Weekend Update #190
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Fear around an economic slowdown took hold of markets to end this week, as equities had their worst jobs day reaction since October 2022 on Friday and the Nasdaq Composite ended in correction territory. Treasuries rallied for the 7th consecutive day while the market began pricing 100 basis points of rate cuts for 2024. Earnings this week were mixed with some pockets of strength, but positive results weren’t enough to assuage fears that earnings estimates are too high for an economy entering a slowdown.
In economic news for the week, Consumer Confidence in July continued to show consumers souring views on the present condition of the economy with worse outlooks on the labor market. JOLTS Job Openings were slightly better than expected but remain in a softening trend. Employment Cost Index confirmed that the softening labor market is bringing down supply-side inflation costs. ISM Manufacturing fell deeper into contraction and sparked fears of sharply lower growth than expected. Seemingly confirming the weakness seen elsewhere, Friday’s labor data indicated that we are seeing faster-than-expected labor market deterioration, with only 114,000 jobs added in July compared to the 175,000 consensus estimate. With this report, the unemployment rate ticked up to 4.3%, triggering the Sahm Rule, which serves as a rule of thumb for the point of no return when the country is entering a recession.
Despite the weakening data creating concern for investors, the FOMC decided to leave interest rates unchanged at 5.25-5.50% as the committee broadly perceived a resilient economy. Fed Chair Jerome Powell’s commentary signaled a rate cut to come in September, but the lack of action sparked market commentary that the Fed is now behind the curve in cutting interest rates. Just as the long-and-variable lags of monetary policy warranted a hold on interest rates, waiting too long could put undue economic stress on an already normalized economy in the coming year. The greatest market fear this week seems to be that a Federal Reserve cutting interest rates in response to economic weakness raises the probability that this cycle will repeat its historical trend with a recession and a selloff in equities.
In this newsletter, Blue Room discusses some of the most important earnings results this week: AAPL, AGCO, AMZN, ARM, CCJ, COIN, DTIL, EXAS, INTC, META, MSFT, MBLY, MRNA, PG, PYPL, REGN, ROKU, SDGR, SNAP, and VRTX.
Friday’s Close (Weekly Performance)
S&P 500 5,346.56 (-2.06%)
Nasdaq 16,776.16 (-3.35%)
Dow Jones 39,737.26 (-2.10%)
Thank you Blue Room Analyst JARED FENLEY
What a week it’s been! The majority of our holdings reported second quarter earnings during a week that was also marked by a dovish Federal Reserve Chairman speech, followed by economic data pointing to potential cracks in the economy and a softer labor market. Needless to say, volatility spiked in the market as it did in Fund One. Nearly a third of our holdings had double-digit moves for the week. Some of those moves benefited our investors while others dampened performance.
Let’s start with the highlights. Our short positions in Arm Holdings and Intel performed particularly well. We’ve long believed that Arm was overvalued, and while its performance has mostly been unfavorable to us until now, it has finally started to move in our favor. Intel was one that we traded almost perfectly as we forecasted a dramatically deteriorating market position. This week, Intel announced a layoff of 15,000 employees and suspended its dividend to cut costs. We feel that both Arm and Intel have further to fall. Long holding Exact Sciences surged nearly 27% on Thursday after it exceeded analysts’ expectations and beat its high-end revenue outlook. The company, known for its Cologuard test for early colorectal cancer detection, also reaffirmed its full-year guidance, which further reinstated confidence amongst investors.
On the flip side, several positions detracted from our performance. Moderna, SNAP, Mobileye and Rocket Pharmaceuticals all experienced significant declines, mostly after disappointing earnings related commentary. For instance, Moderna’s near-term outlook was clouded by management’s acknowledgement of increasing respiratory vaccine competition from larger competitors Pfizer and GSK. SNAP’s results fell short of expectations amid weakness in brand spending. Autonomous driving technology and solutions company Mobileye fell on a forecast downgrade after a pullback in Chinese car production. Rocket Pharmaceuticals fell in tandem with the broader market sell-off, despite having no company-specific news. For now, we are maintaining our positions in these companies.
With the market now anticipating up to eight interest rate cuts through the end of 2025, vigilance is key. Even if Chairman Powell manages a soft landing, the market’s expectation of such a substantial number of rate cuts suggests potential turbulence ahead. The equity markets rarely offer dull moments, and the current environment is no exception. Stay tuned for further updates!
