Tag: said

Understanding Meta's 0.4% Yield and Its Growth Potential

Posted on by The INO.com Team

Dividend-loving investors worldwide woke up with exciting news on Friday, as Facebook parent Meta Platforms, Inc. (META) announced its first-ever quarterly dividend and authorized a $50 billion share buyback program.

The company will pay a cash dividend of 50 cents per share on March 26 to shareholders of record as of February 22, joining other peers, including Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Oracle Corporation (ORCL), which have regular payouts. META’s board intends to issue a cash dividend on a quarterly basis.

“Introducing a dividend just gives us a more balanced capital return program and some added flexibility in how we return capital in the future,” Meta’s Chief Financial Officer Susan Li told analysts on its earnings call.

META’s annual dividend of $2 translates to a yield of 0.4% at the prevailing share price. The stock finished nearly 20% higher to $474.99 on Friday after reporting better-than-expected fourth-quarter and full-year 2023 earnings.

The average yield for a dividend-paying stock in the S&P 500 is nearly 2%. Meta’s dividend payout is lower than that rate; however, companies generally start small. Now, investors can look forward to its dividend growth and stock gains.

Looking at Microsoft, the company initiated its cash dividend on January 16, 2003. Its annual dividend was $0.08 per share, which resulted in a yield of about 0.3%. A year following the dividend declaration, MSFT’s stock was up 10%, and the annual dividend for 2024 was raised to $0.16. Currently, the company pays a quarterly dividend of $0.75.

Talking about Apple, it stopped paying cash dividends in 1995 but then declared again in January 2013. Adjusting for all the splits, cash dividends in 2013 translated to an annualized yield of nearly 1.4%. A year after the dividend restart, AAPL’s stock was approximately 24% up as the company continued payouts. Since the restart, Apple has paid a total of around $34 per share.

Dividends are typically welcomed by shareholders and signal management’s confidence about the company’s future growth. Moreover, initial dividend payouts open up to investors who only hold stock in dividend payers.

Further, Meta’s recently released report marked the fourth quarter of the company’s self-described “year of efficiency,” which founder and CEO Mark Zuckerberg announced in February 2023. The company’s turnaround strategy involved layoffs and other cuts to spending, which in turn ended up being a successful effort to reverse the previous year’s revenue declines and share price weakness.

Outstanding Last Reported Financials

For the fourth quarter that ended December 31, 2023, META reported revenue of $39.17 billion, an increase of 24.7% year-over-year. The revenue surpassed analysts’ estimate of $40.11 billion. The company’s revenue from the Advertising segment grew 23.8% year-over-year, and its revenue from the Family of Apps segment rose 24.2%.

Meanwhile, META’s total costs and expenses reduced by 7.9% year-over-year to $23.73 billion. Its operating margin more than doubled to 41%, a clear sign that several cost-cutting measures are boosting profitability.

Facebook parent Meta’s income from operations rose 156% from the prior year’s period to $16.38 billion. Its net income increased 201.3% from the year-ago value to $14.02 billion. The company posted earnings per share attributable to Class A and Class B common stockholders of $5.33, compared to the consensus estimate of $1.76, and up 202.8% year-over-year.

As of December 31, 2023, META’s cash and cash equivalents stood at $41.86 billion, compared to $14.68 billion as of December 31, 2022. The company’s total assets were $229.62 billion versus $185.73 billion as of December 31, 2022.

Family daily active people (DAP) came in at 3.19 billion on average for December 2023, up 8% year-over-year. Family monthly activity people (MAP) was 3.98 billion as of December 31, 2023, an increase of 6% year-over-year.

Also, Facebook daily active users (DAUs) and Facebook monthly active users (MAUs) were 2.11 billion on average and 3.07 billion as of December 31, 2023, up 6% and 3% year-over-year, respectively.

As of December 31, 2023, the tech giant completed the data center initiatives and the employee layoffs, along with the facilities consolidation initiatives. META’s headcount was 67,317 at the end of the year 2023, a decline of 22% year-over-year.

“We had a good quarter as our community and business continue to grow,” said CEO Zuckerberg. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.”

Fiscal 2024 Outlook

For the first quarter of 2024, META expects total revenue to be in the range of $34.50-37 billion. For the full year 2024, the management expects total expenses to be in the range of $94-99 billion, unchanged from the previous outlook.

The company anticipates full-year capital expenditures to be in the range of $30-37 billion, an increase of $2 billion in the high end of its prior range. Meta expects growth to be driven by investments in servers, including AI and non-AI hardware and data centers, and it plans to ramp up construction on sites with its previously announced new data center architecture.

META’s updated outlook reflects its evolving understanding of its AI capacity demands as the company anticipates what will be needed for the next generations of foundational research and product development.

Ramping up Efforts in AI and Metaverse

Meta is making consistent efforts to secure its place in the increasing AI arms race. Last month, CEO Mark Zuckerberg announced that META plans to build its own artificial general intelligence, known as AGI, which is artificial intelligence that meets or exceeds human intelligence in almost every area. He added that the company further plans to open it up to developers.

In a video posted to Meta’s social network Threads, Zuckerberg said building the best AI for chatbots, creators, and businesses requires enhanced advancement in AI across the board. “Our long term vision is to build general intelligence, open source it responsibly, and make it widely available so everyone can benefit,” he said in a post on Threads.

The tech giant announced building out its infrastructure to accommodate this push to get AI into products, and it planned to have about 350,000 H100 GPUs (graphics processing units) from chip designer NVIDIA Corporation (NVDA) by the end of this year. In combination with equivalent chips from other suppliers, Meta will have around 600,000 total GPUs by the end of the year, Zuckerberg said.

