Author: The INO.com Team

Google's Workforce Shake-Up: Is the Quiet Layoff a Warning Sign for Investors?

Posted on by The INO.com Team

The New Year has just begun, and thousands of technology and startup employees find themselves unemployed. Layoff monitoring website, Layoffs.fyi, reports that by January 17, some 51 technology firms had terminated the employment of 7,528 individuals.

These terminations imply that 2024 might bring more hardships for the tech sector, following massive layoffs in the preceding year when over 1,150 tech companies laid off over 260,000 employees in 2023.

Alphabet Inc.’s (GOOGL) Google is reducing its workforce, dispensing with several team members from their digital assistant, hardware, and engineering sectors, as stated by the company.

A spokesperson from Google said, “Throughout the second half of 2023, a number of our teams made changes to become more efficient and work better, and to align their resources to their biggest product priorities. Some teams are continuing to make these kinds of organizational changes, which include some role eliminations globally.”

Affected staff include those associated with the voice-activated Google Assistant and the augmented reality hardware team. Additionally, professionals within the central engineering department are also bearing the brunt of these layoffs.

The initial layoff reports concerning the Google Assistant team came from Semafor, while 9to5 Google reported the structural changes affecting the hardware team first. Notifications of the termination have been sent to the involved staff members, with the opportunity extended to them to apply for other open positions within Google.

However, the Alphabet Workers Union, representing a portion of its workforce, has voiced displeasure over these job cuts. The union claimed that it was unethical of GOOGL to continue with the layoffs, especially during a period of significant profit growth for the company. For reference, the tech giant made $76.69 billion in revenues during the third quarter of 2023, recording a net income of $19.69 billion.

Google CEO Sundar Pichai told employees to anticipate more job cuts throughout the year. He further disclosed that the downsizing efforts for the current fiscal year are aimed primarily at eradicating complex levels to streamline execution and accelerate momentum in some areas. The move adds to signs that staff reductions will continue this year as numerous corporates proactively adopt AI and automation solutions to potentiate their operational efficiency.

But why direct resources to AI?

In 2023, GOOGL shares made a dramatic comeback, rocketing by an impressive 54%. This uptick marked a drastic shift from its disappointing 2022 performance, which saw the stock tumble by 39%.

The previous downswing was mainly triggered by a bear market, which severely impacted GOOGL's primary revenue source: digital advertising. With the marketing budgets reduced to preserve financial health during harsh economic conditions, many companies cut back on ad spending, causing a significant drop in GOOGL's year-over-year revenue. As a frontrunner in the online advertising landscape, GOOGL's performance was particularly negatively affected.

However, with the economy rallying back in 2023, companies were more generous with their advertising budgets, prompting a rebound in spending that benefitted GOOGL. That said, it was the technological leaps in AI that truly catalyzed GOOGL's renaissance.

While AI has been on the tech horizon for several years, GOOGL has successfully harnessed this technology to enhance the precision and applicability of its search engine, target digital advertisements, and streamline controls for its Waymo self-driving vehicles.

The advances in GenAI have opened new avenues of opportunity for GOOGL. GenAI is equipped to generate unique content, concise email replies, craft presentations, obtain relevant data from the internet and company databases, and even articulate and debug computer code.

GOOGL's strategic investment in AI and GenAI fuels innovation and augments development for its suite of products and services, including Google Search, Assistant, Cloud, and Workspace.

Directing resources to AI could support the enhancement and expansion of GOOGL's emerging functionalities. Moreover, GOOGL is committing to GenAI to develop revolutionary platforms and tools, like Google AI Studio and Bard that empower developers and users to modify and harness robust AI architectures.

This proactive move also aims to elevate and broaden the realm of AI R&D and fore-front discussions on the ethical and societal implications of AI technology.

What could be the probable impacts of the layoffs?

On a positive note, the impending layoffs at GOOGL have the potential to decrease operating expenses, secure considerable savings, and enhance earnings per share. This could also facilitate GOOGL's increased focus on AI, a critical factor for future growth and attaining competitive leverage.

Conversely, these layoffs pose a risk to GOOGL's innovative potential and capacity to retain talent. The company has garnered acclaim for its unprecedented and multifarious projects that necessitate significant investment and experimentation.

Moreover, these projects create valuable patterns of intellectual property and potential innovations. The workforce reduction may impede GOOGL's long-term objectives and creative potency. It risks tarnishing the brand's reputation as a preferred employer, making it challenging to entice and retain top-notch talent within the industry.

Layoffs can potentially diminish a firm's competitive advantage – conveying a message of weakness or instability to consumers, investors, and rivals. Furthermore, they may pave the way for newcomers or startups who can employ those made redundant or exploit market gaps.

