Real Estate, The Economy, and News: Stocks

Showing posts with label Stocks. Show all posts

Friday, January 19, 2018

Amazon Expects Advertising Revenue to Improve Profit Margin

Jeff Bezos, the CEO of Amazon Inc., recently took over the spot of "richest man in the world" from Bill Gates, the creator of Microsoft. To many, Bezos' wealth doesn't make much sense, because, for the past 20 years, Amazon has not brought in a profit. That may seem pretty cut and dry: profit means financial success. However, for Bezos, that's not exactly how it works. For many years, Bezos' financial strategy has been to choose business growth over profit, reinvesting any revenue into expanding Amazon. In that manner, Amazon's stock value has steadily gone up, even without paying any dividends to shareholders. According to an L.A. Times article by Spencer Soper and Mark Bergen, Amazon's latest shift, to focus on sources of advertising revenue, could help to push the company into profit territory.

Over the past few years, Amazon has been losing money in its e-commerce business but has been able to recoup those losses due to its profitable business of providing cloud services. However, the differences between gains and losses are tight: Amazon's average profit is only around 1%. Up until now, Amazon's advertising business has been pretty small, at $1.7 billion in revenue compared with Google's $35 or Facebook's $17.4 billion. Amazon has nowhere to go but up when it comes to advertising. It is likely that the growth will be among companies trying to get priority placement for their products on Amazon's website. That kind of business plan pivot is unlikely to have high costs and has huge potential for billions more in revenue.

Amazon is in a good place for advertisements. Often, on Google or Facebook, an advertisement appears that tries to push a user toward another site, where the user might purchase the product being advertised. The problem with that system is that users get annoyed by incessant advertisements when they aren't looking to buy anything. The difference for Amazon is that its users are already looking to buy something. Advertisements would be both helpful to the shopper, would benefit the advertiser, and would give Amazon more revenue. Everyone wins!

Food companies spend millions each year to put advertisements on television and in magazines to try to generate more interest in their products among potential customers. The same effect can be achieved on Amazon's website for far lower cost, with less work, simply by adding in suggested searches or sponsored search results. Of course, putting actual images and videos as advertisements can also help, but if someone is looking to buy a product, they're going to choose the one that seems to be at the best price. Through Amazon advertisements, companies can make their products more interesting to the average user. Perhaps one day, Amazon's advertisements could replace those on television entirely. Amazon does have its own video streaming capabilities, after all.

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Friday, March 3, 2017

Snap Inc. IPO Jumps 44% on First Day

Snapchat has, since its release in September of 2011, continuously updated and found new ways to attract its expanding base of users. Most recently, the company was planning on adding functionality to help users find their friends and stay updated during emergency situations. From funny videos to reality-distorting filters, Snapchat has stayed technologically in tune enough to keep boosting demand and stay competitive with other social media networks. This week's L.A. Times article by Tracey Lien, Paresh Dave, and Nina Agrawal detail's Snap Inc.'s initial public offering (IPO) and what it means for the company as a whole.

On Wednesday, Snapchat's stock was priced at $17. Within 24 hours, it leaped to a closing price of $24 on Thursday, where it had peaked at $26 for a short time. That 44% gain is the kind of "pop" that can indicate massive success for a new stock offering. It usually means that the stock is in high demand among investors. However, it could also mean that the company purposely "left money on the table," setting the stock at a price lower than it was worth.

Analysts found that Goldman Sachs, Morgan Stanley, and other big investment banks had orders for 10 times the number of shares Snap was willing to sell, so they could easily have charged more than $17 per share in order to make extra money. However, in raising the cost per share, they risk reducing demand. While one or two dollars extra per share would have been unlikely to have any significant impacts on overall demand, if Snap had chosen to open at $22 or $23 per share, the market would probably have shown much less interest, and it's possible that the stock would have busted.

To many investors, it's far more impressive for a company's stock price to rise rapidly than to stay steady at an already-high price. It was a smart plan for Snap Inc. to set their stock price at a lower level, giving it room to grow. There is a possibility that if they had started it high it may have ended even higher, but in all likelihood, people would have shown much less interest in the company and not bought at such high levels. Either way, however, investors are unhappy if prices fluctuate too much from their original levels. Whether they start high and drop or start low and pop, investors become concerned. Therefore, the best way for a company to keep its investors happy is to try to predict a stock price that will stay steady through its IPO.

