Another week has flown by, and it’s been a fairly eventful one!
Please note: I’ll be taking a hiatus from these Market Update posts for the first two weeks of June, due to a fairly major surgery on 1st June. But don’t worry, I’ll be back before you know it.
Let’s dive into the week’s events.
Key Events
Montana Becomes First US State To Ban TikTok
In a shocking new development, the US State of Montana passed legislation that allows for the ban of TikTok across the State.
From 1st January 2024, no app store (e.g., Google Play and Apple’s App Store) will be allowed to let users download the app.
However, it’s somewhat unlikely this law will stay in-tact for long. TikTok is likely to sue to government, referencing the first amendment (essentially a right to free speech/free expression). Many believe TikTok would win this lawsuit, due to the nature of banning a particular company’s platform with no evidence to suggest that platform is a danger to citizens. Thus, it violates their – and their customers’ – first amendment rights.
Stock Market News
On Tuesday, Tesla held its annual Shareholder Meeting (essentially an AGM).
Here are some of the highlights from the event:
- JB Straubel, CEO of Redwood Materials and previous CTO at Tesla, has been elected as an independent director. This is seen as a very positive move by the company.
- Tesla will initiate a third-party audit of its cobalt supply chain, to sooth investors’ concerns of child labour occurring within the supply chain.
- An update on the Optimus Robot shows surprising levels of progress, with Optimus now able to walk freely and perform somewhat dextrous tasks. There is still a long way to go before a product is released.
- The company still expects to release the Cybertruck this year, with volume production in 2024. Around 250,000 vehicles are projected per year once fully ramped.
- Elon Musk once again reiterated that he believes Full Self Driving can be released this year, even if in ringfenced areas. However, this claim has been made almost every single year, for the last 4-5 years. Take this with a large pinch of salt.
- In a shock revelation following a question from Meet Kevin, Elon Musk said he would trial advertising. This is something many analysts and investors have been yelling at the rooftops for, for years now. It’ll be interesting to see if (and what) results come from this first batch of adverts. The vast majority of people still don’t realise what Tesla vehicles can do, and are still in the belief that electric cars can’t travel as far as ICE vehicles. It’s my hope that advertising is focused on educating the masses on what’s out there now.
- Elon Musk confirmed that he has no plans of stepping down, quashing recent reports that he aims to leave the company.
- An investor asked when the Roadster will become available again. Elon stated this vehicle is very much the cherry on top of the cake for the company with no real revenue attached, but that it should go into production in 2024/2025.
Morgan Stanley (MS) – CEO Resigns
On Friday, James Gorman, Morgan Stanley’s long-standing CEO of 13 years, announced he will be stepping down from the position in the next 12 months.
No successor has been identified.
Tesco (TSCO) – Chairman Steps Down
Also on Friday, it was announced that John Allan, Tesco’s chairman, will step down from his position. This follows allegations by newspapers over his conduct towards women.
John will remain chairman until June 16th; the company’s AGM. An independent director, Byron Grote, will act as interim chairman following John Allan’s exit, until a successor can be found.
Tesco stated that the allegations “risk becoming a distraction” for the business, hence the departure.
BT (BT.A) – Announces A Significant Long-Term Headcount Reduction
In a shocking revelation on Thursday, BT announced its plan to reduce its workforce by up to 40%, or 55,000 employees, by 2030. On the low end, the company expects to reduce its headcount by 40,000 by 2030.
Reportedly, at least 10,000 of these jobs will be replaced by AI, signalling the start of a potentially seismic change across the globe.
The Home Depot (HD) – Q1 Earnings
On Tuesday, The Home Depot reported lower-than-expected revenue for the quarter, but beat expectations on net income. The company lowered guidance slightly to account for the weaker quarter. With high interest rates beginning to affect the housing market, it would be unsurprising if the home improvement sector sees further softening in demand.