Thank you Blue Room Investing President JOHN FENLEY
Executive Summary
Amazon shares are poised to drift lower through the remainder of 2024 as the company experiences softness across all of its businesses with the exception of AWS. Total revenues grew 10.1% to $148.0 billion, decelerating from 12.5% in the prior quarter, and adding $4.7 billion sequentially, compared to $7.0 billion in the prior year period. Momentum in operating income slowed, with $14.7 billion representing an operating margin of 9.9%—a 77 basis point sequential decline—and a guidance beat of only $672 million compared to $3.3 billion in the prior quarter, partly due to rises in fulfillment costs from providing more than 5 billion units the same or next day and growing spend to support AWS infrastructure—something which Amazon said it will continue to do since management believes generative AI is still in its early days and 90% of global IT spend is still on-prem and will likely shift to cloud in the coming years.
Executive Summary
Headline is that revenue and profits are challenged, even more so than anticipated after the announcement of the export headwinds. Intel faces multiple structural challenges including increasing competition in the client segment, market share attrition in the data center (on both servers and accelerators), and worsening margins in the Foundry business (even in spite of government incentives). Specifically in Foundry, 2Q24 represented the worst operating margin since Intel began disclosing the figure (-65.5% OPM versus -56.6% last quarter and -44.8% in 2Q23) and drove total Intel (GAAP) operating margin to -15.3%. Those losses triggered emergency measures; Intel announced a (more than) 15% reduction in headcount and lower CAPEX outlooks for both 2024 and 2025.
The client business weakened in China during the quarter as consumer and enterprise markets decelerated their purchases. Gelsinger also noted the continued trend of indexing spend towards the AI accelerator market as opposed to the general purpose server market reduced Intel’s TAM expectations for 2024. The Foundry business also continued to weaken with sales declining 1.0% QoQ.
Based on the guidance and segment trends, we lowered our FY2024 revenue from $55.112 billion to $52.160 billion, and our FY2025 revenue estimates from $60.994 billion to $55.494 billion. Our EBITDA estimates for F2024 are lowered from $8.276 billion to $4.653 billion and F2025 EBITDA is lowered from $16.444 billion to $7.822 billion.
Executive Summary
Coinbase generated $1.45 billion in revenue, beating estimates of $1.40 billion. Transaction revenue fell 27% Q/Q in-line with total spot volume, but maintained a similar Y/Y growth of 140%. Services revenue grew 9% Q/Q despite a decline in the overall crypto market cap, driven by outperformance from ETH and SOL. The company generated an adjusted EBITDA of $598 million (vs. $612 million expected), and produced a diluted GAAP EPS of $0.14 ($1.33 excluding unrealized crypto losses), compared to consensus estimate of $0.84 per share. Coinbase continues to drive broader adoption and has been leading the charge on more friendly crypto policy around the world. COIN shares are poised to continue higher in 2024 as Coinbase grows its international presence and new products take shape.
Executive Summary
AGCO reported weaker-than-expected Q2 2024 sales as there was softness in Europe and a sharp decline seen in Asia/Pacific/Africa. The declines were both a combination of weakening demand for agricultural machinery due to weak commodity prices but also due to AGCO underproducing demand in order to manage inventory levels. In a change compared to the prior quarter, although AGCO acquired 85% of PTx Trimble through its recent joint venture, those sales are not expected to cushion total revenue as much as previously expected in 2024. The combination leads to a guide down in revenue that would indicate the sharpest sales decline since 2015, which from a contrarian viewpoint may mark peak negative sentiment for AGCO if the ag environment’s deterioration does indeed slow from here.
The major positive in this report is operating efficiency despite the sales slowdown, as without the $494.6 million loss on business held for sale charge due to the Grain & Protein business sale, GAAP net income would have been $125.7 million, which represents $1.68 per share diluted EPS. Similarly, EBITDA beat on consensus estimates, so the company is driving efficiencies in response to a tougher operating environment.
Looking at the recent macro data, farmer sentiment is holding relatively steady compared to 2023 and 3 years into a downshift in the ag cycle should be approaching a trough in 2025 based on historical timing. All of these data points still suggest the trough ag environment will arrive in 2025 with AGCO operating more efficiently, having integrated Trimble and new precision ag offerings, as well as with higher margins following the Grain & Protein divestiture. AGCO management’s commentary in the earnings call centered around the idea of the company reaching “trough” performance levels with the next big directional move expected to be upward in an agricultural recovery.
