Tag: first quarter that ended March 31

Long-Term vs. Short-Term: The Investment Dilemma with Palantir (PLTR)

Posted on by The INO.com Team

Palantir Technologies Inc. (PLTR), a prominent data-analytics software company, is at a crossroads, presenting a dilemma for investors grappling with the dichotomy between its promising long-term growth potential supported by its strategic AI initiatives and the short-term risks posed by its elevated valuation and volatility.

Long-Term Growth Potential: Riding the AI Wave

Palantir has established itself as a leading player in data analytics, leveraging its sophisticated software platforms to cater to diverse sectors, including government, healthcare, and finance.

Bloomberg Intelligence report projects generative AI to be a $1.30 trillion market by 2032, growing at a CAGR of roughly 43% over the next ten years. Surging demand for generative AI products could add around $318 billion in software spending by 2032. PLTR is well-poised to capitalize on industry trends as businesses continue to prioritize data analytics and AI integration into their operational frameworks.

In mid-2023, PLTR launched its Artificial Intelligence Platform (AIP) to help corporations develop and deploy AI applications, which has proven highly successful. AIP leverages machine learning and AI technologies to transform data into actionable insights, enabling organizations to make better decisions and optimize their operations.

Later last year, the company introduced AIP Bootcamps, a hands-on-keyboard acceleration program for customers to go from zero to use case in just a few hours. Since its launch, approximately 850 AIP Bootcamps have been completed in the U.S. and worldwide — with concentrations of customers in Detroit, Chicago, New York City, Washington D.C., and more.

Earlier this month, PLTR and Tampa General Hospital (TGH), one of the nation’s leading academic health systems, announced a significant step forward in their long-term partnership to deliver an ambitious vision for the future of AI in healthcare. TGH plans to deploy Palantir’s AIP to provide a Care Coordination Operating System. Also, it will leverage this platform to bring automation to other system workflows, like streamlining revenue cycle management.

In May, Palantir’s subsidiary, Palantir USG, Inc., was selected by the Department of Defense Chief Digital and Artificial Intelligence Office (CDAO) to participate in scaling data analytics and AI capabilities across the Department of Defense. Beginning with an initial order of $153 million to support specific Combatant Commands and the Joint Staff, further awards may reach up to $480 million over a span of 5 years.

Also, PLTR and Intelligent power management company Eaton extended their partnership to bring Palantir’s AIP to Eaton’s operations.

Palantir’s First-Quarter Results Signal Robust Enterprise AI Adoption

For the first quarter that ended March 31, 2024, PLTR reported revenue of $634.34 million, beating analysts’ estimate of $617.61 million. That compared to the revenue of $525.19 million in the same quarter of 2023. The company’s commercial revenue rose 27% from the year-ago value to $299 million, and its government revenue grew 16% year-over-year to $335 million.

Palantir’s U.S. commercial revenue grew 40% year-over-year to $150 million. The U.S. commercial customer count increased 74% from the prior year’s period to 262 customers. The rapid growth in the company’s U.S. commercial division is aided by the robust demand for its new Artificial Intelligence Platform (AIP). PLTR intends to make its AIP the most dominant infrastructure in the market and power the effective deployment of AI and LLMs across institutions.

The data analytics software maker’s adjusted income from operations was $226 million, an increase of 81% year-over-year, and represented a margin of 13%. It is the sixth consecutive quarter of expanding adjusted operating margins. PLTR’s adjusted EBITDA rose 76% from the previous year’s quarter to $234.90 million.

Palantir’s adjusted net income attributable to common stockholders rose 83.4% from the prior year’s period to $196.94 million. The company posted an adjusted EPS of $0.08, up 60% year-over-year. That surpassed the consensus EPS estimate by 4.1%. Further, PLTR’s adjusted free cash flow was $148.63 million for the quarter, representing a 23% margin.

Business Outlook

For the second quarter of fiscal 2024, PLTR expects revenue of between $649-$653 million. Also, the company’s adjusted income from operations is expected to be $209 million to $213 million.

For the full year 2024, the data analytics software giant increased its revenue guidance to between $2.677-$2.689 billion. However, the mid-point figure still fell short of $2.70 billion. Palantir raised its U.S. commercial revenue guidance in excess to $661 million, representing a growth rate of at least 45%. Further, the company increased its guidance for adjusted income from operations to between $868-$880 million.

