Peloton shares fell Wednesday following a ratings downgrade to neutral at Wedbush, which sees the company facing slower demand as more options for exercise become available with the economy reopening.
Shares of Peloton lost as much as 5.4%, hitting $113.33 before paring the decline to 4.4%.
The rating was dropped from outperform and a 12-month price target was lowered to $115 from $130, implying a potential decline of more than 11% in Peloton’s share price.
The high-end fitness equipment and services company is heading into the next leg of its growth story and it will need to stoke business through savvy marketing and by offering compelling new products to combat competition from other companies, said Wedbush in a Wednesday note.
After the peak of the coronavirus pandemic, gyms are reopening and people have more choices in how to exercise outside of their homes including free options such as running.
“During this transition, we think a neutral rating makes sense until (1) we have better visibility on where underlying demand growth will shake out in the post-pandemic environment and (2) we have better visibility on what investors will be willing to pay for this growth,” said James Hardiman, a Wedbush analyst covering the leisure sector.
The stock year-to-date has dropped about 24% but remains higher by 81% over the past 12 months. Peloton’s business has grown during the COVID-19 pandemic as mass lockdowns forced millions of people to work and exercise at home.
Wedbush has been tracking customer engagement data from social media platforms, Google trends, and Peloton’s own metrics, and in the June quarter, year-over-year growth has substantially decelerated, it said.
That “should not be surprising given seasonal and reopening headwinds, but nonetheless would seem to mark a turning point for a company that has continually defied gravity since its IPO, and presents evidence that the law of large numbers is finally catching up,” said Hardiman.
General Motors shares could jump by nearly 50% over the next year as the automaker’s plans for producing more electric vehicles sets the stock on course to trade as disruptive tech play, according to Wedbush.
The assessment comes as the company behind the Chevrolet, Buick and AMC brands in June pledged to increase investment to $35 billion toward research and development for electric vehicles through 2025.
“With [GM CEO Mary] Barra & Co. developing game-changing battery technology under the Ultium Platform, GM is in a great position to take advantage of a $5 trillion market emerging over the next decade. By leveraging this technology, the legacy auto will be able to eat up market share against pure-play EVs in all aspects of the industry,” said Wedbush analyst Dan Ives in a note published Thursday initiating coverage of GM with an outperform rating.
He set a 12-month price target of $85 from Tuesday’s close at $57.46, representing a possible climb of 48% in the stock. Shares during Friday’s session bounced up by more than 4% to trade above $58 each.
“We believe as GM proves out its EV vision over the coming years the stock will be re-rated more as a disruptive technology and EV play, rather than its traditional auto valuation,” said Ives.
2021 is setting up as an inflection point for GM as it works on delivering at least 20 new EV models within the next two years and 30 in the next three, that analyst said.
Meanwhile, the “software and services business attached to the EV shift, as autonomous/assisted driving capabilities and battery technology improves, represents a potential gold mine for the company bringing in $20 billion to $30 billion of incremental services and software we see over the next 5-7 years,” he said.
China is one of Tesla’s most important markets, expected to represent around 40% of global deliveries for the company by next year.
“China demand is a key driver for the long term Tesla growth story, and the company must play nice in the sandbox with Beijing around safety issues, otherwise it will be an impediment towards achieving its goals/targets in country,” Ives said.
The autopilot systems in the affected cars can be activated accidentally, leading to a risk of crashes from sudden acceleration, China’s State Administration for Market Regulation said. Under a recall plan filed with the regulator, Tesla will update software on about 211,000 Model 3 vehicles made in China and 36,000 imported from the US. Another 38,599 Model Y vehicles will also get the software patch, which will begin to roll out Saturday.
“We believe this situation overall is a bump in the road and does not derail the near-term or long-term bull thesis for Tesla China, however going forward it needs to be a smoother road on autopilot safety otherwise the PR black cloud will continue,” Ives said.
The analyst reiterated an “outperform” rating for Tesla with a 12-month price target of $1,000. Tesla’s shares were trading 2.5% higher at $688 per share on Monday.
With over 200 million paid subscribers worldwide, Netflix is an absolute behemoth.
The streaming entertainment giant has successfully transitioned from a scrappy startup paying to license its content to a major player in Hollywood, splashing out tens of millions of dollars on its own productions.
So, what’s next for Netflix? The answer to that question, at least in part, appears to be video games.