Ultimately, the aftermath of the layoffs is contingent upon GOOGL's ability to navigate the transition effectively while harmonizing its short-term deliverables with long-term aspirations.

For the fiscal first quarter ending March 2024, GOOGL’s revenue and EPS are expected to increase 12.5% and 26.5% year-over-year to $78.48 billion and $1.48, respectively.

Wall Street analysts expect the stock to reach $155.91 in the next 12 months, indicating a potential upside of 8.4%. The price target ranges from a low of $140 to a high of $180.

Bottom Line

While the continued improvement of the economy has worked in GOOGL’s favor, it is the company’s increased interest in AI that has captured investors' attention. The anticipated outcome of this venture, particularly the positioning of Gemini Ultra in comparison to competing brands, remains uncertain.

However, as AI and Language Model (LM) technologies are becoming increasingly ubiquitous, companies successfully implementing these into specialized enterprise verticals for productivity and service enhancements are poised to emerge as leaders. GOOGL is ideally positioned due to its ability to integrate these technologies intensively across myriad business verticals.

Concerns, nevertheless, persist. Reduction in search market share, a core revenue stream for GOOGL, is one such issue. An offsetting strategy could be advanced monetization techniques of emerging developments expected to supersede the search paradigm. Given their broad-based customer (individual and enterprise) network, the potential for effective monetization is promising.

Culture, though, is another concern. Critics have cast doubt on the sustainability of GOOGL's innovative ethos, arguing that as a company grows becoming more bureaucratic, its innovative drive dwindles. A shift from a startup-oriented innovative approach, coupled with financial engineering strategies aimed at appeasing shareholders (including share buybacks) and the departure of employees, may have catalyzed cultural shifts. Notably, GOOGL has endured an exodus of talent into startup ventures and might witness more of it because of additional layoffs.

Beyond affecting employees and their families, layoffs can have a negative long-term impact on a company's performance. Investor confidence in a company’s ‘going concern’ has a direct correlation to its share price.

Although there may be temporary upward spikes in share prices following job cuts, this usually reverses when unemployment surges, leading to a market recession.

Given these factors, investors might find it prudent to place GOOGL on their watchlist, awaiting an opportune moment for investment.

Investor Concerns Rise as Tesla Slashes Prices in China: Sell or Hold?

Posted on by The INO.com Team

China’s electric vehicle (EV) stocks started the new year on the wrong foot, as heightened competition and continued price wars pressurized the profitability of automakers.

Morgan Stanley highlighted growing competition concerns in its note: “Investors remain cautious as China’s auto market has had a volatile start to the year as competition and macro uncertainties persist.”

Also, in a report on the Chinese EV industry earlier this month, Bernstein analysts said, “We expect competition within the domestic market to remain intense and put pressure on pricing and profitability.”

There are too many automakers fighting for EV market share in China. Tesla, Inc. (TSLA) has slashed the prices of its Shanghai-made vehicles by up to 6% in a strategic move to maintain its leading position in the premium segment of the world’s largest EV market.

The Texas-based company recently announced that the base version of the Model Y crossover vehicle starts at nearly $36,000, a decline from about $37,000. The base Model 3 now starts at about $34,500, down from $36,500.

Tesla has cut prices aggressively across its markets worldwide since late 2022 due to higher interest rates, a period of uneconomic certainty, shifting consumer sentiment, and intense competition.

For instance, a U.S. rear-wheel drive Model 3 began at approximately $47,000 in 2022. Its price was cut to about $44,000 in January 2023 and $40,000 following a price cut in April. After one more cut in October, the price of a new U.S. Model 3 ended 2023 at about $39,000.

The recent price cuts in China by Tesla will fuel more fears about competition and profit margins among investors.

Shares of TSLA have plunged more than 7% over the past month and nearly 19% over the past six months.

Now, let’s discuss several other factors that could impact TSLA’s performance in the upcoming months:

Quarterly Deliveries and Production Beat Estimates

Tesla delivered nearly 484,000 vehicles in the fourth quarter, surpassing analyst expectations of 483,173, as compiled by Bloomberg. The company produced 494,989 vehicles, beating the consensus estimate of 482,336. For the full year 2023, the Elon Musk-led automaker reported deliveries of 1.81 million and production of 1.85 million, representing growth of 38% and 35% year-over-year, respectively.

The company delivered 461,538 Model 3 and Model Y vehicles during the fourth quarter and reported production of 461,538 for these models. TSLA didn’t break down Model S or X production or delivery numbers, instead batched them into “Other Models.” It delivered 22,969 other models and produced 18,212 vehicles for the quarter.

In 2022, TSLA reported annual deliveries of 1.31 million and production of 1.37 million vehicles, a nearly 40% increase from 2021.

