- Moby
- Posts
- TOST | January 25th, 2024
TOST | January 25th, 2024
TOGETHER WITH
Today’s report is brought to you by TÖST. Enjoy an alcohol free, dry, sparkling refresher perfect for every occasion.
[ good morning ]
Here’s everything you need to know today
Markets are pumping as we finally have real economic data to chew on. In newly released preliminary estimates, U.S. GDP managed to grow 3.3% year-over-year in Q4.
Q4 of last year and Q1 of this year are the real ‘moment of truth’ for Federal Reserve policy—and these latest GDP figures loudly suggest that Jerome Powell is threading the needle here.
While CPI data came back a little too hot earlier in the month, we’ve all but erased our fears of a recession or inflation getting out of hand.
Even though major indices got a little lift from this result—there is still some risk here. 3.3% growth might be a little too hot given how sticky inflation has been. We could see a complete reversal in the markets next week if Jerome Powell announces there still might be rate hikes on the table, or if he suggests that rate cuts will come much later than the market’s expectations for March.
At the same time—oil prices are now creeping back up thanks to higher demand hopes. China’s recovery is starting to look a little more legit—and U.S. reserves took a bad hit last month thanks to winter storms slowing production. Those prices probably won’t contribute too much to inflation, but it’s an important trend to watch.
So, the stage is now set for a pivotal Fed meeting next week. This will cap off an absolutely wild first month of 2024. Either rate-cut hopes will send the bulls into overdrive, or high-for-longer fears will pump the brakes on this current rally.
Either way—earnings season is providing a lot of great long-term trends to chew on. So, let’s explore the big stories that will stick with the market once this rally calms down:
Markets at a Glance
*Market data based on standard trading hours and calculated close to close
[ electric vehicles ]
Tesla Slumps as Demand Crumbles
Is the EV king building to something other than structural decline?
BREAKING NEWS
Tesla shares are getting battered in early trading thanks to a mild revenue miss and fears around declining demand. Let’s break down Tesla’s ongoing slide:
WHAT HAPPENED
Tesla managed to beat expectations in a few small ways. The company got margins more under control, generating an operating margin of 8.2%. Thanks to price cuts, that’s still a huge draw down from last year’s 16% operating margin—but at least things are improving from Q3.
Tesla missed both top and bottom-line expectations by driving a $0.71 EPS from $25.1 billion in revenue for the quarter. While the company is pushing in the right direction as they improve auto margins—investors need to see a lot more from the company in order to justify Tesla’s high valuation.
PARTY LIKE IT’S 2014
The main headwind pushing investors out of Tesla stock this morning is fear surrounding lower volume. Industry-wide, demand for EVs appears to be hitting a ceiling, and Tesla’s price cuts simply aren’t enough to keep that demand alive. Elon Musk and Tesla Management are focusing on launching their “next generation vehicle” in Texas right now. Tesla’s next iteration is expected to be cheaper and more for mass-market adoption.
Meanwhile, Tesla’s energy division managed to grow 54% YoY and is quickly scaling. That revenue doesn’t even come close to replacing vehicle shortfalls, but it at least provides some long-term optimism for Tesla’s growth prospects.
WHY IT MATTERS
After years of hitting a high bar for margins—Tesla is simply being held to a higher standard than other companies. Tesla is still investing in R&D like interest rates are below 1%—and that’s having a huge impact on their margins. Tesla would be enjoying much higher valuations right now if they simply announced a broader cost-cutting program or moved to utilizing cloud services for AI instead of building their own array in-house.
Instead—Tesla is plowing ahead with very a expensive development cycle hitched to very large bets like a 100% vision-based Full Self Driving algorithm and the Optimus robot. This period of weakness would be worth it if any one of these bets even mildly pays off—but the market just isn’t here for that level of risk right now. Tesla stock slumped over 8% in early trading, meaning the company has now fallen 20% on the month.
TÖST to Dry January
Finish your Dry January strong with TÖST, an alcohol-free sparkling beverage that's perfect for every occasion. Create meaningful & refreshing drinking experiences that can be enjoyed anytime and anywhere. TÖST, Elevate the Moment.