Executive Summary
Moderna shares will trade down following a significant revision to full-year guidance from an expected $4.0 billion in revenue to $3.0 – $3.5 billion. Management attributed the change in guidance to i) a more intense COVID and RSV market than previously anticipated (impacting both price and volume) ii) deferrals for some countries into 2025 and iii) lower than anticipated EU sales in 2024. In discussing the relative weights of these impacts, Moderna’s Chief Financial Officer commented that it was relatively equal weighted with each reason accounting for roughly a third of the decline in guidance.
FY2024 Q4 Earnings Summary
Microsoft reported a solid close to the fiscal year F2024 with annual revenue growing 15% year over year to more than $245 billion and Microsoft Cloud revenue surpassed $135 billion, up 23% year over year.
Revenue from Productivity and Business Processes grew 11%, revenue from More Personal Computing grew 14%, both segments were slightly ahead of expectations driven by Office, Dynamics and Windows. Revenue from Intelligent Cloud grew 19%, in line with expectations, driven by Azure’s growth of 30%.
Operating margins increased slightly driven by the higher gross margin, and improved operating leverage through continued cost discipline.
Microsoft added new AI accelerators from AMD and NVIDIA, as well as its own first-party silicon Azure Maia, and introduced new Cobalt 100, which provides best-in-class performance for customers.
The company has over 60,000 Azure AI customers, up nearly 60% year over year and average spend per customer continues to grow. Microsoft Fabric, an AI-powered next-generation data platform, now has over 14,000 paid customers.
Commercial bookings were significantly ahead of expectations and increased 17%. This record commitment quarter was driven by growth in the number of $10 million-plus and $100 million-plus contracts for both Azure and Microsoft 365 and consistent execution across our core annuity sales motions.
The number of paid Models as a Service customers more than doubled quarter over quarter, and the company is seeing increased usage by leaders in every industry from Adobe and Bridgestone to Novo Nordisk and Palantir.
Fiscal year 2025 total revenue and operating income are expected to grow double-digits. Gross profit margin will be affected by growth in Capex, so the company will continue to prioritize operating leverage, and operating expenses are expected to grow single-digit, leading to OPM down ~1 point YoY.
Earnings Call Summary
On August 1, 2024, the Hershey Company hosted its second quarter 2024 earnings call. Net sales came in below estimates at 2.07B, a 16.7% decline, attributable to two primary causes: (1) depletion of the ERP-related inventory builds (comprising 9 points of the decline) and (2) consumers pulling back on discretionary spending. The latter factor took a particularly large toll on Hershey’s revenue due to its strength in the convenience channel, which experienced a substantial slowdown in the quarter.
North America Confectionery segment net sales declined 20.7%, largely due to a 22% decline in volume. Volume was impacted by 11 points of planned inventory depletion from the ERP implementation. Nonetheless, Hershey predicts that business will turn up in the second half of the year. Management expects low single-digit net sales growth in North America Confectionery.
Hershey’s North American confectionery summer programs are in full force. These include Reese’s Medals, Patriotic Kisses, Ice Breakers Golden Pineapple Gum and Mints, and brand new Shaq-a-licious, an innovative gummy line launched in collaboration with Shaquille O’Neal. Hershey will be promoting Shaq-a-licious through a medley of channels, including social media and a pop-up in New York City. Hershey will be launching a new Jolly Rancher gummy form later this year. Hershey also continues to anticipate strong Halloween and Holiday sales.
The North America Salty Snacks segment performed above expectations at 6.4% YoY revenue growth. Despite a tougher macro environment, SkinnyPop sales stabilizing, returning momentum in Pirate’s Booty, and investments in innovation, merchandising, and media fueled a 22 basis point share gain in salty snacking. Hershey projects segment growth of mid-single digits, driven in part by a new flavor of Dot’s Pretzels (Parmesan Garlic) hitting shelves right now.
International segment net sales declined 8.9%, driven by the exit of Hershey’s Mexico beverage business and planned depletion of S/4-related inventory builds. Excluding these items, sales were up mid single digits, in line with Hershey’s full-year outlook. Declines in Brazil and LatAm were offset by double-digit growth in Europe, AMEA, and India.