He added that the company plans to grow and bring its two major AI research groups – FAIR and GenAI – together to accelerate its work. He further said he believes that Meta’s vision for AI and the AR/VR-driven metaverse are connected.

“By the end of the decade, I think lots of people will talk to AIs frequently throughout the day using smart glasses like what we’re building with Ray Ban Meta.”

Mark Zuckerberg’s recent announcement is one of the company’s biggest pledges to double down on AI. Earlier last year, after the viral success of OpenAI’s ChatGPT, Zuckerberg announced that Meta is creating a new “top-level product group” to “turbocharge” the company’s work on AI tools.

Since then, Meta has introduced tools and information aimed at assisting users understand how AI influences what they see on its apps. The company has launched a commercial version of its Llama large language model (LLM), ad tools that can generate image backgrounds from text prompts, and a “Meta AI” chatbot that can be accessed directly via its Ray-Ban smart glasses.

In his posts last month, Meta CEO said the company is currently training a third version of the Liama model.

Impressive Historical Growth

Over the past three years, META’s revenue and EBITDA grew at CAGRs of 16.2% and 15%, respectively. The company’s net income and EPS rose at respective CAGRs of 10.3% and 13.8% over the same timeframe. Its levered free cash flow improved at 25.6% CAGR over the same period.

Moreover, the social networking company’s total assets increased at a CAGR of 13% over the same timeframe.

Favorable Analyst Estimates

Analysts expect META’s revenue for the first quarter (ending March 2024) to grow 25.3% year-over-year to $35.88 billion. The consensus EPS estimate of $4.25 for the ongoing quarter indicates a 93.3% year-over-year increase. Moreover, Meta has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is remarkable.

Furthermore, Street expects Meta’s revenue and EPS for the fiscal year (ending December 2024) to grow 17.3% and 32.4% year-over-year to $158.20 billion and $19.69, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to increase 11.2% and 15.3% from the previous year to $175.98 billion and $22.70, respectively.

Solid Profitability

META’s trailing-12-month gross profit margin of 80.72% is 64.5% higher than the 49.07% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 36.33% and 28.98% are considerably higher than the industry averages of 8.47% and 3.50%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 28.04%, 17.84% and 17.03% favorably compared to the respective industry averages of 4.09%, 3.52%, and 1.43%. Also, its trailing-12-month levered FCF margin of 23.52% is 202.7% higher than the industry average of 7.77%.

Bottom Line

Facebook parent META recently reported a big beat on earnings and revenue for the fourth quarter of fiscal 2023. The company, which owns Facebook, Instagram, and WhatsApp, also announced its first-ever dividend of $0.50 per share and authorized a $50 billion share buyback program. Dividends generally signal management’s confidence about the company’s future growth.

Moreover, Meta’s market capitalization last month surpassed $1 trillion. The company last exceeded this mark in the market cap in 2021, when it was still known as Facebook.

Meta’s “year of efficiency” and several cost-cutting measures paid off in a significant way and offered a sweetener for investors, sending its shares higher. The stock is up nearly 38% over the past month and has gained more than 150% over the past year.

2023 was a pivotal year for the social networking giant, where it raised its operating discipline, delivered solid execution across its product priorities, and significantly improved ad performance for the businesses that rely on its services. In 2024, the company further seems well-positioned to build on its progress in each of these areas while advancing its ambitious efforts in AI and Reality Labs.

Given META’s robust financials, accelerating profitability, dividend initiation, and solid growth outlook, primarily as it seeks to strengthen its position in AI, it could be wise to invest in this stock now.

NKE's China Comeback: Potential Upside Amid Stronger Consumer Demand

Posted on by The INO.com Team

Some of the U.S.-listed stocks, including NIKE, Inc. (NKE), stand to benefit from the sizable monetary stimulus that the People’s Bank of China has unleashed recently. The Chinese economy has witnessed slowing growth lately, prompting PBOC to implement new stimulus measures.

New Stimulus Measures to Boost Market Confidence

Beginning February 5, the People’s Bank of China will allow banks to hold smaller cash reserves, said central bank governor Pan Gongsheng at a press conference. Also, reserve ratio requirements (RRR) for banks will be slashed by 50 basis points. That will release 1 trillion yuan ($139.80 billion) in long-term capital.

In addition, the PBOC said that there is room for further easing of the monetary policy. Lowering the reserve requirements that banks must maintain will increase the capacity for lenders to extend loans and boost spending in the broader economy.

Pan told reporters the central bank and the National Financial Regulatory Administration would soon publish measures to support loans for high-quality real-estate developers. Real estate troubles are one of the various factors that have weighed heavily on Chinese investor sentiment.

“It is a significant step from the regulators to enhance credit support for developers,” said Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank. “For developer financing to fundamentally and sustainably improve, property sales need to stop falling and start to recover, which could require more policy efforts to stabilize the property market.”

To sum up, China’s economy could experience a boost from these latest PBOC announcements.

Evercore strategists screened for shares of U.S.-listed companies that have recently seen at least 10% of their revenues from China. Most are consumer companies that could witness a boost to sales in China since consumers will likely spend more than previously anticipated. Evercore’s list includes Nike, Las Vegas Sands, Aptiv, State Street, and more.

Talking about Nike, the sports apparel giant saw nearly 13% of its total revenue from China over the past year, as per FactSet. Now, a stronger-than-expected consumer in China because of massive monetary stimulus could unlock higher profit margins, more share buybacks, more earnings growth, and stock gains in the near future.

Shares of NKE have surged more than 2.4% over the past five days.

Let’s take a close look at the NKE’s fundamentals to analyze how the stock will perform in the near term:

Mixed Last Reported Financials

For the fiscal 2024 second quarter that ended November 30, 2023, NKE reported revenue of $13.39 billion, missing analysts’ estimates of $13.43 billion. This compared to the revenue of $13.32 billion in the same quarter of 2022.