During the last earnings call held in October 2023, TSLA’s management said that the company would hit at least 1.8 million deliveries for the full year, a number they had revised down from a 2 million target earlier.

Dethroned as the EV Global King

Chinese automaker BYD Co. (BYDDY) reported that it delivered 526,409 fully electric cars during the fourth quarter, topping TSLA for the first time. China’s top-selling car brand reported EV and hybrid sales of 341,043 in December 2023, including 190,754 all-electric cars, aided by aggressive year-of-year discounting. In total, BYD sold 3.01 million vehicles in 2023.

Moreover, BYD produced more than 3 million new electric vehicles in 2023, beating TSLA’s production for a second consecutive year.

Disappointing Last Reported Financials

In the third quarter that ended September 30, 2023, TSLA posted revenue of $23.35 billion, missing analysts’ estimates of $24.14 billion. Its gross profit decreased 22.4% year-over-year to $4.18 billion. The company’s operating expenses increased 42.5% year-over-year to $2.41 billion.

Musk-led EV maker reported income from operations of $1.76 billion, down 52.2% from the prior year’s period. Its adjusted EBITDA declined 24.4% year-over-year to $3.76 billion. The automaker’s adjusted net income attributable to common stockholders decreased 36.6% from the previous year’s quarter to $2.32 billion.

Furthermore, the company reported an adjusted EPS of $0.66 for the third quarter, below the consensus estimate of $0.73. That compared to $1.05 in the same quarter of 2022.

Tesla’s net cash provided by operating activities was $3.31 billion, down 35.1% year-over-year. Its free cash flow decreased 74.3% from the year-ago value to $848 million.

Unfavorable Analyst Estimates

Analysts expect TSLA’s revenue for the fourth quarter (ended December 2023) to increase 6% year-over-year to $25.76 billion. However, the consensus EPS estimate of $0.73 for the same period reflects a 38.3% year-over-year decline. In addition, the company has missed the consensus revenue estimates in three of the trailing four quarters.

For the fiscal year 2023, the company’s EPS is expected to decrease 21.8% year-over-year to $3.18. Street expects the automaker’s EPS to decline 4.6% year-over-year to $0.81 for the first quarter ending March 2024.

Suspension of Production at German Factory

According to Reuters, Tesla plans to suspend most production at its factory outside Berlin in Grunheide, Germany, from around January 29 to February 11 due to the ongoing conflict in the Red Sea that has disrupted global trade.

“The considerably longer transportation times are creating a gap in supply chains,” Tesla told Reuters in a statement.

Analysts at Baird estimate Tesla produces between 5,000 vehicles and 7,000 vehicles per week at its Berlin factory. The shutdown of this vehicle assembly plant in Germany would result in a 10,000-14,000 hit to deliveries in the first quarter of 2024, said analysts Ben Kallo and David Sunderland in a note.

The Baird analysts added that they are “wary” of further effects on the company’s supply chain, and they are “closely monitoring” any impact on its shipping routes from China.

Tesla EVs in Regulators’ Scrutiny

Moving into 2024, Tesla faces growing pressure from regulators. The auto giant faces a new investigation from regulators in Norway and Sweden after a Reuters report alleging that the company covered up defects and charged its customers for repairs that should have been under warranty.

In a statement to Reuters, Sweden’s Transport Agency confirmed “that investigative work is also underway with us” shortly after Norway’s traffic safety regulator launched its probe into reports of repeated suspension failures affecting Tesla models.

Norwegian Public Roads Administration (NPRA) senior engineer Tor-Ove Satren stated that the agency began questioning Tesla in September 2022 and asked the auto company to assess consumer complaints about lower rear control arms breaking on its Model S and X vehicles.

Satren added the agency could recommend that Tesla recall all model years of the S and X vehicles to replace rear lower control arms if it determines they pose a “serious risk.”

Concerns Surrounding Tesla’s Cybertruck

Experts raised safety concerns regarding the angular design of Tesla’s Cybertruck as the electric pickup truck’s stiff stainless-steel exoskeleton could hurt pedestrians and cyclists, damaging other vehicles on roads.

“The big problem there is if they really make the skin of the vehicle very stiff by using thick stainless steel, then when people hit their heads on it, it’s going to cause more damage to them,” said Adrian Lund, the former president of the Insurance Institute for Highway Safety (IIHS), whose vehicle crash tests are an industry standard.

Elon Musk earlier mentioned in Tesla’s third-quarter earnings call that the company was facing several challenges in scaling its production. He also cautioned that Cybertruck won’t deliver considerable positive cashflow for 12 to 18 months after production starts.

Musk said, “It is going to require immense work to reach volume production and be cashflow positive at a price that people can afford” with the Cybertruck. He added, “I just want to temper expectations for Cybertruck. It’s a great product, but financially, it will take a year to 18 months before it is a significant positive cash flow contributor.”

