26 October 2022

26 October 2022

📢 Portfolio Update 📢


18 October | Netflix


Netflix has reported the addition of 2.41 million net global subscribers, more than doubling the adds the company had projected a quarter ago.

Here are the results:

  • EPS: $3.10 vs. $2.13 per share, according to analysts.

  • Revenue: $7.93 billion vs. $7.837 billion, according to analysts’ expectations.

  • Expected global paid net subscribers: Addition of 2.41 million subscribers vs. an addition of 1.09 million subscribers, according to analysts’ estimates.

The majority of Netflix’s net subscriber growth during the quarter came from the Asia-Pacific region, which accounted for 1.43 million subscribers. The U.S.-Canada region had the smallest growth of Netflix’s regions, contributing just 100,000 net subscribers.


“We’re still not growing as fast as we’d like,” Spencer Neumann, Netflix’s chief financial officer, said during the company’s earnings call. “We are building momentum, we are pleased with our progress, but we know we still have a lot more work to do.”


Netflix forecast it would add 4.5 million subscribers during its fiscal first quarter and said it expects revenue of $7.8 billion, largely due to currency pressures overseas.


The streamer said it was “very optimistic” about its new advertising business. While it doesn’t expect the new tier will add a material contribution to its fourth-quarter results, it foresees membership growing gradually over time. Its current forecast for subscriber growth is based on its upcoming content slate and the typical seasonality that comes during the last three months of the year.


The addition of subscribers is a surprise to everyone and is a proof that Netflix has still a long term potential of growth.



20 October | Hermes


Sales were up 24.3 percent in the third quarter. That handily beat analyst predictions, with a consensus estimate of 15.3 percent growth at constant exchange, and forecast sales in the 2.9 billion euro ballpark.


“The strong performance in the third quarter reflects the desirability of our collections all around the world and the relevance of our values. We move forward with confidence and caution while continuing to bolster our integrated model, rooted in France and committed to job creation,” said chief executive officer Axel Dumas.


Revenue for the first nine months ending Sept. 30 were 8.61 billion euros, up 23.6 percent at constant exchange year-on-year.


Asia outside of Japan had a particularly strong showing, up 33.7 percent in the third quarter, as retail maintained steady demand in Greater China despite temporary lockdowns in Macau, Chengdu and Dalian over the summer. Outside of mainland China, the company cited continued strength in South Korea, Thailand and Singapore. The strong rebound of the region particularly boosted global leather goods sales, which were up 13.2 percent, with Greater China’s sustained demand cited by the company.


Sales in Japan were up 22.7 percent, with the company citing the “loyalty of local clients,” as the country maintained strict travel rules for tourists entering the country until Oct. 11.

Following the opening of its Madison Avenue flagship and an outpost in Austin, Texas, sales in the Americas were up 18.1 percent in the third quarter.


Sales in Europe were boosted by the return of tourists and the weak euro, up 11.7 percent and particularly strong in the U.K. and Italy. In France, which also benefited from a major influx of tourists, sales jumped 10.9 percent in the third quarter.


Broken down by category, the performance of the watch division was up a “remarkable” 55.2 percent in the third quarter, thanks to the year-old H08 line and the brand’s Cape Cod and Heure H pillar lines.


Silk and textiles, which includes the brand’s famous scarves, were up 22.9 percent, supported by increased production capacity with a new factory in Lyon, France. The combined homewares and jewellery category rose 31 percent.


The results follow a stellar first half of the year. The company reported a record operating margins of 42 percent and an operating income of 2.3 billion euros, in results reported in July.


Hermes remains one of my best brand in our portfolio, for the image it carries and also the way Axel Dumas manages the company.



20 October | Kering


The French luxury group said that sales rose 23 percent in the three months to Sept. 30, fuelled by a stellar performance in Western Europe, where U.S. tourists have been splurging as a result of the weakness of the euro against the U.S. dollar.


“Western Europe was the most powerful growth engine,” Jean-Marc Duplaix, chief financial officer at Kering, said in a conference call with analysts.


Kering’s brand Gucci continued to underperform versus the group’s other brands, although organic sales picked up pace in the third quarter. Revenues at the Italian label totalled 2.6 billion euros, up 9 percent on a like-for-like basis, following a 4 percent rise in the second quarter.


Reporting first-half results after the market close, Kering said group revenues in the third quarter totaled 5.14 billion euros, representing a rise of 14 percent in comparable terms. This was up versus the second quarter and above the consensus forecast for a 12 percent sales increase.


