Boeing's (BA) Path to Redemption and Its Investment Potential

Posted on by The INO.com Team

What’s going on with Boeing?

On June 1, a highly-anticipated The Boeing Company’s (BA) Starliner spacecraft was scheduled to launch from Cape Canaveral, Florida, on its maiden voyage to the International Space Station (ISS) with a human crew. However, the automated systems halted the countdown just four minutes before liftoff.

The astronauts were safely extracted from the capsule, and officials are now investigating a computer issue that disrupted the rocket’s final prelaunch sequence. This problem caused Starliner to miss its narrow launch window, which was timed precisely to reach the ISS.

"It's disappointing," NASA commercial crew program manager Steve Stich said in a press conference after the launch scrub. "Everybody's a little disappointed but you kind of roll your sleeves up and get right back to work."

Starliner’s journey has been anything but smooth. Originally slated to launch three weeks ago, the mission was aborted due to a valve malfunction. Further complications arose when engineers detected a helium leak and discovered a ‘design vulnerability’ in the propulsion system, causing additional delays. A backup launch on Sunday was also scrapped, with NASA citing a ground support equipment issue.

Boeing Starliner Launch Postponed Again?

Yet, despite the disappointment, Boring is not giving up. The company might attempt another launch on June 05. However, the last-minute abort adds to a long list of setbacks that have plagued the Starliner program for years. Additionally, each Boeing misstep increases America’s dependence on its competitor, SpaceX, for transporting astronauts to space.

For Boeing, proving that Starliner can operate reliably is not just about technical achievement; it’s about restoring its tarnished reputation and demonstrating that it can be a dependable partner for NASA.

Over the weekend, engineers conducted a thorough evaluation of the computers, power supply, and network communications systems onboard the Starliner spacecraft. They identified the issue as a faulty ground power supply within one of the computers, which affected the operation of crucial countdown events.

The affected computer was replaced with a spare, and no physical damage was found. Meanwhile, mission specialists are analyzing the faulty power unit to determine the root cause of the issue. According to the ULA team, all other computers and their components were assessed and found to be functioning normally. Following a review by the Starliner mission management team, the spacecraft has been given the green light (‘go’) for launch on Wednesday.

This launch attempt comes as Boeing is scrutinized for other high-profile incidents, including a mid-flight panel detachment and two fatal crashes years ago. While Boeing’s air and space divisions are separate, these issues impact the company’s reputation.

The company is contracted to build six regular flights for NASA to ensure multiple astronaut transport options. But the Starliner’s crew debut has been delayed for years. So far, Boeing has lost $1.5 billion in costs and around $5 billion in NASA development funds due to craft setbacks.

The crew flight test scheduled last weekend represents the final major step before it receives NASA certification to begin regular missions. With NASA’s increased oversight following past failures, Boeing must convince the government and the public of its reliability. If successful, this launch will mark the beginning of a critical demonstration for Boeing.

Bottom Line

BA's ability to fulfill its promises is under intense scrutiny after a series of setbacks so far this year that has shaken confidence in its operations. Moreover, with increasing order cancellations and decreasing cash reserves (ranging between $4 billion and $4.5 billion for the first quarter), the situation is critical for the struggling aircraft manufacturer.

Boeing reported a 36% year-over-year decline in commercial plane deliveries for the first quarter of fiscal 2024. This caused a dent in the company’s cash flow from operations dropping to negative $3.36 billion and non-GAAP free cash flow falling to negative $3.9 billion, broadening significantly from last year’s losses. The company posted a 7.5% year-over-year decline in its total revenue to $16.57 billion. Its adjusted core operating loss was $388 million and $1.13 per share, respectively.

In this context, the question of Boeing's investment appeal looms large on Wall Street. Analysts expect BA’s revenue for the second quarter ending June 30, 2024, to decrease 6.5% year-over-year to $18.48 billion. The company is projected to post a loss per share of $0.85 for the current quarter.

Although the specifics of the plan are still unknown, early signs suggest a focused effort to strengthen operational efficiency and quality control measures. For instance, BA’s plan to acquire Spirit AeroSystems to address quality control and operational efficiency challenges reflects its commitment to streamlining its supply chain, strengthening production capabilities, and exerting greater control over supplier policies and practices.

The upcoming term will be crucial for the company's long-term survival. Moreover, when it comes to the space industry, we certainly see stiff competition for Boeing. For instance, SpaceX has regularly launched astronauts and rockets in partnership with NASA since 2020.

