Tag: 2024

The Financial Implications of Amazon's New World Console Launch

Posted on by The INO.com Team

Amazon.com, Inc.’s (AMZN) MMORPG, New World, initially a sensation upon its 2021 release, is poised to splash on consoles later this year. Developed by Amazon Games Orange County, New World faced challenges post-launch, including long queue times and lackluster content to overpriced microtransactions and bleak plot threads.

Despite a rocky start, ongoing updates and significant expansions, such as 2022’s Brimstone Sands, have steadily improved the game's standing. Now, gamers on next-gen consoles will soon have the opportunity to experience these enhancements firsthand.

During the Summer Game Fest hosted by Geoff Keighley, Amazon Games unveiled that New World will make its console debut on October 15, 2024, under the new title New World: Aeternum. This major update introduces crossplay functionality, enabling players to team up with friends across different platforms. However, it will not support cross-progression, meaning characters will remain locked to the platform on which they were created.

The game’s controls and user interface have been redesigned to suit controllers better, and Amazon Games promises to maintain update parity across PC, PlayStation 5, and Xbox Series X/S from October onwards.

The rebranding to New World: Aeternum signals significant content enhancements and gameplay improvements. This update will revamp the initial game experience with more cutscenes, an enriched dialogue system, and an option for solo play. Also, it will introduce new features such as a larger PvP zone, swimming, endgame solo trials, and a 10-player raid.

Christoph Hartmann, Vice President of Amazon Games, emphasized the importance of player feedback in their development process. "Listening to player feedback is fundamental to how we make games, and we know New World: Aeternum delivers on the promise of a fresh and compelling New World experience that players can enjoy together across platforms," he said.

The game's transition to consoles comes with a price tag of $59.99 for digital copies, ensuring access for both console and PC players. Existing owners of the base game and the Rise of the Angry Earth expansion on Steam will receive Aeternum at no extra cost. However, those with only the base game must purchase the expansion to access the new content. An $80 deluxe edition will also offer a unique Bear mount and armor skin.

This console release marks a strategic move by Amazon Games to revitalize the game's player base and expand its audience. With these updates, New World: Aeternum aims to carve a new path in the MMO genre and reshape the financial landscape for Amazon's gaming division.

Upcoming titles from Amazon Games also feature the next major entry in the Tomb Raider series by Crystal Dynamics and THRONE AND LIBERTY, developed by NCSOFT.

Financial Dynamics of New World's Console Launch

In the first quarter that ended March 31, 2024, Amazon’s net sales increased 12.5% year-over-year to $143.31 billion, beating analysts’ expectations by $763.92 million. The company's ad revenue climbed to $11.8 billion from $9.5 billion, while cloud computing sales, for the first time, were on track to hit $100 billion annually.

Its operating income improved by 220.6% from the year-ago value to $15.31 billion. The company’s net income of $10.43 billion or $0.98 per share indicates robust growth of 228.8% and 216.1% from the prior year’s period, respectively. This EPS figure came comfortably above the Street’s estimate of $0.83.

“It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results,” Andy Jassy, Amazon’s chief executive, said in a statement.

The company's financial prowess extended beyond robust top and bottom-line figures, with its trailing-12-month operating cash flow soaring by 82% year-over-year to $99.15 billion. Likewise, its free cash flow also saw a significant turnaround in the same period, with an inflow of $50.15 billion, compared to an outflow of $3.32 billion for the trailing twelve months ended March 31, 2023.

Against this backdrop, the release of New World: Aeternum on consoles is poised to drive substantial revenue growth. The game, priced at $59.99, targets the growing base of next-gen console owners, many of whom may not have access to high-end gaming PCs. This strategic move presents an opportunity for Amazon Games to tap into a new market segment and expand its customer base and, consequently, its revenue through game sales.

Moreover, the expanded player base on consoles creates opportunities for increased microtransaction sales. Despite initial criticism over pricing, microtransactions remain a lucrative revenue stream for gaming companies. The influx of players on consoles and engaging new content and improved features are expected to bolster microtransaction sales, ensuring a steady cash flow for Amazon Games.

Looking ahead, the long-term financial implications of this console launch are promising. Successful MMORPGs often sustain revenue streams through continuous updates and expansions. If New World: Aeternum can attract and retain a substantial player base on consoles, Amazon Games stands to benefit from ongoing revenue streams generated by content updates, seasonal events, and future expansions.