Key Points:
- Revenue of $37,257m, down from $38,908m (-4.2%) a year ago
- Gross profit of $12,557m, down from $13,145m (-4.5%) a year ago
- Operating profit of $5,551m, down from $5,929m (-6.4%) a year ago
- Profit before tax of $5,110m, compared to $5,560m a year ago
- Profit after tax of $3,873m, compared to $4,231m a year ago
- Basic earnings per share of $3.83
- Dividend of $2.09 per share announced, to be paid on 15th June 2023
- Guidance for the year suggests sales and comparable sales will decline between 2% and 5% compared to fiscal 2022. While EPS (diluted) will see a 7% to 13% decline compared to fiscal 2022
- Cash and cash equivalents fell year-over-year, from $2,844m to $1,260m
- The company has around $40,000m in debt and has a net interest expense of roughly $1,800m per year for 2023
- Number of transactions fell around 5% in the quarter compared to a year ago, but the average ‘ticket’ price remained flat
Target (TGT) – Q1 Earnings
On Wednesday, Target beat analysts’ expectations on both revenue and earnings despite results being roughly flat year-over-year.
Key Points:
- Revenue of $25,322m, up from $25,170m (+0.6%) a year ago
- Gross profit of $6,936m, up from $6,709m (+3.4%) a year ago
- Operating profit of $1,328m, down from $1,346m (-1.3%) a year ago
- Profit before tax of $1,204m, compared to $1,249m a year ago
- Profit after tax of $950m, compared to $1,009m a year ago
- Basic earnings per share of $2.06
- Dividend of $1.08 per share announced, to be paid on 10th June 2023
- Guidance for Q2 suggests EPS of between $1.30 and $1.70; lower than Q1
- Cash and cash equivalents rose slightly year-over-year, from $1,112m to $1,321m
- The company has around $16,000m in debt
- According to the company’s insights, consumers are buying more necessities (food, household items) as they try to rein in their budgets. However, the strongest category for growth was beauty
Walmart (WMT) – Q1 (Fiscal Q1 2024) Earnings
On Thursday, Walmart reported significantly higher revenue and earnings than analysts expected. As a budget retailer, Walmart seems to be capitalising on a weaker consumer. Whenever households attempt to reduce their spending and switch products over to cheaper alternatives, Walmart tends to be a beneficiary. So while they provided surprisingly positive results, it’s not too surprising either.
Key Points:
- Revenue of $152,301m, up from $141,569m (+7.6%) a year ago
- Gross profit of $37,017m, up from $34,722m (+6.6%) a year ago
- Operating profit of $6,240m, up from $5,318m (+17.3%) a year ago
- Profit before tax of $2,688m, compared to $2,901m a year ago
- Profit after tax of $1,673m, compared to $2,054m a year ago
- Basic earnings per share of $0.62
- Dividend of $0.57 per share was announced back in February, to be paid on 30th May 2023
- Guidance raised for the fiscal year, with revenue now expected to rise 3.5% for the year
- Cash and cash equivalents fell slightly year-over-year, from $11,817m to $10,575m
- The company has around $38,000m in debt
- In the earnings report, the company states they saw strength in their grocery and ecommerce businesses, despite weaker sales from clothing and electronics. This reiterates the trend of consumers moving away from discretionary items, focusing on grocery and household instead.
Next Week
UK CPI (Inflation) Data For April 2023
On Wednesday, we’ll get inflation data for April 2023.
The current consensus estimate is that year-over-year, headline CPI will come in at 8.2%. Month-over-month, however, the headline rate is expected to come in at 0.8%, or 9.6% annualised; still very high.
Headline Core inflation (excluding food and energy) is expected to rise from 6.0% in March, to 6.2% in April, year-over-year. Month-over-month, analysts expect Core CPI to rise by 0.7%, or 8.4% annualised; again, very high.
If the real CPI data comes in higher than these expectations, it does not bode well for the UK economy. However, if the data comes in better than expected, it’s possible a small stock market rally will ensue.
The Bank of England expects inflation to rapidly fall by the end of the year, so the next two to three months of data are critical.
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- Nvidia (NVDA) – 24th May
Let me know your thoughts on this week’s events, in the comments below!
