Category: Blog

Google Stock Forecast-Here’s What Will Happen Without “Other Bets”

Google Stock Forecast:

Alphabet Inc. Class A (GOOGLE:NSD):

Consensus Analyst Rating: Strong Buy

12-Month Price Target: $135.13

 

Alphabet Inc. Class C (GOOG:NSD):

Consensus Analyst Rating: Strong Buy

12-Month Price Target: $137

 

Google Stock Forecast-Highlights:

In a hard macroeconomic climate, markets will become increasingly focused on the bottom line of Google stock forecast as revenue growth decelerates.

While the CEO has pledged to make things “20% more efficient,” it is unclear whether this would also result in cost reductions of the same magnitude.

This is the ideal opportunity for Google to examine its “Other Bets” section, which has historically been a profitability drag.

Maintain Buy based on Google’s dominant position, attractive valuation, and significant cash on hand for more buybacks, while acknowledging capital-allocation areas for improvement.

 

In a low-growth environment, cost discipline is vital.

Google’s (GOOG:NSD, GOOGL:NSD) revenue growth is slowing, and its earnings are not growing. In the third quarter of 2022, Alphabet’s total revenue climbed by 6% YoY, while total expenses (COGS+OPEX) rose by 18% YoY.

Google stock forecast shows that its services are the most profitable division accounting for 100 percent of Google’s operational income, saw its EBIT margin decline from 40% in 3Q21 to 32% in 3Q22.

According to a recent letter from activist investor TCI Fund Management to CEO Sundar Pichai, “cost growth exceeding revenue growth is an indication of weak financial discipline.”

The letter asserts that Google’s main Search business is not labor-intensive, although Alphabet’s headcount has more than doubled from 80k in 2017 to 187k in 3Q-22, with little operating leverage over the past five years.

It then explains that Google’s cost per employee is excessively expensive, with a median total compensation of 296k in 2021, which is 67% higher than that of Microsoft (MSFT:NSD) and 153% higher than the 20 top publicly traded U.S. technology businesses.

As a result, Google should create a public EBIT margin objective (TCI says 40% is appropriate), reduce losses in “Other Bets,” and eventually become cash-neutral through share repurchases, similar to Apple (AAPL:NSD).

 

The “Other Bets” section is a good starting point.

Granted, Google stock forecast is not oblivious to the present macro narrative. The business has already eliminated its Pixelbook subsidiary and halved Area 120, its internal incubator for fresh concepts.

In September, Google’s CEO Sundar Pichai stated that he intends to increase efficiency by 20%. Despite the fact that it is not yet evident whether this would result in a 20% decrease in expenses, investors have a broad sense that cost reductions are on the horizon, albeit not immediately because revenue growth has slowed significantly.

Other Bets is, in our opinion, the division that requires the most attention in terms of cost control. From 2017 through 2021, Other Bets generated little over $3 billion in total sales and almost $20 billion in total operating losses.

Other Bets is projected to generate slightly over $1 billion in revenue in 2022, but an operating loss of well over $6 billion. This reminds me of the Reality Labs segment of Meta Platforms (META:NSD), which could lose over $13 billion this year and an additional $10 billion in 2021.

As enthusiastic as Mark Zuckerberg, CEO of Meta, remains about the metaverse, we see a high likelihood of failure.

The core component of Other Bets is Waymo, Google’s multi-billion-dollar self-driving bet that Morgan Stanley analyst Brian Nowak once believed to be worth over $70 billion in 2017 and dramatically increased the valuation to $175 billion a year later on the notion that Waymo’s technology could potentially “address 80% of the ~$3 trillion global freight transportation market.”

This is what occurs when analysts have too much fun crunching data in Excel, only to receive a dose of reality later on. Morgan Stanley reduced Waymo’s valuation to $105 billion in 2019.

In March 2020, Waymo raised money ($2.25 billion) from outside investors for the first time at a valuation of $30 billion according to Financial Times.