Over the past five days, BA’s stock has gone up by nearly 6%. But, in terms of year-to-date, Boeing has not been able to take off, as its shares have plunged more than 29%.

However, analysts maintain a Moderate Buy consensus rating on BA stock, reflecting a cautiously optimistic outlook tempered by lingering concerns. With a target price of $216.96 per share (with a 22.16% upside), they are cautiously hopeful about BA's potential for recovery and resurgence in the coming months.

Overall, investor confidence remains mixed, with uncertainties surrounding the full extent of Boeing's financial impact and its ramifications for the aviation industry as a whole.

PDD Holdings' International Expansion: Can Temu Replicate Domestic Success Abroad?

Posted on by The INO.com Team

With a $204.04 billion market cap, PDD Holdings Inc. (PDD) is a leading Chinese e-commerce company. It surpassed revenue and earnings consensus estimates for the first quarter of fiscal 2024, powered by its international marketplace, Temu, and increasing consumer interest in its flagship discount e-commerce platform, Pinduoduo.

For the first quarter that ended March 31, 2024, PDD’s revenues increased 130.7% year-over-year to $12 billion. That surpassed analyst estimates of $10.58 billion. Revenues from online marketing services and others were $5.88 billion, up 56% from the prior year’s quarter, and revenues from transaction services rose 327% year-over-year to $6.14 billion.

The discount e-commerce giant’s non-GAAP operating profit grew 237.4% from the prior year’s period to $3.95 billion. Further, PDD’s non-GAAP net income attributable to ordinary shares rose 202% from the year-ago value to $4.24 billion. It posted non-GAAP earnings per ADS of $2.86, compared to the consensus estimate of $1.43, and up year-over-year.

“In the first quarter, we continued our investment in key areas critical to our high-quality development strategy,” said Ms. Jun Liu, VP of Finance of PDD. “Rather than focusing on short-term results, we prioritize long-term value creation and remain committed to further deepening our investments in the future.”

During the quarter, PDD’s cash inflows from operating activities came in at $2.02 billion, an increase of 1,474% year-over-year, primarily due to a surge in net income. As of March 31, 2024, the company’s cash, cash equivalents and short-term investments stood at $33.50 billion.

“We are committed to offering a trustworthy shopping environment for our users around the world,” commented Mr. Lei Chen, PDD’s Chairman and Co-Chief Executive Officer. “We will keep focusing on growing our long-term intrinsic value through investing in initiatives that bring sustainable impacts to our communities.”

PDD has gained market share with highly competitive prices at home and abroad. Shares of PDD have surged more than 115% over the past year.

PDD Holdings’ exceptional financial performance in the first quarter is mainly fueled by solid user growth and sales at its global marketplace, Temu. Let’s analyze Temu’s potential to drive the company’s growth in international markets by examining the competitive landscape, regulatory hurdles, and strategic moves.

Strategic Initiatives

Temu, an online marketplace operated by PDD Holdings, sells a variety of products from fashion to household, primarily made in China, for rock-bottom prices. Temu’s business strategy focuses on attracting customers via competitive pricing, social buying, heavy advertising, and an immersive technological design. Its business model has allowed it to gain immense popularity since its launch in 2022 in China and overseas.

Temu platform went live in the U.S. in September 2022, offering products across more than 15 categories. It was the first major overseas push of PDD Holdings and expanded in several countries, including Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, and the United Kingdom.

On January 17, 2024, Temu officially launched in South Africa, marking the 49th country the e-commerce marketplace had entered since 2022.

To drive robust growth in international markets, Temu has implemented several strategic initiatives. The cross-border e-commerce marketplace tailors its product selections to meet the preferences of local markets. It also collaborates with local suppliers, manufacturers, and logistics providers to ensure efficient operations, enhancing its market presence.

Moreover, Temu invests heavily in marketing to build brand awareness and attract customers, including digital advertising, social media campaigns, and localized promotional events. As per J.P. Morgan analysts, Temu invested around $1.7 billion in advertising in the past year, a figure anticipated to climb to $3 billion this year.

The international marketplace also utilizes advanced technologies to personalize shopping experiences, optimize product recommendations, and enhance customer service. Further, AI-driven insights help Temu in understanding evolving consumer preferences and trends.

Competitive Landscape

Temu faces fierce competition from established e-commerce rivals, including Shein, eBay, Alibaba Group’s (BABA) AliExpress, and Amazon.com, Inc. (AMZN) in the U.S. and other markets.

