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Facebook Is Facing Regulatory Issues But Its Core Business Is Steady

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As Uber (NYSE: UBER) faces agonizing first days as a public company, its executives and many analysts remember Facebook Inc. (NASDAQ: FB) as one of those rare examples of the stock that flopped big time on its IPO but got to have a long laugh afterwards. Facebook’s stock is now up nearly 45% in 2019 with a market cap of $541 billion.

Initially, its founder and CEO Mark Zuckerberg worried that increased scrutiny and push for profits would compromise Facebook’s mission of connecting people throughout the world. But like any growing company, Facebook needed money, and private companies face rather limiting restrictions.  In late 2011, the Wall Street Journal reported that Facebook was anticipating an IPO valuation of $100 billion, which was nearly four times more than Google’s (NASDAQ: GOOGL) market cap when it went public in 2004. And the rest is history.

Facebook is now preparing to merge the technology behind its three messaging platforms, Facebook Messenger, Instagram and WhatsApp, as part of its new vision for social media as a private communications network and it is facing a great deal of scrutiny as even its co-founder Chris Hughes, who left Facebook to join Barack Obama’s presidential campaign, urges for the company to be broken up by regulators before it’s too late.

Two months after the mass shooting at a mosque in New Zealand was live-streamed by the accused gunman on Facebook, the company is introducing new rules for this feature. The announcement came as New Zealand and France encourage tech companies and countries to work together to do more to fight terrorism and at least limit the spread of extremist content online. This non-binding agreement is called the Christchurch Call. Facebook went even further and invested $7.5 million in research partnerships with universities to better identify manipulated media.

As a company, Facebook is constantly building its reputation on higher standards. Its interns are paid nearly double what a typical American makes. It definitely pays off to be in tech as Facebook internship pay is closely trailed by Amazon (NASDAQ:AMZN), Salesforce (NYSE: CRM), Google (NASDAQ: GOOGL), Microsoft (NASDAQ:MSFT), and (Uber NYSE: UBER). Tech internships, like tech jobs in general, dominate the highest-paid ranks but this also highlights how desperate Silicon Valley employers are for skilled talent, especially now that that visa policies are not that kind even to skilled workers.

So let’s get to the numbers behind all that qualitative information. Facebook stock rose as much as 9% in after-hours trading despite the company announcing that it could be in for a one-time charge that could go up to $5 billion due to an ongoing Federal Trade Commission inquiry. Due to this anticipated charge, the company’s earnings per share of 85 cents per share cannot be compared to analyst expectations. As a result of this regulatory uncertainty, Facebook stock has seen some volatile swings throughout the first half of the year but remained strong. The outcome is still unresolved, but even at the high end of the range the financial results show that it’s not a hit that FB stock can’t absorb and some might say even easily.  The potential loss to be caused by the fine is between $3 to $5 billion. So why such a cavalier attitude toward the billion-dollar fines, one might ask? Well, the quarterly results say everything as its revenue amounted to $15.08 billion, exceeding $14.98 billion forecasted by Refinitiv. They grew it 26 percent year-over-year. Even adjusting for a $3 billion legal expenses as they were smart to account for it preemptively rather than let it hang over the stock to worry their shareholders, FB’s net income was well over $2 billion. They’ve sent a clear message, not to say business lesson, that one-time expenses and write-offs happen, it is called the cost of doing business.

The company’s shift to privacy will definitely  “be a central focus for the company for the next five years or longer,” Zuckerberg said on Wednesday. He added that he does not expect the privacy pivot to be a real contributor to Facebook’s business for the next couple of years at least. When it comes to yearly figures, total revenue for the year increased as much as 37% to $55.8 billion from $40.6 billion in 2017. Its net income followed accordingly with a 39% increase to $22.1 billion from $15.9 billion.

Overall, Facebook had a very strong quarter. Everything is pointing to an even better second half of 2019. The FTC probe is not completely behind the company, but the extent of the damage seems to be a finished chapter, in financial and reputational aspects. FB isn’t going anywhere anytime soon and it probably isn’t going to get broken up by a regulatory body as long as they keep up their cooperative attitude. Let’s not forget how huge Facebook’s reach is: besides China where Facebook is blocked, its market is the entire world. Until now, Mark Zuckerberg has demonstrated a willingness to cooperate with the authorities and step up privacy protection for users. These efforts that aim to reduce regulatory risk and win back the trust of users will surely lift the burden of FB stock.

Facebook stock has the potential to reach new highs as the company delivers betters growth numbers in the coming months and puts the regulatory pressures behind. The sky really is the limit to monetize all the active users from scanning the newsfeeds as they build their virtual presence, not to say lives. The average number of daily active users in March amounted to 1.56 billion, as estimated by FactSet, representing an 8% increase year-over-year. The number goes way up when it comes to monthly active users of 2.38 billion.

Metrics show that Facebook’s underlying business is operating smoothly. When it comes to Facebook’s financial performance, without the fine, operating margins would have been 20 percent higher and diluted EPS would have been $1.04 higher. It’s survived its IPO flop and it looks like it will overcome this regulatory issue as well without a great deal of pain. Whether we like it or not, Facebook has changed our everyday lives and it seems it is here to stay.

 

 

 

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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