Netflix is fishing around for a gaming executive to help it expand out its gaming initiative, according to a recent report in The Information. While the company has acknowledged an interest in interactive entertainment, it has yet to decide what this will mean in practice. Licensing content from existing game makers? Making its own games? And how will you actually play those games?
While we still don’t know much about Netflix’s plans, one thing is clear right now: Netflix getting involved in gaming is almost certain to fail.
“I do think they will try, and do think they will fail,” Wedbush managing director Michael Pachter told Insider. “It’s hard to make games.”
Indeed, the video game industry is a very risky business, and even entrenched studios with top-tier talent and years of experience regularly go under. “We have the failures of THQ, Midway, Acclaim, 3DO, BAM, Eidos, Atari, Infogrames, Interplay, and probably a few others to illustrate how hard it is,” Pachter said. “I don’t see how Netflix could possibly think it can develop and sell games.”
Joost van Dreunen, author of “One Up: Creativity, Competition, and the Global Business of Video Games,” echoed Pachter’s skepticism.
“Big tech sucks at games,” he told Insider.
He pointed to Google’s Stadia, Amazon’s Luna, and Facebook’s scattershot gaming efforts across the last decade as prime examples of how major tech companies routinely fail at gaming initiatives.
Google and Amazon and Facebook have poured hundreds of millions of dollars into gaming across the last decade, yet none are major players in the video game market. “They look at it in a way that distribution goes before the content,” Van Dreunen said, “and that’s the wrong way around.”
Instead of creating video games and building beloved brands, they’ve largely focused on the mechanics of how you buy and access those games: Google’s Stadia platform, a Netflix-like video game streaming service, is a prime example.
What’s Google focusing on for its big gaming service rather than making games for it?
An “increased focus on using our technology platform for industry partners,” Google Stadia Vice President Phil Harrison said in a blog post – a pretty huge step back from the splashy announcement of Stadia back in 2019, which promised a new digital service that would compete against the likes of Nintendo, Sony’s PlayStation, and Microsoft’s Xbox.
For Netflix, which has the benefit of owning a beloved intellectual property like “Stranger Things” that could lend itself to games, another problem exists.
“Building games from owned IP is also super hard,” Pachter said. “Disney has failed at least three times trying to do so, and its IP is much stronger than Netflix.”
In recent years, Disney’s biggest properties – from Marvel characters to the “Star Wars” franchise – have found success in gaming by Disney largely handing over creative control to major video game companies.
Examples include 2018’s “Marvel’s Spider-Man” and 2019’s “Star Wars Jedi: Fallen Order.” The former, a PlayStation 4 exclusive game made by Insomniac Games, sold over 20 million copies. The latter, a multiplatform “Star Wars” game with original characters and story, sold over 10 million copies.
At approximately $60 apiece, each game has grossed well over $1 billion in sales.
Netflix could follow a similar model and potentially find success.
The company could build a wildly successful game streaming service that seamlessly leverages its existing streaming service. It could spend years, and hundreds of millions of dollars, building its IP into major game franchises.
Or it could buy its way in, splashing out billions of dollars on a major game publisher like EA or Ubisoft – akin to Amazon’s recent purchase of MGM Studios, but for gaming. That would require a major, long-term institutional buy-in from Netflix, in addition to major financial investments.
“You need to have the stomach,” Van Dreunen said. “Like when you look at Google and Amazon – they just don’t have internally the numbers or the understanding of the space to say, ‘Yeah, you know what we should do? Spend $10 billion to really break in.'”
For its part, Netflix hasn’t detailed its gaming plans just yet – but the company is acknowledging the reported interest in a larger gaming investment in the future.
“Our members value the variety and quality of our content,” the company said in a statement. “Members also enjoy engaging more directly with stories they love – through interactive shows like ‘Bandersnatch’ and ‘You v. Wild,’ or games based on ‘Stranger Things,’ ‘La Casa de Papel’ and ‘To All the Boys.’ So we’re excited to do more with interactive entertainment.”
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Coinbase stock could climb 22% from current levels because the company is a “one-stop shop” crypto ecosystem, according to Wedbush analysts.
In a note to clients on Wednesday, analysts led by Moshe Katri initiated coverage on Coinbase Global with an “outperform” rating and a $275 price target.
The price target represents a potential 22% increase from Wednesday’s closing price of $224.80.