Moreover, PDD’s value-for-money positioning and the remarkable growth of its Temu marketplace have enabled the company to maintain its leadership position in China’s e-commerce market. PDD Holdings’ outstanding first-quarter results sparked a significant surge in its stock price, propelling its market capitalization past that of its competitor, Alibaba.

“We think Temu’s profitability will improve faster than previously estimated due to its introduction of the half consignment model, under which logistics costs will be borne by merchants,” Morningstar said in a note.

“We also believe PDD’s domestic platform will be able to defend its position given the strong consumer perception of its value-for-money positioning,” said Morningstar analyst Chelsey Tam, adding that PDD Holdings comes up top in their preferences, while JD.com and Alibaba are in second and third spots, respectively.

In line, Goldman Sachs increased PDD’s rating to “buy” from “neutral,” citing the company’s continued growth momentum in advertising revenue in the first quarter and Temu’s potential.

This stock upgrade comes “on the back of its adtech capabilities combined with China’s cost-competitive suppliers/merchants /supply chains alongside favorable risk-reward, with the current market cap implying no valuation ascribed to Temu,” stated Goldman Sachs analyst Ronald Keung.

According to Earnest Analytics, Temu had acquired approximately 17% of the U.S. online discount store market as of last November.

In addition to leading the Chinese e-commerce arena and successfully expanding into Western markets, Temu has overtaken Shein by staying at the top of shopping app rankings in Japan and South Korea for a longer period. The emerging e-commerce app is focused on selling cheap goods to international customers.

Regulatory Issues

Chinese e-commerce retailers have faced rising scrutiny on handling content on their platforms. On May 31, 2024, the European Union (EU) announced adding Temu to its list of platforms facing the bloc’s highest level of digital scrutiny. By September this year, the online marketplace must adhere to the DSA’s most strict rules and obligations, including assessing and mitigating “systemic risks.”

“Temu must put in place mitigation measures to address risks, such as the listing and sale of counterfeit goods, unsafe products, and items that infringe on intellectual property rights,” the EU, the 27-nation bloc’s executive arm, said in a press release.

The company acknowledges the European Commission’s decision. “We are fully committed to adhering to the rules and regulations outlined by the DSA to ensure the safety, transparency, and protection of our users within the European Union,” PDD Holdings added.

Bottom Line

Established in 2022, Temu is PDD’s e-commerce marketplace aimed at expanding the company’s footprint beyond China. It has started entering international markets just in the past two years. And it has since grown in immense popularity by offering affordable products, ranging from apparel to home products, shipped down from China.

Since its initial launch in the U.S., Temu has rapidly expanded its operations to 49 countries, with South Africa being the latest. PDD’s value-for-money positioning and outstanding growth of its Temu platform have helped the company lead China’s e-commerce market.

The marketplace aims to replicate the company’s success in China by offering attractive deals and localized products to international customers. Temu’s unique business model focuses on attracting customers by offering products at prices below the industry norms, aggressive marketing, and technological innovation.

Although Temu faces stiff competition from established e-commerce rivals across America and other markets, it leverages strengths in PDD’s social commerce, cost-effective, efficient supply chain management, and competitive pricing to gain market and expand its global footprint.

PDD beat first-quarter 2024 revenue and earnings analyst estimates, primarily driven by significant growth of its international marketplace, Temu, and surging consumer interest in its flagship discount e-commerce platform, Pinduoduo.

This year, the company aims to deepen the execution of its high-quality development strategy, where it will put efforts into improving the overall consumer experience, strengthening supply chain capabilities, and fostering a healthy platform ecosystem.

Analysts expect PDD’s revenue and EPS for the second quarter (ending June 2024) to increase 93.1% and 92.9% year-over-year to $13.86 billion and $2.77, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 66.3% and 82.5% year-over-year to $57.19 billion and $11.79, respectively.

Given PDD’s robust financial performance, accelerating profitability, and bright growth outlook primarily attributed to Temu’s successful international expansion, investors could consider buying this stock now.

Investing in AI: Should You Bet on AMD, Broadcom, or NVIDIA?

Posted on by The INO.com Team

Is NVDA the Top Player in AI Stocks?