This was a premium compared to SoftBank-backed Cruise (GM’s self-driving company), which was valued at $19 billion at the time. Waymo’s $30 billion valuation was a significant deviation from Morgan Stanley’s $105 billion estimate.

No one knows how much revenue Waymo currently generates, but if we assume that

(1) Waymo represents the entire $1 billion 2022E revenue from Other Bets and;

(2) the $30 billion valuation from 2020 still stands today, which equates to a very opulent multiple of 30x sales (or 105x according to Microsoft’s number)

Given today’s market conditions, we think $15 billion would be a more realistic value, or ~1.2% of Google’s market valuation.

Regardless of Waymo’s value, it is certain that self-driving is a moonshot, and the road to profitability will be as bumpy as Mark Zuckerberg’s metaverse.

While analysts can spend all day discussing the TAM (total addressable market), the reality is that Waymo is a money-losing business, and the metrics, as shown in Other Bet’s EBIT, appear to be getting worse each year.

 

What would Google’s financials look like if Other Bets were eliminated?

Other Bets represents less than 0.5% of overall revenue, yet it easily reduces the company’s operating margin by 2-3 percentage points annually. If Other Bets had never been, the 5-year average operating margin from 2017 to 2021 might have been improved by 2.6 percentage points.

Looking at Google stock forecast 2022 estimates, if we strip out Other Bets in Google’s consensus revenue and operating income, we can arrive at a little impact on the top-line and a >$6 billion improvement in operating income.

EBIT margin can be increased from 27% to 29%, while diluted EPS adjusted for other income will increase by 8% (assuming a 16% tax rate). Same holds true for 2023.

It would be ridiculous to expect Google to eliminate its Other Bets section entirely. After all, the company has made some highly successful bets, such as YouTube, DoubleClick, and Android, and it’s only logical to investigate new growth options, particularly now that the main advertising industry has reached a somewhat mature stage.

Nevertheless, I believe action is required on the cost side of the equation, and management should examine the risk/reward profile of each and every wager in the current market.

 

Conclusion:

Google is an established company in the post-Covid era. Slowing top-line growth has investors focusing on profitability as the primary source of wealth.

Even while Google remains a very lucrative corporation with a search advertising monopoly, markets are unlikely to be tolerant of margin erosion as billions of dollars in annual losses from Other Bets continue to emerge.

While I continue to grade Google as a Buy due to its dominant market position, attractive valuation of 18x forward earnings, and substantial financial firepower ($116 billion in cash) for buybacks, I see significant capital-allocation space for improvement at Google.

Medtronic Stock Earnings Guidance Lowered for Q2 FY 2023

Medtronic Stock (MDT:NYE) Analysis:

Last Closing Price: $76.48

Consensus Analyst Rating: Hold

12-Month Price Target: $94.93

Market CAP: $105.24 Billion

 

Medtronic stock (MDT:NYE) shares dipped lower in pre-market trading on Tuesday after the company cut its full-year earnings guidance in its Q2 financial report for fiscal 2023, citing unfavorable currency impact.

The reported revenue for the quarter decreased 3% year-over-year to $7.6 billion, falling short of expectations due to a $457 million negative impact from foreign currency translation.

Despite slower supply recovery or procedure volumes and pricing pressure from mass procurements in China, revenue climbed 2% YoY on an organic basis.

Ahead of the earnings call, CEO Geoff Martha stated, “Slower-than-anticipated procedural and supply recovery led to revenue below our estimates this quarter.” He described the steps taken to improve overall performance, such as simplifying the company’s structure and consolidating the supply chain.

Respiratory, Gastrointestinal, and Renal (RGR) divisions underperformed, causing Medical Surgical sales to fall short of analyst estimates by 10% YoY to $2.1 billion. However, the segment’s organic revenue decreased by only 1% year-over-year, excluding the impact of ventilator sales, in response to stronger COVID-driven demand last year.

