Can Starbucks (SBUX) Rebound From Earnings Miss?

Posted on by The INO.com Team

Starbucks Corporation (SBUX), the leading coffeehouse chain, reported quarterly revenue and EPS that fell short of analysts’ expectations. Shares of SBUX declined more than 12% in premarket trading Wednesday after the coffee company reported a disappointing quarter. Also, the stock has plunged nearly 18% over the past month and almost 28% over the past six months.

For the second quarter that ended March 31, 2024, SBUX’s net revenues decreased 1.8% year-over-year to $8.56 billion. That missed analysts’ revenue estimate of $9.16 billion.

Global same-store sales decreased by 4% as traffic to its cafes declined 6% in the quarter. Starbucks experienced declining same-store sales and lower traffic across all regions. In North America and the U.S., same-store sales dropped by 3% as traffic fell 7%, marking the second consecutive quarter of challenges in its home market.

Last quarter, executives attributed slow sales to boycotts of the stores related to misperceptions about its stance on Israel.

SBUX’s CEO Laxman Narismhan told analysts on the company’s conference call, “In this environment, many customers have been more exacting about where and how they choose to spend their money.” Narasimhan added that a deteriorating economic outlook in several of its markets had contributed to a significant reduction in customer traffic.

SBUX’ International segment posted same-store sales declines of 6%, with both average ticket and transactions declining. In China, the company's second-largest market, same-store sales fell by 11%, primarily due to an 8% reduction in average ticket.

The coffee giant’s operating income was $1.10 billion, down 17.2% from the prior year’s quarter. Net earnings attributable to SBUX declined 15% year-over-year to $772.40 million. It reported net earnings per share was $0.68, compared to the consensus estimate of $0.80, and down 13.9% year-over-year.

As of March 31, 2024, Starbucks’ cash and cash equivalents stood at $2.76 billion, compared to $3.55 billion as of October 1, 2023. The company’s current assets were $6.47 billion versus $7.30 as of October 1, 2023.

“In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,” said Laxman Narasimhan. “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”

“We have a clear plan to execute and the entire organization is mobilized around it. We are very confident in our long-term and know that our Triple Shot Reinvention with Two Pumps strategy will deliver on the limitless potential of this brand,” Narasimhan added.

Meanwhile, Rachel Ruggeri, SBUX’s chief financial officer, commented, “While it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear.”

“On this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment,” he added. 

Bleak Fiscal 2024 Outlook

For the fiscal year 2024, SBUX expects revenue growth in the low single digits, compared to the prior guidance of 7% to 10%. The coffee giant also revised its forecasts for global and U.S. same-store sales growth to a range of low single digits to flat from its prior projection of 4% to 6%.

Starbucks’ same-store sales in China are anticipated to decrease by single digits, compared to the previous guidance of a single-digit increase. The company further expects EPS growth to range from flat to low single digits. Previously, it expected its earnings to surge 15% to 20% in 2024.

However, the company projects that sales might improve in the fourth quarter of 2024.

In addition, SBUX’s CEO Narasimhan said that the company now expects supply-chain cost savings of $4 billion over the next four years, revising its previous outlook of $3 billion over three years.

Strategic Initiatives

In February 2024, SBUX and Bank of America Corporation (BAC), the prominent financial institution, announced a new collaboration that offers millions of Bank of America cardholders and Starbucks Rewards® members in the U.S. the ability to earn more benefits by linking accounts.

Bank of America cardholders and Starbucks Rewards members can earn an additional 2% cash back on qualifying purchases on top of their existing rewards or card benefits. Additionally, they can earn 1 Star per $2 spent at Starbucks by linking an eligible debit or credit card to their Starbucks Rewards account at BofA.com/starbucks or starbucks.com/bofa.

Ryan Butz, vice president of loyalty strategy and marketing at Starbucks, said, “This partnership is the latest example of how we are continuing to invest in our most loyal customers to deepen engagement and connection by offering benefits and experiences that can’t be found anywhere else.”

Despite near-term macroeconomic headwinds, the Seattle-based coffee company remains focused on its long-term growth and outsized returns to partners, customers, and shareholders.

In November last year, SBUX announced its long-term growth strategy, Triple Shot Reinvention with Two Pumps, to elevate the brand, strengthen and scale digital, identify opportunities within and outside the store for efficiencies, expand globally, and reinvigorate the partner (employee) culture. 

For the quarter that ended March 31, 2024, Starbucks’ U.S. store count stood at 16,600, a 3% increase year-over-year. The company aspires to reach 20,000 over the long term, leveraging the vast channels available to meet the changing customer needs and further elevate the brand.