Revenues for the NIKE Brand came in at $12.90 billion, up 1% year-over-year, but revenues for Converse were $519 million, a decline of 11% compared to the prior year’s period. NKE’s gross profit increased 4.6% year-over-year to $5.97 billion. Its income before income taxes rose 16.5% from the previous year’s quarter to $1.92 billion.

The sports apparel and sneaker giant’s net income grew 18.6% year-over-year to $1.58 billion. It posted earnings per common share of $1.03, compared to the consensus estimate of $0.85, and up 21.2% year-over-year.

In addition, NKE’s cash and cash equivalents stood at $7.92 billion as of November 30, 2023, compared to $6.49 billion as of November 30, 2022. The company’s current liabilities reduced to $9 billion versus $10.20 billion as of November 30, 2022.

However, Inventories for NKE were $8 billion as of November 30, 2023, down 14% compared to the previous year, reflecting a decrease in units.

Attractive Shareholder Returns

Nike continues to have a solid track record of investing to drive growth and consistently increasing returns to shareholders, including 22 consecutive years of raising dividend payouts.

On November 15, 2023, NKE’s Board of Directors approved a quarterly cash dividend of $0.370 per share on the company’s outstanding Class A and Class B common stock. This quarterly cash dividend represents an increase of 9% compared to the previous quarterly dividend rate of $0.340 per share. The dividend was paid on January 2, 2024, to shareholders of record on December 4, 2023.

“This dividend increase reflects our continued confidence in our strategies to generate sustainable, profitable growth, while investing for the future,” said John Donahoe, President & CEO of NKE.

The company pays an annual dividend of $1.48, translating to a yield of 1.44% at the current share price. Its four-year average dividend yield is 0.97%. Moreover, NKE’s dividend payouts have increased at a CAGR of 11.2% over the past three years. Nike has raised its dividends for 11 consecutive years.

During the second quarter of fiscal 2024, NKE returned nearly $1.70 billion to shareholders, including dividends of $523 million and share repurchases of about $1.20 billion, reflecting 11.9 million shares retired as part of the company’s four-year, $18 billion program approved by the Board of Directors in June 2022.

As of November 30, 2023, the company has repurchased a total of 65.9 million shares under the program for approximately $7.10 billion.

Lowered Revenue Outlook and Plans to Cut Costs

In December 2023, the management lowered its fiscal 2024 revenue guidance, partly due to weakening consumer demand in China. Nike now expects full-year revenue to grow nearly 1%, compared to the prior outlook of up mid-single digits.

For the current quarter, which includes the second half of the holiday shopping season, the apparel retailer’s revenue is expected to be slightly negative as it laps tough previous year comparisons, and revenue is estimated to be up low single digits in the fourth quarter of 2024.

“Last quarter as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season and our second half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” said Chief Financial Officer Matthew Friend on a call with analysts.

“This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA. Adjusted digital growth plans are based on recent digital traffic softness and higher marketplace promotions, life cycle management of key product franchises and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago,” he added.

Nike continues to expect gross margins to grow between 1.4 and 1.6 percentage points. Also, the company is identifying opportunities to deliver up to $2 billion in cumulative cost savings over the next three years. Areas of potential savings include simplifying its product assortment, streamlining its overall organization, automation and use of technology, and leveraging its scale to boost greater efficiency.

NKE plans to reinvest the savings it gets from these strategic initiatives into fueling future growth, accelerating innovation, and driving profitability in the long term.

“As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management,” Friend said in a press release.

The plan will cost the sports apparel company between $400 million and $450 million in pre-tax restructuring charges that will essentially be reorganized in the current quarter. Nike stated these costs are primarily associated with employee severance costs.

However, more robust consumer demand in China because of new stimulus measures could unlock higher revenue than currently forecasted by Nike.

Mixed Analyst Estimates

Analysts expect NKE’s revenue for the third quarter (ending February 2024) to decrease 0.8% year-over-year to $12.30 billion. The consensus EPS estimate of $0.76 for the ongoing quarter indicates a 3.9% year-over-year decline.

For the fiscal year ending May 2024, Street expects Nike’s revenue and EPS to grow 1.2% and 11.6% year-over-year to $51.82 billion and $3.60, respectively. Furthermore, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 6.6% and 17.6% from the previous year to $55.22 billion and $4.24, respectively.

Solid Profitability

NKE’s trailing-12-month gross profit margin of 43.96% is 24.6% higher than the 35.28% industry average. Moreover, the stock’s trailing-12-month EBIT margin and net income margin of 11.76% and 10.28% are considerably higher than the industry averages of 7.63% and 4.56%, respectively.

Further, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 36.03%, 14% and 14.24% favorably compared to the respective industry averages of 11.61%, 6.09%, and 4.01%. Also, its trailing-12-month levered FCF margin of 10.91% is 100.2% higher than the industry average of 5.45%.

Elevated Valuation

In terms of forward non-GAAP P/E, NKE is currently trading at 28.52x, 79.9% higher than the industry average of 15.85x. The stock’s forward EV/Sales of 3.05x is 147.7% higher than the industry average of 1.23x. Likewise, its forward EV/EBITDA of 21.96x is 119.8% higher than the industry average of 9.99x.

Additionally, the stock’s forward Price/Sales and Price/Book multiples of 3 and 11.93 are significantly higher than the respective industry averages of 0.92 and 2.52. Also, its forward Price/Cash Flow of 23.65x is 133% higher than the industry average of 10.15x.

Bottom Line

In the last reported quarter, NKE’s EPS beat analysts’ expectations, indicating the company’s cost-saving initiatives were underway. However, the sports apparel and footwear retailer’s revenue fell short of consensus estimates for the second quarter in a row.