Bottom Line

AMZN's robust financial performance, coupled with the strategic launch of New World: Aeternum on consoles, underscores the company's position as a critical player in the competitive gaming industry. The expansion into the console market broadens Amazon Games' reach and opens new avenues for revenue growth through increased player engagement and microtransactions.

With the potential for sustained profitability driven by a growing player base and ongoing content updates, Amazon's foray into the gaming industry signifies a significant opportunity for long-term investors seeking exposure to a rapidly evolving and lucrative market segment.

Target vs. Walmart: Which Retail Giant Offers Better Dividend Returns?

Posted on by The INO.com Team

Dividend investing is a cornerstone of many investors’ portfolios, providing a steady income stream and long-term growth potential. Blue-chip stocks are among the most stable and safest investments, but a select few companies excel in maintaining their financial growth and paying consistent, high-yield dividends to investors.

In the realm of blue-chip retail giants, Target Corporation (TGT) and Walmart Inc. (WMT) stand out as formidable players with excellent dividend growth histories. Through strategic investments and acquisitions, robust financial health, and a solid commitment to customer satisfaction, these companies have managed to thrive and offer reliable dividend payouts.

Let’s compare TGT and WMT’s dividend yields, growth rates, and overall financial health to help investors determine which stock offers better dividend potential.

Target Corporation (TGT)

With a $68.17 billion market cap, Target Corporation (TGT) is one of the leading retail corporations in the U.S. that offers a wide variety of products at competitive prices through its extensive network of stores and e-commerce platform, Target.com.

In March, the Minneapolis-based retailer announced plans to invest in its guest experience and long-term growth. The reintroduced Target Circle loyalty program will provide three new membership options, including a free-to-join option, allowing guests to choose how to shop and save. Target Circle has already become one of the largest loyalty programs in retail, with over 100 million members saving millions of dollars annually.

Also, this year, TGT plans to launch and expand its owned brands to offer various options across categories, products, and prices, such as dealworthy, up&up, and Gigglescape. Moreover, Target-owned brands offer quality, value, and innovation, driving more than $30 billion in sales in 2023. Further, the company will invest in the store-as-hubs model over the next decade, planning to build more than 300 new stores and enhance supply chain operations.

Despite significant investments in improving its customer experience and store presence, Target has shown resilience in maintaining a robust financial position. For the first quarter that ended May 4, 2024, TGT’s sales decreased 3.2% year-over-year to $24.14 billion. However, digital comparable sales rose 1.4% year-over-year, and same-day services grew about 9%, led by over 13% growth in Drive Up. It reported net earnings of $942 million, or $2.03 per share, respectively.

As of May 4, 2024, the company’s cash and cash equivalents were $3.60 billion, compared to $1.32 billion as of April 29, 2023.

“Looking ahead, our team will deliver for our guests through lower prices, a seasonally relevant assortment, ease and convenience, as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals,” said Brian Cornell, chair and chief executive of Target Corporation.

For the second quarter of 2024, Target expects a 0-2% rise in its comparable sales and adjusted EPS of $1.95-$2.35. For the full year, the company projects a 0-2% increase in comparable sales and adjusted EPS of $8.60 to $9.60.

TGT’s solid financial performance and stability translate into attractive returns for investors. During the first quarter, the company paid dividends of $508 million, compared with $497 last year, an increase of 1.9% in the dividend per share.

On March 13, Target’s Board of Directors declared a quarterly dividend of $1.10 per common share, payable June 10, 2024, to shareholders of record at the close of business on May 15, 2024. This will be the company’s 227th consecutive dividend paid since October 1967, when it became publicly held.

TGT pays an annual dividend of $4.40, which translates to a yield of 2.92% at the current share price, which is quite attractive for income-focused investors, providing a solid return on investment. Its four-year average dividend yield is 2.18%. It maintains a payout ratio of around 50%, indicating that the company distributes half of its earnings as dividends, balancing shareholder returns with reinvestment in business growth.

Additionally, Target has a commendable history of consistently increasing its dividend payouts. The company’s dividend payouts have grown at a CAGR of 17.4% over the past three years and 11.4% over the past five years. Notably, TGT has raised its dividends for 55 consecutive years.