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Friday, July 15, 2016

Long-Term Government Bonds Seen as "Safest" Investment

Although the global economy's struggles have made success more difficult for investors this year, many are trying new, riskier methods to multiply their money. Some, however, have decided to take the safe route, since very few investment opportunities remain with high payouts. So, the majority of "safe" investors have been going after utilities and bonds, which have the most stable profits, albeit slow ones. Tom Petruno, in his L.A. Times article, discusses some of the options that investors have been left in an economy with ever-dropping interest rates.

Options like utility stocks provide at least some semblance of "certainty," which has investors paying higher prices than they would expect to earn back in the short-term. All appearances seem to point to many investors playing the long game, more willing to take less profit than risk losing money. Additionally, because many investors have been focusing more on high-yield bonds as a safe haven for their money, government-backed bonds have been suffering. In about half a year, the US Treasury note yield has dropped from 2.27% to 1.37%.

Even in Japan and several countries in Europe, government bonds, which are known for being safer than most investments, have taken a hit. The market is so shaky in those countries that yields on bonds are somewhat negative, which means a bond owner is losing money on their investment. Because of this phenomenon, Japanese and European investors are looking to US bonds. While the American bonds only have a rate of 1.5%, it's better than losing money, so investors are rushing in.

According to economists, owning bonds is a representation of an investor's belief that the economy is improving. By holding onto one's bonds, an investor can be suffering through low-yield years in order to benefit greatly in the long run. Long-term bonds are described as an "insurance policy," no benefits for years, but great to have at the end of the road. Stocks have begun recovering again, and while stocks may hit all-time highs in the coming months, some companies fear that profits will still take a while to get back to normal levels.

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Friday, July 1, 2016

Global Economies Stabilizing After Downturn Caused by Brexit

Although the Brexit Referendum sent economies around the world into a steep dive, they seem to be rebounding much more quickly than expected. Investors have been buying more than selling this week. driving the US stock market higher three separate times. However, analysts have also noticed that US bond prices have surged, which indicates that investors are less anxious about Brexit in the short-term, but still worried about its implications down the road. The members of the Associated Press of the LA Times describe in their article some of the ways in which the economy has shifted since Brexit, and what that may mean for the future.

Britain's departure from the EU, which dropped the value of the euro by over 10%, left economists worried that economies around the globe would quickly follow suit. Fortunately, after a significant downturn, most of the economies are bouncing back quickly. While the amount of investment in the US economy seems to be the same before and after Brexit, there has been a shift as to where investors are putting their money. Oil prices went down. Consumer staple companies and utility stocks, which are known as low-risk investments, have had increased demand.

Investors believe that Brexit in and of itself will not have enough of an effect on the US economy to be significant. However, they worry that if the trend becomes contagious, it will be difficult to combat the negative effects of several countries leaving the EU at once. Overall, though, the economy seems to be on track. The Nasdaq and Dow Jones both increased by 1.3%, and the stock market did well this quarter. Even the S&P 500 improved by 1.9% in the period between April and June. Analysts believe that most of the improvement comes from energy stocks, utilities, and telecom companies.

On Thursday, stock trading started slowly but soon began to rally at normal levels, which may signal that investors have decided to stop worrying about Brexit's effects, at least for the time being. Even the UK's stock market has recouped many losses since last week, due mainly to overseas companies benefiting from the reduced value of the local currency. Around the globe, economies are doing well, or at least not being significantly affected by Brexit. The pound and the euro are still losing value, with the former at faster rates than the latter, but both seem to be slowing. It could be that economists were right: if handled correctly, Britain leaving the EU might only have negative repercussions in the short-run, with unknown benefits in the long-term.

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Friday, February 19, 2016

Alphabet to Surpass Apple as "World's Most Valuable Company"

For years, Google Inc. was always known for its internet/computer science businesses, including its online search database, maps, advertising platform, YouTube, Android, and more. In recent years, Google began investing more and more time, effort, and money in other kinds of technologies. From healthcare devices to drones to self-driving cars, Google has had its hand in many types of technological innovations. Unfortunately, that led to a somewhat unwieldy business model, in which every product/ technological focus was grouped under the single title of "Google." Paresh Dave and Andrea Chang discuss in their L.A. Times article how Google recently underwent a business shift and created a new corporation, Alphabet Inc., within which several subgroups focus on different realms of Google's technological goals.