“We view COIN as a “one-stop shop” platform, enabling roughly 56MM retail users, 8,000 institutions, and 134,000 ecosystem partners in over 100 countries to participate in the crypto economy,” Katri wrote.
Katri and a team of Wedbush analysts went on to describe four factors that give them confidence in Coinbase stock moving forward.
First, they detailed Coinbase’s “first-mover” advantage. The analysts said that Coinbase is the “default starting place for new user journeys into the crypto economy” and noted that over 90% of retail users enter the platform organically or through word-of-mouth.
The second factor that the Wedbush analyst said gives them confidence in Coinbase is the company’s dominant and growing share of crypto assets.
According to Coinbase’s SEC filings, the company holds 11.3% of the entire crypto market capitalization.
The third factor that Wedbush’s Katri highlighted in his note to clients was the integration of blockchain technology and traditional finance on Coinbase that enables cryptocurrencies to become part of the payments eco-system.
According to Wedbush, COIN “creates trusted and easy-to-use products, crypto assets that can be dynamically transmitted, stored, and programmed to serve the needs of an increasingly digital and globally interconnected economy.”
Finally, Wedbush analysts highlighted the growing diversification of revenue streams at Coinbase as a bullish factor for the stock.
Coinbase has moved to create an entire web of ancillary services tied to the crypto market. For example, customers can now borrow cash using bitcoin as collateral on the platform.
Wedbush’s analysts also noted that in the first quarter, on average, 25% of retail users who invested in cryptocurrencies on Coinbase also engaged with at least one non-investing product.
The Wedbush team arrived at its $275 price target for Coinbase by using a 22.7x multiple on 2022’s earnings, assuming a 20% growth rate for revenue and EPS.
Quarterly revenue of $89.6 billion was higher than $77.3 billion expected in a consensus estimate from Yahoo Finance. Earnings of $1.40 per share trounced the average estimate of $0.56 per share.
“Our original view that the iPhone cycle would disappoint in the midst of COVID was clearly wrong. Not only has Apple done better than we expected on iPhone during the cycle but Mac and iPad have also materially outperformed our forecasts,” said Goldman Sachs equity analyst Rod Hall in a Thursday note in which he upgraded Apple to a neutral rating from sell. Apple’s results prompted other analysts to raise their price targets on the tech industry behemoth.
Apple shares advanced during Thursday’s session.
Here’s what three top Wall Street analysts had to say about Apple’s report.
Wedbush: “Cook & Co. Deliver a ‘Drop the Mic’ quarter
iPhone revenue beat Wedbush’s expectations by 17% “in a jaw-dropping performance as the iPhone 12 supercycle is playing out before our (and the Street’s) eyes,” wrote analyst Dan Ives.
The iPhone 12 will hand the baton to iPhone 13 in September as part of a multi-year 5G upgrade cycle, he said, adding that China remains the fuel in the iPhone 12 cycle, with no signs of slowing down based on its recent Asian supply chain checks and supported by Apple’s high-level outlook for the June quarter.
“Of course chip shortages will have a headwind for the next few quarters (roughly $3 billion to $4 billion headwind in the June quarter) for Apple like every technology/automotive player, but the reality is this product cycle is enabling Cook & Co. to achieve its next level of growth and monetization looking ahead,” wrote Ives.
Wedbush raised its price target $185 from $175, with a bull target of $225. It kept its outperform rating on the stock and said Apple remains on its “Best Ideas List” for 2021.
Goldman Sachs: Apple “materially beats in all segments”
In highlighting some of Apple’s figures, Goldman said iPhone revenue of $48 billion was 30% higher than its estimate, and continued work-from-home demand pushed Mac revenue up by 70% year over year to $9 billion, which was 2% higher than its forecast. It noted that Apple mentioned that both Macs and iPads remained supply constrained because of strong demand.
Analyst Rod Hall said since being added to Goldman’s Americas Sell List in mid-April 2020, Apple’s stock has surged 86% compared with the S&P 500’s gain of 49%.
“Our forecasts move up to match the beat and June revenue indications and are now closer to consensus. While we continue to believe current levels of demand are likely to be tough to sustain, we equally acknowledge that high-end consumers have proven far more resilient through the pandemic than we expected,” wrote Hall.
Goldman raised its 12-month price target to $130 from $83.