“Innovation in our store formats, to purpose defined stores like pick-up, drive-thru only, double-sided drive-thru, and delivery-only allows us to better meet our customers where they are at through differentiated experiences,” said Sara Trilling, executive vice president and president of Starbucks North America.

In addition, the brand will be elevated via product innovation. Also, SBUX introduced a new phase in the acceleration of its digital flywheel. The coffee chain wants to strengthen its digital leadership with a strategy aimed at Double global Starbucks Rewards with another 75 million members within the next five years.

Also, SBUX announced new technology collaborations to improve the partner and customer experience. The partnership with Microsoft Corporation (MSFT) will continue through joint efforts in its innovation lab, combining industry-leading generative AI capabilities to advance product development and personalization to the next level.

Further, Starbucks will collaborate with Apple (AAPL) products in its first Green Apron Innovation store to experiment and refine technology to help partners worldwide. The company will also reimage the customer in-store experience with Amazon One and Just Walk Out technology. 

SBUX also announced a plan to expand its global store footprint to 55,000 by 2030, bolstered by further expansion of digital platforms across all licensed partners worldwide. 

The company further announced the implementation of a $3 billion efficiency program – with $2 billion outside the store in cost of goods sold – to reinvest in the business and deliver returns to shareholders through margin expansion and earnings growth.  

Bottom Line

SBUX reported weaker-than-expected revenue and earnings in the second quarter of fiscal 2024, driven by a significant decline in same-store sales. After a disastrous quarter, the coffee giant lowered its outlook for the full-year earnings and revenue; however, it forecasts sales will start improving in the fourth quarter of 2024.

Regarding disappointing financial performance, CEO Laxman Narasimhan said customers had been more cautious about where and how they spend their money during the quarter. The U.S. consumer confidence deteriorated for the third consecutive month in April as consumers continued to fight persistently high prices and elevated interest rates.

Starbucks added that bad weather also closed some U.S. stores briefly in the quarter. China, the company's second-largest market, also witnessed a choppy post-COVID recovery. Further, it is facing an ongoing boycott of its stores for its perceived support of Israel in the war in Gaza.

Despite near-term macro challenges, the coffee giant stays committed to its long-term growth strategy, Triple Shot Reinvention with Two Pumps, which priorities elevating the Starbucks brand, strengthening the company’s digital capabilities, becoming more global by accelerating store expansion, unlocking efficiency by cost savings, and reinvigorating the partner culture.

Starbucks continues to deliver significant value to partners, customers, and shareholders. On March 21, SBUX’s Board of Directors approved a quarterly cash dividend of $0.57 per share of outstanding common stock, payable in cash on May 31, 2024.

SBUX pays an annual dividend of $2.28 per share, which translates to a yield of 3.12% on the current share price. Its four-year average dividend yield is 2%. The company’s dividend payouts have grown at a CAGR of 9.8% over the past five years. Moreover, Starbucks has raised its dividend for 13 consecutive years.

Although the road to recovery might be rocky, investors should watch closely for improvements in SBUX’s same-store sales, gains from ongoing strategic initiatives, and global store expansion. Hence, it could be wise to wait for a better entry in this stock for now.

Is Boeing (BA) a Recovery Play? Evaluating Upside Potential and Risks

Posted on by The INO.com Team

The Boeing Company (BA), a stalwart in aircraft manufacturing and services, has faced a cascade of challenges so far this year. Just as the dust was settling on its mid-air blowout incident in January, another report emerged of a plane having mechanical failures, though this one is somewhat different from the reports we’ve already heard.

This time, it's a Delta flight from New York to Los Angeles, reporting a problem with the emergency slide on the right wing and a strange sound. While this isn't good news for Boeing, given that the plane is quite old (flying since 1990), it's not expected to cause too much trouble either.

Now, let’s evaluate the upside potential and risks associated with investing in BA, considering factors like financials, growth prospects, valuation, and industry dynamics.

A Tumultuous Start to 2024

Boeing and its aircraft manufacturer have faced significant media attention since the start of 2024, with a series of incidents prompting investigations. In January, an Alaska Airlines Boeing 737 MAX 9 had to make an emergency landing in Portland, Oregon, because a part of the plane's fuselage blew out.

Although there were no casualties, the U.S. National Transportation Safety Board (NTSB) investigation revealed that the door was not properly secured due to missing bolts. As a result, it led to a grounding of its 737-9 MAX fleet, increased scrutiny of the plane maker’s 737 production and safety processes, and decreased overall plane production.