Despite a 2% YoY dip, Cardiovascular revenue reached $2.8 billion in line with analyst projections, while Neuroscience revenue climbed 2% YoY to $2.2 billion, beating Wall Street’s expectations. Despite the lack of new product approvals, Diabetes sales exceeded analysts’ expectations, reaching $556 million with a 5% YoY drop.

Geographically, the United States led sales growth with a 2% YoY increase to produce $4.1B, but revenue from non-U.S. developed regions decreased 13% YoY to generate $2.2B.

Non-GAAP gross margin for the period decreased to 67.6% from 68.2% in the prior year period, while GAAP net income for the quarter decreased 67% YoY to $427M due to a $764M income tax reserve adjustment reflecting a previously reported court ruling.

Medtronic stock (MDT) cut its full-year non-GAAP EPS expectations to $5.25 – $5.30 from the previous range of $5.53 – $5.65 and the consensus estimate of $5.53. The foreign currency impact was 18 cents.

However, the business anticipates its growth to accelerate in the second half of fiscal year 23 to 3.5% – 4.0% on an organic basis, while increasing the expected negative FX effect from $1.4B – $1.5B to $1.74B – $1.84B.

VZ Stock Price-The Horizon for Verizon Communications Inc.

VZ Stock Price Analysis (VZ:NYE):

Last Closing Price: $38.24

Consensus Analyst Rating: Buy

12-Month Price Target: $49.02

Market CAP: $163.88 Billion

 

Article Highlights:

  • Following the most recent results announcement, VZ stock price reached a 12-year low.
  • The turnover rate is at a multi-year high.
  • Verizon, on the other hand, leads the industry in every subscriber segment and has the greatest average revenue per user.

 

As it pertains to Verizon Communications Inc. (VZ:NYE), bears are crushing bulls. Bears will point out that Verizon has a substantial debt burden and is competing with a larger T-Mobile (TMUS:NSD) and a smaller AT&T.

In addition, Verizon has lost market share in total phones and postpaid phones every quarter since Q2 2020. Verizon lost 16,000 wireless subscribers within the first nine months of this year alone. AT&T added 1.7 million net subscribers during the same period, while T-Mobile added 1.1 million.

This basically explains why T-Mobile shares have risen, AT&T’s have soared, and VZ stock price has dropped approximately 26% over the past year.

Despite the fact that losses in subs and high debt levels support the bear case, there are certain aspects that support the bull case. VZ is, in some ways, the best firm of the three, and one must ask if the VZ stock price decline represents an investing opportunity.

 

Why VZ Stock Price Fell?

Prior to the release of Q1 22 earnings in late April, Verizon’s stock was outperforming the market by a considerable margin.

Net income and earnings per share decreased year-over-year due to greater operational expenses. The cash flow from operating activities decreased by $2.9 billion year-over-year to $6.8 billion. Capital expenditures multiplied by more than four, while the company’s enormous debt climbed by $1.9 billion.

As is typical for the company throughout each quarter, Verizon lost net postpaid phone users in the first quarter (36,000), albeit this was the lowest loss since the first quarter of 2018.

There were few positives in the study overall. Nonetheless, I will argue that the fundamental cause of the VZ stock price decrease was a dismal prognosis for 2022.

The management expected that reported wireless service revenue growth, adjusted EBITDA growth, and adjusted earnings per share would all fall below the previous range.

Following these results, Verizon investors suffered their largest single-day loss since the 2020 COVID meltdown. Within a week, VZ stock price dropped from the mid-50s to the mid-40s. However, the stock quickly recovered, surpassing $52 within two months.

The second shoe to drop was the second-quarter earnings.

A loss of 12,000 net postpaid phone users, the worst performance for this indicator in a second quarter in a decade, and management’s reduced expectations once again depressed the stock price.

Postpaid revenue, which accounts for more than 80 percent of total service revenue, increased by 2.2%, although at a rate that was half that of the previous year.