Short-Term Risks: Stretched Valuation

Despite its compelling long-term prospects, Palantir has not been immune to market volatility and scrutiny over its valuation. In terms of forward non-GAAP P/E, PLTR is trading at 74.40x, 220.5% higher than the industry average of 23.22x. Likewise, the stock’s forward EV/Sales and EV/EBITDA of 18.95x and 56.04x are significantly higher than the respective industry averages of 2.91x and 14.59x.

Additionally, the stock’s forward Price/Sales of 20.27x is 609.6% higher than the industry average of 2.86x. Its forward Price/Cash Flow multiple of 66.52 is 183.2% higher than the industry average of 23.49.

Monness, Crespi, Hardt & Co. analyst Brian White recently downgraded Palantir’s stock to Sell from Neutral and set a $20 price target. Following a challenging earnings season for enterprise software companies, the analyst believes the market will shift away from stocks with inflated valuations.

PLTR’s stock, which surged around 167% in 2023 and continued to rally in the first half of 2024 with a nearly 43% gain year-to-date, has raised alarms among investors and analysts alike as they believe its valuation has reached a gluttonous extreme. Last month, the company filed a solid quarterly report, but shares plunged anyway, with Wall Street underlining the stretched valuation.

The stock was down approximately 6% over the past five days, while the S&P 500 index declined marginally.

Bottom Line

A nuanced approach is advisable for investors while approaching PLTR stock to balance potential returns with near-term risks. Investors with a long-term horizon and high-risk tolerance may find Palantir an attractive investment. PLTR’s AI expertise, strategic partnerships, and ongoing technological innovation position the company to capitalize on favorable industry trends.

Given the recent volatility and valuation concerns highlighted by analysts like Brian White, conservative investors may opt for caution in the short term. Market corrections or shifts in investor sentiment toward high-growth stocks could lead to price adjustments, potentially offering better entry points for those considering PLTR.

Before making investment decisions, thorough due diligence is essential. Assessing Palantir’s financial health, competitive positioning, and market dynamics can provide a better understanding of its risk-reward profile. So, while its AI capabilities and expanding market reach present a compelling case for long-term potential in PLTR, investors are advised to remain vigilant of short-term volatility and inflated valuation impacting stock performance.

Chinese EV Companies: Top Leaders in the Global Shift to Electric Vehicles

Posted on by The INO.com Team

In the rapidly evolving landscape of electric vehicles (EVs), Chinese manufacturers are emerging as dominant players, reshaping global markets traditionally led by Western automakers. As the U.S. and Europe impose tariffs and trade barriers, China’s EV upstarts are strategically expanding into developing markets, including Brazil, Mexico, and Southeast Asia.

In May, the Biden administration announced plans to slap new tariffs on Chinese EVs, advanced batteries, and other goods intended to protect U.S. manufacturers. Moreover, the European Commission (EU) will impose extra duties of up to 38.1% on imported Chinese electric cars starting in July, raising concerns about possible retaliation from Beijing.

According to data compiled by technology intelligence firm ABI Research for Business Insider, Chinese automakers have already established significant dominance in several emerging markets. In Brazil, China’s carmakers captured around 88% of the EV market, while in Thailand, they held a 70% share during the first quarter.

Despite their current small size, the EV markets in most of these countries are experiencing rapid growth.

Chinese EV companies such as BYD Company Limited (BYDDY), NIO Inc. (NIO), and XPeng Inc. (XPEV) are at the forefront of this transformation, leveraging technological prowess and strategic market expansions to solidify their positions worldwide.

BYD Company Limited (BYDDY)

With a $95.78 billion market cap, BYD Company Limited (BYDDY) is one of China’s leading automobile manufacturers that engages in new EVs and power batteries internationally. The company operates in two segments: Mobile Handset Components, Assembly Service and Other Products; and Automobiles and Related Products and Other Products.

BYDDY’s strategic approach combines technological leadership, market diversification, and strategic partnerships and investments to solidify its position as a frontrunner in the global EV industry. The company has expanded its footprint in regions, including Brazil, Mexico, Australia, and Southeast Asia, capitalizing on growing world demand for EVs.