Later in January, an ANA (All Nippon Airways) Boeing 737-800 had to return to Japan after a crack was found on its cockpit window during flight.

On February 21, a United Airlines Boeing 757-200 made an emergency landing in Denver due to wing damage. Furthermore, in March, a United Airlines Boeing 777-200 had to land in Los Angeles after a tire fell off following take-off, damaging vehicles below.

Other incidents include a brief rudder control failure on a Boeing 737 Max in New Jersey, a United Airlines Boeing 737 MAX 8 going off the taxiway in Houston, and a Boeing 737 in Medford, Oregon, being found missing a panel.

Further, on March 18, an Alaska Airlines Boeing 737 had a cracked windshield upon landing in Portland.

Can Boeing Be Trusted Again?

Such incidents have dealt a significant blow to the company, raising concerns about BA’s approach of prioritizing profits over safety. Particularly, the Alaska Airlines incident led to tighter regulatory scrutiny, financial implications, and demands for compensation, potentially hampering Boeing's growth trajectory.

However, the company has taken steps to improve quality, including expanding inspections, changing how work is performed, increasing training, and soliciting more feedback from employees.

“We are absolutely committed to doing everything we can to make certain our regulators, customers, employees and the flying public are 100 percent confident in Boeing,” Dave Calhoun, Boeing’s chief executive officer, said in a letter to employees last week.

Moreover, the company is also in talks to acquire Spirit AeroSystems Holdings, Inc. (SPR), a troubled supplier that builds the body of the Max jet, which had been a part of Boeing until it was spun out two decades ago. This potential acquisition reflects Boeing's commitment to streamlining its supply chain, strengthening production capabilities, and exerting greater control over supplier policies and practices.

Disappointing Financial Performance

Despite a rocky start this year, Boeing reported a slightly better-than-feared quarter but continued to burn cash (almost $4 billion) as it tried to stabilize production. With fewer planes exiting factories in the last three months, Boeing's revenue suffered a significant blow in the first quarter.

For the quarter that ended March 31, 2023, the company posted a 7.5% year-over-year decline in its total revenues to $16.57 billion. Its non-GAAP core operating loss came in at $388 million and $1.13 per share, respectively. Also, BA’s net loss for the quarter amounted to $355 million, which was not as steep as analysts had expected, and it was smaller than the $425 million loss in the prior year’s period.

Deliveries of Boeing's commercial planes declined by 36% year-on-year in the first three months of 2024. The airline company also reported an operating cash outflow of $3.36 billion, compared with $318 million cash outflow in the last year’s period. Also, it posted a negative free cash flow of $3.92 billion, compared with a loss of $787 million a year ago. Further, the total company backlog grew to $529 billion, including over 5,600 commercial airplanes.

CEO Dave Calhoun, emphasizing the ‘tough moment,’ said, “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else.”

Mixed Analyst Expectations

As Boeing continues to face substantial expenses in resolving identified issues, compensating affected parties, and handling potential legal matters, CFO Brian West believes the company will have a “sizable use of cash” in the second quarter.

Analysts expect BA’s revenue for the fiscal year (ending December 2024) to increase 4.2% year-over-year to $81.09 billion. However, the company is expected to report a loss per share of $0.55. For the ongoing quarter ending June 2024, its revenue is estimated to decline 3.6% year-over-year to $19.05 billion.

However, Street expects the company’s revenue for the next quarter (ending September 30, 2024) to increase by 18.5% year-over-year to $21.46 billion, while its earnings per share is expected to be at $0.41.

During this challenging period, Calhoun stated, “We are utilizing this period, challenging as it may be, to intentionally reduce the pace of operations, strengthen the supply chain, enhance our factory operations, and position Boeing to consistently deliver the reliability and quality our customers expect in the long run.”

Bottom Line

BA’s ongoing challenges, including numerous safety issues, production halts, and delayed deliveries, have put the firm in a complex situation where forecasting future demand has become increasingly precarious. These headwinds are significantly impacting its airline customer base, leading to declining profitability, cash flow problems, and inventory issues that might linger for a while.

Despite these short-term hurdles, the company is committed to strengthening its market position, achieving long-term growth outlooks, and improving predictability for both customers and investors. But this process is going to take some time and concerted effort.

Ultimately, the market's confidence in Boeing depends on its ability to bounce back from its current challenges. However, the question remains: can the recovery be achieved soon?

Regarding price performance, the stock has plunged nearly 15% over the past three months and more than 33% year-to-date.