Sectors at a Glance
| Sector | Day | Month | Year |
|---|---|---|---|
| Communications | 0.99% | 4.77% | 42.41% |
| Consumer Disc. | -0.24% | -3.80% | 24.62% |
| Consumer Stap. | 1.09% | 0.73% | -1.54% |
| Energy | 0.21% | -4.56% | -8.93% |
| Financials | 0.16% | 2.54% | 8.03% |
| Health Care | -0.07% | 2.80% | 4.60% |
| Industrials | -0.08% | -0.61% | 12.95% |
| Materials | 0.33% | -4.77% | -0.69% |
| Real Estate | -0.54% | -4.12% | -2.83% |
| Technology | 0.40% | 5.77% | 53.98% |
| Utilities | 0.18% | -4.11% | -12.58% |
*Market data based on standard trading hours and calculated close to close
[ tech ]
IBM Surges as AI Commitments Double
Free Cash Flow is the market’s new favorite metric
BREAKING NEWS
IBM is hitting the stratosphere in response to a great earnings beat last night. Let’s unpack how the OG tech player is carving out their own AI niche.
WHAT HAPPENED
In short, IBM beat estimates by driving a strong $3.87 EPS from $17.38 billion in revenue. All of IBM’s major business lines generated respectable growth in Q4. However, IBM is getting most of their lift from a massive surge in Free Cash Flow. Management hit $11.2 billion in FCF when the company originally expected $10.5 billion. IBM hasn’t seen operating margins this high since the 20th century.
PIONEER BUMP
After the year we’ve had with LLMs, it’s hard to remember that IBM is actually one of the main pioneers of machine learning and the AI market thanks to their Watson program. WatsonX is still a leading AI architecture—and IBM actually had their bookings for WatsonX double from Q3 to Q4. While that would still put AI revenue at a few hundred million dollars, the market still loves to see a demand surge that big.
WHY IT MATTERS
IBM cautioned investors that they expect a lot of volatility in 2024 and can’t anticipate perfectly where demand will go from here. However, IBM is achieving huge productivity gains thanks to internal AI utilization, and therefore the company expects some mild staff restructuring this year. With great revenue growth and the promise of better margins—investors are flooding IBM stock right now. The company gained over 8% in early trading—pushing their stock up 50% since their recent lows last May.
[ entertainment ]
Paramount Gets More Buyout Lift
New rumors suggest that Skydance Media wants to own the whole empire
BREAKING NEWS
Paramount Global got a little more buyout lift this morning after new reports came to light suggesting that David Ellison and Skydance Media are making moves for a complete ownership stake. Can this inject new life into the old media titan?
WHAT HAPPENED
It’s no secret that Paramount has been suffering in the streaming wars. Expenses are too high and competition is too hot right now. Paramount Global still has great assets though—which is why the stock is surging thanks to a new report that David Ellison and his Skydance Media production studio have exchanged preliminary information with Paramount about a potential takeover.
Basically, Skydance has been working with RedBird Capital Partners and KKR & Co to completely take Paramount off the public market. The only way that would work is if Skydance and Paramount Global merged and became a new entity entirely.
NO WINNING MOVES
With Netflix completely dominating on costs and subscriber growth—the streaming wars have been brutal to legacy brands like Paramount Global. The company still has a lot of great assets though and can do well on private markets if they divest from the right costs and adjust from here.
WHY IT MATTERS
2024 is going to be all about capitulation and consolidation in the streaming space. It is going to be progressively more difficult for any company to carve a real niche in Netflix’s territory, so brands like Paramount and Warner Brothers Discovery will need to either sell off assets or combine to stay competitive. For now, investors are eager for Paramount to abandon their new streaming push, as their stock rose over 8% in early trading.
Extra Moby Snacks
Humana is in freefall after their earnings report confirmed they had generated a loss of $0.11 per share thanks to soaring medical costs. Medicare Advantage is crushing insurance companies thanks to increased expenses and utilization. Humana stock fell over 14%.
American Airlines popped 4% as the company kept profits alive and beat revenue expectations. There’s hope yet for the airline business.
TOGETHER WITH
Today’s report is brought to you by TÖST. Enjoy an alcohol free, dry, sparkling refresher perfect for every occasion.