According to ABI Research figures, BYD accounted for about 71% of EV sales in Brazil and 45% in Thailand in the first quarter.

On May 16, BYD launched its first pickup truck, BYD SHARK, in Mexico. BYD SHARK is positioned as a new energy-intelligent luxury pickup featuring the DMO Super Hybrid Off-road Platform. This model represents the latest addition to BYD's product range, tailored for global markets, marking the company’s first global product launch outside China.

Stella Li, Executive Vice President of BYD and CEO of BYD Americas, said, “With the introduction of our inaugural new energy pickup, BYD SHARK, we’re poised to redefine the conventional fuel pickup landscape through advanced technology, providing users with a lifestyle characterized by boundless opportunities. BYD is now ushering in the era of the global new energy pickup.”

Also, in March, BYDDY launched its third electric car, Seal, a premium electric sedan with a price starting at around $49,458, in India’s booming EV market. In 2023, the company sold 1,877 cars in India, an increase of 314% year-over-year.

Notably, in the same month, BYD Company became the world’s first automaker to roll off its seven millionth new energy vehicle, the DENZA N7, which was introduced at its Jinan factory in China, underscoring another groundbreaking accomplishment for the brand.

For the first quarter that ended March 31, 2024, BYDDY’s operating revenue increased 4% year-over-year to RMB124.94 billion ($17.20 billion). Net profit attributable to shareholders of the listed company rose 10.6% from the year-ago value to RMB4.57 billion ($629.28 million). Its earnings per share came in at RMB1.57, up 10.6% from the previous year’s quarter.

Analysts expect BYDDY’s revenue and EPS for the fiscal year (ending December 2024) to increase 25.7% and 15.9% year-over-year to $104.92 billion and $3.14, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to grow 13.3% and 9.2% from the prior year to $118.86 billion and $3.43, respectively.

BYDDY’s stock is up nearly 14% over the past month and has gained more than 11% year-to-date.

NIO Inc. (NIO)

With a $9.27 billion market cap, NIO Inc. (NIO) has gained prominence for its focus on high-performance, smart EVs and innovative battery-swapping technology. Based in Shanghai, China, the company provides five and six-seater electric SUVs, as well as smart electric sedans. It also offers power solutions, including Power Home, Power Swap, Power Charger and Destination Charger, Power Mobile, Power Map, and more.

Besides its solid presence in China, NIO has established footholds in global markets such as Southeast Asia, Latin America, and Europe, aiming to capitalize on the growing demand for luxury EVs. Moreover, NIO plans to expand to the Middle East in 2024, CEO William Li stated on an earnings call, adding that deliveries of its lowest-priced brand will begin in the first half of the following year.

On April 8, NIO officially inaugurated its Smart Driving Technology Center in Schönefeld near Berlin. It is the first center outside China, underscoring the company's expanding international footprint.

NIO delivered 20,544 vehicles in May, indicating a substantial increase of 233.8% year-over-year. The deliveries comprised 12,164 premium smart electric SUVs and 8,380 premium smart electric sedans. Also, in April, the company delivered 15,620 vehicles. As of May 31, 2024, cumulative deliveries of NIO vehicles reached a staggering 515,811.

“Despite the intensifying market competition, NIO’s premium brand positioning, industry-leading technologies, and innovative ‘chargeable, swappable, upgradeable’ power experience have been recognized for their exceptional competitiveness, leading to solid sequential growth in vehicle deliveries in recent months,” said William Bin Li, chairman and CEO of NIO.

“In April 2024, we launched the 2024 ET7 Executive Edition, featuring 180 upgrades tailored to the needs of business travelers and professionals, further enhancing our competitiveness in the premium sedan market. In addition, with a commitment to create better family life, our new smart electric vehicle brand, ONVO, along with its inaugural product L60, was unveiled in May 2024,” he added.

Further, NIO extended its strategic cooperation on battery swapping by collaborating with GAC Group and FAW Group. These add to NIO’s existing network of strategic alliances with Changan Automobile, Geely Group, JAC Group, Chery Automobile, and Lotus Technology. NIO remains dedicated to advancing its evolving battery-swapping ecosystem, aiming to deliver efficient and convenient recharging solutions for its customers.