Due to several macro headwinds, particularly in China and EMEA, management lowered its revenue outlook for the fiscal year 2024. Also, the company unveiled plans to cut costs by about $2 billion over the next three years.

For Nike, as a consumer company with significant revenue from China, stronger-than-expected consumer demand because of the new stimulus package could result in higher sales than it currently forecasted. Further, better revenue growth, especially in Greater China, could unlock better profit margins, more share repurchases, higher earnings growth, and stock gains.

Amid a series of government announcements indicating forthcoming support for China’s economic growth and capital markets, such efforts could help stabilize the stock market and stop it from capitulating and falling further, said Winnie Wu, Bank of America’s chief China equity strategist.

However, she pointed out a fundamental turnaround in the economy is needed for investors to return to Chinese stocks, which might take time.

Although Nike holds tremendous growth potential with an anticipated rebound in consumer demand in China, the company’s near-term outlook appears uncertain. Given NKE’s stretched valuation and uncertain near-term prospects, it seems prudent to wait for a better entry point in this stock.

Will Google's UPI Expansion Make GOOGL a Must-Have Tech Stock?

Posted on by The INO.com Team

Alphabet Inc. (GOOGL) has decided to help globalize India’s home-grown payments service, Unified Payments Interface (UPI). This instant real-time payment system was developed by the National Payments Corporation of India (NPCI) in 2016 and allows individuals to use a single app to make peer-to-peer payments to or from multiple bank accounts.

Third parties can include UPI in their payment systems or apps, with payments flowing smoothly between all participants. The interface has more than 300 million active users and manages around 10 billion transactions per month. The traffic is not far behind Mastercard Inc. (MA) and nearly half the volume that Visa Inc. (V) handles.

UPI is ubiquitous in India and is one of the largest retail payment systems in terms of transaction value and volume. The payment service has already been made available in other nations, partly to assist Indian tourists as they travel and to facilitate cross-border transactions.

Now, Google has decided to spread these use cases around the globe. On January 18, 2024, Google Pay India and NPCI International Payments Ltd (NIPL), a wholly owned subsidiary of NPCI, signed a Memorandum of Understanding (MoU) to broaden the transformative impact of UPI to nations beyond India.

The MoU has three key objectives. Firstly, it seeks to expand the use of UPI payments for travelers out of India, allowing them to make transactions abroad seamlessly and conveniently. Secondly, it will help establish UPI-like digital payment systems in other countries, offering a model for seamless financial transactions.

Lastly, the MoU intends to ease the process of remittances between countries by utilizing the UPI infrastructure, thereby simplifying cross-border financial exchanges. These listed objectives are expected to accelerate UPI’s global acceptance, providing foreign merchants easy access to Indian customers who will no longer have to depend only on foreign currency and credit or forex cards to make payments.

“We are delighted to support NIPL towards expanding the reach of UPI to international markets. Google Pay has been a proud and willing collaborator to NPCI and the financial ecosystem, under the regulator’s guidance, and this collaboration is another step towards our commitment to making payments simple, safe and convenient,” said Deeksha Kaushal, Director, Partnerships, Google Pay India.

With this strategic collaboration, Google will not only create new digital finance opportunities for itself but also support the Indian government’s initiative to take UPI global.

India’s Digital Diplomacy Strategy

The recently signed MoU aligns with NPCI’s endeavor to boost India’s position in the global digital payment landscape. India’s Prime Minister Narendra Modi has been vocal on the government’s ambitions to take UPI global. At the BRICS summit in August last year, Modi noted that UPI had expanded to other nations, including the UAE, Singapore, and France.

“There are many possibilities of working on this with BRICS countries as well,” he stated.

Further, in an exclusive interview with Business Today, Modi highlighted the fact that 46% of global digital payment transactions today are in India, which he described as “one shining example of the success of our policies,” adding that “the world today sees India as the incubator of innovation.”

Last year, India also topped the global remittance charts. According to a recent report, the World Bank noted that India’s remittance inflows totaled $125 billion in 2023, the highest in the world and well ahead of Mexico ($67 billion) and China ($50 billion). Annual growth was a brisk 12.4%.

GOOGL’s stock has advanced more than 19% over the past six months and nearly 57% over the past year.

Here are other factors that could impact GOOGL’s performance in the near term:

Google’s Remarkable AI Progress

2023 has been a year of significant progress for GOOGL in the field of Artificial Intelligence (AI) research and its practical applications. With generative AI, the company is reimagining its products and services. In February 2023, Google launched Bard, its conversational AI service powered by LaMDA. This tool can generate text, translate languages, write different kinds of creative content, and more.

In May, the tech giant reviewed the results of months and years of its foundational and applied work announced on stage at Google I/O. This included its next-generation large language model (LLM), PaLM 2, which is built on advanced compute-optimal scaling, scaled instruction-fine tuning, and enhanced dataset mixture.

By fine-tuning and instruction-tuning PaLM 2 for multiple purposes, the company was able to integrate it into more than 25 Google products and features, including an update to Bard, which enabled multilingual capabilities.

In addition, Search Generative Experience (SDE) uses LLMs to reimagine how to organize information and help people navigate through, creating a more fluid, conversational interaction model for its core Search product, MakerSuite, an easy-to-use prototyping environment for the PaLM API powered by PaLM 2, and many more developments.

The company also introduced DuetAI, its AI-powered collaborator that offers users assistance when they use Google Workspace and Google Cloud.

In June, Google unveiled Imagen Editor, which offers the ability to use region masks and natural language prompts to edit generative images. Later last year, Imagen 2 was released, which improved outputs through a specialized image aesthetics model based on human preferences for qualities like lighting, exposure, and framing.

