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Portfolio Update - 29 July 2022

📢 Weekly Update 📢

18 July | Blackrock

BlackRock and the global economy second-quarter has been hurt by high inflation, rising rates, and the worst start to the year for stocks and bonds in half a century.

BlackRock said total assets slid to $8.49 trillion, down 11% from $9.5 trillion a year earlier.

But quarterly net inflows rose to $90 billion from $81 billion a year ago, a strong sign that the world’s largest investment management company is creating products that clients want and that investors have confidence in BlackRock’s strategies.

For the second quarter, adjusted profit fell to $1.12 billion, or $7.36 a share, from $1.61 billion, or $10.45 a share, a year earlier. Revenue in the quarter slipped 6% to $4.53 billion.

Analysts, on average, had expected BlackRock to report earnings of $1.23 billion, or $7.87 a share, on revenue of $4.55 billion.

There has been a lot of push back this year on environment, social, and governance, or ESG, investing. But Fink noted that sustainable investing “is now one of the fastest-growing segments of the asset management industry and one of the topics our clients are asking more questions than in any part of our business.”

BlackRock is ”focused on leveraging and creating better ESG data and analytics to help our clients better understand risks and opportunities in their portfolio, including those related to global transition to a low carbon economy,” Fink said.

Overall, we can consider Blackrock to be resilient to difficult markets, and its business model and its ability to remain ahead of the pack don’t remain unnoticed especially in key high-growth categories.

18 July | Netflix

  • EPS: $3.20 vs $2.94 per share, according to analyst estimates.

  • Revenue: $7.97 billion, vs. $8.035 billion, according to analyst survey.

  • Global paid net subscribers: A loss of 970,000 subscribers vs. expectations of a loss of 2 million, according to analyst estimates.

Netflix said it lost fewer subscribers than anticipated during the second quarter. Netflix had warned investors last quarter that it expected to shed around 2 million subscribers, but only lost around 970,000 during the three month period ending June 30.

Last quarter, Netflix addressed its slowing revenue growth, which it said was the result of competition, account sharing and other factors such as sluggish economic growth and the war in Ukraine.

The streamer also said it aimed to unveil its lower-cost, ad-supported tier in early 2023. This comes on the heels of Netflix tapping Microsoft to be its partner on the ad-supported offering.

Netflix also noted that it is in the early stages of its paid sharing plan. This is an effort it mentioned last quarter that would upcharge some members for sharing their subscription with family members or friends that live outside their home. The company said it is looking at two different approaches in test cases in Latin American that can inform a wider rollout in 2023.

It remains focused on content, offering big-budget films on its service rather than in theatres, and providing all episodes of new shows all at once for subscribers to binge. The company touted “Stranger Things” season four as a big win for the brand. Not only did it top viewership records for the company, but it was also nominated for several 2022 Emmys.

In my opinion, Netflix remains a winner on the long term even though the competition is increasing.

26 July | LVMH

All business groups achieved double-digit organic revenue growth over the period for its results for the first half of 2022.

Specifically, beneath the 28% headline increase in total sales collectively reported by Moët Hennessy Louis Vuitton, the company’s Fashion & Leather Goods business, which accounts for half its revenue, saw sales rise 31% so far this year, followed by 20, 22 and 23 percent respective topline growth at its Perfume & Cosmetics, Watches & Jewelry, and Wine & Spirits divisions.

During earnings call, LVMH CFO Jean-Jacques Guiony told investors “We are not economists, we are managing a business and [that] means taking advantage of the strength in the demand,” after delivering a $10 billion profit from continuing operations that was up 34% through the end of June.

If and when demand for what LVMH calls “high quality products” should weaken, Guiony said the company would “react swiftly, cut costs and delay store openings” exactly as it has in other down times, but noted this does not appear to be one of those periods just yet.

The French owner of dozens of different premium brands has been able to somewhat compensate for its setbacks in Asia with a surge in summer tourism that’s been led by a legion of American travellers that are armed and looking to spend their suddenly strong U.S. dollars on everything from designer bags and watches to champagne.

It may come as no surprise that LVMH is not planning any major changes at a time when things look to be running smoothly, with the group maintaining its focus on “continuously strengthening the desirability of its brands” through exceptional product quality and excellence of their distribution ahead of a year that will mark the company’s 100th anniversary in 2023.

26 July | Microsoft

  • Earnings: $2.23 per share, adjusted, vs. $2.29 per share as expected by analysts, according to analysts.

  • Revenue: $51.87 billion, vs. $52.44 billion as expected by analysts, according to analysts.

Microsoft turned in the slowest revenue growth since 2020, at 12% year over year in the quarter, which ended on June 30, according to a statement. The company’s earnings per share fell short of consensus for the first time since 2016, with net income rising 2% to $16.74 billion.

Microsoft’s Intelligent Cloud segment, which includes the Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services generated $20.91 billion in revenue.

The company said revenue from Azure and other cloud services grew by 40%, compared with 46% in the prior quarter.

“We are seeing larger and longer-term commitments and a record number of $100 million-plus and $1 billion-plus deals this quarter,” Nadella said.

Microsoft’s Productivity and Business Processes segment including Office productivity software, Dynamics and LinkedIn posted $16.60 billion in revenue.

The More Personal Computing segment featuring the Windows operating system, Xbox video-game consoles, the Bing search engine and Surface devices delivered $14.36 billion in revenue for the quarter. Revenue was up 2% year over year.