Hershey is on track to deliver an incremental $100 million in savings this year as part of its AAA initiative, largely to be realized in division and corporate expenses. Capital additions, including software, were $130M, supporting capacity expansion projects and ERP implementation, but this pace is expected to moderate in the second half of the year. Hershey is also taking steps to address cocoa pricing pressures through its robust hedging program. Despite cocoa prices remaining high, Hershey will cover expected inflation with pricing.
Dividends paid to shareholders in the second quarter totaled $271M, a 31.2% increase, reflecting the strength of the Company’s performance and its commitment to a dividend payout ratio of at least 50% over time. Additionally, Hershey completed its planned share buybacks for the year, comprising $400M of repurchases. Approximately $470M remains under the December 2023 authorization. Finally, adjusted earnings per share declined 21.5% in the first half as lower sales, gross margin declines, higher technology investments, and a higher tax rate cut into earnings. Full-year EPS is expected to be down slightly.
Operator
Good morning and welcome to PayPal's Second Quarter 2024 Earnings Conference Call. My name is Sarah and I'll be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal's Chief Investor Relations Officer. Please go ahead.
Steve Winoker
Thanks, Sarah. Welcome to PayPal's Second Quarter 2024 Earnings Call. I'm joined by President and CEO, Alex Chriss and CFO, Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses, as we see them today.
As described in our earnings press release, SEC filings and on our website, those elements may change as the world changes. Now over to you, Alex.
Alex Chriss
Thank you, Steve. And thanks to everyone for joining us this morning. PayPal delivered a strong second quarter and first half with encouraging operating and financial results. While change takes time and we still have much work ahead of us, we are well positioned today, have the right leadership in place, and are moving full steam ahead. I'm confident we are on the right track in making meaningful progress on our transformation to position PayPal for long-term, durable and profitable growth.
Looking at our results in the second quarter, total payment volume rose 11% to $417 billion, and we delivered 9% revenue growth on a currency-neutral basis. Transaction margin dollars grew 8%, representing our best performance on that metric since 2021. Our non-GAAP earnings per share increased 36% year-over-year.
We're encouraged to see not only the strength and stability in PayPal's platform, but also early contributions from some of the initiatives we have underway. Branded checkout continues to grow profitably. Braintree is now meaningfully contributing to transaction margin dollar growth for the first time in over two years. Venmo momentum continues to build and monthly active accounts increased across both PayPal and Venmo.
Given the strength across PayPal, we are raising our full year guidance for growth in transaction margin dollars and earnings per share, and increasing our investment in strategic growth initiatives that we are driving. Overall, we remain on course with the strategy we set at the beginning of the year. Our teams are moving with urgency, excited about our innovation, and focused on execution. We are still early in our transformation, and while pleased with our progress in many areas, we know there is much more we can do and with greater speed.
EXECUTIVE SUMMARY
Arm first quarter revenue came in well above expectations (and 4Q24 guidance), but the forward revenue guidance of $780m - $830m was underwhelming to investors when combined with the fact that full year guidance was unchanged. At the midpoint, revenue met consensus expectations, but with a 1Q beat, one would expect the full fiscal year outlook to improve incrementally. In the first quarter, revenue grew 39% YoY driven by a larger than expected increase in license & other revenue as companies continued to invest in AI. Management also described slower royalties in IoT and Networking end markets due to inventory digestion as the limiting factor to revenue upside. Equally offsetting this weakness is strength in the licenses business. As a result, Arm’s FY royalty revenue forecast was lowered to low 20s % YoY, offset by low-to-mid 20s % YoY in licenses. Overall, our revised model points to mid-20% YoY growth in topline revenue and adjusted EPS of around $1.46 (toward the low end of the guided EPS range).
We see Arm’s largest opportunity for 20% YoY growth over the next two-three years coming from the Client and Smartphone markets, where overall unit volumes have a larger market due to the refresh cycle and faster innovation cycle. The Networking, Automotive, and Data Center markets will benefit from an ASP increase, where the core count is higher per chip shipped. All markets are forecast to transition to Armv9, which we do account for in our model, but the smartphone, industrial, and client markets appear to be early adopters, with the higher ASP markets coming online later as major customers are signing licensing agreements this year.
