Podcast Summary
Mixed results from major banks' earnings reports: JPMorgan and Wells Fargo exceeded earnings expectations, but JPMorgan lowered 2022 guidance due to inflation and costs. Citigroup's profits were impacted by rising expenses.
The earnings season for major banks kicked off with mixed results. JPMorgan Chase and Wells Fargo both reported higher profits and revenues than expected, but JPMorgan lowered its guidance for 2022 due to inflationary pressures and higher costs. Wells Fargo also released $875 million in reserves for credit losses. Citigroup, on the other hand, saw a rise in expenses cutting into their profits. Despite the challenges, both JPMorgan and Wells Fargo had strong performances in the previous year, with total returns of 27.9% and 61.1% respectively, outpacing the market. Overall, the banks are setting the table for 2022, but the anticipation of higher interest rates and inflationary pressures are impacting their guidance.
Challenges persist in banking sector, tech deals made: Despite positive economic conditions, banks face challenges leading to undervalued stocks. Tech companies make big deals but face skepticism from investors
The banking sector continues to face challenges, including inflation and economic headwinds, despite generally positive economic conditions. JPMorgan, Wells Fargo, and Citibank are currently undervalued by the market due to these challenges. Meanwhile, in the tech sector, Take 2 Interactive made a big move by acquiring Zynga in a high-priced deal aimed at expanding its presence in mobile gaming. However, some investors are skeptical about Zynga's ability to consistently engage consumers and grow. On the other hand, Elastic shareholders took a hit after the co-founder and CEO, Shay Banon, stepped down to become CTO, causing shares to drop and hit a 52-week low. Overall, these events highlight the ongoing challenges and opportunities in both the banking and tech industries.
CEO Change and Upcoming Earnings Reports: The CEO change at a specific company and upcoming earnings reports from others offer potential opportunities for investors with a long-term perspective.
The CEO change at a specific company, with Ash Kulkarni taking over from Shabannon as CEO while he moves to the CTO role, could be a positive sign for the business. Although the market may have had an initial negative reaction, the longer-term perspective suggests that this move could be beneficial. The company, which has seen growth in subscriptions and large customers, also announced expectations to exceed revenue, non-GAAP operating margin, and non-GAAP net loss per share guidance for Q3 of fiscal 2022. Additionally, there are other companies, such as Pinterest and Amazon, that investors are eagerly anticipating updates from during earnings season. Pinterest, which experienced a decline in monthly active users in certain demographics last quarter, is expected to show if they're effectively monetizing those customers and if users remained engaged during the holiday season. Amazon, with its vast reach in retail and AWS, is another significant company that investors are looking forward to hearing from. Etsy, a company that has generated significant free cash flow, has seen its stock price cut in half from its 52-week high. Despite this, its current valuation around 35 times trailing free cash flow makes it an intriguing opportunity for some investors. Overall, the CEO change, along with upcoming earnings reports from various companies, presents potential opportunities for investors who are willing to take a longer-term perspective.
Etsy Improves Fulfillment, Communication, and Supports Merchants: Etsy enhances its marketplace with better fulfillment processes, customer communication, and programs for top sellers to improve buyer-seller experiences
Etsy is focusing on improving its fulfillment processes, enhancing communication with customers, and supporting merchants through its star seller program and new gift finder feature, despite a recent stock pullback. Elsewhere, Virgin Galactic is seeking to raise $500 million in debt to fund its space tourism operations, which have been delayed, and Meta Platforms is shutting down its video dating service, Sparked. Etsy's initiatives aim to address challenges in its online marketplace and provide better experiences for both buyers and sellers. As for Virgin Galactic, the company needs more funding to prepare for commercial flights and generate consistent revenue. Lastly, Meta Platforms' decision to shut down Sparked indicates that competition in the online dating market may not significantly impact Match Group's business.
Domino's Pizza Adapts to Inflation with Online-Only Deals and Smaller Chicken Wings: Domino's Pizza is reducing chicken wing quantities and making online-only deals more attractive to cope with inflation, potentially increasing profits. Smaller restaurants may find this challenging without digital capabilities. Crocs' partnership with Balenciaga on high-end Crocs shows unexpected collaborations driving growth.
Domino's Pizza is adapting to inflation and rising costs by reducing the number of chicken wings in orders and making their online-only deals more attractive. This shift could lead to higher profits for Domino's due to the higher average ticket size of online orders. However, this move may be more challenging for smaller restaurants without the same digital capabilities. Additionally, there's a trend of "shadow inflation" where the quality of goods and services remains the same price but with decreased quantity or quality. Another intriguing development is the luxury fashion house Balenciaga's partnership with Crocs to produce high-end stiletto heeled Crocs for $625. While this may seem unusual, Crocs' innovative collaborations have contributed to the brand's impressive growth over the last 5 years. I'm curious to see if we'll see any grilling collaboration partnerships this year as the weather warms up.