Initially famed for gaming GPUs, NVIDIA Corporation (NVDA) has evolved into a leader in data center hardware, spearheading AI advancement. The company’s Hopper GPUs are in high demand, accelerating AI applications from recommendation engines to natural language processing and generative AI large language models like ChatGPT on NVIDIA platforms. At this point, NVDA’s dominance in AI and data center markets is undeniable.

For the first quarter that ended April 28, 2024, Nvidia saw over 3x year-over-year increase to $26.04 billion, a new record level. NVIDIA’s Data Center Group (primarily connected to its AI operations) chalked up $22.60 billion in revenue, resulting in a 23% sequential gain and a massive 427% rise over the same period last year.

The chip giant’s operating income surged 690% from the year-ago value to $16.91 billion. NVIDIA’s non-GAAP net income amounted to $15.24 billion or $6.12 per share, compared to $2.71 billion or $1.09 per share in the previous year’s quarter, respectively.

Buoyed by a robust financial position, NVDA increased its quarterly dividend by 150% from $0.04 per share to $0.10 per share of common stock. The increased dividend is equivalent to $0.01 per share on a post-split basis and will be paid to its shareholders on June 28, 2024.

Moving forward, the company guided for a nice round of $28 billion in revenue for its second quarter of the fiscal year 2025, representing a projected 7.5% sequential gain. Its non-GAAP gross margin is expected to be 75.5%, plus or minus 50 basis points.

Analysts expect NVDA’s revenue for the fiscal 2025 second quarter (ending July 2024) to increase 109.7% year-over-year to $28.32 billion. The consensus EPS estimate of $6.35 for the current quarter indicates a 135.1% improvement year-over-year. Moreover, the company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Nvidia’s comprehensive offerings, from chips to boards, systems, software, services, and supercomputing time, cater to expanding markets and diversify its revenue streams. Moreover, the chipmaker’s shares have surged more than 130% over the past six months and nearly 190% over the past year. NVIDIA's trajectory suggests an unstoppable momentum fueled by AI adoption mirroring a similar upward curve, promising a bright future.

Amid this, do AI stocks Broadcom Inc. (AVGO) and Advanced Micro Devices, Inc. (AMD) stand a chance to be as big as the industry leader, NVIDIA? Let’s fundamentally analyze them to find the answer.

Broadcom Inc. (AVGO)

Broadcom Inc. (AVGO) is emerging as one of Nvidia's toughest rivals in the race for networking revenue, especially as data centers undergo rapid transformation for the AI era. As a global tech leader, AVGO designs, develops, and supplies semiconductor and infrastructure software solutions. The company produces custom AI accelerators for major clients and recently projected $7 billion in sales from its two largest customers in 2024, who are widely believed to be Alphabet Inc. (GOOGL) and Meta Platforms, Inc. (META).

AVGO will announce its fiscal 2024 second-quarter earnings on June 12. Forecasts indicate a 37.4% year-over-year revenue surge to $12 billion, reflecting steady growth and financial resilience. Moreover, analysts expect a 5% uptick in the company’s EPS from the preceding year’s period to $10.84.

Broadcom has consistently exceeded consensus revenue and EPS estimates in each of the trailing four quarters, including the first quarter. Its net revenue increased 34% year-over-year to $11.96 billion, with a triple-digit revenue growth in the Infrastructure Software segment to $4.57 billion. AVGO’s gross margin grew 22.8% from the year-ago value to $7.37 billion.

On top of it, the company’s non-GAAP net income for the three months came in at $5.25 billion or $10.99 per share, up 17.2% and 6.4% year-over-year, respectively. Also, its adjusted EBITDA increased from the prior-year quarter to $7.16 billion.

Looking ahead, the company forecasts nearly $50 billion in revenues for fiscal year 2024, with adjusted EBITDA projected to be approximately 60% of its revenue. The company anticipates a 30% year-over-year surge in networking sales, driven by accelerated deployments of networking connectivity and the expansion of AI accelerators in hyperscalers. It also expects generative AI to account for 25% of semiconductor revenue.

The artificial intelligence megatrend is poised to significantly drive Broadcom's revenue and earnings growth in the upcoming decade. During a recent earnings call, Broadcom CEO Hock Tan emphasized, “Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment.”

On May 20, 2024, AVGO announced its latest portfolio of highly scalable, high-performing, low-power 400G PCIe Gen 5.0 Ethernet adapters to revolutionize the data center ecosystem. These products offer an enhanced, open, standards-based Ethernet NIC and switching solution to resolve connectivity bottlenecks as XPU bandwidth and cluster sizes grow rapidly in AI data centers.

