Is Meta Platforms (META) a Buy with Plans for New App to Rival Twitter?

Posted on by The INO.com Team

On October 27, 2022, Elon Musk completed his purchase of Twitter, Inc. Before everyone could let that sink in (figuratively as well as literally), the maverick entrepreneur implemented sweeping changes at the social networking company. In addition to slashing its headcount significantly, it also leaned on automation to moderate content.

While Mr. Musk claims that it has gained users after the change of ownership and management as an advertising-reliant business, Twitter’s troubles are far from over. It has witnessed an exodus of advertisers that was triggered by concerns, including the deterioration of moderation standards at the platform and a botched relaunch of Twitter’s subscription service, which led to a slew of verified impersonator accounts.

On March 10, Facebook-parent Meta Platforms, Inc. (META) announced its plans for a new decentralized, text-based social network. The stand-alone app, codenamed P92, is being built with the expectation of some of Twitter’s disenchanted users looking for alternatives after overhauling the microblogging site.

On June 9, META’s Chief Product Officer Chris Cox said the app aimed for “safety, ease of use, reliability” and giving creators a “stable place to build and grow their audiences.”

Given that public figures reportedly want a similar platform that is “sanely run,” Cox added that META was in discussion with Oprah Winfrey, who has more than 42 million followers on Twitter, and the Dalai Lama, who has nearly 19 million, to be potential users.

The project is being helmed by Adam Mosseri, head of Instagram, META's image-sharing app. The coding began in January, and although no date was given, there is some speculation that it could be released as early as the end of June.

From the screenshots that were shared internally and have since appeared online, the app's layout bore a resemblance to Twitter. However, it would enable users to log in using their Instagram credentials and could allow users to follow accounts they already follow on Instagram.

By relying on a protocol called ActivityPub, which enables interoperability between social networks, META is also exploring integrations allowing users to bring followers from their accounts with existing social networks like Twitter or Mastodon. This could bring down switching costs and encourage adoption.

How the Market Reacted?

META has been finding many takers on the Street in what, according to it, is its Year of Efficiency. In this context, its initiative to take on its more accomplished microblogging peer has been welcomed by investors.

Since the announcement of P92 on March 10, META’s stock has gained around 57% compared to the 14.6% gain of the S&P 500.

The Jury Is Still Out

Decentralization and interoperability are double-edged swords. While META hopes to gain adoption by lowering the entry barriers for users of other networks, in theory, this could also allow users of its new app to take their accounts and followers to apps supported by ActivityPub, such as Mastodon.\

Secondly, excluding its flagship social-networking app, META’s attempts at organic growth have a track record of flops, including the very name of the company and the purpose behind adopting the new nomenclature. Previous attempts at cloning, such as Lasso, which was supposed to offer an alternative to TikTok, have also failed.

Lastly, decentralized social networks, such as Mastodon or Jack Dorsey-backed Bluesky, rely on individual servers that use a uniform protocol, avoiding centralized content control and possible censorship.

Hence it remains to be seen if and how META, which is driven primarily by advertisement revenue, can productively marry decentralization with ownership while respecting the privacy of its users.

4 Oil & Gas Stocks Every Investor Is Watching in the Summer of 2023

Posted on by The INO.com Team

The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”

The demand-supply imbalance is not as acute as a year back due to macroeconomic headwinds and the initial pent-up demand from China losing momentum amid its faltering economic recovery.

However, on June 4, while OPEC+, which pumps approximately 40% of the world’s crude, made no changes to its planned oil production cuts for this year, Saudi Arabia announced that it would implement an additional voluntary and (extendable) one-month 1 million-barrel-per-day cut starting this July.
With this decision, the kingdom has reined in its production to 9 million barrels from 10 million barrels, putting upward pressure on crude prices that have been delicately balanced between demand and supply.

Moreover, the Federal Reserve has adopted a hawkish pause to hold rates steady until the economy absorbs the cumulative effect of the earlier ten interest-rate hikes. This could help businesses and consumers breathe a sigh of relief and translate to increased economic activity during the summer and, consequently, demand for energy.

However, the resulting increase in energy demand amid constrained supplies could play into the hands of and lead to short-term gains for U.S. energy producers. In this context, let’s look at a few well-positioned stocks to convert rising energy prices to increased shareholder returns.
As an energy infrastructure company, Cheniere Energy, Inc. (LNG)is engaged in providing clean, secure liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide.