Fed Chair Predicts Longer-Than-Expected Inflation Persistence: The Fed's prediction of prolonged inflation could lead to larger cost-of-living adjustments for Social Security recipients and potential implications for interest rates and the economy.
Federal Reserve Chair Jay Powell testified before Congress this week and predicted that inflation, which is currently at around 7%, will persist longer than many people anticipate. This is significant because the Social Security Administration uses the inflation rate to determine cost-of-living adjustments. Last year, the adjustment was 5.9%, which was higher than expected, but this year's adjustment is expected to be even larger. Investors and consumers should take this seriously, as inflation can impact purchasing power and investment returns. Additionally, the market has not had a strong start in 2022, particularly the Nasdaq. The Fed's stance on inflation could have implications for interest rates and the overall economy.
Impact of Rising Interest Rates on Corporations and Stock Market: As interest rates rise, corporations face increased borrowing costs, leading to pressure to show growth and profitability, causing potential sell-offs in the stock market, and a decrease in new public companies, particularly those from SPACs.
As interest rates rise, borrowing becomes more expensive for corporations, putting pressure on them to show growth and profitability sooner rather than later. This can lead to a shift from stocks to bonds, causing a sell-off in the stock market. Additionally, the number of new public companies, particularly those that went public via Special Purpose Acquisition Companies (SPACs), may decrease in 2022 as some struggle to gain traction and may choose to go private instead. Rent the Runway and WeWork are potential indicators of this trend. Overall, these changes reflect the impact of rising interest rates on the investment landscape and the shifting priorities of investors.
Undervalued companies and sectors in a downturn: PayPal's strong history, focus on Asia, and anticipated $5B in free cash flow make it an attractive investment opportunity. Real estate and healthcare sectors also expected to benefit from pent-up demand post-COVID.
Despite the market downturn, there are attractive investment opportunities in certain sectors and individual stocks. The speaker specifically mentioned PayPal as a company that has been undervalued due to missed opportunities in the buy now, pay later market, but has a strong history of inorganic growth and a focus on expanding in Asia. Real estate and healthcare are also sectors that are expected to benefit from pent-up demand post-COVID. UnitedHealthcare was given as a specific name in the healthcare sector that is anticipated to see significant growth. PayPal's anticipated $5 billion in free cash flow in 2022 is expected to be used for acquisitions. The speaker also hosts the Tech Money podcast and Season 2 is set to launch on January 19th.
Equity Compensation Focus in Tech Money's Second Season: Investors should own enough stocks to maintain diversification and not closely follow every holding daily.
The Tech Money podcast will focus more on equity compensation in its second season due to popular demand. The podcast will feature interviews with experts in the equity space and will cater to younger employees, particularly millennials and gen zers. The host, Malcolm Etheridge, also shares his personal interest in running and plans to meet up with a fellow runner at the Richmond marathon. For investors, the question of how many stocks to own was raised by a listener. While there's no definitive answer, Jason Moser suggests owning enough stocks to maintain diversification and not closely follow every holding on a daily basis. Tyler Cheney, the listener, currently owns 51 stocks and 4 ETFs and is considering adding more. Moser advises that adding more stocks may lead to difficulty in closely following each one. The Motley Fool also offers a free investing starter kit for those looking to get started with investing.
Balancing Active and Passive Investing: A balanced approach of active and passive investing, focusing on companies of interest and using ETFs for diversification, can lead to better performance and reduced overwhelm.
Having a large number of stocks in your portfolio can be beneficial, but it may also lead to underperformance and become overwhelming. A balanced approach of active and passive investing, with a focus on following closely the companies you're most interested in and using ETFs to diversify in other areas, can be a good solution. Jason Moser's stock pick, NVIDIA, is an example of a company with a diverse range of opportunities, including gaming, autonomous vehicles, data centers, and the metaverse. Despite the semiconductor shortage affecting the entire industry, NVIDIA's strong financial position and innovative technology make it an attractive investment opportunity.
NVIDIA's Supply Chain Challenges and Adyen's Impressive Growth: NVIDIA faces supply chain issues but remains active in various markets. Adyen, a payment platform company, has seen revenue and net income triple since 2018 and is attracting interest as a potential investment opportunity.
NVIDIA, a company with diverse market opportunities, is currently weathering the supply chain crunch despite being active in various markets. Another investment idea discussed during the Motley Fool Money radio show was Adyen, a payment platform company with impressive growth, attracting the interest of both Maria Gallagher and Dan Kline. Adyen, which has customers like McDonald's, Etsy, and eBay, has seen its revenue and net income triple since 2018. While Jason Moser is known for his "war on cash" investment ideas, it seems that Maria's interest in Adyen was genuine and not influenced by Jason. Dan Kline also expressed his interest in the company, making it a potential addition to his watchlist. Overall, the discussion highlighted the potential of Adyen as an investment opportunity in the payment space.
