Twitter could rise another 30% as ad spending is set to soar, Bank of America says

Jack Dorsey
Twitter CEO Jack Dorsey.

  • Twitter stock could rise by almost 30% to $90 per share, according to Bank of America analysts.
  • BofA sees Twitter expanding in its advertising growth which took a hit during the COVID-19 pandemic.
  • BofA reiterated its buy rating on the stock.
  • See more stories on Insider’s business page.

Twitter stock could rise by about 30% as the social media platform stands to see further growth in advertising sales which have been recovering after the onset of the coronavirus pandemic, Bank of America said Friday.

Twitter’s own outlook for the third quarter points to optimism about its business prospects, the investment bank said in a research note in which it raised its price objective and reiterated its buy rating on the stock.

The bank’s new price objective of $90 follows Thursday’s closing price of $69.57, implying a 29% increase. BofA increased its price objective from $82 after Twitter late Thursday posted a 74% jump in second-quarter revenue, to $1.19 billion. That beat expectations of $1.07 billion in a Refinitiv poll of analysts. It also marked the fastest rate of top-line growth since 2014.

Shares of Twitter were up 4.2% on Friday after rising as much as 5.4% to $73.34 during the session.

Twitter’s outlook “suggests more optimism,” for the third quarter and revenue looks quite strong, BofA analyst Justin Post said in the note. Twitter projected revenue of $1.22 billion to $1.3 billion, higher than the $1.07 billion expected in a FactSet poll of analysts.

The social media site posted an 87% spike in advertising revenue year over year to $1.05 billion, citing a broad increase in demand and improvements in its brand and direct response ad products.

“We reiterate our positive view on Twitter for 2H based on increased brand advertising rebound,” and, among other things, continued traction in its offerings for Mobile Application Promotion, said BofA. MAP is a technology that aids advertisers in promoting their mobile apps. Twitter said Thursday it had launched its playable ad pilot that’s designed to help mobile gaming advertisers gain new customers by allowing them to experience gameplay before installing an app.

“[We] are optimistic that the MAP product ramp can drive solid 23% q/q 4Q growth, better than Twitter’s historical pre-pandemic average,” said the analyst.

Twitter’s advertising dropped 23% to $562 million in the second quarter of 2020 on a year-over-year basis as the COVID-19 pandemic drove down global demand in the face of widespread economic recession.

“While user growth will remain a question, we maintain our optimistic view that Twitter can increase its still (very) limited reach as a differentiated news and content platform, with strong distribution on other media,” said BofA’s Post.

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The Delta variant could make the American shopper go back into lockdown, BofA says

People shopping
Bolstered by three rounds of stimulus checks, US consumers have been spending more.

  • The Delta variant could hurt the American shopper, and the economy, BofA Research says.
  • As the variant surges, economists predict a pullback in spending given concerns of catching it.
  • They cited Michigan, where spending declined after February’s Covid wave, despite no change in restrictions.
  • See more stories on Insider’s business page.

Something may be changing in the American economy for the worse, and it’s because of the Delta Covid variant. At least that’s what Bank of America research thinks.

The stock market had a major wobble on Monday, July 19, as data on the variant – and how many Americans it’s rapidly infecting – challenged economic thinking around the reopening boom, led by consumer spending. In a signal of how seriously the mood changed, previously vaccine-skeptical Republican politicians and Fox News hosts reversed themselves, urging more Americans to get vaccinated.

The American shopper emerged from lockdown to lead the recovery, but that’s now at stake.

BofA economists Stephen Juneau and Anna Zhou wrote in a Friday note that the variant is likely to lead to a shift in consumer behavior going forward, citing a 351% surge in the moving average of daily cases since July 21. Accompanied by slowing vaccination rates, they said they “believe the current surge in cases could lead to a sharp pullback in services spending.”

Daily new COVID-19 cases compared to consumer spending.
BofA compares daily new COVID-19 cases to consumer spending.

Juneau and Zhou wrote that the most vulnerable part of the economy from another COVID-19 wave would be the leisure and hospitality sector, which notably added 343,000 payrolls in June – 40% of the total 850,000 jobs gain.