Moreover, the stock seems pretty pricey at the moment. In terms of forward P/E, BA is currently trading at 142.59x, which is substantially higher than the industry average of 23.99x. The stock’s forward EV/Sales of 1.81x is 2.9% higher than the industry average of 1.76x. Also, its forward EV/EBITDA of 33.92x compares to the industry average of 11.30x.

Besides, BA’s trailing-12-month gross profit and levered FCF margins of 11.48% and 4.01% are 62.7% and 38.9% lower than the industry averages of 30.80% and 6.56%, respectively. Also, its net income margin of negative 2.81% compares to the industry average of 5.86%.

Recently, Argus Research downgraded their outlook for BA stock from Buy to Hold, estimating a target price of $243.01, indicating a 40.1% upside. In addition, Northcoast Research downgraded the stock from Neutral to Sell.

Given these factors, we believe waiting for a better entry point in this stock could be wise now.

Is Now the Right Time to Buy (Nintendo) NTDOY Stock Amidst the Leak?

Posted on by The INO.com Team

Nintendo Co., Ltd.’s (NTDOY) Nintendo Switch has been around for more than seven years, and enthusiasts are beginning to get impatient about a successor. Initially rumored for a release in 2024, recent reports now suggest that the Nintendo Switch 2 is more likely to launch in the early months of 2025.

NTDOY has been secretive about its plans so far, but a recent significant leak suggests revealing a key detail about the new controllers for the rumored Switch 2, which will differ from the present design.

The major difference is that the upcoming controllers (which may be called Joy-Con) will utilize a magnetic system to attach to the console’s body, unlike the current design that relies on rails that the Joy-Con slides into. This magnetic attachment may be similar to the Lenovo Legion Go, in which the controllers need to move less to attach.

However, unlike the Legion Go, which has a mechanical lock, this appears to be distinct from that approach.

The leaked information comes from Spanish outlet Vandal, citing accessory vendors who got to touch the new console but did not see it. As per reports, these manufacturers were allowed to handle the console inside an opaque box that conceals its look, allowing them to get a feel for the hardware in general.

The shift to magnetic attachment raises significant concern about the compatibility of the current Joy-Con models with the new console, particularly in handheld mode. However, the report suggests the console will support the Nintendo Switch Pro controller. Further, it seems that Joy-Con would be supported in wireless mode, akin to how they can be used with a Nintendo Switch Lite.

Another noteworthy detail from the leak is that the Nintendo Switch 2 will be larger than the current Switch models but smaller than a Steam Deck. Earlier reports indicated an 8-inch LCD display is being built into the console, making a bigger size mandatory.

But, intriguingly, the Nintendo Switch 2 will be smaller than a Steam Deck, given that the latter has a 7-inch panel. That said, the larger trackpads on the sides of the screen and the thicker controller may contribute to Nintendo’s console being still smaller overall.

As per sources cited by Vandal, the hardware for the Nintendo Switch 2 is completed. However, the company is postponing its launch to coincide with a more captivating lineup of games. This strategy mirrors the success of the Nintendo Switch, which was highly influenced by a strong lineup of titles available in the first year, like Super Mario Odyssey, The Legend of Zelda: Breath of the Wild, and Splatoon 2.

In addition to this information, earlier reports have indicated that the Switch 2 will use an Nvidia chip based on the Ampere architecture with support for DLSS. There are also speculations about the console's backward compatibility with the current generation.

The leaked details about the Nintendo Switch 2’s innovative features have fueled excitement and speculation about the console’s potential success in the market. The upcoming launch of Nintendo Switch’s successor is anticipated to be a key catalyst for NTDOY’s stock price.

Investors will likely closely monitor developments related to the new next-generative video game console, including its release date, pricing, and game lineup.

Now, let’s analyze other factors that could influence NTDOY’s performance in the near term:

Recent Developments

On March 10, 2024, NTDOY and Illumination announced a new animated film based on the world of Super Mario Bros. This animated film will be released on April 3, 2026, in the U.S. and additional markets globally, with select territories releasing throughout April.

The film will be produced by Chris Meledandri, Illumination’s Founder and CEO, and Shigeru Miyamoto, Representative Director and Fellow of NTDOY, directed by Aaron Horvath and Michael Jelenic, and written by Matthew Fogel. The film will be co-financed by Universal Pictures and Nintendo and distributed theatrically globally by Universal Pictures.

On November 8, 2023, NTDOY announced the development of a live-action film of The Legend of Zelda. The film will be produced by Nintendo and Arad Productions Inc. and directed by Wes Ball. It will be co-financed by Nintendo and Sony Pictures Entertainment Inc., with over 50% financed by Nintendo.