In addition to solid dividend growth, Target has demonstrated impressive performance in stock price appreciation. TGT’s stock has gained more than 10% over the past six months and nearly 12% over the past year.

Walmart Inc. (WMT)

With a market capitalization of $540.73 billion, Walmart Inc. (WMT) engages in retail and wholesale business, offering an assortment of apparel, footwear, general merchandise, and groceries at everyday low prices.

Walmart expanded its popular InHome delivery service to an additional 10 million U.S. households, including those in California. In addition to the San Bernardino market, the company expanded its service to include customers in Boston, Detroit, Minneapolis, and Philadelphia, bringing the total scale to more than 50 markets covering about 45 million U.S. homes.

In February, WMT announced an agreement to acquire VIZIO, a prominent American company known for manufacturing consumer electronics. The strategic acquisition of VIZIO and its SmartCast Operating System (OS) will allow Walmart to serve its customers in new ways, including through innovative television and in-home entertainment and media experiences.

Further, this combination is anticipated to boost Walmart’s media arm in the U.S., Walmart Connect, by integrating VIZIO's advertising solutions business with Walmart's extensive reach and capabilities.

WMT, the world’s largest retailer, boasts a robust financial position with steady revenue growth and a solid balance sheet. During the first quarter that ended April 30, 2024, the retailer’s total revenues increased 6% year-over-year to $161.50 billion. Moreover, its global e-commerce sales were up 21%, driven by store-fulfilled pickup & delivery and marketplace.

In addition, the company’s adjusted operating income was $7.10 billion, up 13.7% from the year-ago value, due to higher gross margins and growth in membership income. Its adjusted EPS rose 22.4% year-over-year to $0.60. As of April 20, 2024, WMT’s cash and cash equivalents were $9.40 billion.

Looking ahead, the company expects net sales to increase by 3.5% to 4.5% and operating income to rise by 3% to 4.5% in constant currency (cc) for the second quarter. For the full year, it anticipates to be at the high-end or slightly above its prior guidance (cc) for net sales growth of 3%-4% and operating income growth of 4%-6%.

Walmart’s extensive global footprint and solid financial health provide a stable foundation for continued, attractive dividend payouts. In February, WMT’s Board of Directors declared an annual cash dividend for the fiscal year 2025 of $0.83 per share on a post-stock split basis. It represents a nearly 9% increase from the $2.28 per share paid in fiscal 2024.

“Dividends continue to be a part of our diversified capital returns approach. We're proud to be increasing our annual dividend for the 51st consecutive year. This year’s 9 percent increase is the largest in over a decade, and a sign of our confidence in our growth potential and cash flow,” stated John David Rainey, executive vice president and chief financial officer at Walmart.

WMT’s annual dividend of $0.83 translates to a yield of 1.24% at the prevailing share price. While lower than Target’s yield, the company still provides a steady income stream for investors. Its four-year average dividend yield is 1.53%. Also, it maintains a payout ratio of 33.46%.

Moreover, the company’s dividend payouts have grown at a CAGR of 3% over the past three years and 2.6% over the past five years. Walmart has a consistent history of annual dividend increases, albeit at a slower growth rate than Target.

Shares of WMT have surged nearly 28% over the past six months and more than 34% over the past year.

Bottom Line

Both TGT and WMT represent formidable investment opportunities with robust dividend credentials and solid fundamentals, making them worthy considerations for income-focused investors seeking exposure to the retail sector. However, while comparing Target and Walmart’s dividend potential, Target emerges as the frontrunner, offering a higher dividend yield and a track record of robust dividend growth.

So, TGT is a relatively more attractive investment option for those seeking better dividend potential within the retail industry.

PDD Holdings' International Expansion: Can Temu Replicate Domestic Success Abroad?

Posted on by The INO.com Team

With a $204.04 billion market cap, PDD Holdings Inc. (PDD) is a leading Chinese e-commerce company. It surpassed revenue and earnings consensus estimates for the first quarter of fiscal 2024, powered by its international marketplace, Temu, and increasing consumer interest in its flagship discount e-commerce platform, Pinduoduo.

For the first quarter that ended March 31, 2024, PDD’s revenues increased 130.7% year-over-year to $12 billion. That surpassed analyst estimates of $10.58 billion. Revenues from online marketing services and others were $5.88 billion, up 56% from the prior year’s quarter, and revenues from transaction services rose 327% year-over-year to $6.14 billion.