Elevated Valuation

In terms of forward non-GAAP P/E, TSLA is currently trading at 68.73x, 345.6% higher than the industry average of 15.42x. Likewise, the stock’s trailing-12-month EV/Sales and EV/EBITDA of 6.94x and 41x are significantly higher than the industry averages of 1.23x and 9.88x, respectively.

Additionally, the stock’s forward Price/Sales of 7.12x is 695.1% higher than the industry average of 0.89x. Its forward Price/Cash Flow multiple of 54.58 compares to the industry average of 9.88.

Decelerating Profitability

TSLA’s trailing-12-month EBITDA margin and net income margin of 15.80% and 11.21% are higher than the respective industry averages of 10.96% and 4.56%. However, the stock’s trailing-12-month gross profit margin of 19.81% is 44% lower than the 35.38% industry average.

Also, the stock’s trailing-12-month levered FCF margin of 1.68% is 68.9% lower than the industry average of 5.40%.

Bottom Line

TSLA has repeatedly cut prices in China and other global markets since late 2022, leading other automakers to respond and squeezing profit margins industry-wide. Several price cuts were made due to weakened demand amid higher interest rates and a period of economic uncertainty coupled with intense competition in the EV industry.

Following the decline of news that the company could suspend production at its Giga Berlin factory due to Red Sea-related supply disruptions, Tesla’s stock plunged further after the automaker announced new price cuts in China. These price cuts come as competition continues to get intense on the Chinese mainland.

Moreover, BYD has gone more upmarket, pushing into segments where TSLA operated and found success.

The automaker’s third-quarter revenue and earnings missed analysts’ estimates. Further, Wall Street appears bearish about TSLA’s outlook as the company grapples with several challenges, including supply disruptions, growing regulatory concerns, sliding margins due to price cuts, intense competition, and weakened consumer demand amid a high-interest rate environment.

In mainland China, passenger EV sales growth plunged to 28% in the third quarter of 2023 compared to 108% in the same period a year ago, as per China Association of Automobile Manufacturers data quoted by Fitch Ratings.

According to Fitch Ratings, the growth slowdown will get worse this year. “We expect China’s domestic passenger car demand to increase modestly in 2024 to nearly 22 million units amid economic uncertainty,” said Fitch Ratings.

Considering these factors, TSLA shares are best avoided now.

Quality Stocks In…Garbage Stocks Out!

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – Stocks keep flirting with the all time highs for the S&P 500 (SPY) and keep falling short. Meaning this is proving to be a stubborn level of resistance at 4,800. Why is that happening? And when will stocks finally break above? 43 year investment veteran Steve Reitmeister shares his view including a preview of his favorite stock picks now. Read on below for the answers…

 

As suspected, the market is not ready to make new highs above 4,796 for the S&P 500 (SPY).

That was quite evident Thursday as stocks jumped out of bed in the morning to touch those previous highs only to find stubborn resistance with the broad market heading lower from there.

Why are stocks struggling at this level?

And what is an investor to do about it?

The answers to those vital questions will be at the heart of today’s commentary.

Market Commentary

Some investment writers will have a fairly short hand, and highly inaccurate, way to describe what happened on Thursday.

They will tell you that the CPI inflation reading was hotter than expected on Thursday morning. And that caused the stock market sell off that followed.

That is simply not true.

Here is what really happened. The CPI report came out an hour before the market open. And yet still the market leapt higher out of the gate. But once it touched the hem of the previous highs (4,796) a more than 1% intraday sell off that ensued.

That pain is not so evident in the late session bounce and modest loss for S&P 500. Yet is a lot more apparent in the -0.7% showing for the small caps in the Russell 2000 on the session.

Thus, the problem for lack of further stock advance is not about CPI report. Just a statement that investors are not prepared to breakthrough resistance to make new highs.

So, what is holding stocks back?

I discussed that in greater detail in my last commentary: When Will the Bull Market Run Again?

The essence of the story is that investors have less clarity on the next moves for the Fed than they had after the November and December meetings that sparked a tremendous end of year rally. Unfortunately, there has been a mixed bag of inflation and economic data that calls into question when rate cuts will begin.

At the earliest those cuts could come at the March 20th meeting. But I sense that the more readings we get like Thursday’s CPI report, or last Fridays stronger than expected employment report…the more likely those first cuts get pushed off to either the May 1st or June 12th Fed meetings.

Digging into the CPI reading we find that inflation was expected to come in at 3.1% yet spiked to 3.4% on this reading. Core CPI was even worse at 3.9% year over year. Just still too far away from the Fed’s target of 2%.

For the “wonks” out there you should dig into the Sticky Price resources created by the Atlanta Fed. To put it plainly, sticky inflation remains too sticky. The main elements are housing and wages that are not coming down as quickly as expected.

