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Unity stock falls in first earnings since IPO after it reports loss

Unity Software’s stock fell more than 6% in after-hours trading on Thursday as the company posted widening net losses in its third-quarter earnings.

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John Riccitiello

Gus Ruelas | Reuters

Video game software developer Unity Software‘s stock fell as much as 6% in after-hours trading on Thursday as the company posted widening net losses in its third-quarter earnings.

Here’s what they reported:

  • Loss per share: 97 cents
  • Revenue: $200.8 million
  • Net loss: $144.7 million

CNBC does not compare reported earnings and revenue to Wall Street estimates for a company’s first report as a public company, as uncertain share counts can skew expectations.

The company posted a net loss of $144.7 million, up 218% from a net loss of $45.5 million a year prior. Revenue, however, grew to $200.8 million, up 53.3% year-over-year from $130.9 million.

The company also announced that it is expecting fourth-quarter revenue in the range of $200 million to $204 million. Full-year revenue outlook for 2020 is expected to be in the range of $752 million to $756 million. That would be up between 38.8% and 39.5% from Unity’s 2019 revenue.

Unity gives developers the tools to create 3D titles for phones, consoles and the web without having to code for each platform. “Pokemon Go” and “Fall Guys: Ultimate Knockout” are among the games developed using Unity’s software. It’s also used for games published by Electronic Arts, Take-Two Interactive, Tencent and Ubisoft.

Thursday’s earnings report is Unity’s first since the company went public in September.

Source: https://www.cnbc.com/2020/11/11/unity-earnings-q3-2020.html

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The stock market may be misreading what this weak jobs report means for the Fed

The disappointing April jobs report reinforces the Fed’s easy policies, but some strategists still expect the Fed to move toward ending bond purchases.

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A help wanted sign is posted at a taco stand in Solana Beach, California.

Mike Blake | Reuters

The much weaker than expected April jobs report reinforces the Federal Reserve’s easy policy stance, but some strategists still expect the central bank to signal in the next couple of months that it will slow down its bond buying.

Economists had expected to see 1 million new jobs last month, so the government’s report of just 266,000 was a gut punch to the view that the economy is rebounding in a smooth upward trajectory. The anticipation for a big jobs number also had put the spotlight on the Fed’s easing programs.

Stock futures rose and Treasury yields immediately fell after the report. But the 10-year Treasury yield, after falling to about 1.49% turned around to trade at 1.55%. The 5-year also fell but stayed near its low. Yields move opposite bond prices. In afternoon trading, stocks remained higher with the Dow up about 160 points.

“I’m wondering if bonds are selling off a little as it just reinforces [Fed Chair Jerome] Powell wanting to be patient,” said John Briggs, head of global strategy at NatWest Markets. “But if you’re like me, waiting for the Fed to taper, I think the Fed is going to start talking about it in September. That means the market is going to be talking about it in the summer.”

Economists said the May jobs report will provide more information on the state of hiring, which could have been slowed by bottlenecks showing up in supply chains. For instance, auto workers have been idled due to the shortage of semiconductors needed to build automobiles. There is also an acute shortage of workers in some areas and industries. Economists also see closed schools as an issue, keeping parents from the workforce. To some extent, expanded unemployment benefits may also be a factor.

“If one is thinking about the evident labor shortages being inflationary, that should push the 5-year yield up,” said Michael Schumacher, Wells Fargo rates director. “But the other side is if you consider the chance of the Fed tapering, that’s been pushed back slightly. Not much in my opinion, but people might take that view.”

Schumacher said he still expects the Fed to discuss trimming its purchases of about $120 billion a month in Treasurys and mortgage securities.

Fed Chairman Jerome Powell has knocked the idea that the Fed will begin discussing an unwind any time soon. But some strategists still expect the Fed to be forced into slowing the purchases and ultimately ending them due to the strength of the economic recovery and the specter of inflation.

A step toward ending the bond-buying program would ultimately be a step toward raising interest rates, which the Fed is not expected to do any time soon. Powell has said the Fed would complete the slow wind down of its bond purchases before raising interest rates.

“If you’re an economy bull, you say this is probably an aberration. … The bears can say you’re losing momentum. Either are possible until you get another month,” Briggs said, noting the next report could show a large amount of hiring. “When was the last time you reopened an economy in a pandemic? Where are your seasonal factors for that?”

He said the bond market is also reacting to the potential for more fiscal stimulus, highlighted by the White House after the weak number.