On May 16, LNG announced its entry into a long-term liquefied natural gas sale and purchase agreement with Korea Southern Power Co. Ltd (KOSPO). Pursuant to the agreement, KOSPO would purchase approximately 0.4 million tonnes per annum (mtpa) of LNG on a delivered ex-ship (DES) basis from 2027 through 2046, with a smaller annual quantity to be delivered starting in 2024.

On February 23, Cheniere Energy Partners, LP (CQP) announced that it initiated the permitting process for significant expansion of the LNG export facility at Sabine Pass, after which the total production capacity would increase to 20 mpta.

As a global energy services company, Weatherford International plc (WFRD) provides equipment and services used in the drilling, evaluation, well construction, completion, production, intervention, and responsible abandonment of wells in the oil and natural gas exploration and production industry as well as new energy platforms.

WFRD operates through three segments: Drilling and Evaluation (DRE), Well Construction and Completions (WCC), and Production and Intervention (PRI).
On June 8, WFRD announced that it was awarded a three-year contract with Aramco to deliver drilling services. Under the contract, WFRD will deploy its drilling services portfolio to add value to Aramco’s drilling operations by minimizing OPEX, reducing risks, and optimizing production.

Nustar Energy L.P. (NS) is primarily engaged in transporting petroleum products, renewable fuels, and anhydrous ammonia, terminalling and storing petroleum products and renewable fuels, and marketing of petroleum products. Accordingly, the company operates through three segments: pipeline; storage; and fuels marketing.

As a testament to its future readiness, on May 3, NS announced its agreement with OCI Global to transport ammonia, which the latter would use to make fertilizer and produce DEF (Diesel Exhaust Fluid), which reduces emissions from diesel engines in cars, as well as light and heavy-duty trucks, farming equipment and other heavy machinery.

Moreover, with ammonia emerging as a likely candidate to capture, store, and ship hydrogen for use in emission-free fuel cells and turbines, NS’ expertise in the transportation of ammonia is expected to be a significant growth driver in the future.

Beyond The Horizons

In its latest Oil 2023 medium-term market report, the International Energy Agency (IEA) has forecasted that, under current market and policy conditions, crude oil demand will rise by 6% from 2022 to reach 105.7 million barrels per day in 2028 on the back of the petrochemical and aviation sectors.
However, the agency also found that global oil demand growth will trickle nearly to a halt thereafter with the advancement of electric vehicles, energy efficiency, and other technologies.

However, until the modern economy and society can develop renewable energy technologies enough to rely on them exclusively, natural gas transported in bulk and consumed in liquified and compressed forms, respectively, will keep playing a crucial role as a bridge fuel to manage decarbonization goals and facilitate a seamless energy transition.

With Major Retail Stores Closing Down in 2023, What’s Next for These Stocks?

Posted on by The INO.com Team

U.S. domestic consumption has been on a roller coaster ride over the past three years. People have gone from not being free enough to spend practically-free money like there’s no tomorrow.

That, in turn, led to a not-so-transitory inflation, the hottest since the 1980s, forcing the Federal Reserve to implement ten successive interest-rate hikes in a little over a year to take the Fed funds rate to a target range of 5% to 5.25%.

While the consumer price index only grew by 4% year-over-year, which is the slowest in 2 years, the picture wasn’t as optimistic when volatile food and energy prices were excluded. The core CPI was still 5.3% over the previous year, indicating that consumers still find their budgets stretched.
With the stash of stimulus cash fast dwindling, average American consumers have been forced to rein in their urge to splurge to prevent inflation from biting harder. The Survey of Consumer Expectations for April by the New York Fed showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest since September 2021.

This further explains why even a 0.4% recovery in retail sales for April, after two consecutive months of decline, still fell short of Dow Jones’ estimate of 0.8%.

We had discussed earlier the implications of this slowdown for mid-tier retailers and the prospects of the retail industry vis-à-vis travel and hospitality.

Given the fact that legacy retailers such as Bed Bath & Beyond Inc. couldn’t be rescued (and has subsequently filed for Chapter 11 on April 23), and retailers are encouraging gamified shopping on Livestream, we will look at a few embattled retail stocks in the context of the accelerated pace of store closures with the ascent of online retail.

On May 26, the Illinois-headquartered integrated healthcare, pharmacy, and retailing company Walgreens Boots Alliance, Inc. (WBA) announced its decision to slash its corporate staff by about 10% in an effort to streamline operations.

The second-largest pharmacy store in the United States has been around since 1901. However, the financial hardships it has faced during the pandemic resulted in lost market share, which the retailer has begun clawing back with acquisitions of healthcare services operator VillageMD and urgent-care provider Summit Health and the launch of initiatives, such as drone delivery.