The discount e-commerce giant’s non-GAAP operating profit grew 237.4% from the prior year’s period to $3.95 billion. Further, PDD’s non-GAAP net income attributable to ordinary shares rose 202% from the year-ago value to $4.24 billion. It posted non-GAAP earnings per ADS of $2.86, compared to the consensus estimate of $1.43, and up year-over-year.

“In the first quarter, we continued our investment in key areas critical to our high-quality development strategy,” said Ms. Jun Liu, VP of Finance of PDD. “Rather than focusing on short-term results, we prioritize long-term value creation and remain committed to further deepening our investments in the future.”

During the quarter, PDD’s cash inflows from operating activities came in at $2.02 billion, an increase of 1,474% year-over-year, primarily due to a surge in net income. As of March 31, 2024, the company’s cash, cash equivalents and short-term investments stood at $33.50 billion.

“We are committed to offering a trustworthy shopping environment for our users around the world,” commented Mr. Lei Chen, PDD’s Chairman and Co-Chief Executive Officer. “We will keep focusing on growing our long-term intrinsic value through investing in initiatives that bring sustainable impacts to our communities.”

PDD has gained market share with highly competitive prices at home and abroad. Shares of PDD have surged more than 115% over the past year.

PDD Holdings’ exceptional financial performance in the first quarter is mainly fueled by solid user growth and sales at its global marketplace, Temu. Let’s analyze Temu’s potential to drive the company’s growth in international markets by examining the competitive landscape, regulatory hurdles, and strategic moves.

Strategic Initiatives

Temu, an online marketplace operated by PDD Holdings, sells a variety of products from fashion to household, primarily made in China, for rock-bottom prices. Temu’s business strategy focuses on attracting customers via competitive pricing, social buying, heavy advertising, and an immersive technological design. Its business model has allowed it to gain immense popularity since its launch in 2022 in China and overseas.

Temu platform went live in the U.S. in September 2022, offering products across more than 15 categories. It was the first major overseas push of PDD Holdings and expanded in several countries, including Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, and the United Kingdom.

On January 17, 2024, Temu officially launched in South Africa, marking the 49th country the e-commerce marketplace had entered since 2022.

To drive robust growth in international markets, Temu has implemented several strategic initiatives. The cross-border e-commerce marketplace tailors its product selections to meet the preferences of local markets. It also collaborates with local suppliers, manufacturers, and logistics providers to ensure efficient operations, enhancing its market presence.

Moreover, Temu invests heavily in marketing to build brand awareness and attract customers, including digital advertising, social media campaigns, and localized promotional events. As per J.P. Morgan analysts, Temu invested around $1.7 billion in advertising in the past year, a figure anticipated to climb to $3 billion this year.

The international marketplace also utilizes advanced technologies to personalize shopping experiences, optimize product recommendations, and enhance customer service. Further, AI-driven insights help Temu in understanding evolving consumer preferences and trends.

Competitive Landscape

Temu faces fierce competition from established e-commerce rivals, including Shein, eBay, Alibaba Group’s (BABA) AliExpress, and Amazon.com, Inc. (AMZN) in the U.S. and other markets.

Moreover, PDD’s value-for-money positioning and the remarkable growth of its Temu marketplace have enabled the company to maintain its leadership position in China’s e-commerce market. PDD Holdings’ outstanding first-quarter results sparked a significant surge in its stock price, propelling its market capitalization past that of its competitor, Alibaba.

“We think Temu’s profitability will improve faster than previously estimated due to its introduction of the half consignment model, under which logistics costs will be borne by merchants,” Morningstar said in a note.

“We also believe PDD’s domestic platform will be able to defend its position given the strong consumer perception of its value-for-money positioning,” said Morningstar analyst Chelsey Tam, adding that PDD Holdings comes up top in their preferences, while JD.com and Alibaba are in second and third spots, respectively.

In line, Goldman Sachs increased PDD’s rating to “buy” from “neutral,” citing the company’s continued growth momentum in advertising revenue in the first quarter and Temu’s potential.

This stock upgrade comes “on the back of its adtech capabilities combined with China’s cost-competitive suppliers/merchants /supply chains alongside favorable risk-reward, with the current market cap implying no valuation ascribed to Temu,” stated Goldman Sachs analyst Ronald Keung.

