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Portfolio Update - 30 August 2022

📢 Portfolio Update 📢


26 August | Block

Gross profit came in at $1.47 billion for the latest quarter, up from $1.14 billion a year before, whereas analysts had been anticipating $1.48 billion. Excluding buy-now-pay-later contributions related to the company’s recent acquisition of Afterpay, however, Block’s gross profit was $1.32 billion.

Gross payment volume reached $52.5 billion, up from $42.8 billion a year before, but below the FactSet consensus, which was for $53.2 billion.

Block generated $755 million in gross profit for its Square seller business, above the FactSet consensus, which called for $735 million.

Block announced second quarter results that showed bitcoin revenue from its Cash App product fell 34% to $1.79 billion, with the company taking a $36 million charge on its bitcoin investments.

Cash App's Borrow feature reported more than 1 million active accounts as of the end of the quarter.

Compared to the previous quarter, gross profit from bitcoin fell from $43 million to $41 million as the price of bitcoin fell by 57% from $46,262 to below $20,000 per coin in the three months ended on June 30.

Block said the decline in its crypto business was “driven primarily by a decline in consumer demand and the price of bitcoin, related in part to broader uncertainty around crypto assets, which more than offset the benefit of volatility in the price of bitcoin during the quarter.”

"In future quarters, bitcoin revenue and gross profit may fluctuate as a result of changes in customer demand or the market price of bitcoin," the company added.

Block's $36 million impairment charge represents an unrealized loss reflecting bitcoin’s value at its lowest level over the quarter due to how digital assets are handled under GAAP accounting rules.

Under these rules, bitcoin's gain in value from the quarter's low to its end cannot be reported unless the asset is sold thus the impairment charge reflects bitcoin's lowest value during the previous quarter, not its Q2 end market value.

As of June 30, 2022, Block measured the fair value of its bitcoin holdings at $160 million based on observable market prices, which is $47 million greater than the carrying value of the investment after impairment charges, but far below the $366 million fair value it recognized at the end of the last quarter.


10 August | Walt Disney

The Walt Disney Company has just reported earnings for its third fiscal quarter which ended July 2, 2022 with revenue increasing 26%.

The revenue for Disney Parks, Experiences and Products revenues for the quarter increased to $7.4 billion compared to $4.3 billion in the prior-year quarter when Disneyland only operated for 65 of the days and Walt Disney World was still operating at reduced capacity. Higher volumes and increased guest spending has contributed to this substantial rise with higher numbers of occupied room nights and cruise ship sailings.

Back in May, the Walt Disney Company Q2 Earnings report stated a revenue of $6.7 billion for the Disney Parks, Experiences and Products second quarter of 2022 which showed a $3.5 billion increase in revenue compared to the same period in 2021.

The revenue in Q3 has risen from $6.7 billion to $7.4 billion rise which is put down to the continued popularity of Genie+ Lightning Lane which has increased the average per capita ticket revenue as well as the already mentioned higher volumes and price increases.

During the Q3 earnings call, Bob Chapek said that “Even our Genie product, which we released short of a year ago, now about 50% of the people who come through the gate, buy up to that Genie product…which you can see in results of our yields.”

Walt Disney came out with quarterly earnings of $1.09 per share, which compares to earnings of $0.80 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 15.96%. A quarter ago, it was expected that this entertainment company would post earnings of $1.20 per share when it actually produced earnings of $1.08, delivering a surprise of -10%.

Disney posted revenues of $21.5 billion for the quarter ended June 2022. This compares to year-ago revenues of $17.02 billion.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.85 on $21.35 billion in revenues for the coming quarter and $3.93 on $83.7 billion in revenues for the current fiscal year.


17 August | Tencent Holdings

The company said on Wednesday revenue declined 3% to 134 billion yuan ($19.78 billion) for the three months ended June 30 from 138.3 billion yuan a year earlier. Analysts were anticipating the decline.

Tencent reported its first ever quarterly sales fall, hurt by a lack of game approvals and regulations that limit playing time, as well as Covid-19 lockdowns and a weak economy that squeezed ad sales.

The firm reported double-digit growth almost every quarter since it went public in 2004, as Beijing's crackdown on big tech companies that began in late 2020 puts the brakes on its expansion.

Tencent plans to sell all or a bulk of its $24 billion stake in food delivery firm Meituan to placate domestic regulators.

"During the second quarter, we actively exited non-core businesses, tightened our marketing spending, and trimmed operating expenses," Ma Huateng, chairman and CEO of Tencent, said.

China cut key lending rates on Monday to revive demand as data showed a slowdown in July, indicating the world's second-largest economy is struggling to shake off the second quarter's hit to growth from strict Covid restrictions.

Tencent has been reducing holdings in portfolio companies partly to appease the Chinese regulators and partly to book its hefty profits on those bets, according to sources.