“It’s as simple as this — a drop in rates, let’s buy tech,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. “The stock market can’t decide whether it wants to celebrate the drop in yields and maybe a Fed that’s not going to taper so quickly but at the same time, we’re early stage in the recovery but we’re seeing a lot of late stage behavior like supply demand getting hot … this overheating.”

Jan Hatzius, chief economist at Goldman Sachs, said the bond market reversal appears to have come as traders looked at the inconsistencies and decided the number was distorted. “That was my view as well,” he said on CNBC. Hatzius said the weak jobs report does not change his view that the Fed will taper its bond purchases starting next year and then raise interest rates in 2024.

“I’m not sure having one dud report changes the calculation too much,” said Schumacher. “I suspect the forecast range will be astronomical next month.”

The unemployment rate rose in April to 6.1% from 6%. The bulk of hiring was in the leisure and hospitality sector, which added 331,000 jobs as pandemic restrictions on restaurants eased.

Average hourly wages rose by 21 cents to $30.17 in April, and economists note that strong hiring of workers in the hospitality industry typically makes overall wage numbers go down.

“This is a devastating disappointment, more than just seasonal problems. We had declines in everything from professional services to manufacturing and even couriers and transportation,” said Diane Swonk, chief economist at Grant Thornton. “Turning on the lights in the economy is harder than turning them off.”

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Source: https://www.cnbc.com/2021/05/07/the-stock-market-may-be-misreading-what-this-jobs-report-means-for-the-fed.html

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Peloton reports sales up 141% as cycle demand remains strong, says it’s working to quickly fix treadmills

Peloton said Thursday it expects its fiscal fourth-quarter sales to take a $165 million hit due to a treadmill recall.

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A monitor displays Peloton Interactive Inc. signage during the company’s initial public offering (IPO) across from the Nasdaq MarketSite in New York, U.S., on Thursday, Sept. 26, 2019.

Michael Nagle | Bloomberg | Getty Images

Peloton said Thursday its fiscal third-quarter sales grew 141%, as recent investments in its supply chain allowed it to improve the pace of deliveries.

However, even as the company made progress in easing delivery bottlenecks — brought on by its popularity as a way to exercise at home during the coronavirus pandemic — it faced another challenge: the need to recall all of its treadmills after one child died and dozens were injured in accidents involving the Tread+ machine.

Peloton shares initially fell after its financial results were released. The report didn’t disclose any details about the impact of the recall, or its outlook.

But the stock swiftly recouped losses after the company provided more details on its earnings call. Peloton shares were recently up more than 4% in extended trading.

The company expects the treadmill recall — which has halted sales of its two models and delayed the planned launch of a less-expensive version in the U.S. — to reduce fourth-quarter sales by $165 million.

It now expects fourth-quarter sales of $915 million, which is lower than the $1.12 billion analysts were expecting, according to Refinitiv estimates.

Peloton also expects to incur added costs because it’s offering customers full refunds and will waive all treadmill customers’ membership fees for three months. This should reduce its fourth-quarter adjusted EBITDA by about $16 million, Peloton said.

“Our goal is to have the best safety features for treadmill products on the market,” Chief Executive John Foley said during the earnings conference call. “There will be a short-term financial impact due to the steps we’re taking.”

Still, demand for its cycles, which represent the majority of its business, remains strong. Peloton said that unit sales of its cycles during the fourth quarter should be more than three times what they were two years prior.

Here’s what the company reported for the quarter ended March 31 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Loss per share: 3 cents vs. 12 cents expected
  • Revenue: $1.26 billion vs. $1.1 billion expected

Peloton’s net loss shrank to $8.6 million, or 3 cents per share, from a loss of $55.6 million, or 20 cents per share, a year earlier. That was better than the 12 cents-per-share loss that analysts were anticipating.

Total revenue surged 141% to $1.26 billion from $524.6 million a year earlier and topped a Wall Street forecast for $1.1 billion.

Connected fitness revenue rose 140% to $1.02 billion, representing 81% of its total sales. Subscription revenue grew 144% from 2020 levels to $239.4 million and makes up 19% of total revenue, the company said.

Sales were driven, in part, by an acceleration of expected deliveries, Peloton said. Last quarter, it announced plans to invest $100 million in air freight and expedited ocean freight over a six-month period to help speed shipments. It also recently completed its $420 million acquisition of the manufacturer Precor, in a bid to boost its production capabilities in the United States.

The company said average wait times for its Bike are now back to pre-pandemic levels.