Executive Summary
Vertex grew revenue 6% year-over-year to $2.65 billion, narrowly missing consensus estimates by $17 million. Growth was driven by TRIKAFTA sales which grew 9% year-over-year to $2.4 billion. Adjusted EPS was a loss of $12.83, driven by the Alpine acquisition which added $17 per share in operating expenses. Excluding the acquisition would have resulted in EPS of roughly $4.17. Vertex now has PDUFA dates for its vanzacaftor triple combination drug in CF and Suzetrigine in acute pain, both of which are set for January 2025. Vertex continues to ramp CASGEVY, which now has 35 active ATCs with 20 patients having cells collected. VRTX shares are poised to continue its positive momentum in 2024 as it successfully diversifies its commercial products beyond cystic fibrosis, and as its R&D pipeline continues to progress into late-stage development.
Executive Summary
Snap Inc. delivered mixed Q2 2024 results with better EPS and adj. EBTIDA performance but weaker revenue than expected, driven by weakness in North America. On top of a weaker Q2 performance, Q3 revenue guidance implies a 8.4% to 11.6% sequential growth into Q3, which is a better-than-expected seasonal performance but on top of a weaker base. Advertisers are seeing strong success in Europe where revenue accelerated 26% YoY, but North America (12% YoY) and Rest of World (20% YoY) both were sources of softness.
Adj. EBITDA guidance of $70-100 million seems to be getting headlines as this missed consensus of $111 million, but Snap has guided adj. EBTIDA lower than actual performance by $25-121 million over the past 4 quarters. In other words, adjusted EBITDA was not the actual miss on expectations for investors. Rather, Snap stated advertising revenue was $1.13 billion, up 10% YoY compared to the 16% topline growth. So, investors are saying that even if Snapchat+ is diversifying revenue and acting as a strong source of growth, it is masking weaker trends in advertising. Implied core ad revenue guidance of 5-9% YoY is much weaker than peers, with Pinterest guiding to 16-18% YoY growth in Q3 and Meta guiding to 13-20% YoY growth.
From prior expectations, Snap looks to be executing better on profitability metrics in 2024. However, Snap’s updated ad tools having been distributed to advertisers in H1 2024 already and some reporting strong success, the advertising value proposition doesn’t seem to be there in this quarter, especially in North America. The guide to acceleration more than doubling the sequential growth from Q2 to Q3 is a very strong sequential trend, not seen in any Q3 outside of the COVID pandemic in 2020. Snap management specifically called out early Q3 2024 revenue trends as particularly strong given the Olympics and increasing direct response ad demand. In addition, another bright spot to look forward to is the unveiling of a Snapchat redesign in September that makes Snapchat “simpler” to use. If Snap has invested into user innovation like they have in the past, this update could spark new interest among both users and advertisers.
Overall, it seems that H2 2024 profitability will play out largely in-line to better-than-expected compared to consensus results, but that is driven more by Snapchat+ growth and OpEx cuts rather than an acceleration in ad revenue growth like competitors are seeing. The mix brings the trends entering 2025 into question, as it seems less likely 2025 will be an economic-rebound year with free-flowing advertising dollars, so there will be more scrutiny over these seemingly weaker ad trends Snap saw in Q2 2024. SNAP shares are trading down to $10.50 (-18.0%) on the results prior to the earnings call.
July 31, 2024
2:00 p.m. EDT
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges
that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is highly attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas l. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowan; Lisa D. Cook; Mary C. Daly; Austan D. Goolsbee; Phillip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Austan D. Goolsbee voted as an alternate member at this meeting.
Executive Summary
Cameco shares are poised to rise through 2024 as industry fundamentals remain robust. The nuclear industry is enjoying strong bipartisan political support in the U.S. and in many countries around the world, and governments aren't the only customers. Energy-intensive industries need to integrate reliable carbon-free baseload power to reduce emissions today, and with rising global geopolitical tensions, countries need to increasingly secure reliably energy sources. The lack of investments in greenfield projects, the restarts of existing reactors, reactor extensions and new reactor builds will all dramatically increase demand, creating a tightness of supply that Cameco is uniquely positioned to benefit from. Cameco has very little spot market activity, opting instead to build its long-term book of business, with a current average level of commitments over the next five years increasing from 28 million pounds to 29 million pounds per year. Every pound of production at MacArthur River, Key Lake and Cigar Lake has been sold, putting Cameco in a position to decide whether it should raise its existing operations from 18 million pounds of production to the licensed capacity of 25 million pounds. Despite a recent production guidance increase from competitor Kazatomprom that sent uranium equities plunging, I believe that was a market overreaction and Cameco's share price remains poised to rise through 2024 and beyond.