Further, on November 22, in collaboration with YouTube, the company announced a new DeepMind model, Lyria. It is the most advanced AI music generative model to date that will create vocals, lyrics, and background tracks mimicking the style of popular artists. This model is available on YouTube through two distinct AI experiments – DreamTrack for Shorts and Music AI tools.

Then, in December, GOOGL launched Gemini. Gemini will include a suite of three different sizes: Gemini Ultra, its largest, most capable category; Gemini Pro, which scales across a wide range of tasks; and Gemini Nano, which will be used for specific tasks and mobile devices.

Robust Last Reported Financials

For the third quarter that ended September 30, 2023, Google parent Alphabet’s revenue came in at $76.69 billion, beating analysts’ estimate of $75.73 billion. This compared to revenue of $69.09 billion in the same quarter of 2022.

The company’s Google advertising revenues were $59.65 billion, an increase of 9.5% year-over-year, and its Google Cloud revenues grew 22.5% from the year-ago value to $8.41 billion. Its income from operations came in at $21.34 billion, up 24.6% from the prior year’s quarter.

GOOGL’s income before income taxes rose 30.6% year-over-year to $21.20 billion. The company’s net income rose 41.5% year-over-year to $19.69 billion. It posted net income per share of Class A, Class B, and Class C stock of $1.55, compared to the consensus estimate of $1.45, and up 46.2% year-over-year.

Furthermore, as of September 30, 2023, the company’s cash and cash equivalents stood at $30.70 billion, compared to $21.88 billion as of December 31, 2022. Its current assets were $176.31 billion versus $164.80 billion as of December 31, 2022.

Sundar Pichai, Alphabet’s CEO, said, “I’m pleased with our financial results and our product momentum this quarter, with AIdriven innovations across Search, YouTube, Cloud, our Pixel devices and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

Solid Historical Growth

GOOGL’s revenue grew at a 20.1% CAGR over the past three years. Over the same period, the company’s EBITDA and operation income (EBIT) improved at CAGRs of 26% and 32.7%, respectively. Further, its net income and EPS grew at respective CAGRs of 23.2% and 26.3% over the same timeframe.

Additionally, the company’s total assets grew at a CAGR of 9.9% over the past three years, and its levered free cash flow improved at a 36% CAGR.

Optimistic Analyst Estimates

Analysts expect GOOGL’s revenue for the fourth quarter (ended December 2023) to increase 12% year-over-year to $85.20 billion. The consensus EPS estimate of $1.60 for the current quarter indicates a 52.21% year-over-year improvement. Moreover, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

In addition, Street expects GOOGL’s revenue and EPS for the fiscal year (ended December 2023) to increase 8.1% and 26% year-over-year to $305.77 billion and $5.74, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.3% and 15.9% year-over-year to $340.26 billion and $6.66, respectively.

High Profitability

GOOGL’s trailing-12-month gross profit margin of 56.12% is 14.1% higher than the 49.18% industry average. Also, the stock’s trailing-12-month EBIT margin and net income margin of 27.42% and 22.46% are considerably higher than the industry averages of 8.56% and 3.27%, respectively.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 25.33%, 17.36%, and 16.82% are favorably compared to the respective industry averages of 3.53%, 3.48%, and 1.38%. Its trailing-12-month levered FCF margin of 23.81% is 200.2% higher than the industry average of 7.93%.

Bottom Line

Alphabet’s shares climbed nearly 58% last year as tech stocks rallied after a disastrous 2022, driven partly by excitement about AI. The company reported an impressive revenue growth of 11%, returning to double digits for the first time in more than a year alongside a recovery in the digital ad market. Sales and profit both surpassed analysts’ expectations.

Moreover, for GOOGL, 2023 was a remarkable year of groundbreaking advances in AI and computing. Last week, in a memo titled “2024 priorities and the year ahead” that staffers received, Google CEO Sundar Pichai stated that the company has ambitious goals and will be investing in its big priorities this year. This includes AI and spans Google’s consumer to enterprise platforms.

Analysts at JP Morgan named GOOGL as one of their top picks for 2024, with AI primarily assisting in the stock’s significant growth.

GOOGL's partnership with the National Payment Corporation of India (NPCI) is geared toward extending India's UPI's reach globally, which is expected to yield advantages for the company.

This partnership seems like a suitable strategic move that would support a vital policy objective of the Indian government to broaden the digital payments landscape and provide Google Pay with new growth opportunities.

Considering these factors, GOOGL seems to be a must-have stock for any investment portfolio.

Joann Stores on the Brink: Is it Time to Unload JOAN Stock?

Posted on by The INO.com Team

Over the past years, the retail sector has been shaken by renowned names going under and a couple of others just barely surviving. In most cases, the financial damage was caused by the COVID-19 pandemic, which forced many retail businesses to shut down for months due to mandated stay-at-home orders.

Due to these closures, online retailers received a boost in sales as customers looked for alternative ways to shop.

JOANN, Inc. (JOAN), a specialty retailer of crafts and fabrics, should have been a pandemic winner, but it stands on the verge of collapse, and the company prospects appear weak, as per Creditsafe Head of Brand Ragini Bhalla.

In theory, JOAN should have benefitted from people staying at home during the pandemic, as sewing enthusiasts and other hobbyists make up the retailer’s customer base. Even when Joann stores were opened, customers could’ve opted to purchase their supplies online.

The ease of shopping online has changed customer behavior drastically, and that could have shifted some of Joann’s regular customers to e-commerce giant Amazon.com, Inc. (AMZN). Another possibility could be that some of the company’s fanbase died or changed their hobbies during the pandemic.

No matter what the reason is, Ragini Bhalla thinks that JOAN’s situation is critical.