However, the empowerment of each store to serve broader areas more remotely has come at the cost of a reduction in the total number of locations. In October, the company announced a slew of store closures across states, such as New York, Kentucky, Florida, Massachusetts, and Colorado.

WBA’s stock has lost more than 22% of its value over the past six months, relative to an almost 9% gain for the S&P 500 over the same period.

Diversified health solutions company CVS Health Corporation (CVS) has been busy aligning itself with the pandemic-catalyzed trend of patients using digital technologies to manage their health. To this end, the retailer has acquired the well-known home healthcare agency Signify Health to further its medication delivery reach.

However, this reorganization has also been accompanied by store closures. While the economic stagnation caused by the pandemic caused CVS to lose over 20 stores towards the end of 2021, the company has since decided to proactively close 300 locations each year for the next three years as it hones in on digital strategy and implements a "new retail footprint strategy aligned to evolving consumer needs."

With the strategic realignment yet to bear fruit, store closures in Pennsylvania, North Carolina, Maryland, California, Florida, Texas, and Georgia, among other states, have also been accompanied by around 29% slump in CVS’ stock price, compared to 9% gain for the S&P 500.

The muted retail outlook discussed earlier has also been reflected in the first quarter earnings of Macy's, Inc. (M). Although the mid-tier retailer surpassed its earnings estimates for the quarter, a spring pullback has caused it to miss its revenue estimates and slash its top- and bottom-line guidance for the entire year.

Moreover, in February 2020, the retailer announced its three-year restructuring plan, pursuant to which it had decided to close 125 of “its least productive stores.” With closures in 2020, 2021, and 2022, M has, in the words of CEO Jeff Gennette, begun its ‘final stretch’ of store closures with four stores: one each in Los Angeles, California; Fort Collins, Colorado; Gaithersburg, Maryland; and Kaneohe, Hawaii.

Given the prevailing demand softness in the unfavorable macroeconomic environment, M expects sales of $22.8 billion to $23.2 billion for the year, down from a previous range of $23.7 billion to $24.2 billion, while expected earnings per share of $2.70 to $3.20 is a major reduction from the previous guidance of $3.67 to $4.11.

M stock has plummeted by around 24% over the past six months, compared to the S&P500’s 9% gain over the same period.
Games and entertainment retailer GameStop Corporation (GME) was at the center of an unprecedented hype created by retail investors on social media forums when money was practically free, and inflation was ‘transitory.’

The hype created by an army of amateur traders in 2021 had less to do with the fundamentals of the company and more to do with the excitement of trading and a desire to short-squeeze professional speculators who were betting against it.

With online gaming more a norm than an exception, GME, which has been around since the 1980s, has seen a dramatic decrease in sales, resulting in many stores closing down and the company’s decision to transition into an exclusively online retailer.

In the fiscal first quarter that ended April 29, GME reported revenue of $1.24 billion, down from $1.38 billion in the year-ago period. Sales in the United States, Canada, and Australia dropped by 16.4%, 18.5%, and 8.9%, respectively, compared to the year-earlier period. This coincided with CEO Matthew Furlong's sudden firing and Ryan Cohen's appointment as executive chairman.

Since many e-commerce platforms offer viable alternatives for purchasing merchandise and hardware sold by the company, it is unclear how GME, with its own platform and fleet of e-commerce stores, would be able to differentiate itself from other players in this space and find its path to profitability.

Will “Revenge Travel” Keep Delta Air Lines (NYSE DAL) Stock Soaring?

Posted on by The INO.com Team

Delta Air Lines, Inc. (DAL) reported a wider-than-expected loss for the first quarter 2023. However, the carrier’s CEO, Ed Bastian, couldn’t sound more optimistic about its prospects. Two factors drove this dichotomy.

Firstly, the carrier cited its net loss of $363 million, or 57 cents per share, in what has seasonally been the weakest quarter of the year, partly due to a new, four-year pilot contract that includes 34% raises. Moreover, the bottom line is still an improvement over the net loss of $940 million, or $1.48 per share, during the year-ago period when travel demand was still recovering.

Secondly, and more importantly, with the pandemic firmly in the rear-view mirror, consumers are ever keener to redeem their pile of airline miles on other travel rewards on their credit cards for new experiences through revenge travel. Revenge travel has its origins in “baofuxing xiaofei” or “revenge spending,” an economic trend that originated in 1980s China when a growing middle class had an insatiable appetite for foreign luxury goods.

Since e-commerce, albeit with a few hiccups in the supply chain, was able to satiate the appetite for goods through the pandemic, Americans are now going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones.