Executive Summary
Precision BioSciences benefitted in the quarter from the recognition of deferred revenue from Prevail of $48.2 million, which boosted Precision to a second consecutive quarter of positive net income. Offsetting the inflows, Precision stepped up R&D expenses by 29% sequentially into Q2, driven by PBGENE-HBV external development costs as Precision undergoes the final toxicology studies to ready the program for clinical trials and submit an IND/CTA in 2024. Net, Precision still expects cash runway into H2 2026, after they’ll have achieved the first in-human clinical data from both HBV and PMM programs.
Precision had no further updated on planned internal development or external partnerships for any of the 3 assets the company regained from Prevail/Lilly but said it exepcts to provide an update when decisions are finalized. Similarly, there was no new update on iECURE or Novartis partnered programs, and iECURE’s program remains on track for data in late 2024 or 2025. IND/CTAs for HBV and PMM remain on track for 2024 and 2025. Precision now says the company expects to provide an HBV program update later this year, presumably once the IND/CTA is submitted.
Although the revenue sum is big due to Prevail, revenue recognized in the quarter from Novartis was only $0.8 million (vs. $4.5 million in Q1) and was $0 for Imugene. The company states in the Form 10-Q that “As of June 30, 2024, management has constrained all variable consideration related to milestone payments in the Imugene License Agreement given the level of uncertainty associated with achievement of the milestone payments.” This is a deviation from at least Imugene’s prior expectations as they had expected to complete the Phase 1b enrollment for azer-cel by Q2 2024, which would trigger a $8 million milestone payment to Precision. This timeline is likely pushed back. The last update on azer-cel received from Imugene was February 22nd at their “State of the Company Address” where management stated the azer-cel Phase 1b program is ongoing.
Executive Summary
Mobileye shares fell nearly 25.0% this week after posting revenue of $439m, reporting a GAAP net loss of $(82)m, and lowering full year guidance on sales to $1.640b from $1.895b prior. The company cites novel headwinds in China related to global inventory digestion, China specific market share attrition, and US/EU tariffs on Chinese OEMs. While the news on China is incrementally negative, the company noted that this headwind was almost exclusively related to China and that customers in North America and Europe are very near inventory normalization. In these regions, prices and margins tend to be higher than in China and should help offset margin pain from detractors. Looking forward, global production forecasts in the ADAS category have weakened and Chinese manufacturers bearing the tariff load will continue to wane their orders in 2H. For Mobileye's SuperVision (L3+ category), China will likewise see short term volume headwinds due to the aforementioned factors.
With respect to the longer-term outlook, the situation appears less grim than the equity trading today would suggest. Firstly, EyeQ6 high (Mobileye's equivalent to Ambarella's CV3 domain controller) has RFQs for 19m units across four OEMs. According to Amnon (CEO), “the life revenue value of these RFQs from just four OEMs is already about double the value of all the combined ADAS RFQs we are currently pursuing with more than 20 OEMs.” In other words, Mobileye has a much larger opportunity with its more advanced silicon that could represent up to 4x the current revenue coming from its immediate customer base. Mobileye also continues to have 14 OEMs on their shortlist for advanced autonomous solutions in SuperVision, Chauffeur and Drive.
During the quarter Mobileye also announced Brain 6, a development program and software component that is powered by Generative AI and seeks to compete against Tesla's FSD-12. According to management, Brain 6 is 50% the MSRP of Tesla FSD-12 for "eyes off" and 25% MSRP of Tesla solutions for "hands-off". The ecosystem will also be modular, in order to be more customizable. Mobileye will prototype models with Eye6xBrain6 with Volkswagen by the end of 2024.
Moving forward we will have to significantly reduce our revenue estimates for F2024 by a minimum of 13% (in line with the current outlook), which will in itself have an impact on the growth we forecast for F2025. With lower revenue on top R&D investments that will continue to grow, we also see a significant impact on adjusted EBITDA margins for both F2024 and F2025.
