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They reported mixed numbers after the bell: in-line same-store sales, light revenues, but a bottom-line per share earnings beat. They're making more money because of better restaurant margins as key costs finally are declining. But they guided lower same-store sales this quarter; they're being conservative. Shares were up 50% YTD going into this quarter and he thought the report was overall good.
Shares plunged 14% after their quarter yesterday, but was up 107% YTD before that report. Puzzling. Climbing subscribers number haven't translated into revenue: more monthly active users, premium subscribers and ad-supported users. 14% revenue growth cs. 27% rise in monthly users. They're struggling to monetize users. Revenue per users are declining. That's why they raised prices last week for the first time. Also, expenses were much higher than expected while free cash flow of 9 million Euros was much lower than the street's 72 million. They're spending like drunken sailors. They missed numbers while expectations were too high. However, they gave excellent guidance for the current quarter. Analysts actually raised price targets. Overall, these are fixable problems, turning users into earnings namely and he likes the stock. Until they do around, there are better stocks to buy like Netflix.
He's blown this one. They don't the cash flow to pull off what they want to do now, and they don't have the blockbusters. Only the theme parks are humming. That said, he is long on Disney. This quarter and maybe the next won't be that good. CEO Iger can still turn it around.
With the stock up 40% YTD there was bound to be some profit-taking on a not-100%-perfect quarter. But we continue to view it as a premier growth company for the long term.
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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research
RY has been one of the fastest-growing Canadian banks, and it has survived several recessions in the past. Although there is the potential for a recession to arise as a result of high interest rates, we would be very comfortable with holding any of the large Canadian banks for the long-term. While there are concerns about a potential recession, a lot of these fears have been priced into the Canadian banks, as we have seen their valuations contract as a result of weakening capital markets and reduced lending.
The large Canadian banks will generally grow with the economy and the capital markets. As the Canadian real estate market grows and consumers and businesses take on additional debt to fund real estate, property, investments, etc., the large banks will benefit and see their top and bottom lines grow. Most of the Canadian banks have also been expanding into other geographies, which has helped to stimulate growth.
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EL’s share price is under tremendous pressure recently due to the weak guidance. Still, at 52X earnings the stock is still on the expensive side, even with a 28% YTD decline. Based on consensus estimates, sales are expected to decline by around -10% this year and start to recover back to 2022’s level in 2024. We think EL still possesses a strong portfolio of worldwide recognized brands for skincare, makeup, fragrance, etc. and these brands have been around for decades and demonstrated consumer loyalty and significant pricing power over the years. Most consumer discretionary names experienced a short-term headwind due to the concern of economic recession. In the last quarter EPS missed estimates. For 2023, EPS is expected to decline by close to 50%. But, nearly 50% growth is expected in a 2024 recovery. Thus, this is a tough call. Momentum is negative, and there are still risks. Valuation is high, but we think that is because investors believe in the rebound possibility. We have recession risk, but the balance sheet is OK (some debt but not an onerous amount). Sentinment is very negative, so any positive news at all should be good for the stock. We would thus be willing to hold to see how the next two quarters fare.
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Odds of Recession.
Since the middle of last year, the dominant topic of discussion revolved around the possibility of a recession, be it a soft or hard one. This prevailing thinking stemmed from the belief that global economies would grind to a halt due to the aggressive measures taken by central banks to combat surging inflation.
Economists are now softening their stance on recession predictions. With easing inflation, a strong labor market, and resilient economic activity, Goldman Sachs cut the chance of recession from 25% to 20%.
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They're in a consolidation phase. The PC market has bottomed. AMD is doing well in data centres. Demand is good for their chips. He's sticking with it.