According to Earnest Analytics, Temu had acquired approximately 17% of the U.S. online discount store market as of last November.

In addition to leading the Chinese e-commerce arena and successfully expanding into Western markets, Temu has overtaken Shein by staying at the top of shopping app rankings in Japan and South Korea for a longer period. The emerging e-commerce app is focused on selling cheap goods to international customers.

Regulatory Issues

Chinese e-commerce retailers have faced rising scrutiny on handling content on their platforms. On May 31, 2024, the European Union (EU) announced adding Temu to its list of platforms facing the bloc’s highest level of digital scrutiny. By September this year, the online marketplace must adhere to the DSA’s most strict rules and obligations, including assessing and mitigating “systemic risks.”

“Temu must put in place mitigation measures to address risks, such as the listing and sale of counterfeit goods, unsafe products, and items that infringe on intellectual property rights,” the EU, the 27-nation bloc’s executive arm, said in a press release.

The company acknowledges the European Commission’s decision. “We are fully committed to adhering to the rules and regulations outlined by the DSA to ensure the safety, transparency, and protection of our users within the European Union,” PDD Holdings added.

Bottom Line

Established in 2022, Temu is PDD’s e-commerce marketplace aimed at expanding the company’s footprint beyond China. It has started entering international markets just in the past two years. And it has since grown in immense popularity by offering affordable products, ranging from apparel to home products, shipped down from China.

Since its initial launch in the U.S., Temu has rapidly expanded its operations to 49 countries, with South Africa being the latest. PDD’s value-for-money positioning and outstanding growth of its Temu platform have helped the company lead China’s e-commerce market.

The marketplace aims to replicate the company’s success in China by offering attractive deals and localized products to international customers. Temu’s unique business model focuses on attracting customers by offering products at prices below the industry norms, aggressive marketing, and technological innovation.

Although Temu faces stiff competition from established e-commerce rivals across America and other markets, it leverages strengths in PDD’s social commerce, cost-effective, efficient supply chain management, and competitive pricing to gain market and expand its global footprint.

PDD beat first-quarter 2024 revenue and earnings analyst estimates, primarily driven by significant growth of its international marketplace, Temu, and surging consumer interest in its flagship discount e-commerce platform, Pinduoduo.

This year, the company aims to deepen the execution of its high-quality development strategy, where it will put efforts into improving the overall consumer experience, strengthening supply chain capabilities, and fostering a healthy platform ecosystem.

Analysts expect PDD’s revenue and EPS for the second quarter (ending June 2024) to increase 93.1% and 92.9% year-over-year to $13.86 billion and $2.77, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 66.3% and 82.5% year-over-year to $57.19 billion and $11.79, respectively.

Given PDD’s robust financial performance, accelerating profitability, and bright growth outlook primarily attributed to Temu’s successful international expansion, investors could consider buying this stock now.

Fiserv (FI): The Hidden Blue Chip Gem in Fintech

Posted on by The INO.com Team

With a $90.21 billion market cap, Fiserv, Inc. (FI) provides payments and financial technology services globally. Over the past few years, the broader fintech sector has struggled due to banks’ reluctance to experiment and interest rate hikes impacting payment volumes.

However, Fiserv stands out as a strong performer as the company has long-standing contracts with major banks. FI’s stock has surged more than 80% over the past five years. Moreover, the stock has gained nearly 25% over the past six months.

Further, the fintech company has secured significant attention from institutions lately. Institutions own around 92.5% of FI. JPMorgan Chase & Co, Vanguard Group Inc, Nuveen Asset Management, LLC, Charles Schwab Investment Management Inc, Envestnet Asset Management Inc, Scharf Investments, LLC, DSM Capital Partners LLC, and UBS Group AG bought more FI stock. 

Institutional investors generally conduct in-depth research and analysis before investing, which can be viewed as a vote of confidence in FI’s potential. They are known to have the resources and specialized knowledge for extensively researching investment opportunities that are not open to retail investors.

So, the increasing buying activity from several institutions reflects an optimistic sentiment toward FI’s performance and growth outlook.

Let’s analyze FI’s latest earnings report and other factors driving institutional interest in this payment processing company.