Patrick Moorhead, CEO & chief analyst at Moor Insights and Strategy, noted, “As the industry races to deliver generative AI at scale, the immense volumes of data that must be processed to train LLMs require even larger server clusters. Scalable high bandwidth, low latency connectivity is critical for maximizing the performance of these AI clusters.”

He added, “Ethernet presents a compelling case as the networking technology of choice for next-generation AI workloads. The 400G NICs offered by Broadcom, built on its success in delivering Ethernet at scale, offers open connectivity at an attractive TCO for power-hungry AI applications.”

With the company's expanding presence in the AI space, Broadcom stands out as a compelling alternative to major chip companies such as NVDA and AMD. Over the past six months, shares of AVGO have gained more than 42%, and nearly 63% over the past year, making it an attractive addition to your investment portfolio.

Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) has been at the forefront of innovation in high-performance computing, graphics, and visualization technologies for decades. While NVDA may be the first name that comes to mind in AI processor sales, AMD has established itself as a formidable competitor in the GPU space, particularly excelling in chips tailored for AI workloads.

However, AMD's influence doesn't stop in hardware; it has been actively expanding its AI software ecosystem. The company recently unveiled the groundbreaking AMD Ryzen™ AI 300 Series processors, featuring the world’s most powerful Neural Processing Unit (NPU). These processors are designed to bring AI capabilities directly to next-gen PCs, promising a future where AI-infused computing is seamlessly integrated into everyday tasks.

Additionally, the next-gen AMD Ryzen™ 9000 Series processors for desktops solidify AMD’s position as a leader in performance and efficiency for gamers, content creators, and prosumers alike.

Moreover, the company’s comprehensive roadmap for the Instinct accelerator series promises an annual cadence of cutting-edge AI performance and memory capabilities across each generation. Beginning with the imminent release of the AMD Instinct MI325X accelerator in Q4 2024, followed by the anticipated launch of the AMD Instinct MI350 series powered by the new AMD CDNA™ 4 architecture in 2025, AMD is poised to deliver up to a 35x increase in AI inference performance compared to its previous iterations.

In the first quarter that ended March 30, 2024, AMD’s non-GAAP revenue increased 2.2% year-over-year to $5.47 billion. Both its Data Center and Client segments experienced substantial growth, each exceeding 80% year-over-year, fueled by the uptake of MI300 AI accelerators and the popularity of Ryzen and EPYC processors.

Moreover, the company’s non-GAAP operating income grew 3.2% from the year-ago value to $1.13 billion. Its non-GAAP net income and earnings per share rose 4.4% and 3.3% from the prior-year quarter to $1.01 billion and $0.62, respectively.

AMD expects its revenue in the second quarter of 2024 to be around $5.7 billion, with a projected growth of 6% year-over-year and 4% sequentially. Meanwhile, its non-GAAP gross margin is expected to be around 53%.

Street expects AMD’s revenue for the second quarter (ending June 2024) to increase 6.7% year-over-year to $5.72 billion. Its EPS for the ongoing quarter is projected to reach $0.68, registering a 17% year-over-year growth. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

While Nvidia’s Data Center segment reported a sales run rate of $90 billion in the last quarter alone, experts predict that the company could surpass the $100 billion mark in Data Center sales with this momentum. In contrast, AMD's recent guidance forecasts sales of $3.5 billion for its MI300 AI chips in 2024. There’s still a sizable gap between NVIDIA and AMD in AI revenue. To put things into perspective, NVDA's networking revenue alone is approximately four times larger than AMD's total AI chip sales.

Nonetheless, AMD is poised to drive AI innovation across various domains with a diverse portfolio spanning cloud, edge, client, and beyond. The stock has gained more than 55% and 39% over the past nine months and a year, respectively.

Bottom Line

With the global artificial intelligence (AI) market projected to soar from $214.6 billion in 2024 to $1.34 trillion by 2030 (exhibiting a CAGR of 35.7%), leading chip companies, including NVIDIA, Broadcom, and Advanced Micro Devices, are rapidly expanding their market presence, vying for a piece of the pie.

Given their solid fundamentals and promising long-term outlooks, NVDA, AVGO, and AMD appear in good shape to thrive in the foreseeable future. Thus, investors can place their bets on these stocks to garner profitable returns and capitalize on the upward curve of AI.