“While progress has been made, additional work remains to reduce delivery times across the remainder of our product portfolio and regions,” Foley said in a letter to shareholders.

Churn hits record low

Peloton ended the quarter with 2.08 million connected fitness subscriptions, up 135% from a year earlier. Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee for access to the company’s digital workout content.

Average net monthly connected fitness churn, which Peloton uses to measure retention of connected fitness subscribers, hit a six-year low of 0.31%. The lower the churn rate, the less turnover Peloton is seeing with its user base.

Total workouts, which include those from connected fitness users and from digital-only customers, grew to more than 171 million from 48 million a year earlier.

The company has been adding new content, such as barre and Pilates classes, to keep its customers engaged. It’s also preparing to launch in Australia later this year, as it continues pushing into new markets.

Working to approve new design

On Wednesday, Foley apologized for initially rebuffing the U.S. Consumer Product Safety Commission’s recommendation that the treadmills be recalled. In a statement, he said he should have acted more quickly to resolve the issue when the safety concerns were raised.

Peloton originally opposed a recall, saying customers should use its machines when children and pets are not present, and lock the machines when they’re not in use.

The CPSC must approve new enhancements to its treadmills that will make the equipment safer before it can be sold again, Foley said Thursday. He added that he anticipates the Tread to go on sale again “much sooner” than the Tread+.

“This process typically takes six to eight weeks. It could take longer. So we can’t offer an on-sale or revised launch date at this time,” Foley said.

Peloton’s Tread+ machine has an unusual belt design that uses individual rigid rubberized slats or treads that are interlocked and ride on a rail. Many other treadmills on the market have a thinner, continuous belt. There is also a large gap between the floor and the belt of the Tread+, which leaves a space beneath it that can pose a risk.

In April, the CPSC released a graphic video that showed a young boy being pulled under one of the Tread+ machines and struggling to free himself. It was captured on a home security camera.

With the Tread, some users have reported their screens coming unscrewed and falling off.

“We know that millions and millions of Americans use treadmills safely in homes today, so we remain incredibly bullish about the opportunity,” Foley said Thursday. “In order to run at home, you need a treadmill.”

Peloton shares are down 45% year to date, as of Thursday’s market close. It has a market cap of $24 billion.

Check here for the earnings release from Peloton.

Peloton shares initially fell after its financial results were released. The report didn’t disclose any details about the impact of the recall, or its outlook.

Source: https://www.cnbc.com/2021/05/06/peloton-pton-q3-2021-earnings.html

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Berkshire Hathaway’s annual meeting is here: What to expect from Warren Buffett and Charlie Munger

The 90-year-old Buffett is taking the “Woodstock for Capitalists” to Los Angeles, marking the first time the annual meeting will take place outside of Omaha.

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Warren Buffett (L), CEO of Berkshire Hathaway, and Vice Chairman Charlie Munger attend the 2019 annual shareholders meeting in Omaha, Nebraska, May 3, 2019.

Johannes Eisele | AFP | Getty Images

Warren Buffett will kick off Berkshire Hathaway‘s annual shareholder meeting on Saturday riding high, with shares of the conglomerate at a record and its myriad of operating businesses and equity investments primed to benefit from the U.S. economy reopening from the pandemic.

The event will be held virtually (1:30 pm ET) without attendees for a second time because of Covid-19. This year, however, the 90-year-old Buffett is taking the meeting to Los Angeles so he can be by 97-year-old Berkshire Vice Chairman Charlie Munger’s side once again. Munger resides in Los Angeles and missed the last annual meeting due to travel restrictions. It will be the first time that the annual meeting will take place outside of Omaha, Nebraska.

While “Woodstock for Capitalists” will be missing the capitalists once again, the tone of the meeting may more likely resemble the meetings of old with shareholders clamoring for Buffett’s outlook on the world following an unprecedented year.

“I hope there would be a pretty sharp contrast in the overall demeanor of the folks at Berkshire,” said Cathy Seifert, a Berkshire analyst at CFRA Research. “Last year, there was a degree of an alarm just because this was an event that was very difficult to price. It was kind of written all over his face. This annual meeting, the tone from an underlying operational perspective should be more relaxed.”

(You can view last year’s annual meeting and the others at the Warren Buffett Archive.)

Berkshire’s other vice chairmen, Ajit Jain and Greg Abel, will also be on hand to answer questions during the 3½-hour event. Berkshire’s B shares were up more than 1% on the week, bringing their 12-month gain to 50%.

