Weekly TLDR - Rate Hikes, Earnings, NFLX vs DIS
FinanceTLDR’s Weekly TLDR will help you catch-up on major events and discussion in the past week. This week, we talk about rate hikes, key tech earnings reports (AAPL, TSLA, MSFT), as well as NFLX’s content woes and other topics.
Goldman economists see risk to more than 4 rate increases in 2022. Goldman came swinging with this report Sunday afternoon that started the week off with PoP. Many other banks and publications have subsequently come out with their own estimates of how rates are going to go. 4 increases, 6 increases, more increases; the big TL:DR; here is nobody knows for sure. The Fed bank will have their eyes on inflation as a primary measure so instead of paying attention to bank published research, keep an eye out on inflation measures to reduce the noise and potentially find buying opportunities!
Check out this recent tweet thread from @FinanceTLDR on why GM is undervalued and has significant potential in becoming an EV and Autonomous Driving giant.
Key Tech Earnings:
MSFT: Beat Q4 and guided Q1 above expectations. Cloud revenue seems to be slowing down as investors look to the gaming/entertainment/metaverse(?) segment for increased momentum after the announcement to acquire Activision Blizzard for $68.7 Billion.
TSLA: Beat Q4 expectations. Tesla’s outlook became murkier after announcing no new vehicle models in 2022 as well as not working on a budget EV at a $25,000 price point. This makes it harder for bulls to justify their 2022 revenue figures without significant increases in volume for current models. Tesla also talked about humanoid robots but I don’t think anybody is considering a 2022 revenue driver. The biggest catalyst seems to be full self driving and the race to get there among various auto manufacturers.
AAPL: Destroyed Q4 expectations. A clean beat on both revenue and margins and set the tone for a green Friday after a bloody week. The company saw $123 billion in revenue this quarter. That’s almost as much annual revenue as they made in 2011! There is room for optimism for Q1 as well (although Apple doesn’t guide revenue or earnings for the next quarter) as the company mentioned expectations for less supply chain constraints in the coming quarter. Based on how Apple works, they will be the first customers to see improvements in the supply chain due to how hard they push their suppliers. I wouldn’t extrapolate improving supply chains for other companies until Q2 at the earliest.
Netflix’s content problem vs Disney. People talk about popular IP and the success rate of making hits but something more fundamental is going on. Netflix has historically enjoyed a content cost advantage over its traditional competitors (FOX, HBO, ABC etc) due to its large subscriber scale and its top of the line delivery infrastructure. Enter Disney and now Netflix finds itself at a huge disadvantage because Disney is soooo very good at milking every dollar from its IPs. The risk and cost of making yet another Marvel movie is significantly less than Netflix investing in something like Don’t Look Up. Netflix is stuck in a hard place here and I wouldn’t be surprised if Netflix makes a move for owning solid IP franchises instead of just “renting” like what they have done with The Witcher. I would keep an eye out on a company like Hasbro, who owns IP franchises around Dungeons and Dragons, Magic The Gathering, and Transformers. Additionally, expect more content like Single’s Inferno, a Korean version of a mashup between Lost and Real World. These reality shows have always been very cheap to produce and seem to resonate with a large part of the Netflix audience (Singles Inferno beat Don’t Look Up in viewership).
Other news
NVDA abandon’s $40B takeover of ARM Holdings. Wouldn’t view this as a negative for NVDA but a positive for every other semiconductor company that uses ARM. NVDA has an architectural license to ARM so they can customize to their hearts desire. What they missed out in is influencing the future roadmap of the ARM architecture as well as benefiting from more “open source” like contributions from the rest of the industry.
Semiconductor shortage to continue for next 6 months. Keep an eye out on 2nd tier buyers of semiconductors for both higher costs as well as supply constraints (similar to how we saw GM/F etc. show lower production numbers while TSLA did not).
Ford halts new Maverick Hybrid pickup orders. Supply constraints are causing demand to greatly exceed supply so Ford is stopping people from putting in new orders. The risk here is that by the time supply constraints lessen (maybe Q3+), the buzz for Mavericks will be gone and more competitors will have offerings in the market.
Peloton exploring takeover. Peloton’s sudden demise has both been surprising (in its pace) and not surprising (a premium hardware offering being commoditized, where have we seen this before?). Now, there is growing pressure for the company, and shareholders, to reclaim what little value is left by pursuing an acquisition. Who would be a good candidate? If we look at the previous failed hardware venture Jawbone; nobody will buy it.
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Chart of the Week
Interest Rate Expectations
Source: Bloomberg survey of economists Jan. 14-19
This chart shows what the overall market (and individuals!) is working against in the next 3 years. Rates are expected to slowly increase to 2.25% by the end of 2024 according to a survey of economists.