Sales of Windows licenses to device makers fell by 2% in the quarter. Technology industry researcher Gartner said earlier this month that logistical disruptions in the quarter had contributed to a 12.6% decrease in quarterly PC shipments, a key input for that metric. The company said factory shutdowns in China in April and May and a worsening computer market in June reduced Windows revenue from device makers by $300 million.

Microsoft saw $126 million in operating expenses tied to its decision to stop selling products and services in Russia following the country’s invasion of Ukraine.

During the quarter, Nadella announced that employees will get pay increases, and the company introduced services to help customers deal with security incidents.

26 July | Alphabet

  • Earnings per share (EPS): $1.21 vs $1.28 expected, according to analysts.

  • Revenue: $69.69 billion vs $69.9 billion expected, according to analysts.

  • YouTube advertising revenue: $7.34 billion vs. $7.52 billion expected, according to analysts.

  • Google Cloud revenue: $6.28 billion vs. $6.41 billion expected, according to analysts.

  • Traffic acquisition costs (TAC): $12.21 billion vs $12.41 billion expected, according to analysts.

Alphabet reported weaker-than-expected earnings and revenue for the second quarter.

Revenue growth slowed to 13% in the quarter from 62% a year earlier, when the company was benefiting from the post-pandemic reopening and consumer spending was on the rise.

Advertising revenue increased just 12% to $56.3 billion, as marketers reeled in their

spending to manage inflationary pressures. The most notable deceleration was in the YouTube division, where sales rose 5% after jumping 84% in the same period a year ago.

The report comes days after Snap announced disastrous quarterly results and said it plans to slow hiring because “forward-looking visibility remains incredibly challenging.”(which I will talk about in my next update). In contrast to Snap, Alphabet shares rose slightly after its numbers were released, as investors may have been expecting more troubling signs.

Google’s Search and Other revenue was $40.69 billion, up from $35.85 billion the year prior, the report showed. That growth was boosted by travel and retail queries.

Revenue in Alphabet’s Other Bets segment, which includes self-driving car unit Waymo as well as some health-tech projects and the company’s venture arms, rose by $1 million from a year earlier to $193 million. It lost $1.69 billion during the quarter.

Google Cloud, which fell short of revenue expectations, lost $858 million during the quarter. The cloud division is trying to take share from Amazon Web Services and Microsoft Azure, the top two players in the market. Microsoft said on Tuesday that revenue from Azure and other cloud services grew 40% in the period.

Other than Waymo, Alphabet remains a strong competitor in all the different segment Alphabet is involved in. It is a slow growth but it is going in the right direction, and it is quiet good for a mega-cap stock.

27 July | Kering

Sales in the second quarter rose 12% year on year to 4.97 billion euros ($5.07 billion) in line with analysts' expectations. Kering announced earnings per share of €16.07 on revenue of €4.97B.

Operating profit for the six-month period outstripped sales growth, rising 26% to EUR2.82 billion, slightly ahead of analyst expectations on an operating margin that rose to 28.4%.

Gucci's high exposure to lockdown-squeezed China dragged its top line in the second quarter; stablemates that make less of their sales there posted much higher organic increases on year. With management flagging no return yet to growth in the key market, Gucci could be some way off getting back to form.

Yves Saint Laurent kept up recent pace in 2Q, netting a 31% organic sales rise and a record 1H margin at 29.6%. Kering has major plans for its second-biggest brand, and the fashion house impressed again, analysts at Jefferies said in a note following the print, pointing also to a expectation-beating performance from Balenciaga.

A rebound in travel combined with increased demand for luxury apparel pushed Kering to new financial heights in the first half of 2022, with the company’s revenue for the first six months of the year up 23% from the same period in 2021.

Kering’s group revenue — including Gucci, Yves Saint Laurent and its other high-profile brands—was 9,930 million euros (almost $10.1 billion) from January to June 2022, according to the company’s earnings report released Wednesday (July 27).

“The Group delivered sharply higher sales in the first half of 2022, sustaining last year’s topline momentum — solid performances in retail around the world more than offset the impact of Covid-related measures in China in the second quarter,” Chairman and CEO François-Henri Pinault said in the report.

“Each of our Houses contributed to the strong double-digit increase in Group operating income, leading to expanded margin for Kering as a whole. In a period of heightened macro uncertainty, Kering is in great shape to surmount short-term challenges, take advantage of new opportunities, and support the ambitious strategies and tremendous prospects of all our brands,” he said.

In addition to a significant rise over 2021’s first half, the 2022 revenue results represented a 28% jump over 2019, the year before the COVID-19 pandemic began to spread around the world. Meanwhile, Kering’s sales were up 20% year over year in the second quarter of 2022. Retail network sales, including eCommerce, jumped 12% from the same three-month period in 2021.

Earlier this week, the world’s largest consortium of luxury brands, LVMH, reported a 28% increase in total sales, including 31% for the company’s Fashion & Leather Goods business, which accounts for half its revenue, and 20, 22 and 23 percent respective topline growth at its Perfume & Cosmetics, Watches & Jewelry, and Wine & Spirits divisions.

Kering has had a strong resilience during the pandemic and it remains a main actor in the luxury industry. The “come-back” of the company makes me feel even more confident in owning shares of the company.

Because this report has been a long one, I will not post all the earnings report that has been released this week, but instead I am preparing another portfolio update to be release within the next few days.

Thank you for reading.

📅 Earnings Reports during in the following update 📅

27 July | Boeing

27 July | Airbus

28 July | Meta

28 July | Amazon

28 July |Apple

29 July | Hermes

Thank you

Have a nice weekend! 👍🏻👍🏻


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