The Impact of Amazon’s (AMZN) Price Cuts on Its Financial Performance

Posted on by The INO.com Team

As summer heats up, North America's largest retailers are diving into aggressive price-cutting campaigns to attract shoppers. Last week, an array of discounts emerged as retailers aimed to ease the financial strain on consumers. For instance, Target Corporation (TGT) announced that it would cut prices on 5,000 items, including diapers and pet food. This followed their February launch of the ‘dealworthy’ discount brand, introducing 400 household and essential products mostly priced under $10. Walmart Inc. (WMT) also revealed that it would lower costs on 7,000 items, marking a 45% increase in price rollbacks. Aldi and The Kroger Co. (KR) have also jumped on the bandwagon, aiming to reduce grocery prices.

In a move to stay competitive, Amazon Fresh, a subsidiary of Amazon.com, Inc. (AMZN), has entered the fray with a promise akin to Prime Day, offering substantial price cuts on 4,000 products, with new deals rotating weekly. The company announced that these price reductions will apply to items both online and at its Amazon Fresh brick-and-mortar grocery stores.

“Increasing our weekly deals across thousands of items and expanding the reach of Prime Savings at Amazon Fresh is just one way that we're continuing to invest in competitive pricing and savings for all of our customers,” said Claire Peters, Amazon Fresh's worldwide vice president.

As reported by CNN, Amazon's sweeping price cuts will cover a variety of categories, including meat, seafood, frozen foods, beverages, snacks, dairy, cheese, and pasta. The discounts will apply to both well-known brands and Amazon’s private-label products, such as the Aplenty grocery line. Additionally, Amazon Prime members will receive an extra 10% off additional items when they shop online.

These widespread price cuts come at a time when inflation has persistently raised grocery costs by 1.1% year-over-year as of April, a slight decrease from March's figures. With restaurant food prices up by 4.1% over the same period, these retailers have a window to draw in budget-conscious consumers looking for grocery deals.

The company’s strategic move to offer significant savings not only aims to draw more customers but also solidify its position in the highly competitive grocery market.

Unlimited Grocery Delivery Subscription, a Treat for your Wallet!

Last month, the online retail giant launched a new, low-cost grocery delivery subscription service exclusively for Prime members. Priced at $9.99 per month (with a discounted rate of $4.99 per month for SNAP/EBT cardholders), this subscription service promises unlimited delivery on orders exceeding $35.

What sets this service apart is its extensive coverage, spanning over 3,500 cities and towns across the United States. Initially trialed in three cities in 2023, the program has now expanded nationwide, showcasing Amazon's commitment to streamline and enhance the grocery shopping experience.

Customers enrolled in this subscription gain access to a vast selection of retailers, including Whole Foods Market, Amazon Fresh, and various local grocery and specialty retailers accessible through Amazon.com. By incorporating popular stores like Cardenas Markets, Save Mart, Bartell Drugs, Rite Aid, Pet Food Express, and Mission Wine & Spirits, Amazon is further solidifying its position as a go-to destination for all grocery needs.

Tony Hoggett, senior vice president of worldwide grocery stores at Amazon, said, “Our goal is to build a best-in-class grocery shopping experience — whether shopping in-store or online — where Amazon is the first choice for selection, value, and convenience. We have many different customers with many different needs, and we want to save them time and money every time they shop for groceries.”

In the context of Amazon's recent price cuts and initiatives to enhance its grocery offerings, this new subscription service adds another layer of convenience and affordability for customers.

How Did Amazon Perform in the March Quarter?

In the first quarter that ended March 31, 2024, net sales increased 12.5% year-over-year to $143.31 billion. Sales at AWS accelerated 17%, reaching $25 billion, topping Wall Street’s expectations of $24.5 billion. This uptick comes after a period of slower growth due to reduced cloud spending, with new demand for generative artificial intelligence boosting AWS's performance.

Operating income surged 200% in the period to $15.31 billion, which outpaced revenue growth and demonstrated the effectiveness of Amazon’s cost-cutting and efficiency strategies. AWS contributed 62% of the total operating profit. In addition, AMZN’s net income more than tripled to $10.43 billion, or $0.98 per share, up from $3.17 billion, or $0.31 per share, a year earlier, beating analysts' average EPS estimate of $0.83.

The impressive earnings growth has been driven by Amazon's widespread cost-cutting, adjustments to its fulfillment operations, and stabilization in cloud spending. CEO Andy Jassy has been implementing a disciplined approach to spending while expanding profitable segments like advertising, cloud computing, Prime memberships, and the third-party marketplace.