By producing visual content of Nintendo IP by itself, NTDOY is opening up new avenues for global audiences to experience the entertainment world it has built via different means apart from its dedicated game consoles.

Gaming Console Industry Analysis

As per the market analysis, customers highly prefer home consoles due to their enhanced gaming experience. Favorable features of home consoles include online multiplayer gaming experience and cloud support, among others. Factors like rising disposable incomes and the availability of several gaming options boost the market growth.

Further, the integration of emerging technologies such as 3D and augmented reality & virtual reality (AR&VR) in gaming is expected to drive the industry’s expansion.

According to a Mordor Intelligence report, the global game console industry is expected to reach $80.98 billion by 2029, growing at a CAGR of 7.2% during the forecast period (2024-2029). The market is moderately competitive, with dominant players such as Sony Group Corporation (SONY) and Microsoft Corporation (MSFT).

The gaming console industry’s bright growth prospects should bode well for NTDOY.

Robust Financial Performance and Upbeat 2024 Outlook

For the nine months that ended December 31, 2023, NTDOY reported net sales of ¥1.39 trillion ($8.83 billion), an increase of 7.7% year-over-year. The company sold 13.74 million Switch consoles for the nine-month period. Its operating profit grew 13.1% from the prior year’s period to ¥464.41 billion ($2.95 billion).

Furthermore, the gaming giant’s profit attributable to owners of parent came in at ¥408.04 billion ($2.59 billion), up 17.9% year-over-year. Its profit per share rose 18% from the previous year’s period to ¥350.48.

As of December 31, 2023, NTDOY’s total assets stood at ¥3.07 trillion ($19.51 billion), compared to ¥2.85 trillion ($18.11 billion) as of March 31, 2023. The company’s net assets were ¥2.48 trillion ($15.76 billion) versus ¥2.27 trillion ($14.43 billion) as of March 31, 2023.

After an outstanding financial performance, the Japanese video game company expects to sell 15.5 million of its Switch consoles in the fiscal year 2024, up from the prior forecast. NTDOY revised its net profit to ¥440 billion ($2.80 billion) for the full year, compared to its previous forecast of ¥420 billion ($2.67 billion).

Impressive Historical Growth

Over the past five years, NTDOY’s revenue and EBITDA grew at CAGRs of 7.3% and 17.8%, respectively. The company’s net income and EPS rose at respective CAGRs of 23.4% and 24.1% over the same timeframe. Its total assets improved at 11% CAGR over the same period.

Solid Profitability

NTDOY’s trailing-12-month gross profit margin of 56.78% is 15.5% higher than the 49.17% industry average. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 32.81% and 29.07% are considerably higher than the industry averages of 8.31% and 2.62%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 21.27%, 15%, and 16.1% are favorably compared to the respective industry averages of 2.94%, 3.39%, and 1.18%.

Bottom Line

NTDOY surpassed market expectations for profit and revenue in the last reported quarter and raised its full-year 2024 forecast for Switch console sales and profit. The Japanese video gaming company has managed to keep up the momentum for the Switch, driven by the release of the “Super Mario Bros. Movie” and the flagship Zelda game last year.

Investors and enthusiasts are now watching for an outright announcement of a successor to its Flagship console, Switch. Latest reports indicate that the Nintendo Switch 2 is expected to launch in the early months of 2025.

The company has maintained secrecy regarding its plans so far, but a recent significant leak from Spanish outlet Vandal revealed crucial hardware details about the purported Switch 2, which will likely be different from the current design.

The new controller will use a magnetic system to attach to the body of the console. Also, it will be larger than the present Switch models, albeit not as large as Steam Deck. Further, prior reports suggest that the Switch 2 will incorporate an Nvidia chip based on the Ampere architecture with DLSS support.

Additionally, there are speculations that the console may feature backward compatibility with the current generation.

The upcoming launch of the Nintendo Switch 2 presents a significant opportunity for investors. Investors should closely monitor developments related to this new console, such as release date, game lineup, and pricing.

Notably, NTDOY has a valuable portfolio of iconic gaming franchises, including Mario, Zelda, and Pokémon. Continued innovation, strategic partnerships, and expansion into mobile gaming are expected to drive the company’s growth and profitability.

Given these factors, it could be wise to invest in this stock for potential gains.

Is Intel (INTC) a Buy, Sell, or Hold Amidst Tough Competition?