“Given the struggles JoAnn has had with cash flow, its inability to stay current with many of its bills, its declining sales in FY 2023, and its $1 billion debt load, our Creditsafe algorithm has classified the company as a high risk of becoming seriously delinquent on payments and could be headed for bankruptcy very soon. Without strong leadership (still no permanent CEO), it could be hard to right the ship,” he told TheStreet via email.

Bhalla further stated that JOAN has been lagging in paying its bills, something which often foreshadows a bankruptcy filing.

“Creditsafe data shows that Joann struggled to make on-time payments in the second half of 2023. For most of that time, about 20% to 31% of its bills were paid late (1-30 days), while about 1% to 8% of its bills were paid late (31-60 days),” he added.

Despite management’s positive comments during the third-quarter 2024 earnings call, Bhalla sees the company’s risk of bankruptcy rising.

“Joann is rated as a high risk: Based on Creditsafe’s risk algorithm which takes into account both trade payment data and financial results, JoAnn is deemed to be a high risk (D), meaning it could be at risk of bankruptcy. Its risk score dropped from C to D in July 2023 and has stayed there since,” he added. 

Now, let’s discuss some of the factors that contribute to Joann’s precarious financial situation and could impact the stock’s performance in the near term:

Broader Challenges Faced by the Retail Industry

Over the past few years, several retailers have been grappling with struggling physical storefronts, massive debt, and inefficient operations, among other challenges. The COVID-19 pandemic initially compounded these issues and advanced the downfall of various retailers, which had faced declining sales and increasing debt in the years prior as consumer preferences changed.

Shopping centers witnessed decreasing foot traffic even before the pandemic, but stay-at-home orders further shifted consumers to online shopping and spending cash on essential goods instead.

After 2020, the retail industry experienced a major rebound as consumers returned to physical stores. While there were 52 retail bankruptcies in 2020, 2021 witnessed just 21, a decline of 60% year-over-year, according to the report by Axios, citing research by S&P Global Market Intelligence. In 2022, only a few retail companies went under.

However, last year, retail bankruptcies flared up again due to persistently high inflation and a significant pullback in consumer spending. According to Axios, there were about 82 bankruptcies filed by consumer discretionary companies amid a tighter financing market and higher borrowing costs.

Home goods and furniture retailer Bed Bath & Beyond filed for bankruptcy in April 2023. During the pandemic, the retailer’s merchandise was non-essential. A failure to take online shopping seriously harmed the company, and then product missteps and misguided financial maneuvers fastened its decline.

A popular Ohio-based fabric and craft retailer, JOAN, has been recently identified as having an elevated risk of filing for bankruptcy. It faces enhanced financial uncertainty after dwindling sales and massive debt. Also, the company seems to miss out on the e-commerce boom.

During the third quarter of 2023, the share of e-commerce in total U.S. sales amounted to 15.6%, an increase from the prior quarter. From July to September last year, retail e-commerce sales in the U.S. reached nearly $284 billion, the highest quarterly revenue in history.

Deteriorating Last Reported Financials

For the fiscal 2024 third quarter that ended October 28, 2023, JOAN reported net sales of $539.80 million, beating analysts’ estimate of $547.20 million. That compared to the revenue of $562.80 million in the same quarter of 2022. Its net interest expense increased 56.9% from the year-ago value to $28.40 million. Its adjusted gross profit was $282.10 million, down 5.8% year-over-year.

The company’s operating loss widened by 24.4% from the prior year’s quarter to $15.40 million. Its adjusted EBITDA declined 6.7% year-over-year to $37.50 million. Its adjusted net loss came in at $8.80 million, compared to an adjusted net income of $2.30 million in the previous year’s period.

Joann posted third-quarter adjusted loss per share of $0.21, compared to adjusted income per share of $0.06 in the same quarter of 2022.

Furthermore, for the nine months ended October 28, 2023, the company’s free cash flow decreased 26.4% year-over-year to $187 million. JOAN’s current assets were $790.30 million as of October 28, 2023, compared to $854.10 million as of October 29, 2022. Its net long-term debt stood at $1.15 billion versus $1.06 billion as of October 29, 2022.

Full Year 2024 Outlook

Despite deteriorating financial health, Joann’s interim leaders tried to paint a positive picture.

Commenting on the third-quarter performance, Scott Sekella, JOANN’s Chief Financial Officer and co-lead of the Interim Office of the CEO, said, “During the quarter, we continued to execute against our Focus, Simplify and Grow cost reduction initiative in which we had previously identified $200 million of targeted annual cost savings across supply chain, product, and SG&A expenses. As we implement these cost savings initiatives, we are driving meaningful cash flow improvements that we expect will continue for the remainder of this fiscal year and beyond.”

“With the strategic shifts we have implemented this year, combined with our ongoing cost reduction strategies, we are pleased to increase the top-line and reaffirm the bottom line full-year outlook,” Sekella added.

These management’s comments sound nice, but with only $28.30 million in cash and cash equivalents as of October 28, 2023, and its net long-term debt standing at $1.15 billion, the company has to make choices more carefully moving forward.

Unfavorable Consensus Earnings Expectations

Street expects JOAN’s revenue for the fiscal year (ending January 2024) to decrease 1.7% year-over-year to $2.18 billion. The company’s loss per share for the ongoing year is expected to widen by 149.4% year-over-year to $2.12. In addition, the company has missed the consensus EPS estimates in three of the trailing four quarters.

For the fiscal year 2025, the retailer’s revenue is estimated to decline 1.4% year-over-year to $2.15 billion. Analysts expect Joann to report a loss per share of $1.39 for the following year.