For the second quarter, Amazon expects continued profitability growth, projecting operating income between $10 billion and $14 billion, up from $7.7 billion a year earlier. Net sales are forecasted to range from $144 billion to $149 billion, representing growth of 7% to 11%.

Shares of the e-commerce and tech company climbed more than 52% over the past year and nearly 21% year-to-date.

Bottom Line

Amazon’s strategic price cuts are more than just an attempt to lure in customers with the allure of a good deal; they are a calculated move to enhance consumer satisfaction and loyalty. By rotating sales and offering substantial discounts, Amazon gives budget-conscious shoppers a reason to keep coming back, ultimately boosting sales volume and customer engagement.

These discounts cover a wide range of essential grocery and entertaining staples, from meat and seafood to dairy and snacks, with some items marked down by as much as 30%. This tactic ensures that Amazon remains a top choice for food purchases, in addition to household items.

"Amazon is committed to building a best-in-class grocery shopping experience, whether in-store or online, grounded in the values Amazon is famous for: price, selection, and convenience," the company stated in a press release.

This commitment was evident during the recent Memorial Day sale, where Amazon slashed prices on over 50 items, including its own brands and popular electronics from Apple and Sony. The company offered up to 50% off Amazon devices like Fire tablets and Blink cameras, and 32-inch Amazon Fire TVs were discounted by 40%.

Moreover, the launch of subscription service complements these price cuts and enhances its competitive edge in the grocery delivery market. As the e-commerce giant continues to innovate and expand its offerings, its commitment to competitive pricing and customer satisfaction is evident. These efforts are likely to enhance customer loyalty, drive sales growth, and ultimately have a positive impact on AMZN’s financial performance.

Alibaba's (BABA) Secret Weapon for Future Growth

Posted on by The INO.com Team

Amid challenging regulatory pressures, economic headwinds, and fierce market competition, Alibaba Group Holding Limited (BABA) has showcased a resilient performance, as evidenced by its latest quarterly results. Shares of the Chinese e-commerce giant have gained more than 7% over the past three months. Moreover, the stock is trading above its 50-day and 200-day moving averages of $76.20 and $78.79, respectively, reflecting a solid momentum.

Alibaba's diverse business portfolio continues to be a driving force behind its steady financial performance. For the fourth quarter that ended March 31, 2024, BABA’s revenue increased 7% year-over-year to $30.73 billion, beating the analysts’ estimate of $30.42 billion. The growth was driven by robust performances across its core e-commerce and cloud computing segments.

BABA’s strategic investments in Alibaba Cloud infrastructure and its domestic and international e-commerce platforms have spurred double-digit growth in key metrics such as gross merchandise value (GMV). Yet, the company’s income from operations dipped 3% from the prior-year quarter to $2.05 billion.

Navigating through cautious consumer spending in China, Alibaba has observed early signs of recovery in its primary e-commerce operations. Revenue from the Taobao and Tmall Group increased 4% year-over-year to $12.91 billion, while customer management revenue grew 5%, rebounding from a previously flat quarter. Also, revenue from the Alibaba International Digital Commerce Group (AIDC) surged 45% year-over-year to $3.80 billion.

BABA’s CEO Eddie Wu's commitment to ‘reignite’ growth through further investments is beginning to yield results, as he noted the strategies were “working and we are returning to growth.”

But What's Behind This Robust Growth?

Alibaba’s secret weapon lies in its digital technology and intelligence arm, Alibaba’s Cloud Intelligence Group, which stood as the company’s second-largest revenue generator last year. Revenue from this segment rose 3% year-over-year to $3.54 billion, driven by the double-digit growth of its public cloud business. Core offerings like elastic computing, databases, and AI products led to a notable triple-digit growth in AI-related revenue in the fourth quarter alone. This surge in demand for advanced AI solutions positions the company to capitalize on the burgeoning AI market.

To foster long-term growth and attract startups and small businesses, Alibaba aggressively slashed prices on over 100 core public cloud products (including Elastic Compute Service (ECS), Object Storage Service, and database product categories) in China. This initiative was later extended globally in April with a 23% average price reduction. Customers ordering through Alibaba’s official website can now enjoy discounts of up to 59% on computing, storage, network, database, and big data products.