Even “pent-up demand” turned out to be an understatement when Ed Bastion and his team at DAL found the gap between inherent demand for U.S. travel that couldn’t be met over the past three years, based on “any kind” of historical pattern to come in at $300 billion. The pleasantly surprised CEO revealed, “We’ve had the 20 largest cash sales days in our history all occur this year.”

Even corporate bookings have been recovering, with domestic sales in March 85% back to 2019 levels. The carrier also got a boost in its loyalty program with the contribution from its co-branded credit card partnership with American Express (AXP) coming in at $1.7 billion in the previous quarter, up 38% year-over-year.

Because of this explosive demand, DAL has forecasted its top and bottom-line performance for the second quarter to exceed analysts’ estimates. Mr. Bastion expects his airline to clock an operating profit of $2 billion, at par with Q2 of 2019, with lower capacity and higher fuel prices, while being the only airline with all the labor contracts in place.

As a result, the Atlanta-based carrier expects sales in the current quarter to increase by 15% to 17% over last year, with adjusted operating margins of as much as 16% and adjusted earnings per share between $2 to $2.25.

The confident CEO has also brushed off the potential consumer pullback in spending while expressing the conviction that pent-up demand for travel will be a multi-year demand set.

According to him, revenue from premium cabins like the first class was outpacing the revenue from coaches, and while sales professionals have moved partially online, consulting and professional service have been the highest volume contributors. They are expected to remain so in the foreseeable future.

How the Market Reacted?

Quite positively, in a nutshell. DAL’s stock has gained 20.5% over the past two months compared to 4.7% for the S&P 500. It is trading above its 50-day and 200-day moving averages and close to its 52-week high.

Pinch of Salt

“If something cannot go on forever, it will stop.” The obviousness of this observation made by Herb Stein was what made it famous.
At times such as these, when air carriers have turned to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages, it is easy to get carried away by the “pent-up demand” and “revenge travel” narrative.

However, it might be wise to consider certain things before indulging in the willful suspension of disbelief and extrapolating beyond the foreseeable future, like we are all guilty of doing in case of working from home, Great Resignation, and “quiet quitting.”
Since the rise of remote work and virtual teams, facilitated by contemporary collaboration and productivity tools, seems to have become an immune and immutable remnant of the cultural sea-change our work and lives had to adopt and adapt to during the pandemic, new reports give us reasons to doubt whether business travel is ever going back to normal.

In such a situation, with traveling for leisure being an occasional indulgence in most of our lives, there are risks that the pent-up demand might not be enough to sustain the momentum that is propelling the growth performance of DAL and other airlines, which are primarily in the business of ferrying passengers.

As far as the largest cash sales days are concerned, we can be certain that inflation would ensure that cash days in the future would still be larger.
Moreover, with ticket prices at all-time highs and JP Morgan and a few others predicting that the stash of pandemic stimulus cash, fueling the leisure travel boom, could run out over the next quarter, it is unsurprising to find tricks and trends, such as ‘skiplagging’ and consumers trading down on travel being on the rise.

Bottom Line

While DAL and its peers would want nothing more than for passenger demand to stay strong and, perhaps, keep growing, the most likely case would be a return to seasonality and cyclicality, as is typical of the airline industry.
However, the possibility of passenger demand falling off a cliff and investors rushing for the exits only to find that the clock struck midnight and the chariot turned back to a pumpkin can’t be completely ruled out.
Either way, every flight that takes off has to land at some point. The only problem is that nobody knows exactly when.

Is AI Fueling the Next Tech Bubble? 5 Stocks to Watch

Posted on by The INO.com Team

Artificial Intelligence (AI) is an umbrella term that denotes a series of programs and algorithms designed to mimic human intelligence and perform cognitive tasks efficiently with little to no human intervention. Reinforcement through Machine Learning (ML) changes the game by enabling the models and algorithms to keep evolving based on outcomes.

Unlike other next-big things, such as nuclear fusion, quantum computing, and flying cars, which are practically (and literally) pies in the sky, AI has been around for quite some time, influencing how we shop, drive, date, entertain ourselves, manage our finances, take care of our health, and much more.
However, the technology came into the limelight late last year with the release of ChatGPT, which in its own description, is “an AI-powered chatbot developed by OpenAI, based on the GPT (Generative Pretrained Transformer) language model. It uses deep learning techniques to generate human-like responses to text inputs in a conversational manner.”

The Euphoria

The easily accessible chatbot, believed to be capable of eventually disrupting how humans interact with computers and changing how information is retrieved, took the world by storm by signing up 1 million users in five days and amassing 100 million monthly active users only two months into its launch. To put this in context, TikTok, the erstwhile fastest-growing app, took nine months to reach 100 million users.