Not only has the creation of Alphabet Inc. made the business more structured, it also has generated plenty of investor interest. In fact, according to Dave and Chang, Alphabet Inc. is well on its way toward claiming the position of "world's most valuable company" from competitor Apple Inc. In the fourth quarter, Alphabet showed that profit had grown by double-digits, and proved to investors and the world that projects like self-driving cars and virtual reality glasses were not wasting resources, but instead earning revenue. Where analysts expected Alphabet to earn $16.9 billion, the company surprised everyone by reporting $21.3 billion in revenue, an improvement of 18% over the course of two years.

Last summer, when Google first began changing to the Alphabet structure, the company aimed to separate online ventures from those involving physical technological innovations. Each of the individual units of Alphabet is designed to have flexibility over its own budget and operations, but in the end, Alphabet itself will keep watch over each sub-business and make the major business decisions. Certain ventures labeled as "Other Bets," which include YouTube and smart-thermostat maker Nest, had a loss of over $3 billion in 2015, which was to be expected, according to Alphabet's analysts. Loss is expected during the R&D stage of technological innovation, but executives believe that the loss is at an acceptable level based on predictions of future revenue.

Alphabet's momentum seems almost unstoppable. In the past year alone, Alphabet's stocks have risen more than 40% in total. On the other hand, Alphabet's major competitor, Apple, is having plenty of problems that have led their stock values to fall. As mentioned previously, much of Apple's recent troubles have been closely linked to the company's reliance on a single product: the iPhone. Since iPhone sales have gone down, Apple's stocks have taken a plunge. Alphabet's new business model will help to reduce the chances of a similar situation taking place, since the variety of sub-businesses means that even if one sub-business has trouble, it will have little effect on the company as a whole.

Overall, economic analysts believe that Alphabet will keep improving and that its stock prices will continue to increase. Executives have seen continuous increases in the number of users of Gmail and the Google Play Store. They also expect that advertisements on Google and YouTube will be very important for Alphabet's future revenue. Since Alphabet's creation, revenue rose nearly 14% and profit for the year rose by 16%. In the past year, Alphabet also added over 8,200 new employees. As you can see, Alphabet seems very confident about the company's future growth and is planning accordingly.

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Friday, January 8, 2016

Apple Stocks Fall, Partly Due to Struggling Chinese Economy

While Apple is a large company with a variety of different products, many investors measure the company's success solely on the sales of a single product: the iPhone. Because of its popularity around the world, analysts tend to use the statistics of iPhone sales to monitor how the company as a whole is doing. Unfortunately, when iPhone sales are down, investors see this as a red flag and look to jump ship, thereby causing Apple stocks as a whole to go down. Paresh Dave and David Pierson write in their article about some of the possible factors contributing to lowered iPhone sales, as well as how this affects the company.

While just over a month ago, Apple stocks closed at $119, the same stocks have recently taken a plunge, going under $100 for the first time since October 2015. That's a decrease of over 15% in a single month, not a good sign for executives and potential investors. The iPhone 6S, this year's iteration of the popular cell phone, hasn't sold as well as predicted, in China as well as throughout the rest of the world. Several rumors have surfaced that assemblers and manufacturers of iPhones have recently been bracing for a slowdown in production, and financial analysts have determined that Apple has reduced supplies to Asian distributors.

While all of this may be coincidental, investors have taken these signs to be harbingers of future turmoil for the company and have decided to pull out for the time being. China's economy, which has doubled in the 7 years since Apple first opened stores and factories in the country, has a large impact on the company's success and failure, whether we like it or not. China's middle class is slowly expanding, opening up the market for iPhones to a much larger group of people, which will be good for sales when the economy gets back on track.

It seems that the first sign of a downturn for iPhone sales appeared in mid-December, when companies like Jabil Circuit and Dialog Semiconductor, which produce casings and internal parts for the iPhone reported lower-than-expected revenue predictions for the coming months. Decreased sales could be due to the fact that the newly released iPhone 6S is not very different from last year's iPhone 6, which would explain reduced demand, or it could be due to more economic factors. Either way, Apple seems confident that sales and stocks will go back up in the near future, especially with the new iPhone 7 in the works. While growth may be slow in 2016, executives believe that revenue will continue to grow at a rate of about 5%.

Where iPhone sales didn't boom as greatly as expected, products like the Apple Watch, iPad Pro, and Apple TV were popular gifts during the holiday season, thus boosting Apple's total revenue over the past couple of months. Apple executives are certain that China will remain a huge market for iPhone sales, but that it will just take a little bit of time for the economy to catch up again. In the long run, China is still one of the biggest markets for Apple products, even with current economic turmoil messing up sales. Eventually, Apple stocks should go back up, but the question is: How soon?