The group, whose brands also include Saint Laurent, Bottega Veneta and Balenciaga, said revenue in its directly operated store network continued to grow at a rapid pace, up 19 percent on a comparable basis.


Western Europe posted a 74 percent jump. Conversely, North America was up just 1 percent, further penalized by a high comparison base. Japan saw a 31 percent increase, while Asia-Pacific posted growth of 7 percent, despite ongoing restrictions in mainland China designed to curb the spread of COVID-19.


“We delivered sharp top-line growth, both versus last year and from pre-pandemic levels. Our ongoing focus on the exclusivity of our brands and on the quality of their distribution are yielding very positive results and reinforce their positioning in their key markets,” François-Henri Pinault, chairman and chief executive officer of Kering, said in a statement.

“We have clearly no short-term plans to reduce or to review our ambition for the long run in the U.S.,” he said. “Beyond the percentage of evolution, if we look at the conversion rates, the sales density and so on, the business is still flying in the U.S.”


In mainland China, COVID-19 lockdowns continued to weigh on business in the third quarter, with Gucci disproportionately impacted compared to the group’s other brands. Nonetheless, Duplaix believes that China will bounce back.


“We see that there is still a lot of appetite for luxury goods in China,” he said. “I don’t see why overnight, the potential of the region would have changed, so I think that we should keep calm and carry on in the country.”


One country where the outlook remains cloudy is Russia. Kering closed its directly operated stores there in March in response to Russia’s invasion of neighbouring Ukraine, but has kept paying salaries and rent. It is now considering the ramifications of pulling out permanently.

“To protect the trademark, it does imply at least some presence in the country, so we will measure what’s the best balance in terms of business decisions, but we don’t expect that we’ll be able to operate again in the country, short-term or mid-term,” said Duplaix.

Overall, he underlined the need to remain agile to deal with a volatile global economic climate that offers little visibility.


“Our sector might be less correlated than others to overall economic conditions, but that doesn’t mean it is completely weatherproof. So our long-term investment plans in our houses and growth platforms are unchanged, but we are also ready to rapidly make the right decisions to maintain the group on course in the near term, should the need ever arise,” he said.


“The Gucci relaunch will take some time, in all likelihood. But in the meantime the ‘small’ Kering brands continue to shine. At this valuation level, and with the prospect of a boost from China reopening next year to outbound travel, it is difficult to be bearish on Kering. Even if it may not produce significant positive surprises short-term, the relative downside seems limited from here,” he said.


Kering said recently it is targeting revenues of 15 billion euros at Gucci. It also outlined Saint Laurent’s potential to become a megabrand, with a medium-term revenue target of 5 billion euros, double the 2.5 billion euros in sales registered last year.


“Saint Laurent’s excellent showing this quarter, notably with locals, confirms the house’s very positive trajectory,” he said.


Comparable sales were up 14 percent at Bottega Veneta as it continues its upscaling drive under new creative director Matthieu Blazy. “Bottega Veneta is diligently implementing its roadmap and we are confident that the house will amplify its successes across all markets,” Duplaix said.


While Kering does not break out revenues for Balenciaga, analysts estimate the brand has annual revenues in the region of 2 billion euros. The “other houses” division, to which it belongs, posted a 13 percent rise in like-for-like sales in the third quarter.


“The brand is growing very nicely in all categories with the great success of the leather goods collections and products,” said Duplaix, noting that there was also a rebalancing toward more formal pieces in footwear and ready-to-wear.


Little recap:

  1. Positive view on the luxury sector despite an inflationary environment;

  2. Ability to increase prices with Kering's product offering thanks to customer's inelasticity;

  3. The positive contribution from Kering's other houses to lower Gucci's profitability dependency. Indeed, based on an historical average, Gucci has contributed to more than 80% of the group's operating profit and has led to a few Wall Street analysts' criticisms;



25 October | Alphabet (Google)


Alphabet reported weaker-than-expected earnings and revenue for the third quarter and said it would significantly decrease headcount growth.

  • Earnings per share (EPS): $1.06 vs. $1.25 expected, according to analyst estimates.

  • Revenue: $69.09 billion vs. $70.58 billion expected, according to analyst estimates.

  • YouTube advertising revenue: $7.07 billion vs $7.42 billion expected, according to analyst estimates.