Posted on by The INO.com Team

Intel Corporation (INTC), a prominent semiconductor company, is currently navigating a challenging phase characterized by a dwindling financial outlook and difficulties sustaining competitiveness within the semiconductor industry. Intel stands behind many tech stocks in the S&P 500 this year, while rival chipmaker NVIDIA Corporation (NVDA) emerges as the third-best performer in the index.

Now, we will evaluate the risks and opportunities associated with investing in Intel amidst competitive pressures.

Strategic Initiatives to Keep up With the Fierce Competition

Amid escalating competition in the tech arena, INTC, the foremost producer of processors driving PCs and laptops, has aggressively expanded its presence in the AI domain to remain abreast of its peers.

Last month, the company announced the creation of the world's largest neuromorphic system, dubbed Hala Point, which is powered by Intel's Loihi 2 processor. Initially deployed at Sandia National Laboratories, this system supports research for future brain-inspired AI and addresses challenges concerning AI efficiency and sustainability.

On April 9, Intel also unveiled a new AI chip called Gaudi 3, which was intended to compete against NVDA’s dominance in popular graphics processing units. The new chip boasts over twice the power efficiency and can run AI models one-and-a-half times faster than NVDA’s H100 GPU. The company expects more than $500 million in sales from its Gaudi 3 chips in the year's second half.

In March, Reuters reported that INTC plans to spend $100 billion across four U.S. states to build and expand factories, bolstered by $19.5 billion in federal grants and loans (with an additional $25 billion in tax incentives in sight). CEO Pat Gelsinger envisions transforming vacant land near Columbus, Ohio, into "the largest AI chip manufacturing site globally" by 2027, forming the cornerstone of Intel's ambitious five-year spending plan.

Such advancements enable the company to stay competitive and meet the growing demand for AI-driven solutions across various industries.

Solid First-Quarter Performance but Shaky Outlook

For the first quarter that ended March 30, 2024, INTC’s net revenue surged 8.6% year-over-year to $12.72 billion, primarily driven by growth in its personal computing, data center, and AI business. However, its revenue from the Foundry unit amounted to $4.40 billion, down about 10% year-over-year.

Intel’s gross margin grew 30.2% from the prior year’s quarter to $5.22 billion. Also, it reported a non-GAAP operating income of $723 million, compared to an operating loss of $294 million in 2023. Further, its non-GAAP net income and non-GAAP earnings per share came in at $759 million and $0.18 versus a net loss and loss per share of $169 million and $0.04, respectively, in the same quarter last year.

The solid financial performance underscores the vital innovation across its client, edge, and data center portfolios, driving double-digit product revenue growth. Total Intel Products chalked up $11.90 billion in revenue for the first quarter of 2024, resulting in a 17% year-over-year increase over the prior year’s period. Its Client Computing Group (CCG) contributed to about 31% of the gains of this unit.

However, the company lowered its outlook for the second quarter of 2024. The company expects its revenue to come between $12.5 billion and $13.5 billion, while its non-GAAP earnings per share is expected to be $0.10.

Following the company's weak guidance for the ongoing quarter, Intel shares nosedived as much as 13% on Friday morning, overshadowing its first-quarter earnings beat. Also, the stock has plunged nearly 15% over the past six months and more than 39% year-to-date.

Bottom Line

INTC surpassed analyst estimates on the top and bottom lines in the first quarter of 2024, but achieving full recovery appears challenging. The chipmaker provided a weak outlook for the second quarter, validating concerns about its ongoing struggle to capitalize on the AI boom amid competition pressures.

Looking ahead, analysts expect INTC’s revenue to increase marginally year-over-year to $13.09 billion for the quarter ending June 2024. However, the company’s EPS for the current quarter is expected to fall 16.2% from the prior year’s period to $0.11.

For the fiscal year 2024, the consensus revenue and EPS estimates of $56.06 billion and $1.10 indicate increases of 3.4% and 5.2% year-over-year, respectively.

Recently, Goldman Sachs analysts slashed their price target for Intel stock by $5 to $34 per share and reaffirmed a ‘Sell’ rating in light of heightened competition in the artificial intelligence landscape.

Toshiya Hari noted that the company’s weak guidance was due to delayed recovery in traditional server demand, driven by cloud and enterprise customers' focus on AI infrastructure spending. As a result, it could lead INTC to lose market share to competitors like NVDA and Arm Holdings plc (ARM) in the data center computing market.

Moreover, analysts at Bank of America decreased their price target on the stock from $44 to $40, citing rising costs, slower growth prospects, and intensified competition.