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Friday, September 25, 2015

Grocery Chain Haggen's Bust May Have Little Effect on Competitors' Prices

Grocery chain Haggen Inc., which spent approximately $1.4 billion last year in a dramatic expansion along the West Coast, was forced to file for bankruptcy this month, undoing everything it had accomplished over the past several months. While Haggen believed that its buy-outs of several dozen Albertsons, Vons, and Safeway supermarkets would help the Northwest-based company grow, in Shan Li and Andrew Khoury's L.A. Times article, it is explained why their business plan may have been flawed from the start.

According to experts, Haggen's purchases were doomed to fail from the beginning. Not only was the cost of purchasing and converting 146 supermarkets of various brands remarkably high for the 18-store chain, but Haggen's prices were seen as too high for the quality of produce being provided. According to the founder of DJL Research, a research firm specifically for supermarkets, no one believed that Haggen had any chance of success with their large acquisition.

Analysts go on to claim that Haggen's prices were determined too much by the prices already in place at the purchased supermarkets. Instead of doing their own research, they chose prices similar to those of rivals like Albertsons or Safeway. Haggen is known for its higher quality meats, seafood, and organic produce, which would normally be reason enough to qualify higher prices than their competitors'. However, complaints from customers seemed to all point to less than fabulous service and produce of lower quality than advertised.

Perhaps the lack of proper business planning in the stores was due to the stresses Haggen experienced because of the buy-outs. Albertsons, one of the former owners of some of the stores, broke off their tenuous business relationship shortly after the purchase. Albertsons opened lawsuits against Haggen, stating that $41 million worth of inventory had not been paid for, and in response, Haggen sued Albertsons, claiming that the competitor was consistently working behind the scenes to push Haggen out of the market. Perhaps Haggen's legal struggles interfered with its ability to run its newly obtained markets properly, Now that Haggen plans to pull back and keep only its 37 stores in Washington and Oregon, its reputation for high-quality may one day be restored.

For the over 8,000 Haggen employees in California alone, the bankruptcy will hit hard, The Local 324 United Food and Commercial Workers Union is rightfully upset, especially after having filed recent grievances against Haggen for layoffs and reduced hours. For others in the community who do not work for Haggen, however, economic analysts and regular shoppers alike do not expect to be affected by the closures. Since there is enough competition going on in the community, between Ralphs, Wal-Mart, and other stores, they believe that prices will not likely rise significantly. Who knows? In the end, perhaps Haggen will earn enough money from the sale of the closed stores to get back on their feet in their Northwest home base.

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Tuesday, May 19, 2015

Costco - American Express, Partnership to End in 2016

2/20/15 - For years, American Express was the exclusive credit card of Costco shopping centers throughout North America. Costco's most recent contract with American Express is set to expire in March 2016, and the companies have been unable to come to a mutually beneficial agreement for renewal of that contract. Costco Wholesale Corporation has since announced the upcoming split, and according to an article by E. Scott Reckard and Dean Starkman, of the L.A Times, Costco is close to finding a replacement as their sole credit card provider.

Since Costco only accepts one type of credit card, customers are forced to either pay via cash/check or use that type of credit card. This gives that credit card company a huge amount of business, since shoppers at Costco generally buy products in bulk and don't usually carry enough cash to pay for such a large quantity of goods. One of the big reasons for Costco's break with American Express, according to Reckard and Starkman, is a desire for lower swipe fees. If Costco, or any other company for that matter, is able to get cheaper rates from one credit card company versus another, they will almost always choose the one with lower prices.

Even though the partnership with Costco accounted for about $94 billion in revenue for AmEx, analysts state that based on Costco's new terms, the economics did not make a renewal the sensible move. Some of that money comes from interest on pending credit card balances, but the vast majority comes from actual spending by credit card holders.

Over the years, in an attempt to keep up with other companies, AmEx has offered rewards, special deals, and even lower fees, which has kept it relatively competitive. Unfortunately, AmEx's stock has been on a decline recently, a trend which has not been helped by the upcoming break with Costco. On the plus side, American Express claims that it has plans to reinvest in other companies, as well as to focus on its current partnerships.

The split is having a far worse effect on American Express than it is on Costco. Costco pretty much has the ability to choose its own rates, since the company that gets the partnership will be gaining much more business. A year ago, Costco switched to the Capital One Master Card in its Canadian branches, and has felt little ill effect from it. The only issue seems to be customers' reactions. How difficult will it be to change cards? Would it become easier for shoppers to simply pay in cash, which might reduce the benefit to the new credit card company? Only time will tell.