When you appreciate the conservative nature of the Fed…and that they state over and over again that they are “data dependent”, then its hard to look at the recent data and assume they are ready to lower rates any time soon.

Long story short, I don’t think that investors are ready for the next bull run to make new highs until they are more certain WHEN the Fed will finally start cutting rates. That delays the next upside move to March 20th at the earliest with May or June becoming all the more likely.

Hard to complain about settling into a trading range for a while given the tremendous pace of gains to end 2023. So this seems like a reasonable time for stocks to rest before making the next big move.

The upside of the current range connects with the aforementioned all time high of 4,796…but really easier to think of the lid as 4,800.

On the downside, that is a bit harder to infer. Typically trading ranges are 3-5% from top to bottom. So, for quick math let’s say around 4,600 on the bottom. This also represents the previous resistance point that took a long time to finally break above in early December.

The good news is that I expect quality stocks to prevail even in a range bound market. Meaning that last year pretty much any piece of beaten down junk was bid higher. That party is OVER!

Instead, when you have a pretty fully valued market as we have now, then there will be a greater eye towards quality of fundamentals and value proposition. I spelled that out pretty completely in last week’s article: Is 2024 Prime Time for Value Stocks?

The answer to the question posed in the headline is…YES. Meaning that 2024 is lining up nicely for value stocks.

Case in point being the early results this year with our Top 10 Value strategy up +3.70% through Wednesday’s close vs. breakeven for S&P 500 and -2.80% for the small caps in the Russell 2000.

I strongly believe that edge for value will continue as the year rolls on. And the best way to take advantage of that is spelled out in the next section…

What To Do Next?

Discover my current portfolio of value stocks packed to the brim with the outperforming benefits found in our exclusive POWR Ratings model.

This includes direct access to our Top 10 Value Stocks strategy that is hot out of the gates in 2024 with plenty more room to run.

If you are curious to learn more, and want to lean into my 43 years of investment experience, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!


Steve Reitmeister
…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com & Editor, Reitmeister Total Return

SPY shares were trading at $475.88 per share on Friday afternoon, down $0.47 (-0.10%). Year-to-date, SPY has gained 0.12%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

Bitcoin ETF Approval: A Catalyst or a Headwind for Market Players?

Posted on by The INO.com Team

The U.S. Securities and Exchange Commission (SEC) gave its approval to 11 spot bitcoin exchange-traded funds (ETFs) on January 10 after months of speculations. These newly approved ETFs diverge from previously dubbed "Bitcoin ETFs," which were tied only to future contracts or shares of Bitcoin-entwined corporations. The current batch of sanctioned funds directly hold Bitcoins, aligning more accurately with the spot price of Bitcoin over time and offering a relatively simplified means of investment in the cryptocurrency compared to independent crypto wallets.

This endorsement by the SEC can be seen as a significant validation of Bitcoin's prospective mainstream status. Cryptocurrency optimists are considering this regulatory green light as a potential booster for BTC's price, possibly catapulting it to a six-figure high.

Since October's end, with the growing buzz around the SEC's decision, BTC has climbed over 60% and is currently trading at an almost two-year peak. Despite much anticipation, the market response post-approval remained muted, with the large-cap token witnessing a marginal rise on the following day – a pattern typically observed when investors 'buy the rumor and sell the news.'

In the aftermath of the first wave of ETFs commencing trading on January 11, BTC's price plunged, falling nearly 8% in just five days, estimating a value of roughly $42,700.

Predicting the volatility of BTC's price remains challenging. Its historical best stands at approximately $69,000 during the apex of the crypto surge in November 2021, yet it plummeted to a mere $16,000 by 2022 end. Factors such as increasing interest rates deterring speculative investments, failure of various high-profile tokens and exchanges, and rising apprehensions over stricter crypto regulations largely contributed to this plunge.

However, 2023 witnessed BTC's price soaring over 150% to over $42,000, spurred on by slower rate hikes and renewed market interest in cryptocurrency. This resurgence was also fueled by the anticipation of the SEC's approval of Bitcoin's maiden spot-price ETFs.

Consequently, the recent setback only wiped out BTC's gains earned at the onset of 2024. The dip suggests quick-profit short-term traders possibly inflating the digital currency's price in anticipation of recent ETF approvals, only to capitalize on the profits following the initial excitement.

Market observation currently highlights a heated contest between bullish and bearish forces. A significant recovery appears elusive for buyers of the currency, hinting at sustained pressure from bearish influences. Moreover, BTC is trading below the 10-day and 50-day moving averages, indicating a downturn and reassertion of control by bearish forces.