The Shenzhen-based giant has lost nearly 60% of its market value since it peaked in February 2021 following Beijing's regulatory crackdown to rein in the influence of large internet firms. However, the $373 billion company has held onto its crown as China's most valuable company.

Revenue from online games, Tencent's big profit driver, decreased both at home and abroad, with each declining by 1%. Tencent has yet to receive a new game license from Chinese regulators after they temporarily halted approvals.

Its social network services reported a 1% increase in revenue as WeChat earned more from its video content. "In the short term, that may be its biggest growth driver," Shawn Yang, manager director of Blue Lotus Capital Advisor said, referring to WeChat video revenue.


24 August | Nvidia

Adjusted EPS came in at $0.51, below the $0.53 estimate. In addition, sales increased 3% year-over-year, with revenue hitting $6.7 billion compared to $6.5 billion. However, the quarter-over-quarter comparison equates to a 19% decline. This wasn’t much of a surprise, as Nvidia had already warned that it would significantly miss its original guidance of $8.1 billion.

The fall in revenue was primarily due to its Gaming segment, which fell 33% year-over-year and 44% quarter-over-quarter. To make matters worse, the gross margin contracted from 64.8% to 43.5%, demonstrating significant operating deleverage. Therefore, the company’s operating income decreased from $2.4 billion in the comparable period to $499 million now.

For this quarter, Nvidia said it expects to generate revenues of $5.9 billion, plus or minus 2%.

Analysts were looking for $6.92 in Q3 revenues. The adjusted gross margin is seen between 64.5% to 65.5%, easily ahead of the estimate of 60.7%.

“We are navigating our supply chain transitions in a challenging macro environment and we will get through this,” CEO Jensen Huang said in a press release.

Q2 Data Center revenue was up 61% year-over-year to $3.81 billion, while Gaming revenue was down 33% year-over-year to $2.04 billion. Professional Visualization revenue declined 4% year-over-year to $496 million. Automotive revenue grew 45% year-over-year to $220 million.

However, guidance for Q3 did not impress, as revenue is expected to come in at $5.9 billion versus the expected $6.9 billion. The expected decline can once again be attributed to a slowdown in gaming.


24 August | Salesforce

The enterprise software maker said its board approved a $10 billion stock buyback program, a first for the company. But Marc Benioff, Salesforce’s co-founder and co-CEO, told analysts on a conference call that the move won’t prevent it from making more acquisitions.

Here’s how the company did:

  • Earnings: $1.19 per share, adjusted, vs. $1.02 per share, expected by analysts

  • Revenue: $7.72 billion vs. $7.69 billion, expected by analysts

Revenue rose 22% in the quarter ended July 31 from the year-earlier period. Net income of $68 million was down from $535 million in the year-earlier quarter, when the company notched a big gain on investments.

For the fiscal third quarter, Salesforce called for adjusted earnings of $1.20 to $1.21 per share on $7.82 billion to $7.83 billion in revenue. Analysts had been looking for $1.29 in adjusted earnings per share on $8.07 billion in revenue.

The company has endured weaker economic cycles before, Benioff said. “Sales cycles can get stretched, deals are inspected by higher levels of management and all of this we began to start to see in July,” Benioff said. “Nearly everyone I’ve talked to is taking a more measured approach to their business. We expect these trends to continue in the near term, and we’ve reflected this in our guidance.”

The company’s service subscription and support revenue totalled $1.83 billion in the quarter, up 14% year over year. Revenue in the sales category, which includes Salesforce’s longstanding Sales Cloud software for managing business opportunities, increased by almost 15% to $1.7 billion. The company’s Platform and Other category that includes Slack did $1.48 billion in revenue, up 53%.

In the latest quarter, Salesforce announced the availability of new marketing and commerce tools, and it acquired Troops.AI, a start-up that developed a Slack chatbot that salespeople can use to update customer-relationship management software.

Salesforce, which closed the nearly $28 billion Slack acquisition last year, said it would increase the price of the chat offering for the first time since the app launched in 2014. The company reiterated its expectations for $1.5 billion in Slack revenue during the full fiscal year.

Salesforce reduced its fiscal 2023 guidance for both earnings and revenue. It now expects $4.71 to $4.73 in earnings per share and $30.9 billion to $31 billion in revenue, including $800 million in negative foreign-exchange impact, compared with a prior forecast for earnings of $4.74 to $4.76 per share and $31.7 billion to 31.8 billion in revenue. Analysts had been expecting $4.75 in adjusted earnings per share and revenue of $31.73 billion.

Amy Weaver, Salesforce’s finance chief, said the reduced full-year guidance assumes that the recent trend continues in the coming months. She also stressed that this is “not a demand issue,” but rather a change in buying patterns.


📅 Earnings Reports for the following update 📅

01 September | Lululemon

15 September | Adobe

Thank you

Have a nice week! 👍🏻👍🏻


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