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Saving Versus Spending: The Ultimate Conundrum

8/8/14 - In times of financial hardship, it is quite common for individuals to build a wall around their finances, to save rather than invest, and statistics show that consumers have been squirreling away any extra cash on hand, ever since the Great Recession first hit. With low interest rates on savings accounts and constant fluctuation of the stock market, it appears that, at this point in time, consumers have little choice but to pad their checking accounts rather than risk losing their savings. An article by E. Scott Reckard of the L.A. Times discusses the economic implications of this phenomenon of consumer saving as opposed to spending and investing.

Before the Great Recession hit, the average American was known for extravagant spending, for commonly over-drafting his/her checking account, and for holding very little savings in a “just in case” account. After we were hit hard by the economic downturn, it seems as if consumer saving has gone into overdrive, as if to compensate for their previous lax attitude toward their finances. While this new development in consumer saving is helping individuals to ride out the ups and downs of economic recovery, this situation does not bode well for continued economic stabilization.

According to Reckard, about two-thirds of economic recovery is represented by consumer spending. Thus, if consumers are saving rather than spending, the recovery is doomed to slow, maybe even halt altogether. With more individuals holding onto money rather than funneling it back into the economy, businesses have less capital on hand to hire new employees. While employment-to-active-searcher rates have improved markedly in past months, the so-called employment-to-population rates are still suffering, and these high rates of unemployment make people want to save even more, in fear that one day their employment might also be terminated.

Thus, while this new development is helping consumers to pay off debt and to learn to keep a “rainy day” fund, this cautious practice of high saving and low spending is not having such a great effect on the economy as a whole. However, as Reckard states, with inflation going down and income going up, it may just be a matter of time before consumers decide to invest once again. All in all, the main message is this: consumers have turned their manner of economic thinking on its head. While these sudden increases in responsible spending and lower rates of overdraft should be celebrated on the individual level, the economy now needs to find some other way to help its recovery.

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Lowering Interest Rates: A Continuing Trend?

7/14/14 - Interest rates are a large part of measuring an economy's strength, stability, and ability to recover. For the average American, there is no ideal interest rate; it all depends on one's status. For older Americans, relying on the interest accrued from a pension fund or savings account, low interest rates can be devastating, helping very little to increase their principal investment. On the other hand, low interest rates can mean lower mortgage rates, more affordable loans, and improvement of the stock market. In his article, Tom Petruno of the Los Angeles Times investigates interest rates, their effect on the economy, and predictions of future changes.

In most countries, the interest rates are controlled by a main federal banking organization: the Federal Reserve, the European Central Bank, or the Bank of Japan, to name just a few. These organizations command changes in the short-term interest rate, and as of recently, have been holding them as low as possible, in an attempt to stimulate economic growth in the form of real estate, corporate loans, and stock market investment.

Although the Federal Reserve publicly predicts interest rates to be up to 2.5% by 2016, several members of the policy committee remain skeptical as to the magnitude of this rate increase. While they disagree as to the amount, they seem to concur as to one main idea: America of the post-Great Recession era will take quite a while to regain its previous economic stature. Of the many sources Petruno cites in this article, one message stands out: don't rely on a return to “normal” interest rates, for the economy still has a ways to go.

While central banks control short-term interest rates, such long-term rates as on bonds are affected more by the principle of supply and demand. As demand for bonds decreases, the banks offer higher interest rates as an incentive to increase demand, and as demand increases, banks have more leeway to lower interest rates without affecting sales too drastically. Thus, the interest rates on bonds have been falling lower and lower due to increased consumer demand for such “safer” investments.

According to Petruno, even though interest rates have been at all-time lows, inflation could reverse this trend. As prices and wages increase, long-term interest rates could be driven up markedly by bond investors. According to the Federal Reserve, the current national inflation rate is at target levels, around 2%. While some analysts believe that the inflation rate will continue to increase, in the long run, it appears to remain steady, especially given that wages aren't increasing along with the costs of goods and services. Due to high unemployment, and a dramatic shift to more part-time work, the current rise in prices is predicted to decrease, given that lower wages can't fuel a sustained increase in costs.

In concluding the article, Petruno brings up the following point: while the funneling of money into central banks has not, as of yet, triggered a dramatic improvement in the national economy, such an improvement due to this money could have negative consequences, namely high inflation. It seems like the solution to fixing the American economy relies mainly on time and patience. Interest rates are slowly climbing, and the economy appears to be healing, albeit slowly. Thus, all we can really do is watch and wait.

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