Typically, if BTC dips below the $42,000 threshold, accelerated selling could follow, potentially driving its value further down. As for those bullish on the asset, they will need to push BTC above the 10- and 50-day EMA to avert a negative outcome.

Moreover, Bloomberg ETF analyst Eric Balchunas said that the newly launched ETFs witnessed inflows of $1.4 billion. On the contrary, the Grayscale Bitcoin Trust (GBTC) saw an outflow of $579 million. However, the net inflows in two trading sessions across the ETFs were $819 million.

This initial flurry of activity aligns with James Seyffart's earlier forecasts. He projects that Bitcoin ETFs could succeed in drawing in around $10 billion within their inaugural year on the market.

But are there any long-term catalysts?

While BTC's price adjusts in response to the pressure of recent ETF approvals, prospects indicate a significant potential for the cryptocurrency's growth.

The primary outcome of the ETF approvals is to enhance accessibility for large-scale institutional investors to accumulate Bitcoin in an open market setting. Investment powerhouse Fidelity, already having launched the Fidelity Wise Origin Bitcoin Fund (FBTC), has projected a soaring Bitcoin value, with expectations of a $1 billion valuation by 2038.

A similarly bullish stance lives within Standard Chartered, whose strategists postulate that spot ETFs could generate between $50 billion and $100 billion in inflows for Bitcoin within this year alone. They further predict a stunning price peak of $200,000 by the close of 2025.

Ark Investment's Cathie Wood, managing the recently approved Ark 21Shares Bitcoin ETF (ARKB), anticipates that the price of Bitcoin could hit $1.5 million by 2030. But why such astronomical levels? Her projections stem from a belief in BTC's value growing with increased institutional adoption, positioning it not merely as a preferred choice for encryption enthusiasts but also acting as a pivotal tool in robust, institutional-grade risk diversification.

The fixed supply cap on Bitcoin at 21 million coins sharply contrasts the inflating supply of fiat currencies, thus potentially amplifying its appeal as a deflationary asset.

The projected trajectory primarily hinges on the pronounced network effect within BTC, where its value heightens with an increase in blockchain users and transactions – supported by ongoing technological advancements and enhanced accessibility.

While certain aspects of these long-term forecasts may appear overly optimistic, it is logical to conclude that Bitcoin ETF approvals will introduce a modicum of stability to its volatile pricing structure. This stabilization could prompt return investment from larger entities and propel BTC prices closer to their historical peak levels.

Also, past trends hint toward any halving year being a catalyst for a bullish surge, traditionally followed by a bull run in the succeeding year. This pattern, chiefly attributed to expanding public interest, augmented risk activity, and heightened discourse surrounding digital currency futures, places Bitcoin squarely at a vantage point. Potential factors such as reduced Bitcoin supply due to halving and the prospects of fresh investments via ETFs could introduce unprecedented market dynamics.

Moreover, anticipation of interest rate reductions in the U.S. intensifies predictions for bullish BTC pricing in 2024. Furthermore, the looming shadows of sticky inflation may steer a wave of investors toward acquiring Bitcoin as safeguards against the devaluation of their fiat currencies.

Bottom Line

Pre-launch speculation surrounding Bitcoin spot ETFs had heightened anticipation. However, when regulatory approval did not spur an upward reaction, traders may have chosen to capitalize on profits, leading to a substantial market recoil.

Not all of the financial world is swayed by optimistic BTC price targets. For instance, former PIMCO CEO Mohamed El-Erian indicated in a recent post that although the SEC's approval could be a pivotal moment for cryptocurrency, it would unlikely broaden Bitcoin's utilization. The outlook remains more constrained.

The SEC itself voices reservations about BTC's investment potential. In a separate announcement, Chair Gary Gensler dubbed Bitcoin as "primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing."

While the markets can be unpredictable, lower price points might draw in long-term investors who keep a close watch on the Bitcoin halving and institutional influx into Bitcoin spot ETFs over the forthcoming weeks.

Despite the prevailing belief that institutional monetary allocation will take time to transpire, it is argued that the subsequent price dip wasn't exactly favorable to capital inflows. Agreeingly, there was substantial conjecture around the concept of selling the fact, so maybe there would be a twist when or if Bitcoin prices begin to ascend again. But at this juncture, one would need to see it to believe it!

The ETFs have yet to gather steam in terms of trading volume fully. Investment giant  BlackRock has reportedly bought a staggering 11,500 BTC from the available supply during the latest dip since the launch of its spot Bitcoin ETF. This amount is significant, considering that only 900 BTCs are issued daily. BlackRock’s purchase effectively represents about 13 days’ worth of Bitcoin production taken on by a single entity, creating speculation of supply concerns.

The presumption pointed toward an immediate and dramatic financial inflow into the Bitcoin ETF may be misguided. There has always been the potential for Bitcoin to experience consistent – even if relatively slow – capital inflows.