Additionally, INTC’s elevated valuation exacerbates market sensitivity. In terms of forward non-GAAP P/E, the stock trades at 27.58x, 18.9% above the industry average of 23.19x. Furthermore, its forward EV/Sales of 2.93x is 5.7% higher than the industry average of 2.77x. And the stock’s forward EV/EBIT of 31.80x compares to the industry average of 19.07x.

Also, the stock’s trailing-12-month gross profit and EBIT margins of 41.49% and 1.29% are 14.7% and 73.1% lower than the industry averages of 48.64% and 4.80%, respectively. Likewise, its asset turnover ratio of negative 0.29x compares to the industry average of 0.61x.

Given this backdrop, while we wouldn’t recommend investing in INTC now, keeping a close eye on the stock seems prudent.

Alibaba's (BABA) Valuation: Uncovering Opportunities in a Discounted Market

Posted on by The INO.com Team

With a $187.28 billion market cap, Alibaba Group Holding Limited (BABA) is a China-based technology company that provides infrastructure and marketing reach to help merchants, brands, and other businesses engage with their users internationally. Last Friday, BABA’s stock notched the seventh consecutive session of gains, marking the longest winning streak in a year.

The e-commerce giant's shares surged more than 3% over the past month, compared to the S&P 500’s nearly 3.3% loss. Also, the stock has soared approximately 1% over the past five days, beating the S&P’s marginal loss.

From a valuation perspective, BABA is trading at a forward non-GAAP P/E multiple of 9.03, 41% lower than the industry average of 15.32. Likewise, the stock’s forward EV/EBITDA and EV/EBIT of 5.46x and 8.79x are favorably compared to the industry averages of 9.42x and 13.57x, respectively.

In addition, in terms of forward Price/Book, the stock is trading at 1.33x, 43.2% lower than the industry average of 2.34x.

Alibaba’s stock trading at a discount compared to its peers can be an intriguing opportunity for value-oriented investors. However, analyzing several quantitative and qualitative factors is crucial before making investment decisions.

Now, let’s discuss BABA’s fundamentals and growth prospects in detail:

Financial Performance Overview

For the fiscal 2024 fourth quarter that ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to $36.67 billion. Revenue from the Alibaba International Digital Commerce Group grew 43.8% year-over-year, while Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group rose 23.7% and 18.3%, respectively.

The tech giant’s adjusted EBITA came in at $7.44 billion, up 1.5% from the prior year’s quarter. However, its non-GAAP net income for the quarter declined 4.1% year-over-year to $6.75 billion. It posted non-GAAP earnings per share of $0.33, down 2% year-over-year.

Alibaba’s total assets stand at $256.80 billion, with significant holdings in cash, investments, and operational assets. The company reported cash and cash equivalents of $35.89 billion and short-term investments of $42.31 billion.

“We delivered a solid quarter as we are executing our focused strategies across the organization. Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing. We will step up investment to improve users’ core experiences to drive growth in Taobao and Tmall Group and strengthen market leadership in the coming year,” said Eddie Wu, Chief Executive Officer of Alibaba Group.

“We will also focus our resources on developing public cloud products and sustaining the strong growth momentum in international commerce business,” Wu added.

Upsize of Share Buyback Program

BABA announced that its board of directors approved an increase of $25 billion to its share repurchase program through the end of March 2027. During the quarter that ended March 31, 2024, the company repurchased a total of 524 million ordinary shares for a total of $4.80 billion.

For the fiscal year that ended March 2024, Alibaba repurchased around 1,249 million ordinary shares for a total of $12.50 billion. As of March 31, 2024, the Chinese e-commerce firm had 19,469 million ordinary shares outstanding, a net decrease of 520 million ordinary shares versus December 31, 2023, or a net reduction of 2.6% in its outstanding shares after accounting for shares issued under its ESOP.

As of March 31, 2024, the company has $31.90 billion available under its share repurchase program, effective through March 2027.

The increase in BABA’s share repurchase program demonstrates its confidence in the outlook for its business and cash flow.

“Our consistent share repurchase has also reduced outstanding share count while achieving EPS and cash flow per share accretion,” said Toby Xu, Chief Financial Officer of Alibaba Group.

Reorganization

Over the past year, Alibaba underwent significant changes, including restructuring efforts.

Daniel Zhang, the previous CEO of Alibaba Group, who became acting head of the cloud business in December 2022, unexpectedly resigned in September last year.

In March 2023, BABA announced plans to split its business into six separate units in a move to unlock shareholder value and advance competitiveness. The company’s restructuring resulted in the creation of six distinct business units, some of which will be able to go public and raise external funding.

