. According to CLSA’s analyst Amit Garg, Sony’s move could cause a series of regular price increases from other subscription service providers.

This “steep” increase is expected to boost the company’s annual net sales by ¥100 billion, which is nearly $680.50 million. It could also add ¥55 billion (approximately $374.27 million) of operating profit annually. However, Amit Garg warned that there may be a fallout for gamer spending amid the challenging macroeconomic conditions.

Shares of SONY have gained nearly 2.5% over the past month and more than 10% year-to-date.

Although Sony’s rising stock price will benefit shareholders in the short term, gamers may be contemplating their PS Plus subscriptions, potentially leading to declined revenue in the long term.

Now, let’s review in detail what has happened over the year and discuss several factors that could impact SONY’s performance in the upcoming months:

Positive Recent Developments

On August 29, 2023, SONY’s subsidiary, Sony Electronics Inc., launched the wide-angle zoom lens G-Master™ FE 16-35mm F2.8 GM II, a 35mm full-frame α™ (Alpha™) E-mount lens that covers focal lengths from 16mm to 35mm with a maximum aperture of F2.8 over the entire zoom range.

The new launch FE 16-35mm F2.8 GM II satisfies the needs of photographers and videographers looking for high-performance lenses, with the descriptive power and high-speed AF (autofocus) unique to G Master.

Also, in the same month, the company unveiled two new additions to the Alpha 7C series of compact full-frame interchangeable lens cameras, the Alpha 7C II (model ILCE- 7CM2) and Alpha 7C R (model ILCE-7CR). These additions ensure top-tier imagery and visual performance across Sony’s state-of-the-art imaging devices and respond to the wide range of image expressions creators seek.

These fresh additions to the company’s product portfolio are expected to extend its market reach and drive its revenue stream and growth.

On June 6, Sony Electronics announced its partnership with SQUARE ENIX® on the latest standalone title in the esteemed FINAL FANTASY game franchise, FINAL FANTASY® XVI, available exclusively on PlayStation®5 (PS5™).

Deteriorating Financials

For the first quarter that ended June 30, 2023, SONY’s total sales and financial services revenue increased 32.9% year-over-year to ¥2.96 trillion ($20.14 billion). However, its operating income declined 30.1% year-over-year to ¥253.04 billion ($1.72 billion). The sharp drop in operating income was due to decreased profits in the company’s financial services and movie businesses.

Furthermore, the company’s adjusted EBITDA was ¥406.20 billion ($2.76 billion), down 18.3% year-over-year. Its net income decreased 16.6% from the year-ago value to ¥217.94 billion ($1.48 billion). Also, net income attributable to SONY’s stockholders came in at ¥175.67 per share, a decline of 16.2% year-over-year.

As of June 30, 2023, SONY’s cash and cash equivalents stood at ¥1.53 trillion ($10.41 billion), compared to ¥2.05 trillion ($13.95 billion) as of April 1, 2022.

Solid Historical Growth

Over the past three years, SONY’s revenue and EBIT grew at CAGRs of 13.9% and 8.1%, respectively. The company’s net income increased at a CAGR of 12.7% over the same time frame, while its EPS and total assets grew at 13.2% and 11.6% CAGRs, respectively.

Improved Full-Year Sales Forecast

Despite a disappointing financial performance in the last reported quarter, SONY raised its revenue forecast for the full year ending March 31, 2024, by 6.1% from the April forecast to ¥12.20 trillion ($83.02 billion), thanks to strength in its PlayStation gaming unit. The company made a 7% upward revision to its sales forecast for the Games & Network Services unit to ¥4.20 trillion ($28.58 billion).

Net income attributable to SONY’s stockholders is forecasted to be ¥860 billion ($5.85 billion), compared to its April forecast of ¥840 billion ($5.72 billion). The company’s August forecast for operating income remained unchanged at ¥270 billion ($1.84 billion). It expects full-year adjusted EBITDA of ¥1.75 trillion ($11.91 billion), which is also unchanged from the April forecast.

SONY is expecting a great year for its PlayStation gaming business. The company previously said it expects to sell a record 25 million PlayStation 5 units in the ongoing fiscal year 2024, compared with 19.1 million units in the prior year.

Moreover, the company sold 3.3 million units of the PlayStation 5 in its April-June quarter, an increase of 38% year-over-year. Although the numbers are softer compared with the December quarter, when consumer electronics tend to do well thanks to the holiday shopping period, it is still a solid result, given the macroeconomic weakness that has caused consumers to cut back their spending.

Piers Harding-Rolls, analyst at Ampere Analysis, said that Sony’s strong PlayStation results reflected its “much healthier position with regards to console availability.”

Warning About Delays in Smartphone Market Rebound

Last month, SONY warned about delays in the smartphone market recovery. The key supplier of image sensors, which are vital semiconductor components for smartphone photography and used by Apple Inc. (AAPL) and other device markers, said that it doesn’t expect demand in the smartphone market to bounce back until 2024 at the earliest due to sluggish demand in China and the U.S.

The entertainment and electronics group earlier said it expected a rebound in global smartphone sales in the second half of this year.

As a result, SONY expects its imaging sensors business to perform weaker than anticipated. For the full year 2024, the company’s operating income for the imaging sensors unit is projected to be ¥180 billion ($1.22 billion), down from an earlier forecast of ¥200 billion ($1.36 billion).  

Mixed Analyst Estimates

Analysts expect SONY’s EPS to decline 21.9% year-over-year to $1.13 for the fiscal 2024 second quarter ending September 2023. However, the company’s revenue for the ongoing quarter is estimated to increase 5.1% year-over-year to $19.53 billion. Moreover, it surpassed the consensus EPS estimates in all four trailing quarters and consensus revenue estimates in three of the trailing four quarters.

For the fiscal year 2024, the company’s EPS and revenue are expected to decrease 9.6% and increase 2,172.5% year-over-year to $5.04 and $81.88 billion, respectively. Analysts expect its EPS and revenue for the fiscal year 2025 to grow 12.1% and 2.2% from the previous year to $5.64 and $83.67 billion, respectively.

Bottom Line

SONY reported a nearly 31% decline in operating income in the fiscal 2024 first quarter as its life insurance and movies units dragged on its bottom line. Nevertheless, the company raised its full-year 2024 sales forecast due to an anticipated strength for its PlayStation gaming business.

While expecting strength in the PlayStation gaming business, SONY’s key image sensor business will likely get hit by the uncertainties associated with the smartphone market this year. Sony, last month, pushed back expectations for a smartphone market recovery to 2024 at the earliest following gauging worsening demand from China and the U.S.

After falling for most of this year due to smartphone market weakness, eroding gamer spending, and other macro headwinds, SONY’s stock rose its most in more than a month after the company hiked the price of its core gaming PlayStation Plus (PS Plus) subscription service by nearly a third, potentially boosting its bottom line.

While Sony already seems to be benefitting from the PS Plus price hike, some analysts warn that the increasing stock and revenue will only last for the short term as it may cause gamers to consider canceling their subscription, leading to declined sales in the long run.

Given this backdrop, waiting for a better entry point in this stock might be prudent.