ChatGPT is one of the several use cases of generative AI, the subset of algorithms that creates and returns content, such as human-like text, images, and videos, on the basis of written instructions (prompts) provided by the user.

Including this subset, AI in its various forms and applications is capable of analyzing large volumes of data generated during the entire course of our increasingly digital existence and identifying trends and exceptions to help us develop better insights and make more effective decisions.
Given its massive importance, it’s hardly surprising that Zion Market Research forecasts the global AI industry to grow to $422.37 billion by 2028. Hence, this field has understandably garnered massive attention from investors who are reluctant to miss the bus on such a watershed development in the history of humankind.

Although OpenAI, the creator of ChatGPT, is not a publicly listed company, Microsoft Corporation (MSFT) has bet big on the company with a multiyear, multibillion-dollar investment deal. CEO Satya Nadella discussed, at the World Economic Forum held in Davos this year, how the underlying technology would eventually be ubiquitous across MSFT’s products. The process has already begun with updates to its Bing search engine.

MSFT’s rival, Alphabet Inc. (GOOGL), is in hot pursuit. With AI-enabled technology ubiquitous across its platforms, the company has unveiled its response to ChatGPT, called BardAI, with which the company is eager to reclaim its reputation as an early bird in the domain of conversational AI.

Chinese tech giant Baidu, Inc. (BIDU) has also followed suit with Ernie Bot. Amazon.com, Inc. (AMZN) and Meta Platforms, Inc. (META) are also among the notable players in this dynamic domain.

However, more recently, the company which made headlines when its stock got its moonshot due to the widespread public interest in AI is NVIDIA Corporation (NVDA). Post its earnings release on May 24, the Santa Clara-based graphics chip maker has stolen the thunder by becoming the first semiconductor company to hit, albeit briefly, a valuation of $1 trillion.

NVDA’s A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants. To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of Nvidia’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

The Catch

Notwithstanding all the transformative qualities of AI, investors, who poured a record $8.5 billion of cash into tech funds last week, would be wise to be aware of the limitations and loopholes of investing in technology before FOMO drives them to inflate a "baby bubble" growing in plain sight.

While the technology is powerful (and useful, unlike most cryptocurrencies), the adoption is fast becoming so widespread that it remains unclear how it could help a specific business differentiate itself by developing enduring competitive advantages (read moats) and generating consistent profitability.
Moreover, LLM-based generative AI chatbots such as ChatGPT and BardAI are simply auto-complete on steroids that have been trained on a vast amount of data. While they are really good (and continually getting better) at predicting what the next word is going to be and extrapolating it to generate extensive literature, it lacks contextual understanding.

Consequently, the algorithms struggle with nuances such as sarcasm, irony, satire, analogies, etc. This also leads to the propensity to “hallucinate” and generate responses even if those are factually and logically incorrect.

Additionally, with the widespread adoption of LLMs and other forms of generative AI, a massive amount of content will be ingested and regurgitated as canned responses echoed in infinite permutations and combinations. This oversupply could dilute the value and increase demand for qualitatively superior insight and discernment, which (still) requires human intervention.

(Relatively) Safe Havens

Just as we have learned during the dot-com, cryptocurrency, real estate, and numerous other bubbles through the ages, markets can stay irrational longer than investors can stay solvent.

Therefore, even if the next big thing comes along and changes the world (and electricity, automobiles, personal computers, and the Internet really did), it’s the fundamentals that determine whether a business can survive to capitalize on those windfalls.

Hence, it could be wise and safe for investors to stick to big tech mega caps (mentioned earlier in the article), which are involved in providing the infrastructure and computing horsepower required to make the data and power-hungry AI algorithms work.

Moreover, since AI is well-embedded into their business operations and market offerings and AI as a service is (still) a small portion of their revenue, concentration risks can be more easily managed.

Bottom Line

Rather than getting too carried away and stretching a worthwhile and useful innovation to frothy excesses with unrealistic expectations, it could be useful to remember that legendary investor and polymath Charlie Munger doesn’t think that AI is the silver bullet that can solve mankind’s pressing problems all by itself.

Even AAPL co-founder Steve Wozniak, who knows more than a thing or two about technology, agrees with the ‘A’ and not the ‘I’ of Artificial Intelligence.
We hope this discourse will help investors cultivate discernment, discretion, and, if necessary, dissent while investing in this revolutionary technology since those are the ultimate indicators of intelligence.