Robust First-Quarter 2024 Results

For the first quarter that ended March 31, 2024, FI’s revenue increased 7.4% % year-over-year to $4.88 billion. The company’s processing and services revenue rose 8.9% year-over-year. Its adjusted operating income was $1.63 billion, up 13.4% from the previous year’s quarter.

In addition, Fiserv’s adjusted net income and earnings per share came in at $1.12 billion and $1.88, increases of 12% and 19% year-over-year, respectively. Further, as of March 31, 2024, the company’s total current assets stood at $37.09 billion, compared to $34.81 billion as of December 31, 2023.

During the first quarter, the company repurchased 10.2 million shares of common stock for $1.5 billion.

Regarding outstanding financial performance, Frank Bisignano, Chairman, President, and Chief Executive Officer of Fiserv, added, “We continued to execute on our resilient business model by improving productivity, delivering innovative products and services, and cross-selling into our diverse and high-quality client base.”

Upbeat Full-Year 2024 Outlook

For the fiscal year 2024, FI affirmed the organic revenue growth outlook of 15% to 17%. The company also raised its earnings per share guidance to $8.60 to $8.75, representing a growth of 14% to 16% for 2024.

“Fiserv remains committed to our virtuous cycle of investment, revenue growth, operating leverage, capital return and re-investment for further growth, reinforced with a focus on clients, operational excellence, and a strong balance sheet,” stated CEO Frank Bisignano.

He added, “This proven model, along with our strong first quarter results, led us to raise our 2024 adjusted earnings per share outlook for the full year.”

Favorable Analyst Estimates

Analysts expect FI’s revenue to increase 8.2% year-over-year to $4.88 billion for the second quarter ending June 2024. The consensus EPS estimate of $2.10 for the ongoing quarter indicates an improvement of 16% year-over-year. Moreover, Fiserv has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Furthermore, FI’s revenue and EPS for the fiscal year (ending December 2024) are estimated to grow 7.5% and 15.6% year-over-year to $19.39 billion and $8.70, respectively. For the fiscal year 2025, Street expects the company’s revenue and EPS to increase 8.7% and 16% from the previous year to $21.08 billion and $10.09, respectively.

Recent Strategic Partnerships and Product Launches

On May 8, FI announced that WaFd, Inc. (WAFD) selected its CashFlow CentralSM to bolster its small business banking offerings. This move will allow WaFd Bank small business customers to access a full range of capabilities to handle incoming and outgoing payments through their digital banking relationship, streamlining their financial management and saving them time.

CashFlow Central, developed by Fiserv in collaboration with prominent B2B payments-as-a-service platform provider Melio, is a unified digital payment and cash flow management platform. This solution enables small businesses to send electronic invoices, accept payments via ACH transfers or credit cards, digitize supplier invoices, and make payments to billers and suppliers via bank accounts or credit cards.

Also, on April 17, FI launched the Clover Kiosk and an enhanced Clover Kitchen Display System to enable restaurants to streamline operations and improve the customer experience. Designed for seamless integration with each other and additional Clover software and hardware, these solutions facilitate end-to-end order management with up to 40% lower cost of ownership than competitive offerings.

In February, Fiserv partnered with Genesis Bank, one of the two diverse multiracial Minority Depository Institutions (MDIs) in the nation, to boost economic empowerment and create an optimistic impact in local communities. Under this collaboration, small businesses, mainly in low-to-moderate income (LMI) communities served by Southern California-based Genesis Bank, will have access to customized technology packages.

These bundles, specifically designed to tackle these businesses' challenges, offer access to select Clover point-of-sale (POS) technology from Fiserv with no or low entry costs and discounted subscription fees.

Solid Profitability

FI’s trailing-12-month EBITDA margin of 42.20% is 85.2% higher than the 22.80% industry average. Similarly, the stock’s trailing-12-month levered FCF margin of 20.34% is 15.7% higher than the industry average of 17.58%. Its trailing-12-month CAPEX/Sales of 7.56% is significantly higher than the industry average of 1.94%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 11.01% and 3.50% favorably compared to the industry averages of 10.58% and 1.05%, respectively.

Bottom Line

FI extended its robust revenue growth and margin expansion into 2024, resulting in a 19% year-over-year earnings per share growth during the first quarter. Following an outstanding financial performance, the company raised its adjusted EPS outlook to $8.60-$8.75 for 2024.