Verizon’s prediction for wireless service revenue growth decreased from a prior range of 9 to 10 percent to a new range of 8.5 to 9.5%. The growth rate of service and other revenue was altered from flat to flat to -1%. Adjusted EBITDA growth was reduced from 2% to 3% to -1.5% to flat, while the expectation for adjusted EPS was reduced from $5.40 to $5.55 to $5.10 to $5.25.

The price per share dropped. In contrast to the decline that followed the release of Q1 data, there was no following recovery in the VZ stock price.

The results in the third quarter did little to change the tide. Even though Verizon exceeded the consensus revenue forecast by $410 million and the average earnings per share forecast by $0.03, the company nevertheless underperformed the market. Simultaneously, the company reported a meagre 8,000 postpaid phone net additions and a retail postpaid phone churn rate of 0.92 percent.

What is the consequence of three consecutive quarters of subpar performance? Verizon’s stock reached a 12-year low.

 

The Bullish Perspective:

It is usual for analysts to compare Verizon’s meager net postpaid phone additions against AT&T’s significant postpaid phone customer growth. In the third quarter alone, VZ lost 189,000 wireless postpaid phone customers, while AT&T added 708,000 postpaid phone consumers.

However, this perspective is quite shortsighted. Additionally, Verizon reported 229k total broadband net additions in Q1, 268k in Q2, and 377k in Q3, for a year-to-date increase of 874,000 net broadband additions.

In comparison, there were around 477 thousand broadband connections as of December 31, 2021.

Verizon may now offer fixed wireless service to over 40 million potential customers, with the ultimate objective of reaching 64 million residences.

The Business Verizon added 197,000 postpaid phone net customers during the quarter, marking the fifth consecutive quarter in which it added more than 150,000 postpaid phone net customers.

Total revenue and total wireless service revenue also increased from the previous quarter and year.

The recent acquisition of TracFone’s prepaid cellular business contributed significantly to the 10% increase in wireless service revenue. Additionally, the business generated 34,000 TracFone net additions, the first increase for Tracfone since the first quarter of 2021.

 

Debt, Dividend, And Valuation:

At the end of the third quarter, VZ’s debt decreased from $151 billion in 2021 to $147.9 billion. $15 billion is expected within the next year.

The corporation has cash and equivalents totaling $2.1 billion.

The debt commitments of Verizon are subject to changing interest rates. In this climate, this causes the interest on the existing debt to increase. Management halted stock repurchases in order to concentrate on debt payments.

S&P assesses Verizon’s debt as BBB+/stable, while Moody’s assigns a Baa1/stable rating.

The current yield is 6.92 percent. The payout ratio is 48.63%, and the dividend growth rate over the past five years is a little around 2%.

Verizon trades for $37.90 per share. The average one-year price estimate of the company’s 21 analysts is $48.60. The average price target among the eight analysts who graded the stock after the most recent earnings report is $43.12.

The forward P/E for VZ is 8.00X, compared to the stock’s 5-year average P/E of 11.51x. In recent weeks, the stock has traded at levels not seen in more than a decade.

 

Should You Buy, Sell, or Hold Verizon?

Clearly, Verizon has fallen behind competitors in terms of net postpaid phone users, but this is mostly attributable to management’s choice to increase plan rates.

It is also true that debt is increasing and that net income, EPS, and other widely monitored metrics are declining. However, this is mostly due to an increase in the capital expenditures required to develop the 5G network. It should be emphasized that the company’s competitors are likewise heavily indebted and investing significant sums in capital expenditures.

In fact, Verizon’s debt is rated one level higher than AT&T’s and two levels higher than T- Mobile’s.

By focusing on postpaid figures and debt, bears are disregarding a range of good firm statistics.

Moreover, when evaluating a potential investment in Verizon, I feel it is essential to compare the company to AT&T and TMUS. The three constitute an oligopoly, contending with the same business environment and vying for the same clients. If, as JD Power asserts, Verizon has the greatest network of the three, and if the firm also has the highest credit rating, I believe VZ will have the upper hand in the long run.

If I were to pinpoint a potential long-term problem for Verizon, I would point to the overcrowded U.S. wireless industry, but this also applies to competitors.