  • Google Cloud revenue: $6.9 billion vs $6.69 billion expected, according to analyst estimates

  • Traffic acquisition costs (TAC): $11.83 vs $12.38 expected, according to analyst estimates

Revenue growth slowed to 6% from 41% a year earlier as the company contends with a continued downdraft in online ad spending. Other than one period early in the pandemic, it’s the weakest period for growth since 2013.


YouTube ad revenue slid about 2% to $7.07 billion from $7.21 billion a year ago. Analysts were expecting an increase of about 3%. Alphabet reported overall advertising revenue of $54.48 billion during the quarter, up slightly from the prior year.


CEO Sundar Pichai said in the statement that the company is “sharpening our focus on a clear set of product and business priorities,” while Ruth Porat, the finance chief, said “we’re working to realign resources to fuel our highest growth priorities.”


During the quarter, Google Cloud brought in $6.9 billion — more than analysts expected. That’s a notable increase from $5 billion the year prior. Losses in Google Cloud widened to $699 million from $644 million the year prior.


Pichai enacted some cost-cutting measures across the company, citing economic challenges, including a potential recession, soaring inflation, rising interest rates and tempered ad spending. In September, Pichai said he wanted to make the company 20% more efficient, which could include slashing jobs and product cuts.


Google also cancelled the next generation of its Pixelbook laptop and cut funding to its Area 120 in-house incubator. And last month, Google said it would be shuttering its digital gaming service Stadia.


The company said it has a total full-time worker headcount of 186,779 — up from 150,028 last year. Pichai said on Tuesday’s call that the fourth-quarter headcount additions will be “significantly lower” than the third quarter as the company becomes “focused on moderating operating expense growth.”



25 October | Microsoft


Microsoft reported softer cloud revenue than expected in its fiscal first quarter and gave weak quarterly guidance.

Here’s how the company did:

  • Earnings: $2.35 per share, vs. $2.30 per share as expected by analysts.

  • Revenue: $50.12 billion, vs. $49.61 billion as expected by analysts.

With respect to guidance, Microsoft sees $52.35 billion to $53.35 billion in revenue for the fiscal second quarter, which implies 2% growth at the middle of the range. Analysts had been looking for revenue of $56.05 billion. Microsoft’s implied operating margin for the fiscal second quarter was about 40%, narrower than the 42% consensus among analysts.


In the fiscal first quarter, total revenue grew 11% year over year, according to a statement.

Net income fell by 14% to $17.56 billion. Microsoft had a $3.3 billion tax benefit in the year-ago quarter. But the company lengthened the useful lives of servers and networking equipment to six years from four years, resulting in an $859 million bump to net income in the fiscal first quarter. Still, the company’s gross margin, at 69.2%, trailed the analyst consensus estimate of 69.8%.


Microsoft’s Intelligent Cloud business segment, generated $20.33 billion in quarterly revenue. That’s up 20% and slightly less than the $20.36 billion consensus among analysts.


Azure revenue grew 35% in the quarter, Microsoft said, compared with 40% growth in the previous quarter. Growth in Azure consumption continued to moderate, and higher energy costs in the quarter hurt the gross margin of Azure, Amy Hood, the company’s finance chief, said on the call.


For the fiscal second quarter, Hood said Azure growth should fall sequentially by about 5% in constant currency, to about 37%. She did not provide a growth rate in dollars, and the company doesn’t disclose Azure revenue in dollars.


The Productivity and Business Processes segment that contains Microsoft 365 productivity software subscriptions, LinkedIn and Dynamics, posted $16.47 billion in revenue, up 9% and above the $16.13 billion analyst consensus.


Revenue from the More Personal Computing segment totalled $13.33 billion, down slightly and higher than the $13.12 billion analyst consensus. The segment includes Windows, as well as Xbox, Surface and advertising from the Bing search engine.


Revenue from sales of Windows licenses to device makers dropped 15% year over year, steeper than any quarter since 2015 and worse than the outlook Hood gave in July for a decline in the high single digits. The company said the PC market continued to deteriorate during the quarter.


For the first time, revenue in the quarter from the Microsoft Cloud metric, encompassing Azure, commercial Office 365 subscriptions, commercial parts of LinkedIn and Dynamics 365, exceeded 50% of overall company revenue.


“In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way,” Nadella said in the company’s earnings statement.


📅 Earnings Reports for the following update 📅


26 October | Boeing

26 October | Meta

27 October | Amazon

27 October | Apple

28 October | Airbus


Thank you

GSerdan