Fiserv maintains its resilient business model by enhancing productivity, introducing innovative products and services in areas such as account processing and digital banking, payments, and merchant acquiring and processing, and expanding sales opportunities within its diverse and high-quality client base.

Moreover, FI was named one of Fortune® America’s Most Innovative Companies for the second consecutive year. This designation highlights organizations leading the way in innovation in the U.S. Each pillar, including product innovation, process innovation, and innovation culture, contributed equally to the overall innovation score.

According to Statista, the digital payments market’s total transaction value is expected to reach $3.07 trillion in 2024. Digital Commerce will be the market’s largest segment, with a projected total transaction value of $2.26 trillion this year. Further, the total transaction value is estimated to show a CAGR of 10.7%, resulting in a total of $4.62 trillion by 2028.

The digital payments industry’s promising outlook should bode well for FI.

In addition, analysts are bullish about Fiserv’s growth trajectory. Citigroup analysts raised the price target for FI stock from $171 to $180 while maintaining a Buy rating. Also, TD Cowen adjusted the price target to $175 from $167, reaffirming a Buy rating on the stock. In line, analysts at UBS Group maintained a Buy rating while increasing the price target from $170 to $185.

Several factors, such as solid financial performance, leading position in the fintech industry, and bright growth prospects, have driven a strong level of institutional interest in FI, as reflected by the fact institutions own more than 92% of the stock.

Given this backdrop, it could be wise to invest in this stock for substantial gains.

Understanding the Bearish Signals in This Chipmaker's Stock Chart

Posted on by The INO.com Team

Intel Corporation’s (INTC) shares plunged nearly 31% in April, marking their worst month in more than two decades, as the prominent chipmaker continues to grapple with executing a turnaround. Moreover, the stock has dropped approximately 40% year-to-date.

Most of INTC’s sell-off occurred after its recent financial results, which included a bleak forecast, indicating that the company’s turnaround efforts will require more time and investment. Further, Intel’s factory operations faced challenges in March, adding to investor concerns.

Mixed First-Quarter Earnings and Weak Forecast

During the first quarter that ended March 30, 2024, INTC’s net revenue increased 8.6% year-over-year to $12.72 billion. However, that missed analysts’ estimate of $12.78 billion. Also, the company’s Foundry business reported $4.40 billion in revenue, down 10% year-over-year.

The chipmaker’s gross margin rose 30.2% from the prior year’s quarter to $5.22 billion. Its operating loss was $1.07 billion, compared to $1.47 billion in the previous year’s period. However, Intel Foundry posted a $2.50 billion operating loss during the quarter. In 2023, this unit reported a hefty operating loss of $7 billion.

Furthermore, INTC’s net income came in at $437 million versus $2.77 billion in the same quarter of 2023. Also, the loss per share attributable to Intel was $0.09, compared to $0.66 in the prior year’s quarter. That surpassed the consensus loss per share estimate of $0.15.

Intel’s primary business remains manufacturing chips for PCs and laptops, categorized as Client Computing Group (CCG). This business unit revenue amounted to $7.50 billion, a 31% increase year-over-year.

In addition, Intel produces central processors for servers and other components and software, which are classified under its Data Center and AI business segment. Sales in this segment rose by 5% year-over-year to $3 billion. However, the chipmaker faces stiff competition in the server market, particularly against AI chips from companies like NVIDIA Corporation (NVDA).

In addition, for the second quarter of fiscal 2024, the company expects its revenue to come between $12.5 billion and $13.5 billion. It projects a loss per share of $0.05 for the current quarter, and its non-GAAP earnings per share are expected to be $0.10.

INTC recently revised its current-quarter revenue guidance after the U.S. Department of Commerce revoked certain export licenses intended to send its chips to the Chinese tech company Huawei.

On May 7, the chipmaker said in an 8-K filing with the SEC that it had received a notification from federal regulators that they were “revoking certain licenses for exports of consumer-related items to a customer in China, effective immediately.”

On Wednesday, Intel announced that due to the Commerce Department's directive, it expects revenue for the second quarter to fall below the midpoint of the original range of $12.5 billion to $13.5 billion. However, the company continues to expect full-year revenue and earnings to be higher than in 2023.

