Another week has flown by. I hope you’re all doing well.
Earnings season is (somewhat) coming to an end, with just a few more companies to report. I’m quite optimistic following this quarter’s results. US inflation seems to be continuing its downtrend, and companies are faring better than expected. The big question now is: how long can the consumer continue spending?
Let’s take a look at this week’s events.
Key Events
US CPI (Inflation) Data For April 2023
On Wednesday, US inflation data came in largely as expected (with a small ‘miss’, i.e., lower than expected – a good thing).
Year-over-year, headline inflation for April came in below expectations, at just 4.9% (compared to the 5.0% expected. Month-over-month, inflation rose 0.4% (4.8% annualised), as expected.
Year-over-year, core inflation (excluding food/energy) came in at 5.5%, as expected. Month-over-month, core inflation rose by 0.4% (4.8% annualised), as expected.
As with previous months, shelter costs accounted for more than half of this inflation. General consensus is that shelter inflation will begin to fall rapidly in the second half of 2023.
While CPI is still well above the 2.0% target, this result continues to show a continued downtrend. There is one more CPI release prior to the next FOMC meeting, which will be crucial in determining the Federal Reserve’s interest rate decision making. An uptick in inflation would signal to the Fed that rates are not yet sufficient, while a reiterated downtrend would prompt the Fed to pause interest rate increases (likely to cause a rally in the stock market).
UK Bank of England Monetary Policy Committee Meeting
On Thursday, the Bank of England increased interest rates by an additional 0.25%, bringing the Base Rate up to 4.50%.
The BoE reiterated its determination to force down inflation, which is proving to be persistent.
However, it did state that it still expects inflation to fall sharply by the end of 2022, to around 3%. Along with this, it no longer expects a recession in the UK; a very positive sign.
As it currently stands, it is widely expected that there will be at least one more rate hike, with the Base Rate reaching 4.75%, or worst case, 5.00%, before falling.
UK GDP For Q1 2023
On Friday, the Q1 GDP figure came in. GDP met analysts’ expectations, with the UK economy growing by just 0.1% for the quarter (following 0.0% in Q4 2022). While this does show the economy falling stagnant, it has not yet dipped back into negative territory. In other words, no recession… For now.
As explained above, the Bank of England expects we will no longer see a recession (two consecutive quarters of negative GDP). Only time will tell if they are correct.
Stock Market News
Elon Musk & Tesla (TSLA) – New Twitter CEO Announced (Finally)
This week, Elon Musk announced that he has (finally) found a new CEO for Twitter, to replace him. In around six weeks, Linda Yaccarino will take the reigns of the company. Elon Musk will instead take the role of CTO, focusing on product and software design.
While this isn’t directly Tesla news, it does have an impact on the company. Namely, that Elon Musk will have more time to focus on the company and help ensure it’s on track to reach its ambitious goals in the coming years. As a result, investors will feel more satisfied and confident in Tesla’s management.
Palantir Technologies (PLTR) – Q1 2023 Earnings
On Monday, Palantir reported both revenue and earnings that beat analysts’ expectations. In fact, the company reported its second consecutive quarter of net profit. Palantir also upped its guidance for the year, now expecting to generate a profit in every quarter.
Key Points:
- Revenue of $525m, up from $446m (+17.7%) a year ag
- Gross profit of $418m, up from $352m (+18.7%) a year ago
- Operating profit of $4m, compared to an operating loss of ($39m) a year ago
- Profit before tax of $21m, compared to a loss of ($99m) a year ago
- Profit after tax of $17m, compared to a loss of ($101m) a year ago
- Basic earnings per share of $0.01
- Guidance for Q2 suggests revenue of between $528m and $532m. The company also expects to maintain a net profit (on a GAAP basis) for the quarter. For the full year, Palantir expects revenue to come in between $2,185m and $2,235m
- Customer count grew 41% year-over-year and 7% quarter-over-quarter
- Cash, cash equivalents and marketable securities rose 10% since Q4 2022, now at $2,905m
- Palantir is expecting to launch its new AI platform in the coming months (select customers will have access this month). The CEO suggests the demand for this platform is “without precedent”, i.e., it’s in exceedingly high demand. However, the company states that it will never allow for AI targeting operations to be carried out in a military capacity; all such actions must be decided by a human, and “The machine must remain subordinate to its creator.”
PayPal (PYPL) – Q1 2023 Earnings
On Monday, PayPal beat expectations on both revenue and earnings. However, the stock fell sharply due to disappointing guidance, particularly regarding operating profit. In fact, several analysts downgraded the stock, claiming the company may be ‘stuck’ in terms of growth. At least in the near-term.
Key Points:
- Revenue of $7,040m, up from $6,483m (+8.6%) a year ago
- Gross profit of $3,757m, up from $3,666 (+2.5%) a year ago
- Operating profit of $999m, up from $711m (+40.1%) a year ago
- Profit before tax of $1,074m, compared to $629m a year ago
- Profit after tax of $795m, compared to $509m a year ago
- Basic earnings per share of $0.70
- Guidance for Q2 suggests a year-over-year revenue increase of between 6.5% and 7.0%, while GAAP EPS will come in between $0.81 and $0.83
- Expects to continue its share repurchase programme, reaching around $4,000m in shares repurchased by the end of 2023 ($1,400m purchased to date)
Walt Disney (DIS) – Q1 2023 (Fiscal Q2 2023) Earnings
On Wednesday, Disney posted revenue and earnings that were roughly in-line with expectations. Unfortunately, however, the stock fell ~5% in after-hours trading, due to its deteriorating TV business and the loss of Disney+ subscribers. That being said, the company is seeing narrower losses at Disney+, slowly trending towards profitability, which could be a future catalyst. On the other end of that, Disney has at least two negative catalysts to contend with; the writers’ strike, and Florida’s Governor, Ron DeSantis.
Key Points:
- Revenue of $21,815m, up from $19,249m (+13.3%) a year ago
- Profit before tax of $2,123m, compared to $1,102m a year ago
- Profit after tax of $1,271m, compared to $470m a year ago
- Basic earnings per share of $0.70
- Guidance
- Disney+ subscribers totalled 157.8m, losing 4m customers in the quarter, partly due to the increase in prices and generally poorer macroeconomic environment. This loss was also as a result of an 8% loss in subscribers at Disney’s Disney+ Hotstar in India
- Disney will add its Hulu content to Disney+ in the coming months, potentially seeing a complete merge of the two services
- The company also announced it will increase the price of its ad-free Disney+ service later this year, while simultaneously removing more content, and even reducing the amount of content currently in the pipeline
- A continued recovery in its parks, experiences and products segment resulted in a 17% revenue growth
- Two negative catalysts will plague Disney over the next few quarters. Firstly, the writers’ strike, which is impacting both Marvel and Star Wars productions. Secondly, the continuing (and escalating) feud between Disney’s CEO, Bob Igor, and Florida’s Governor, Ron DeSantis, with Disney even threatening to halt further investment in Florida
Next Week
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- The Home Depot (HD) – 16th May
- Target (TGT) – 17th May
- Walmart (WMT) – 18th May
Let me know your thoughts on this week’s events, in the comments below!