Declining Profitability

JOAN’s trailing-12-month EBITDA margin and net income margin of negative 1.51% and negative 11.10% compared to the respective industry averages of 11.04% and 4.56%. The stock’s trailing-12-month levered FCF margin of negative 1.68% compared to the 5.40% industry average.

In addition, the stock’s trailing-12-month ROTC and ROTA of negative 3.52% and negative 10.64% compared unfavorably to industry averages of 6.17% and 4.01%, respectively. Its trailing-12-month CAPEX/Sales of 2.43% is 19.6% lower than the 3.02% industry average.

JOAN’s FRISK Rating Lowered

Joann has been identified as at an increased risk of bankruptcy within the next 12 months by a retail industry analysis reported by RetailDive. In October 2023, JOAN got its CreditRiskMonitor FRISK Score updated, which generally has a 96% accuracy in predicting bankruptcies for public U.S. companies.

 In the report, Joann has been given a score of 1, which is the worst possible score. This indicates a probability between 9.99% and 50% of bankruptcy within the next 12 months.

Experts Hinting at Significant Bankruptcy Risk

“Joann is in a financial mess. Not only does it have a huge debt pile and associated interest, it is not profitable at operating level,” GlobalData Managing Director Neil Saunders posted on Retailwire.

According to Aptos’ Vice President, JOAN needs to make changes quickly to save itself and can look at a key competitor for ideas.

“Michael’s recently invested in revamping stores, streamlining checkout, upping their loyalty game,” she stated. “Joann would definitely benefit, and potentially quickly, by taking a look at their promotional strategy. It’s very confusing and there is a lot of over-promoting and overlapping promotions. Barring anything else, getting smart and streamlined and simple about the offer to customers could help both top and bottom line – at the same time.”

Further, CEO of Vector Textiles, Mark Self, said, “A specialty store specializing in crafts and sewing whose customer base is dwindling, no CEO and $1B in debt...sounds like liquidation time to me.”

Bottom Line

JOAN’s financial struggles continue as the retailer reported a sales decline and mounting losses in the third quarter of the fiscal year 2024. Stubborn inflation, continued supply chain disruption, a pullback in consumer spending, and macroeconomic uncertainty have impacted the company’s financial performance over the past year. Also, Joann has been slow to adopt e-commerce.

The craft and fabric company, which is still operating without a permanent CEO, tried to paint a positive picture about its growth prospects; however, Joann’s growing losses, massive debt and limited available cash tell a different story.

Companies rarely come out and tell investors that they are teetering on the edge of disaster until they are left with no choice. For instance, J.C. Penney, which spiraled toward bankruptcy, a fall that took years, the company’s earnings call mainly focused on positive aspects.

Given its deteriorating financials and other challenges, JOAN has its CreditRiskMonitor FRISK Score lowered to 1. Based on the history, companies that receive a 1 have between a 9.99% and 50% chance of filing for bankruptcy. Several experts further hinted that the company was facing significant bankruptcy risk.

With these factors in mind, it could be wise for investors to avoid JOAN’s shares now. 

Is Verizon (VZ) Stock a Buy Ahead of January 23 Earnings Release?

Posted on by The INO.com Team

With a market cap of $156.86 billion, Verizon Communications Inc. (VZ) is a leading provider of communications, information technology, and entertainment products and services to consumers, businesses, and governmental entities globally. The company is scheduled to report fourth-quarter 2023 earnings on January 23, 2024.

Analysts expect VZ’s revenue and EPS for the fourth quarter (ending December 2023) to decline 2% and 8.9% year-over-year to $34.55 billion and $1.08, respectively.

For the fiscal year 2023, Street expects the company’s revenue to decrease 2.5% year-over-year to $133.47 billion. The consensus EPS estimate of $4.69 for the current year indicates a decline of 9.4% year-over-year.

Shares of VZ have plunged nearly 1% over the past five days but gained more than 2% over the past six months. On the other hand, the benchmark S&P 500 has surged approximately 1.7% over the past five days and more than 9% over the past six months.

While VZ’s stock has underperformed the S&P 500 lately, the telecom company remains attractive for income-focused investors, given its reliable dividend.

Now, let’s review the key factors that could influence VZ’s performance in the near term:

Mixed Last Reported Financial Results

For the third quarter that ended on September 30, 2023, VZ reported revenue of $33.34 billion, slightly surpassing analysts’ estimate of $33.31 billion. However, this compared to the revenue of $34.24 billion in the same quarter of 2022. The decline was primarily due to reduced wireless equipment revenue and lower postpaid upgrade activity.

But the company’s wireless service revenue came in at $19.30 billion, up 2.9% year-over-year. This increase was mainly driven by targeted pricing actions implemented in recent quarters, the larger allocation of administrative and telco recovery fees from other revenue into wireless service revenue, and growth from fixed wireless offerings.

During the quarter, total broadband net additions were 434,000, representing the fourth straight quarter in which Verizon reported more than 400,000 broadband net additions. Total broadband net additions included 384,000 fixed wireless net additions, an increase of 42,000 fixed wireless net additions from the third quarter of 2022.

The telecom giant currently has nearly 10.3 million total broadband subscribers, including around 2.7 million subscribers on its fixed wireless service. The company reported 72,000 Fios Internet net additions, up from 61,000 Fios Internet net additions in the prior year’s quarter. 

Verizon’s third-quarter operating income declined 5.3% year-over-year to $7.47 billion. Its net income was $4.88 billion, a decrease of 2.8% from the prior year’s quarter. The company posted an adjusted EPS of $1.22, surpassing the consensus estimate of $1.18, but down 7.6% year-over-year.

The company’s adjusted EBITDA for the quarter grew 0.2% year-over-year to $12.20 billion. Its year-to-date cash flow from operations was $28.80 billion, up from $28.20 billion in 2022. Also, free cash flow year-to-date totaled $14.60 billion, an increase from $12.40 billion in the prior year.