Intel Faces Fierce Competition

INTC, a longstanding leader in the semiconductor industry, has been facing rigid competition from rivals, including Advanced Micro Devices, Inc. (AMD) and Nvidia. Intel remains dominant in the PC chip market, but AMD is gaining ground in server, desktop, and mobile segments, as per the latest figures from Mercury Research.

Intel remains the leading player in the server CPU segment, with a market share of 79.2% during the first quarter; however, this is down from 82% in the year-ago quarter, indicating some erosion in its market share. On the other hand, AMD made gains in this segment, rising from just 18% a year ago to 23.6% in the first quarter of 2024.

Also, Intel's market share in the mobile CPU segment was 80.7% in the first quarter of 2024, compared to 83.8% in the prior year’s quarter. However, AMD’s 19.3% market share in the first quarter was 3.1% up from the same period in 2023. Further, AMD gained on Intel, with its 23.9% desktop share in the fiscal 2024 first quarter, up 4.7% a year ago.

Besides, INTC continues to fight for server market share against competitor NVDA, particularly in AI chips. Nvidia commands around 80% of the AI chip market with its graphics processors (GPUs), which AI builders have favored over the past year.

Earlier in April, Intel introduced its latest AI chip, Gaudi 3, as competition from NVDA intensified. The company claimed the new Gaudi 3 chip is over twice as power-efficient and can run AI models 1.5 times faster than Nvidia’s H100 GPU. Also, it is available in various configurations, such as a bundle of eight Gaudi 3 chips on a single motherboard or a card designed to fit into existing systems.

Intel tested the chip on models like Meta's open-source Llama and Falcon, backed by Abu Dhabi. It highlighted that Gaudi 3 could be instrumental in training or deploying models, including Stable Diffusion and OpenAI’s Whisper model for speech recognition.

Also, Intel is losing market share to rivals such as Arm Holdings PLC (ARM), Samsung Electronics, and Taiwan Semiconductor Manufacturing Ltd. (TSM).

Analysts Lowered Price Targets for Intel Shares

Goldman Sachs analysts slashed their price target for INTC stock from $39 to $34 and lowered their adjusted EPS estimates for the 2024-2026 period by an average of 18%. Also, they reaffirmed their “Sell” rating for the stock, which has been in effect since July 2020.

“We worry the company will continue to cede wallet share within the overall Data Center Compute market to the likes of Nvidia and Arm,” Goldman analysts said.

Meanwhile, Bank of America Corporation (BAC) cut its price objective to $40 from $44, citing higher costs, lower growth, and fierce competition. According to BofA analysts, the bleak second-quarter revenue guidance highlights that “topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs.”

They added that Intel’s “enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential.”

Bottom Line

INTC’s first-quarter 2024 earnings surpassed Wall Street’s expectations for EPS but fell short on sales. The chipmaker also provided a weak forecast for the current quarter.

After the U.S. Department of Commerce recently revoked certain licenses for exports of chips to Huawei in a bid to curb China’s tech power, Intel revised its second-quarter revenue guidance, anticipating below the initial range of $12.5 billion to $13.5 billion.

INTC’s stock fell more than 30% in April, making its biggest decline since June 2002. Moreover, the stock is trading below its 50-day and 200-day moving averages of $38.33 and $39.74, respectively, indicating a downtrend.

Despite INTC’s more than 50 years of dominance in the semiconductor industry, it now faces intense competition from competitors like AMD, NVDA, TSM, Samsung, ARM, and more. Also, the ongoing AI boom has caused a shift in enterprise spending away from Intel’s traditional data center chips.

With limited AI exposure, the intensifying competition raises doubts about Intel’s future dominance in the semiconductor industry.

INTC’s CEO Pat Gelsinger told investors on an earnings call to focus on the company’s long-term potential.

Analysts expect INTC’s revenue to increase marginally year-over-year to $13.06 billion for the second quarter ending June 2024. However, its EPS for the current quarter is expected to decline 18.2% year-over-year to $0.11. For the fiscal year 2024, the chipmaker’s revenue and EPS are expected to grow 3.3% and 4.8% year-over-year to $55.99 billion and $1.10, respectively.

“While 2024 should mark a bottom in many aspects of the business, the pace of the climb back up is unlikely to remain unclear,” Stifel stated in a note to clients.

Given INTC’s disappointing revenue guidance, regulatory issues, and fierce competition, it could be wise to avoid investing in this stock now.