The circumstance represents a quintessential pattern of overestimating short-term impacts while concurrently underestimating long-term potentials. The situation underscores a transition phase in market realignment, signaling a need for cautious optimism.

Given the current landscape, investors should proceed with caution venturing into this space.

How Boeing (BA) Regulatory Challenges Might Affect Shareholders

Posted on by The INO.com Team

Boeing Company's (BA) best-selling MAX 737 aircraft experienced yet another setback last Friday as an Alaska Airlines-operated flight was forced to make an emergency landing. With 177 passengers onboard, the incident took place shortly after departed from Portland, Oregon. A cabin panel in the newly-minted 737 MAX 9 aircraft unexpectedly detached, resulting in a wide opening in the airplane's side. Despite the distressing circumstances, no serious injuries or fatalities were recorded. Digital clips documenting the alarming mishap made their rounds online.

The 737 MAX 9 is one of four variants of the renowned aircraft model; many of its kind were subsequently grounded in response to the incident. This move was triggered by an earlier ordered inspection that had unveiled missing components in two variants.

In 2023, the U.S. aircraft manufacturer had an impressive run as it delivered 528 aircraft and booked 1,314 net new orders after allowing for cancellations, up from 480 deliveries and 774 net new orders in 2022, which was its third-best year.

When it came to dispatching the narrow-bodied 737 jets, BA met its revised target by delivering 396 units – accomplishing its adjusted objective of at least 375 single-aisle planes. However, it fell slightly short of its initial target of delivering between 400 to 450 jet units.

So far, the U.S. is the top recipient of 737 MAX, with most orders still to be fulfilled. Given the U.S.'s significant reliance on these planes, particularly the 737 MAX 9 variant, the fallout from this recent event is expected to affect the region severely.

Amid increasing scrutiny, regulators from the Federal Aviation Administration (FAA) have ordered a temporary grounding of most 737 MAX 9 planes awaiting an investigation into the incident. The directive, which primarily affects around 171 airplanes, resulted in scores of flight cancellations, notably from domestic U.S. operators Alaska Airlines and United Airlines.

Both carriers have discovered "loose bolts" on the doors of the MAX 9 models following a global inspection organized by BA in December. With each having a sizeable fleet of the same – Alaska Airlines owns 65, and United Airlines owns 78 – they have since halted all aircraft flights.

On the issue, BA's CEO, Dave Calhoun, admitted to a "quality escape," whereby the compromised plane somehow managed to pass all checks and validations. Despite the possible origins being traced back to aviation supplier Spirit Aerosystems, Mr. Calhoun segregated no details stating that the issue arose under BA's purview, too; he maintained a collective responsibility toward rectifying this lapse.

Further emphasizing the seriousness of this quality lapse, Jennifer Homendy, the Chairwoman for the National Transportation Safety Board (NTSB), firmly recommended withholding these aircraft from service until the root cause is ascertained completely. This, she stated, would dictate the necessary inspections and repairs to prevent any such mishap from reoccurring.

It is not the first time BA’s MAX 737 aircraft encountered issues…

Over the past five years, BA has been contending with persistent quality and safety challenges, resulting in the prolonged grounding of certain aircraft and the suspension of deliveries.

Before the pandemic, catastrophic airplane crashes ripped the cover off a scandalous situation within the company. The 737 Max design was involved in two tragic accidents. The first took place in Indonesia in late 2018, and the second occurred in Ethiopia in March 2019. These combined incidents resulted in the loss of 346 passengers and crew members across both flights, which consequently led to a 20-month suspension of the company's best-selling jets, costing BA upwards of $21 billion.

This chain of events sparked one of the most expensive corporate scandals in history, as subsequent investigations and publications, such as 'Flying Blind: The 737 Max Tragedy and the Fall of Boeing', laid bare BA’s close ties with the FAA.

Late last month, BA urged airlines to carry out inspections on 737 Max fleets due to a potentially loose bolt found in the rudder system, discovered after potential issues with a key aircraft part were raised by an airline.

However, BA's issues extend beyond the troubled 737. The company found it necessary to suspend deliveries of its 787 Dreamliner twice: once for about a year starting in 2021 and again in 2023, attributed to concerns regarding quality as identified by the FAA.

Adding salt to the wound was the forced grounding of BA's 777 jet following an engine failure during a United flight, resulting in debris from the engine raining onto residential areas and the ground below.

The Impact…

The aerospace titan continues to command a valuation of over $134 billion, which, albeit impressive, signifies a decline of over $100 billion since its all-time high valuation of $248 billion in 2019, a stark consequence of the fatal scenarios before the pandemic.

 

BA’s stock fell victim to the recent issues and wiped out over $9 billion in market value.