Considering the company’s long-term potential, I find the current share price to be rather attractive. I believe that investors seeking a stable, substantial yield will eventually create conditions in which the stock retraces its mean.

Consequently, Stock Target Advisor grades VZ as a “BUY” for those seeking a stable, robust dividend.

Xpeng Stock Forecast (XPEV:NYE)-Fundamental Analysis is Bearish

Xpeng Stock Forecast:

According to 7 analysts’ stock projections for Xpeng Inc. (XPEV:NYE), the company’s average 12-month target price will be USD 14.41. The typical analyst rating for Xpeng Inc. is Buy. Xpeng stock forecast by Stock Target Advisor is Bearish and is based on 2 good signs and 7 negative indications.

The XPEV stock price was USD 6.89 at the most recent closing. Over the past week, +0.00% over the past month, and -86.52% over the past year, the stock price of Xpeng Inc. has changed.

The consensus Crowd Rating on the stock is a Strong Buy, with an average 12-month XPEV stock price target of $39 per share.

Jefferies Financial released a report on Monday, November 28th, updating their coverage on Chinese EV manufacturer, Xpeng Inc. which revealed the analyst downgraded the stock to Hold from a Buy rating.

Jefferies also slashed the 12-month price target to $4.20 from $18.60.  The analyst is citing the “end of the honeymoon phase” for the stock, essentially saying the company received a positive valuation metric based on it’s “New” EV maker sentiment.

 

About Xpeng Inc. (XPEV:NYE)

In the People’s Republic of China, XPeng Inc. designs, develops, produces, and sells smart electric vehicles. It offers family sedans under the P5 moniker, SUVs under the G3 and G3i names, and four-door performance cars under the P7 name.

The business also offers maintenance contracts, supercharging, leasing of vehicles, insurance brokerage, ride-hailing, technical help, referrals for auto loans and auto financing, music subscriptions, and other services. Guangzhou, People’s Republic of China, is home to the headquarters of XPeng Inc., which was established in 2015.

 

News:

Xpeng stock forecast shows that the company is expected to release Q3 earnings results on Wednesday, November 30, before the start of trading.

The consensus revenue estimate is $995.53M (+12.1% Y/Y), while the consensus EPS estimate is -$0.28 (-3.7% Y/Y).

EPS estimates have seen 1 upward revision and 0 downward revisions in the previous 3 months. There have been 2 downward and 0 upward adjustments to revenue estimates.

The Guangzhou-based EV maker reported second-quarter earnings that fell short of expectations, with margins being squeezed by rising operating costs, particularly those for raw materials and batteries.

Additionally, Xpeng provided a less optimistic outlook for deliveries in the next quarter. A decline in demand that is also affecting other Chinese EV manufacturers is reflected in the lower prediction.

Total deliveries for the third quarter eventually totaled 29,570, a 15% year-over-year decline from the midpoint projection of 29,000 to 31,000.

Xpeng stock forecast shows that the sales and stock performance for the automaker suffered throughout the quarter as a result of worries about the economy’s sharp slowdown and Guangzhou’s COVID regulations.

 

Positive Fundamentals:

Low debt ratio:
The company is more flexible since it is less leveraged than its competitors and is in the top quartile. However, keep an eye on the news and consider the industry. This is occasionally low because there is no room for future expansion at the organization.

Superior growth in revenue:
Compared to its industry, this stock’s revenue growth over the previous five years has been in the top quartile.

 

Negative Fundamentals:

Low market capitalization:
This is one of the less significant companies in its industries with a market capitalization below the average. If it doesn’t have a distinct technology or market that can help it develop or be purchased in the future, it may make it less stable in the long run.

Inadequate risk-adjusted returns:
In comparison to its rivals, this company’s risk-adjusted return performance is below average. The returns are unpredictable, even if it is outperforming in terms of returns. Be careful as you go.