Executive Summary
Roku surpassed estimates as Platform revenue grew 11% year-over-year to $824 million, ahead of $811 million consensus. The beat was driven primarily by continued account growth and increased user engagement with active accounts reaching 83.6 million, while streaming hours grew 20% year-over-year to 31 billion hours, three times the next CTV brand. The Devices segment also grew 39% Y/Y to $144 million, surpassing analysts’ estimates of $127 million as the company continues its rollout of Roku-branded TVs. Roku generated an Adj. EBITDA profit of $44 million, above the consensus estimates $33 million and previous guidance of $30 million. Management’s outlook for the second half of the year improved as the company executes on its goals and outperforms the broader industry. ROKU shares are poised to rebound as the company demonstrates its ability to re-accelerate revenue growth and continue margin expansion.
Executive Summary
Exact Sciences beat on revenue and earnings estimates in Q2 2024, while reaffirming their revenue outlook for a rebound in H2 2024 as well as managing expenses closer than investors had worried about last quarter. Despite much talk last quarter of the incremental sales & marketing spend, the line item only increased 5.0% YoY and fell 3.7% sequentially while revenue still accelerated to 12.4% YoY. With management’s line of sight into a rebound to 20%+ YoY growth for revenue in H2 2024, I’m still estimating a rebound in S&M expense to 15%+ YoY in H2 2024, but the positive leverage enabled Exact to raise full year adj. EBITDA guidance to a range of $335-355 million from the prior $325-350 million.
The mix of results were positive over consensus, but more importantly the rebound to 12% YoY growth and path to 20% YoY growth in H2 has significant implications for DCF valuations. A 10% 10-year revenue CAGR with minimal operating leverage leads to a price target of $42, where EXAS had been trading prior. A revenue CAGR more consistent with ~15% with continued operating leverage, leads to much larger upside for valuations.
The financials demonstrated the lifted confidence in that outlook to investors in this quarter and management was able to lay out bullish commentary on 1. Bringing COGS down for both Cologuard Plus and its blood test 2. Building a case for the ~10% price increase for Cologuard Plus 3. Bringing new high ROI tests in MRD to market 4. Turning sights to upcoming data releases on new tests. All of this comes at a time where competitor catalyst events are majorly out of the way until the 2026/2027 USPSTF guideline meeting and ARK funds have sold out of their positions and are not adding downward pressure to trading anymore.
With the combination, investors seem to be rebuilding confidence in the trajectory Exact’s management has been laying out over the past year yet has been clouded by investor fear and external market noise. EXAS shares are trading up to $50.49 (+10.5%) in after-market trading following the earnings call.
Operator
Good morning and welcome to Procter & Gamble’s quarter end conference call. Today’s event is being recorded for replay.
This discussion will include a number of forward-looking statements. If you will refer to P&G’s most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the company’s actual results to differ materially from these projections.
As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its Investor Relations website, www.pginvestor.com a full reconciliation of non-GAAP financial measures.
Now I will turn the call over to P&G’s Chief Financial Officer, Andre Schulten.
Andre Schulten — Chief Financial Officer
Good morning everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations.
I will start with an overview of results for fiscal year ’24 and for the fourth quarter. Jon will add perspective on our strategic focus areas and capabilities and will close with guidance for fiscal ’25 and then take your questions.
Fiscal ’24 was another very strong year. Execution of our integrated strategies enabled the company to meet or exceed going-in guidance ranges for organic sales growth, core EPS growth, cash productivity and cash return to share owners, all this despite significant market level headwinds that were largely unknown when we gave our initial outlook for the year.
Organic sales growth for the fiscal year was 4%, our sixth consecutive year of 4% or better organic growth against a strong 7% comp in the prior year and in more challenging market conditions. Growth was broad-based across business units with eight of 10 product categories growing organic sales. Home care, Hair care and Grooming were up high single digits, oral care and feminine care up mid singles. Fabric care, family care, and personal healthcare grew low single digits. Skin and personal care and baby care were down low singles.
Focus markets grew 4% for the year with North America up 5% and Europe focus markets up 8%. Greater China organic sales were down 9% versus the prior year, driven by soft market conditions and brand-specific headwinds on SK-II. Enterprise markets were up 6%, led by Latin America with 15% organic sales growth. Ecommerce sales increased 9%, now representing 18% of the total company.