Another factor they are concerned about with the Delta variant is the lack of government aid. When the pandemic first hit, Americans received stimulus checks and other benefits from President Donald Trump’s CARES Act, then another Trump stimulus in late 2020, and finally President Joe Biden’s American Rescue Plan, but another isn’t being discussed. The $4 trillion infrastructure proposal Biden wants to further stimulate the economy is at risk of being watered down in bipartisan negotiations.

Since governments seem unlikely to implement fresh restrictions as cases rise, the economists predict that most states will likely respond to the surge in infections by pushing people to get vaccinated, meaning that “shi sts in consumer behavior will determine how Delta affects economic activity and experiences during prior waves may not offer the best guide.”

They used the example of Michigan to back up their prediction. The state made no changes to restrictions during the Covid wave in late February, but consumer spending still decreased afterward, with services industries taking a major hit as less people dined out, and employment declined.

From a global perspective, BofA’s Ethan Harris wrote that several countries are experimenting with permitting or not permitting high-risk activities, and overall, he sees Delta as a “moderate headwind to global growth.”

To date, as Juneau and Zhou wrote, there has been little evidence of the variant significantly affecting the economy or spending on services, but with increased hesitancy of being in physical locations, the impact could become more prominent.

And given that Biden officials are considering adopting stricter mask guidance as the variant continues to spike, the consumer-led American boom coming out of lockdown could go back into some form of it.

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The wealthy were fleeing for low-tax states long before the pandemic slammed on the gas

miami beach
Florida is seeing its wealth increase at the expense of other states.

  • High-tax state residents were migrating to low-tax states pre-pandemic, per IRS data.
  • Low-tax states, especially Florida, are getting wealthier as a result.
  • BofA says ‘tax migration’ is far from a settled area but evidence of it is adding up.
  • See more stories on Insider’s business page.

Tax-induced migration was a key part of the narrative of 2020, but the story actually began long before that.

Lower-tax states are continuing to get richer thanks to a steady influx of new residents from higher-tax states, per a recent Bank of America Research note, which looked at recently released IRS data for tax returns from 2019, reflecting 2018 earnings.

The data showed that net gains in adjusted gross income (AGI) for lower-tax states were higher than those in higher-tax states: the latter saw $111 billion in AGI in 2018, while the former saw nearly $145 billion. The net AGI gain of lower-tax states also increased from 2017 to 2018 by $2 billion, to $34 billion, the team led by Ian Rogow wrote.

The rise of remote work prompted an outpouring of Americans, especially the wealthy, from big cities to more affordable areas in pursuit of sunnier locales and lower taxes. Tech elites from Silicon Valley have flocked to Texas, mirroring Big Apple financiers on the East Coast fleeing to Florida. But the IRS data makes it clear that the pandemic accelerated a pre-existing migration pattern.

It also confirms the anecdotal evidence that Florida in particular is attracting many wealthier residents compared to pre-pandemic times, and is seeing its wealth increase at the expense of other states. The average AGI per return of people migrating from Florida to New York in 2018 was $72,492. For those migrating from New York to Florida, it was $135,813. Florida gained a total of $7.3 billion of AGI from the top ten highest-taxed states.

People have “discounted” tax burdens as a move-inciting factor for some time, the BofA note reads, and while tax migration “remains an unsettled area,” leaders from high-tax states are becoming increasingly concerned that remote work and the SALT cap the federal cap on the state and local tax, which was slashed to $10,000 during Trump’s 2017 tax cut – are making residents question living there.

But not all is lost for big cities, which make up a good chunk of revenue for high-tax states. Consider New York City: Those who left during the pandemic are already returning in droves. USPS data released last month showed that nearly half of the Manhattanites who moved to Florida plan to move back. The city also still remains home to the highest number of ultra-net-worth individuals in the world.

A separate BofA Research report from May argued that reopening will spark a return to both NYC and San Francisco. “Both have the potential for some recovery in the near term,” the note reads. “NYC and SF remain premier cities for young renters given their status as economic, financial, and cultural centers, and the pullback in rents over the past year helps affordability.”

It seems that, for some Americans, big cities will always have an allure. But, as evidenced by the pre-pandemic migration trend, others are increasingly ditching them for a more affordable way of life and better savings.

Only time will tell whether high-tax states become truly overrated.