CEO Dave Calhoun is striving to execute a plan to make a strong comeback by 2024, fighting the tide of reputational damage that ensued from the Max scandal. The Alaska Airlines incident poses another significant threat to BA's reputation, further straining relationships with airlines. However, it is crucial to note that BA shares a duopoly with Airbus in the marketplace worldwide, which would likely act as a buffer for the enterprise.

Bank of America analysts led by Ronald Epstein expressed their concern about what they describe as a “worrying start to the new year.” They anticipate that the recent incident will likely chip away at the precarious confidence surrounding the 737 Max. However, they predict that the impact on BA's performance this year won't be significant, given the duopoly held by BA and its European counterpart, Airbus SE, in commercial aircraft.

BA and Airbus SE have cornered about 90% of the total global commercial aircraft market share and occupy similar roles in both American and European economies. This situation leaves airlines, notably those in America, with limited alternatives to BA's aircraft, with Airbus already operating at full capacity. Industry experts are confident that the recent Alaska incident will not drastically impact 737 Max orders due to the duopolistic structure of the industry.

BA, though currently in short supply, is making gradual yet consistent progress in addressing the internal shortcomings that contributed to its present state.

The recent Alaska mishap presents a formidable risk of disrupting the delivery of Max 9 to China and influencing the certification process of BA's newest Max 7 and Max 10 aircraft. This incident could trigger reduced demand and further cancellations for BA's 737 MAX planes as airlines and consumers question their safety and reliability.

Beyond tarnishing BA's reputation and credibility, the Alaska flight debacle could also prompt lawsuits and inquests from passengers, airlines, regulatory bodies, and shareholders alike. Consequently, the company may come under increased scrutiny, escalating the pressure to ensure the safety and superior quality of its fleet.

Investors are advised to take note of two crucial military contracts recently landed by Boeing, which predict a prosperous outlook for the company. On November 28, the United States Air Force (USAF) commissioned an order for 15 Boeing KC-46A Pegasus Tankers — modeled on the Boeing 767 — with the contract valued at approximately $2.3 billion.

Adding to this, BA has been presented with a Foreign Military Sales Letter of Offer and Acceptance from the Canadian government for an undisclosed number of Boeing P-8A Poseidons. These aircraft are based on the next-generation Boeing 737-800 model. Though BA did not disclose the cost of the contract, the Canadian government estimates it to lie around CAD10.4 billion ($7.7 billion).

This acquisition, as spotlighted by BA, is projected to stimulate benefits amounting to almost 3,000 jobs and $358 million per annum in economic output for Canada, following an independent study conducted by the Ottawa-based Doyletech Corporation in 2023.

Bottom Line

The subsequent impact of the Alaska Airlines incident on the delivery of BA's 737 Max 9 aircraft largely hinges on the outcome of ongoing investigations by the FAA, the NTSB, and international regulatory bodies.

The predicament poses a potential reputational threat for BA, emphasizing a need for caution and prudence in its actions. If the 737 Max series continues to face complications, this could trigger a loss of faith among aviation customers, adversely affecting sales.

Aircraft manufacturing, being a capital-intensive sector necessitating specialized technical expertise, possesses strategic importance for the U.S. government. The commercial sector is expected to grow at a pace surpassing global GDP, as per BA. Leading manufacturing entities, BA and Airbus, enjoy booked manufacturing capacities spanning several years. Their customer base displays a reluctance to alter preferences due to potential waits for newer models and the additional operational expenses arising from handling a diverse fleet.

Indeed, despite grappling with issues, BA continues to experience robust demand for its aircraft. Additionally, it sustains a thriving space and defense enterprise. The recent groundings might not inflict extensive damage, given that BA and its supplier Spirit AeroSystems may be able to confirm that these incidents don't signal broader systemic problems.

Furthermore, BA has a backlog of over 5,100 planes, valued at $469 billion, at the third quarter's end, with MAXs constituting a major portion of these undelivered aircraft.

Still, crises have detrimentally impacted BA's standing. Although revenues are on an upswing, analysts forecast that the firm's top line for fiscal 2023 and 2024 of $76.69 billion and $91.08 billion, respectively, will fall short of 2018's remarkable $101.1 billion. Similarly, loss per share is projected at $6.21 for the fiscal year 2023, while EPS for the fiscal year ending December 2024 is anticipated to hit $4.06.

The company's shares have experienced a downturn, with investors losing over 14% year-to-date and about 37% on their investment over the past five years. Moreover, the company's debt as of September 30, 2023, exceeded $47 billion, nearly 4.7 times higher than five years back. This drags BA into an unfavorable paradox where it stands to gain largely yet continues a downward trajectory.

Under these circumstances, investors are advised to wait for a better entry point in the stock.