VZ’s unsecured debt as of the end of the third quarter decreased by $4.90 billion sequentially to $126.40 billion. At the end of third-quarter 2023, the company’s ratio of unsecured debt to net income (LTM) was nearly 5.9 times, and its net unsecured debt to adjusted EBITDA was approximately 2.6 times.

Raised Free Cash Flow Guidance

“We continued to make steady progress in the third quarter with a clear focus on growing wireless service revenue, delivering healthy consolidated adjusted EBITDA and increasing free cash flow,” said Verizon Chairman and CEO Hans Vestberg. 

After reporting solid third-quarter results momentum, Verizon raised its free cash flow guidance for the full year 2023. The company expects free cash flow above $18 billion, an increase of $1 billion from the previously issued guidance. Cash flow from operations is expected in the range of $36.25 billion to $37.25 billion.

In addition, for 2023, the company expects total wireless service revenue growth of 2.5% to 4.5%. Its adjusted EBITDA and adjusted EPS are projected to be $47-$48.50 billion and $4.55-$4.85, respectively.

Attractive Dividend

On December 7, VZ declared a quarterly dividend of 66.50 cents ($0.665) per outstanding share. The dividend is payable on February 1, 2024, to Verizon shareholders of record at the close of business on January 10, 2024.

“We are committed to delivering value to our customers and shareholders as we execute on our focused network strategy,” said Hans Vestberg. “Our financial discipline and strong cash flow continue to put the company in a position for the Board to declare a quarterly dividend.”

Verizon has around 4.2 billion shares of common stock outstanding. The company made more than $8.2 billion in cash dividend payments in the last three quarters.

VZ pays an annual dividend of $2.66, which translates to a yield of 7.13% at the current share price. Its four-year average dividend yield is 5.42%. The company has raised its dividend for 17 consecutive years, the longest current streak of dividend increases in the U.S. telecom industry.

Progress in 5G Network Buildout

On December 21, Verizon announced the expansion of its reliable 4G and high-speed 5G service throughout Florida, Kennesaw, GA, and Aiken County, SC, among other areas.

This service is part of the company’s massive multi-year network transformation, which has not only brought 5G service to more than 230 million people and 5G home internet service to nearly 40 million households but has also added more capabilities, upgraded the technology in the network, paving the way for personalized customer experiences and offering a platform for enterprises to boost innovation.

According to a report by Grand View Research, the global 5G services market is projected to reach $2.21 trillion by 2030, expanding at a CAGR of 59.4% during the forecast period (2023-2030). Meanwhile, North America 5G services market is expected to grow at a CAGR of 51.6% from 2023 to 2030.

The growing demand for high-speed data connectivity worldwide, rising investments in 5G infrastructure, and rapid integration of advanced technologies like IoT and AI are estimated to propel the adoption of 5G services. Verizon is well-positioned to capitalize on the significant 5G adoption and fixed wireless broadband network momentum.

Fierce Competition

While Verizon continues to accelerate the availability of its 5G ultra-wideband network across the country, the company faces heightened competition from wireless industry players, including AT&T, Inc. (T), T-Mobile US, Inc. (TMUS), Vodafone Group Plc (VOD), and SK Telecom Co., Ltd. (SKM).

Mixed Historical Growth

VZ’s revenue grew at a CAGR of 1.5% over the past three years. But its EBIT decreased at a CAGR of 0.3% over the same period. The company’s net income and EPS improved at CAGRs of 4.5% and 4% over the same time frame, respectively.

Further, the company’s levered free cash flow increased at a CAGR of 20.1% over the same period, and its total assets improved at a CAGR of 9%.

Robust Profitability

VZ’s trailing-12-month gross profit margin and EBIT margin of 58.69% and 22.87% are 20% and 183.1% higher than the industry averages of 48.90% and 8.08%, respectively. Likewise, the stock’s trailing-12-month net income margin of 15.58% is significantly higher than the industry average of 3.21%.

Additionally, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.56%, 7.04%, and 5.43% are considerably higher than the respective industry averages of 3.41%, 3.55%, and 1.24%. Its trailing-12-month levered FCF margin of 13.31% is 73.9% higher than the industry average of 7.65%.

Mixed Valuation

In terms of forward non-GAAP P/E, VZ is currently trading at 7.95x, 49.1% lower than the industry average of 15.62x. The stock’s forward EV/EBITDA of 6.96x is 20.3% lower than the industry average of 8.73x. Also, its forward Price/Book and Price/Cash Flow of 1.57x and 4.23x compared to the industry averages of 1.99x and 10.03x, respectively.

However, the stock’s forward non-GAAP PEG multiple of 32.47 is significantly higher than the industry average of 1.54. Its forward EV/Sales of 2.49x is 34.7% higher than the industry average of 1.85x.

Analyst Price Targets

On December 19, Oppenheimer analyst Timothy Horan maintained a Buy rating on VZ and set a price target of $43 on the stock. In addition, Verizon received a Buy rating from Citi’s Michael Rollins in a report issued on December 13. However, Well Fargo maintained a Hold rating on VZ’s stock.

Bottom Line

Verizon’s disciplined approach to driving strong cash flow, operating the business, and serving its customers allowed it to raise its dividend for the 17th consecutive year.

However, analysts appear bearish about the telecom company’s near-term prospects. Verizon’s revenue and EPS growth will likely face challenges, and this slowdown is primarily attributed to fierce competition from leading industry players such as AT&T and T-Mobile, which are consistently undergoing significant changes in their operations.

Given slowing revenue and EPS growth, heightened competition, and mixed valuation, it seems prudent to wait for a better entry point in this stock.