During the first quarter that ended March 31, 2024, NIO reported vehicle sales of $1.16 billion, and its total revenues were $1.37 billion. Its gross profit grew 200.5% from the prior year’s quarter to $67.60 million. As of March 31, 2024, the company’s cash and cash equivalents, restricted cash, short-term investment and long-term time deposits stood at $6.30 billion.

Analysts expect NIO’s revenue for the fiscal year (ending December 2024) to increase 21.4% year-over-year to $9.38 billion. Likewise, the company’s revenue for the fiscal year 2025 is anticipated to grow 43.7% year-over-year to $13.48 billion. Also, NIO’s stock has surged approximately 2% over the past five days.

XPeng Inc. (XPEV)

With a $7.48 billion market capitalization, XPeng Inc. (XPEV) designs, develops, and markets Smart EVs in China that appeals to the large, growing base of tech-savvy consumers. It provides SUVs under the G3, G3i, and G9 names; four-door sports sedans under the P7 and P7i names; and family sedans under the P5 name.

XPeng’s competitive pricing appeals to budget-conscious consumers without compromising quality or innovation. The company has expanded its operations into Europe and Southeast Asia, leveraging local partnerships and market insights to adapt its offerings to regional preferences.

XPEV delivered 10,146 Smart EVs in May, an increase of 35% year-over-year and 8% over the previous month. The XPENG X9 notably achieved monthly deliveries of 1,625 units, reaching a cumulative total of 11,456 units. Since its launch, it has continuously led sales in both the all-electric MPV and three-row model segments in China. XPENG has delivered 41,360 Smart EVs year-to-date, marking a 26% rise year-over-year.

On May 20, XPEV launched XOS 5.1.0, Tianji, the industry’s first AI-powered in-car OS. It features end-to-end large model technology, promoting the smart driving experience for XPENG car owners. The company will offer intelligent and personalized in-car AI assistant services through AI assistant Xiao P, AI Chauffeur, and AI Bodyguard. The recent launch outlines XPeng’s new market positioning as the global pioneer and promoter of AI smart driving.

In the first quarter that ended March 31, 2024, XPEV’s total revenues increased 62.3% year-over-year to $910 million, and revenues from vehicle sales were $770 million, up 57.8% from the prior year’s quarter. The company’s gross margin was 12.9% for the first quarter, compared to 1.7% for the same period of 2023. As of March 31, 2024, its cash and cash equivalents, restricted cash, short-term investments and time deposits were $5.73 billion.

XPENG’s physical sales network reached 574 stores, covering about 178 cities as of March 31, 2024. Also, its self-operated charging station network had a total of 1,171 stations, including 359 XPENG S4 ultra-fast charging stations, at the end of the first quarter.

Xiaopeng He, Chairman and CEO of XPENG, further stated, “Through our strategic partnership with the Volkswagen Group, XPENG is at the forefront of monetizing in-house developed smart technologies as a technology enabler. Our industry-leading technologies are expected to gain greater market influence and yield better financial returns.”

Street expects XPEV’s revenue for the second quarter (ending June 2024) to increase 63.2% year-over-year to $1.13 billion. Similarly, the consensus revenue estimate for the fiscal year (ending December 2024) of $6.12 billion indicates an improvement of 43.6% year-over-year. Also, the company has topped the consensus revenue and EPS estimates in three of the trailing four quarters.

Shares of XPEV have surged more than 7% over the past five days.

Bottom Line

China’s EV newcomers seem to be strategizing for global dominance. They are expanding into developing markets, including Brazil, Mexico, Indonesia, Thailand, and India, amid tariff and trade barriers imposed by the U.S. and Europe.

Chinese manufacturers like BYDDY, NIO, and XPEV are leveraging their technological prowess and strategic market expansions to establish themselves as leaders in the global EV industry. These companies lead in cost-effective manufacturing and are at the forefront of advancements in battery technology, autonomous driving, and user-centric design.

With ambitious global expansion plans and a commitment to sustainability, these China-based EV giants are poised to reshape the automotive industry, setting new standards for electric mobility worldwide.

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.

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.