Among those being touted for initial public offerings (IPOs) were Alibaba’s cloud unit, Cainiao logistics arm, and Freshippo grocery arm. However, Alibaba decided to cancel the highly anticipated spinoff of its cloud computing business last year.

Joe Tsai, chairman of BABA, mentioned during the last earnings call that while the company will explore separate financing options, generating synergies within the Alibaba ecosystem remains a priority to reflect the group's overall value. Tsai also emphasized that Alibaba is not rushing into these transactions and will consider market conditions before proceeding.

Strategic Initiatives

On April 17, 2024, Alibaba.com, a leading platform for global business-to-business (B2B) e-commerce, introduced its affordable, customizable Logistics Marketplace, offering U.S. small and medium-sized enterprises (SMEs) access to affordable and customizable logistics services to streamline their supply chains and gain global reach with more ease.

On January 9, Alibaba.com introduced its latest Smart Assistant features powered by AI at CES in Las Vegas, NV. The Smart Assistant is an AI-powered sourcing tool that caters to newcomers and seasoned entrepreneurs in the dynamic world of global commerce, helping them discover new opportunities, stay up-to-date on trends, seamlessly track orders, and more.

Also, in the same month, Alibaba Cloud unveiled its new generation of elastic computing instance specification family ECS g8i. ECS g8i instances will offer high-quality and efficient computing services for customers in industries like games, e-commerce, finance, medical care, and enterprise services to meet their performance needs in application scenarios, including in-depth learning, AI reasoning training, and big data.

On October 31 last year, Alibaba Cloud announced its latest large language model (LLM), Tongyi Qianwen 2.0. This is a substantial upgrade from its predecessor, launched in April. Tongyi Qianwen 2.0 demonstrates outstanding capabilities in understanding complex instructions, copywriting, memorizing, reasoning, and preventing hallucinations.

With this upgraded version of its AI model, the company looks to compete with U.S. rivals such as Amazon.com, Inc. (AMZN) and Microsoft Corporation (MSFT).

Alibaba also unveiled the GenAI Service Platform, which allows companies to build their own generative AI applications using their data.

Bottom Line

While BABA reported mixed financials in the last quarter, it announced an increase in the size of its share buyback program by $25 billion, creating a greater value for its shareholders. The boost to the buyback program demonstrates the company’s confidence in its business outlook and cash flow.

Moreover, AliExpress order volume rose by 60% year-over-year for the third quarter. This solid performance contributed to a staggering 44% year-over-year growth in Alibaba International Digital Commerce Group’s revenue, surpassing market expectations for the sixth straight quarter. AliExpress’ Choice, a premium service launched in March 2023, is the catalyst behind this strong growth.

Alibaba’s Cainiao Smart Logistics Network Limited and Digital Media and Entertainment Group further grew by around 23% and 18%, respectively.

Over the past five years, BABA’s revenue and EBITDA grew at CAGRs of 21.9% and 16%, respectively. The company’s net income and EPS rose at respective CAGRs of 7.6% and 7.8% over the same timeframe. Its total assets increased at 14.7% CAGR over the same period.

Besides, BABA’s trailing-12-month EBIT margin of 13.74% is 79.8% higher than the 7.64% industry average. Moreover, the stock’s trailing-12-month net income margin and levered FCF margin of 10.81% and 15.77% are significantly higher than the industry averages of 4.57% and 5.53%, respectively.

The Chinese internet giant is set to report its financial results for the quarter and fiscal year ended March 31, 2024, before the market opens on May 14, 2024. Analysts expect BABA’s revenue for the fourth quarter to increase 2.6% year-over-year to $30.37 billion. However, the company’s EPS for the same period is expected to decline by 6.3% year-over-year to $1.43.

For the fiscal year 2024, Street expects BABA’s revenue and EPS to grow 5.4% and 9.1% from the prior year to $130.09 billion and $8.46, respectively.

Moving forward, the China-based tech company’s primary focus is on revitalizing the growth of its core businesses, mainly e-commerce and cloud computing. The company will increase its investments to enhance users’ core experiences, boost growth in Taobao and Tmall Group, and solidify its market leadership in the upcoming year.

Alibaba has a substantial amount of net cash and investments on its balance sheet, providing investors with a safety cushion. This solid cash position can be used for strategic investments, acquisitions, and business expansion, enhancing the company's growth prospects in the long term.

In conclusion, BABA’s current discounted market position presents an attractive opportunity for value-oriented investors. Conducting a thorough analysis of the company's financial health, growth prospects, and competitive landscape can help investors make informed investment decisions and benefit from the long-term upside potential of the stock.