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American companies are struggling to hire workers, but BofA sees that fading by early 2022

kohls now hiring
  • Many US businesses are facing worker shortages as the economy starts to reopen.
  • The unusual dynamic will fade by early 2022 as the labor market rebounds, BofA economists said.
  • Expanded unemployment benefits and COVID-19 fears are likely keeping many from seeking work, they added.
  • See more stories on Insider’s business page.

A McDonald’s paying people to interview for jobs. Uber drivers holding off on rides in hopes of higher pay. Millions of payrolls possibly vanishing altogether.

The US economy is still down roughly 8.4 million jobs since the pandemic first fueled massive layoffs. That suggests hiring would quickly bounce back as the country reopens and Americans get back to spending as usual. But the opposite effect is taking place. Instead of an oversupply of workers meeting weaker demand, businesses looking to hire are coming up against a shortage of Americans seeking employment.

That shortfall is presenting an unusual and unexpected challenge to the broader recovery. Without a return to pre-pandemic employment, consumer spending will trend below its potential and leave less money flowing through the economy.

Bank of America economists aren’t particularly concerned. The shortage is likely driven by expanded unemployment benefits included in the latest stimulus package, concern around catching the coronavirus, and home-schooling demands for working couples, the team led by Michelle Meyer said in a Friday note. The bank expects that dynamic to fade by early 2022 as stimulus expires and more Americans are vaccinated.

“Therefore by early next year, COVID-related labor shortages will likely be replaced by ‘traditional’ shortages because of a hot labor market,” the economists added.

The team reiterated its expectation for the unemployment rate to fall to 4% by the end of 2021. The rate currently sits at 6%, but the government’s latest payrolls report suggests monthly job additions will average about 1 million in the near term.

Still, the “traditional” labor shortages expected to emerge next year will present new constraints, according to the bank. The red-hot labor market could “make it difficult” for ports to reach pre-pandemic employment levels even after the health crisis ends, the team said. Such setbacks could further increase factory backorders, which already swelled in recent months due to supply chain disruptions.

The amount of time Americans spend disengaged from the labor force could also slow the recovery. The post-pandemic economy won’t be the same as the one seen before the outbreak, and those changes will make the return to work difficult for millions of Americans, Federal Reserve Chair Jerome Powell said in March.

“The real concern is that longer-term unemployment can allow people’s skills to atrophy, their connections to the labor market to dwindle, and they have a hard time getting back to work,” he said, adding the central bank needs to “keep supporting them” as the labor market creeps toward a full recovery.

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American corporations are paying their fair share – to international tax havens

uncle sam taxes
  • President Joe Biden wants to increase the corporate tax rate, and the US is working on a global minimum tax.
  • Right now, US multinational companies are reporting the majority of their foreign profits in tax havens.
  • A global minimum tax would make taxes around the world more uniform for those companies.
  • See more stories on Insider’s business page.

When asked if corporations pay their fair share in federal taxes, two-thirds of respondents in a 2018 Gallup poll said they pay too little. In fact, Gallup found “the public consistently thinks that ‘upper-income people’ and corporations do not pay their fair share in federal taxes.”

In recent months, one of the people calling out corporate taxes paid – or lack thereof – has been President Joe Biden.

“I’m not trying to punish anybody, but damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced,” Biden said in a recent speech. He’s also taken aim at 55 multinational companies that paid no income tax last year, citing a report from the left-leaning Institute on Taxation and Economic Policy.

As president, he’s trying to do something about it, proposing a suite of tax changes as part of his infrastructure package under which corporations would see their taxes climb from 21% to 28%, although he may well compromise at 25%.

Also, Treasury Secretary Janet Yellen has been calling for a global minimum corporate tax rate, and is working with the G20 on it. Essentially, this would be a nonbinding rate for multinational companies – meaning that corporations would be disincentivized from leaving one country for another with more favorable tax rates.

The truth is multinationals are still paying taxes, but they’re increasingly paying into international tax havens such as Bermuda and Singapore.

“According to the US Treasury, of the top 10 foreign countries in which US multinationals report profits, seven are tax havens,” the note said. “These are relatively small economies: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland.”

According to the note, those smaller economies still represented 60% of the foreign income multinationals reported in 2019 – “more than 1.5 times the rest of the world.” In 2000, that amount was closer to 30%.