High volatility:
Over the past five years, this company’s total returns have been erratic and higher than the industry average. If you plan to invest in such a stock, be sure your risk tolerance is adequate.

Lower than average dividend returns:
In comparison to its competitors, the company’s average income yield during the past five years has been low. If you are not seeking for work, it is not an issue.

Poor cash flow:
The last four quarters saw a negative total cash flow for the organisation.

Free cash flow that is negative:
In the last four quarters, the company’s overall free cash flow was negative.

Low growth in earnings:
Compared to its sector, this stock’s five-year median earnings growth was lower than average.

 

Conclusion of Analysis:

The fundamental analysis for Xpeng’s stock is rated with an overall score of 2.2 out of 10, which is very Bearish.

 

Durect Corporation Announces 1-for-10 Reverse Durect Stock Split

Durect Corporation (DRRX:NSD) announced on Monday that its board will effect a 1-for-10 reverse Durect stock split on December 5, 2022.

The company’s common stock will trade on a split-adjusted basis beginning on December 6, 2022.

At a special meeting of stockholders held on November 22, 2022, DURECT stockholders approved a proposal authorizing the board of directors to amend the company’s certificate of incorporation to effect a reverse stock split of DURECT’s outstanding common shares at an exchange ratio of not less than 1-for-10 and not more than 1-for-20, and a reduction in the number of authorized shares of common stock from 600 million to 150 million.

The reduction in the number of authorized shares will likewise go into effect on December 5, 2022.

Upon the implementation of the reverse Durect stock split, each ten issued and outstanding shares of the Company’s common stock will be immediately combined and converted into one issued and outstanding share of common stock with a par value of $0.0001 per share.

Following the reverse split, there will be approximately 22,8 million outstanding shares of common stock. The reverse stock split will have no substantial effect on the ownership proportion of any shareholder’s DURECT common shares.

Any fractional share of common Durect stock created as a result of the Reverse Stock Split will be cashed out at a price equal to the product of the Company’s common stock’s closing price on December 5, 2022 and the fractional share’s value.

In addition, modifications will be made to the per-share exercise price and the number of shares that may be issued upon the execution of all outstanding stock options.

The Company’s common Durect stock will continue to trade on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “DRRX.” Beginning December 6, 2022, the common shares will trade under a new CUSIP number, 266605 500.

The Company has engaged Computershare as its exchange agent for the Reverse Stock Split. Shareholders holding pre-split shares through a bank, broker, or another nominee will have their positions automatically adjusted to reflect the Reverse Stock Split and will not be required to take any additional action in relation to the Reverse Stock Split, subject to the processes of individual brokers.

Likewise, registered shareholders owning pre-split shares of the Company’s common stock electronically in book-entry form are not needed to take any additional action in relation to the Reverse Durect Stock Split.

The Company or its exchange agent will contact holders of certificated shares with further instructions on how to surrender old certificates.

 

About Durect Corporation:

DURECT Corporation, a biopharmaceutical company, researches and develops medicines based on its epigenetic regulator and pharmaceutical programs. The company offers ALZET product line that consists of osmotic pumps and accessories used for research in mice, rats, and other laboratory animals.

It also develops larsucosterol (DUR-928), an endogenous, orally bioavailable small molecule that is in Phase IIb clinical trial to play a regulatory role in lipid metabolism, stress and inflammatory responses, and cell death and survival to treat alcohol-associated hepatitis, as well as completed Phase Ib clinical trial to treat patients with nonalcoholic steatohepatitis.

In addition, the company offers POSIMIR, a post-surgical pain product to deliver bupivacaine up to days of in adults; and Methydur to treat attention deficit hyperactivity disorder. It markets and sells its ALZET lines through direct sales force in the United States, as well as through a network of distributors in Japan, Europe, and internationally.

The company has strategic collaboration and other agreements with Virginia Commonwealth University Intellectual Property Foundation; Indivior UK Ltd.; and Santen Pharmaceutical Co., Ltd. DURECT Corporation was incorporated in 1998 and is headquartered in Cupertino, California.