Here are some of the big topics shareholders will want answers on:

  • Airlines: His thoughts on the industry after revealing at last year’s meeting he sold his entire stake (with the shares then subsequently roaring back)
  • Deploying the $138 billion cash pile: Why he’s been buying back a record amount of Berkshire’s stock instead of making one large acquisition and what his plan is going forward
  • Market outlook: His thoughts on the stock market’s overall valuation following the pandemic comeback
  • Bubbles?: Cryptocurrencies and the other possible market manias that have popped up amid the huge rush of retail investors into markets
  • Life after Buffett and Munger: Berkshire’s succession plan

Dumped airlines

At the last annual meeting, Buffett revealed Berkshire sold the entirety of its equity position in the U.S. airline industry. This included stakes in United, American, Southwest and Delta Air Lines, which were worth north of $4 billion combined.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” Buffett said at the time. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”

The sale conveyed a pessimistic view on the industry from the legendary buy-and-hold investor. Many Buffett watchers were left disappointed, however, as shares of those carriers soon embarked on an epic rebound, rallying triple digits from 2020 lows. Even former President Donald Trump weighed in on the trade back then, saying that Buffett has been right “his whole life” but made a mistake selling airlines.

“He might acknowledge that the velocity of this recovery was greater than anticipated,” CFRA’s Seifert said. “The airline disposal may have been a function of their belief that what’s going on in the airline industry may be secular and not cyclical. That’s the one fine distinction that investors may want him to make.”

While airline stocks have rebounded drastically over the past year, many argue that the industry may have indeed changed fundamentally due to the economic fallout and the road to a full recovery remains bumpy. United Airlines said this month that business and international travel recovery is still far off even as the economy continues to reopen.

“He may still be right about the airline industry with travel coming back slowly and there being too many planes,” Edward Jones analyst James Shanahan said. “Arguably he could still be right about that, but he’s certainly wrong on the stocks.”

New stock moves

Berkshire bought back a record of $24.7 billion in its own shares last year. Buffett also did some bargain-hunting amid the market comeback, taking sizable positions in big dividend payers Chevron and Verizon.

Apple was still the conglomerate’s biggest common stock investment as of the end of 2020. Buffett’s conglomerate also appeared to dial back its exposure to financials. Berkshire exited its JPMorgan Chase and PNC Financial positions at the end of last year, while cutting the Wells Fargo stake was cut by nearly 60%.

“When you think about the legacy of Berkshire Hathaway and all the operating businesses, including railroads, manufacturing, retail, utilities, it’s all old economy type companies,” Shanahan said. “The way the portfolio is comprised now after the selling of airline stocks and selling of the financial stocks, together with huge performance in Apple, it looks a lot more new economy now.”

Shanahan estimated that Berkshire bought back another $5 billion of its own shares in the first quarter, based on proxy filings.

‘Elephant-sized’ deal?

The conglomerate was still sitting on a huge cash war chest with more than $138 billion at the end of 2020. Buffett has yet to make the “elephant-sized acquisition” he’s been touting for years. At last year’s meeting, the legendary investor gave a simple reason for his inaction.

“We have not done anything because we haven’t seen anything that attractive,” Buffett said. “We are not doing anything big, obviously. We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion. And if we really like what we are seeing, we would do it.”

The deal-making environment has only become all the more competitive over the past year with the meteoric rise of SPACs, or special purpose acquisition companies. More than 500 blank-check deals with over $138 billion funds are seeking their target companies currently, according to SPAC Research.

“This is a significant company with a significant cash position. Investors have the right to know what they intend to deploy the cash,” Seifert said. “They are entitled to have more than just an excuse. Investors are going to start to grow a bit weary if it’s just the same old story. But the stock has recovered nicely, so they are not going to be grumbling too much.”

Succession

When it comes to a concrete succession plan, shareholders might not get much more from Buffett and Munger even though they are now both nonagenarians.

Abel, vice chairman of noninsurance operations at Berkshire, is seen as a top contender as Buffett’s successor.

“I do not expect him to talk about succession in any more detail than he already had,” Shanahan said. “Elevating the status of Abel and Jain to the roles of vice chairmen and having them available and participating in annual meeting speaks volume. I don’t think he necessarily has to say more than that.”

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Source: https://www.cnbc.com/2021/04/30/berkshires-annual-meeting-is-saturday-with-buffett-and-munger-together-again-shares-at-a-record.html

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