Screen Shot 2021 04 20 at 2.00.35 PM
Chart via BofA Research.

The chart notes that the 2017 Tax Cuts and Job Acts (TCJA) – Trump’s signature tax package – did include a few measures meant to discourage this “profit sharing.” That’s the same package that included a decrease of the corporate tax rate to 21% from 35%. After its passage, the amount of money pouring into these tax havens leveled out, and was no longer rising, “but the share did not decrease meaningfully and so profit shiſting remains a major concern.”

Biden’s Made in America Tax Plan specifically targets profit shifting, and “would also eliminate the tax laws
embedded in the 2017 TCJA that incentivize the offshoring of assets,” according to the Department of Treasury.

Before a global minimum tax passes, it would need OECD members to agree on a framework for the policies they want to implement. As BofA notes, a few major tax havens are in the EU, which would have to pass any proposal unilaterally. And there could be resistance in America, with at least one Republican – Senator Pat Toomey (R-Pa.) – speaking out against it.

But change is probably still on the way.

“What is clearer, in our view, is that the current political environment is ripe for progress on the issue,” BofA said. “Given the rise in global debt because of the pandemic and the fiscal response, taxes will likely have to increase in many countries. The US probably has the most leeway to continue running large deficits, but it is leading the charge on the global minimum tax.”

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JPMorgan and Citi are using blockchain technology, and other banks are considering allowing clients to hold crypto in bank accounts, Bank of America research finds

FILE PHOTO: The Citigroup Inc (Citi) logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. Picture taken October 19, 2017. REUTERS/Chris Helgren/File Photo
  • Bank of America research published Tuesday shows banks like JPMorgan and Citi use blockchain technology. 
  • Other smaller banks said they are open to allowing clients to hold cryptocurrencies in the future. 
  • The research sheds on light on where traditional financial institutions stand on blockchain amid bitcoin’s massive rally.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

A research report from Bank of America shows banking behemoths JPMorgan and Citi are using blockchain technology, while other banks are considering allowing commercial and institutional clients to hold cryptocurrencies in their accounts. 

BofA analysts led by Erika Najarian compiled responses from banks they cover regarding use of blockchain technology and willingness to facilitate crypto transactions. 

They found that 21% of banks they cover have incorporated blockchain technology into their businesses in some form. Blockchain is a digital ledger and the technology used to transact with cryptocurrencies like bitcoin.

JPMorgan, Citi, Wells Fargo, US Bancorp, PNC, Fifth Third Bank, and Signature Bank are among some of the banks that said they use blockchain.

While JPMorgan and Citi did not specify in what capacity they use blockchain technology, Wells Fargo highlighted its WFC Digital Cash platform, which allows investors to transfer accounts between Wells subsidiaries. Meanwhile Fifth Third said blockchain technology is in use “in very limited cases for sensitive information.” PNC was the first US bank to join the Ripple network. 

Meanwhile, no banks under BofA coverage are facilitating crypto transactions or allowing customers to hold crypto in accounts at this time. However, Citizens Financial Group said they are open to allowing clients to hold crypto in theory at some point, but would need to develop a robust anti-money laundering infrastructure. US Bancorp told BofA they’re “currently looking at applications of blockchain technology and crypto opportunities at the commercial bank.”  

Several banks said they are waiting for regulatory clarification on providing cryptocurrency custody services before adopting the digital currency. 

According to BofA analysts who conducted the study, the consensus among banks was that any future application of cryptocurrency would be concentrated in commercial, custody, and commercial payments rather than retail clients. 

Also, Citi is “more focused on tokenization” than facilitating cryptocurrency transactions, according to BofA, while JPMorgan is “actively assessing if they will take cryptocurrency in accounts.” 

The research sheds a light on where major financial institutions stand with regards to blockchain technology and cryptocurrency amid bitcoin’s epic rally. 

“While the future of cryptocurrencies is still oft-debated by the market, many investors view blockchain broadly as general ledger technology that is key for banks to unlock efficiencies in the future. As such, we see this wide gap in blockchain technology (and willingness to adopt it) as potentially telling of a bank’s tech investment strategy,” the analysts said. 

 

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