Executive Summary
Schrödinger beat on Q2 2024 revenue and net income estimates, driven by a rebound in its drug discovery revenue segment, as well as provided Q3 revenue guidance in line with consensus estimates and reiterated FY 2024 guidance. The combination of factors raised confidence that Schrödinger will be able to meet its FY 2024 guidance range of $199-215 million (6% to 13% YoY growth) while OpEx growth slows to the single digit YoY range by Q4 2024.
CFO Geoff Porges reinforced the trend that newly formed biotech customers are more than offsetting existing biotech customers that have run out of capital to continue on drug discovery pursuits, which is a positive macro read on the field, in addition to continued interest in stepping up contract among pharma customers. Specifically, management is gaining confidence and is already seeing pharma and mid-sized biotech customers stepping up contracts mid-year which helped the revenue beat in the quarter.
A big announcement this quarter was the Gates Foundation gave Schrödinger an additional $10 million grant to work on a predictive toxicology-focused software, set to be released in the near future. Management says they are looking for additional partners to help with that launch, so direct pharma partnership opportunities are a potential here. Off-targeting and toxicology is a priority area of innovation for Schrödinger as well as other AI-focused software companies, so this expanded Gates partnership has the potential to unlock a new wave of value for Schrödinger’s software customers. Management talked about the possibility of these new software predictions specifically being enabled by their partnership with Nvidia and advances in computing power.
As noted in prior investor calls, Schrödinger is shifting back its expectation for data on proprietary clinical trials to H1 2025 for all three of its programs, whereas the prior guidance was for late 2024/early 2025 readouts. In addition, although confidence is raised in the revenue outlook, to meet the high end of guidance, total revenue will still have to increase ~100% sequentially into Q4. In other words, above all, the focus will be on Q4 performance with step-ups in contracts and any additional milestone opportunities, as well as guidance for ~25-30% 2025 revenue guidance in line with how management has laid out the path forward based on ACV growth this year. If those things fall into place with good data on initial proprietary programs, these will all help to build investor confidence. SDGR shares are trading up after-market to $23.57 (+5.8%) following the earnings results.
Executive Summary
Apple shares are poised to trade range-bound or possible even rise gradually through the remainder of fiscal 2024. The company saw a rebound across all of its business segment, including iPhone, iPad, Mac, Accessories and services, all of which saw better-than-expected year-over-year growth as well as continued gross and operating margin expansion. Q4 FY2024 total revenue guidance indicated 5% year-over-year total revenue growth, exceeding market expectations, and reflecting management's confidence in the upcoming iPhone 16 launch and renewed customer demand arising from Apple's new Apple Intelligence rollout. Free cash flow remains strong, and Apple remains committed to returning cash to shareholders, most recently with $3.9 billion of dividend payments and $26.5 billion in share repurchases totaling 139 million shares, which I believe has helped add upward pressure to Apple's share price.
Executive Summary
Meta provided a significant beat on earnings expectations in Q2 2024 while providing Q3 revenue guidance that would solidify that sales continue to gain momentum, powered by AI-driven efficiencies and increases to engagement. Due to this narrative, Meta seems to have restored confidence that advertising spend can continue to grow in H2 2024 and that consumers remain resilient enough to warrant further investment into sales and marketing spend broadly.
Despite that YoY comps from Q2 2023 of 11% YoY grow to comps of 23% YoY from Q3 2023, Meta posted 22% YoY growth in Q2 2024 and is guiding to a high end of 20% YoY growth again in Q3 2024. This shows that momentum is growing on a two-year stack basis and would give Meta ample room to increase CapEx spending on Nvidia GPUs to power its recommendation algorithms and AI-based advertising tools. Similarly, the revenue strength overpowered the fact that Reality Labs operating losses grew significantly 17% sequentially to $4.488 billion. With these results, it seems that the recent commentary from Mark Zuckerberg on reeling in Reality Labs expenses is more of a reactionary move vs. a proactive move from his “year of efficiency” mindset shift last year.
This quarterly report builds confidence that Meta has regained strong footing within the advertising market and is gaining traction relative to its big tech peers. Given the significance of this, META shares are trading up to $508.87 (+7.2%) in after-market trading after the results.
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