“Cloud infrastructure is poised to be the key cornerstone for the future of AI, and our commitment lies in making sure that the foundation for AI development remains affordable,” said Selina Yuan, President of the International Business of Alibaba Cloud Intelligence.

Moreover, Alibaba Cloud's AI capabilities have rapidly gained traction, with over 90,000 enterprises adopting the Qwen large language model (LLM) within a year of its debut and more than 7 million downloads on open-source platforms like Github. Alibaba Cloud introduced Qwen2.5, the latest addition to its Qwen model family, to meet the growing demand for AI solutions.

Furthermore, Alibaba Cloud recently launched a service to help companies customize and scale generative AI models, from consolidating multiple models to optimizing underlying infrastructure resources. The PAI-Lingjun Intelligent Computing Service, an AI computing platform tailored for high-performance computing tasks, also expanded its reach to Singapore for the first time this year.

Also, the group's strategic focus on public cloud and operational efficiency resulted in an impressive 49% year-over-year increase in adjusted EBITDA to $848 million in fiscal year 2024. Such growth figures solidify Alibaba Cloud’s role as a crucial driver of the company's future growth.

Is Price Cuts a Strategic Initiative or a Race to the Bottom?

Alibaba’s recent move to reduce prices across its cloud services has stirred the market. Some say it's a smart move to attract more customers (especially with the growing demand for AI services), while others fear it could hurt profits in the long run.

With enterprises’ expenditure on generative AI services expected to reach $143 billion in 2027 globally, the timing of BABA's price adjustments appears strategic, positioning the company to tap into this growing market.

Meanwhile, BABA's price cuts have sparked a price war among Chinese tech giants, with Baidu Cloud and ByteDance quickly following suit with their competitive offerings. While these cuts benefit consumers, Alibaba’s footing in the global marketplace is tenuous. Despite holding over 30% of China's Infrastructure as a Service market, Alibaba still trails behind AWS in the broader Asia Pacific region. Alibaba Cloud commands only a small fraction of the global cloud computing market, where AWS, Microsoft Azure, and Google Cloud dominate the landscape.

Making headway against these industry giants is not easy, especially considering their strong foothold in Western markets. While the price cuts may attract budget-conscious customers and bolster Alibaba's presence in emerging markets, success hinges on maintaining high-quality service and innovation in the long run. Only time will tell if Alibaba's gamble pays off.

Bottom Line

BABA reported a beat in revenue in the fourth quarter of fiscal 2024; however, the e-commerce giant’s earnings plunged. Despite a weak bottom line, CFO Toby Xu expressed confidence in the company's business outlook, citing early positive results from strategic investments and partnerships. Alibaba sees AI as a significant driver of innovation and value creation within its ecosystem.

During the March quarter, AI-related revenue delivered “triple-digit growth year-over-year.” The revenue was generated from foundational model companies and internet companies, as well as customers from the financial services and automotive industries.

Analysts expect BABA’s revenue for the first quarter (ending June 2024) to increase 5.1% year-over-year to $34.10 billion. However, its EPS for the ongoing quarter is expected to decline by 15.6% year-over-year to $2.03. Further, for the fiscal year 2025, Alibaba’s revenue is forecasted to reach $140.92 billion (up 8.3% year-over-year), while the consensus EPS estimate of $8.23 indicates a 4.4% decline from the prior year.

In terms of forward non-GAAP P/E, BABA is trading at 9.61x, 39.5% lower than the industry average of 15.88x. Similarly, the stock’s forward EV/EBITDA and Price/Book multiples of 5.94 and 1.31 are 39% and 45.3% lower than the industry averages of 9.73 and 2.40, respectively.

In response to its low valuation, Alibaba's management repurchased $4.8 billion worth of shares during the fourth quarter. Moreover, earlier this year, the company bolstered its share buyback program by an additional $25 billion, extending it through the end of March 2027.

In further demonstrating its commitment to returning value to shareholders, BABA approved a two-part dividend plan totaling $4 billion. This plan includes a regular cash dividend of $0.125 per ordinary share or $1 per ADS in FY24 and a one-time extraordinary cash dividend of $0.0825 per ordinary share or $0.66 per ADS. Both dividends will be paid out in U.S. dollars to holders of ordinary shares and ADS holders as of the close of business on June 13, 2024.

While the impact of price reductions on Alibaba's bottom line remains to be seen, achieving double-digit revenue growth across its specific segments amid strategic pricing adjustments underscores the company's resilience and adaptability in an ever-evolving market landscape.