JP Morgan: “5G has more legs than one quarter”
Analyst Samik Chatterjee said the 5G iPhone cycle is not only spurring strong consumer upgrades and switches, it’s also positioning Apple for a higher share of the overall smartphone market. As well, Apple is likely to see further demand from customers and enterprise channels for Macs and iPads “much longer than investors presume at this time,” stemming from the changing landscape of where and how people work.
“We raise our revenue and earnings estimates for FY21 on the strength, but more importantly raise our out-year iPhone, Mac, iPad and Services revenue expectations as well, as we expect Apple to continue to build on the strength with stronger replacement cycle-led demand and greater Services opportunity on a larger installed base,” said Chatterjee.
The investment bank raised its price target to $165 from $150 and reiterated its overweight rating.
Bitcoin’s path to $100,000 per coin is less important than its potential impact on the corporate world over the next decade, according to Wedbush.
In a note to clients on Thursday, Wedbush’s Dan Ives said that the story around bitcoin is much larger than its “potential path/timeline to $100,000.”
The analyst argued the important theme when it comes to cryptocurrencies is “the potential ramifications that crypto, blockchain, and Bitcoin could have across the technology and corporate world for the next decade.”
Ives said moves into blockchain technology and cryptocurrencies could surge over the coming years after companies like Tesla, IBM, Visa, Square, Mastercard, and more entered the fray recently.
There’s a “growing shift for companies to accept this digital currency as a form of payment,” according to the analyst.
Ives added that he still believes “less than 5% of public companies” will invest in bitcoin over the next 12-18 months but said that number could move “markedly higher” as more regulation and acceptance of the currency takes hold.
“Bitcoin mania is not a fad in our opinion, but rather the start of a new age on the digital currency front,” Ives wrote.
Although Ives was one of the first to the party, his comments about cryptocurrencies and their regulation are becoming more in sync with other Street commentators and even CEOs as cryptocurrencies and blockchain technologies continue to develop.
David Solomon, the CEO of Goldman Sachs, said his bank is looking into ways to support clients’ desire to own cryptocurrencies and other digital assets in a CNBC “Squawk Box” interview on Tuesday.
The CEO added that he believes there will be a “big evolution” in the way the US government regulates digital assets in the coming years.
Ives and his team also highlighted the potential of using blockchain technology for decentralized storage in their note to clients on Thursday.
The analyst said blockchain technology can help increase the overall speed and lower the price of digital storage moving forward. He noted, “there are a number of business models attacking this new market opportunity with privately-held Filecoin one of the more impressive strategies we have seen in the market.”
As far as Wedbush is concerned, Bitcoin isn’t going away anytime soon, rather it’s set to become “mainstream” and the effects on Wall Street and the corporate world will be huge.
Coinbase’s 840% revenue jump in the first quarter may be the perfect example of what Ives is talking about.
Coinbase posted $1.8 billion in revenue in its first-quarter report. That means the crypto exchange pulled in over $120 million more than Intercontinental Exchange, the company that owns the New York Stock Exchange, did in its most recent earnings report.
The trends poised to lift all manner of tech stocks are only just beginning, Wedbush analysts Dan Ives and Strecker Backe said.
Equity investors are in the midst of a transition. While tech mega-caps and other growth stocks led the bulk of last year’s rally, expectations for a swift economic reopening recently shifted attention toward companies set to benefit most from a recovery. Value and cyclical names have roared higher and left tech names lagging.
Wedbush doesn’t expect the underperformance to last. Blowout earnings from pandemic-darling Zoom show tech stocks are set for another quarter of “beat and raise” reports, the analysts said. Digital transformations will take hold soon after and lift tech stocks by 25% or more over the next 12 months, they added.
“As we have witnessed in the cloud, collaboration, cybersecurity, and 5G, this tech party is just getting started with consumer and enterprise-driven demand catalyzing a multi-year growth boom for the tech sector looking ahead,” the team said.
Wedbush sees FAANG, cloud, and cybersecurity stocks leading the charge. Disruptive recovery names like Uber and Lyft are the firm’s favorite reopening plays, as lifted restrictions will likely revive ridership.
The political backdrop also lends itself to continued strength in tech stocks, according to Wedbush. The Biden administration will likely have a softer tone against China and ease tensions in the “Cold Tech War,” the analysts said. The 2020 SolarWinds hack also places a fresh focus on cybersecurity efforts in government, they added.
To be sure, the tech sector still enjoys elevated valuations following last year’s rally. Debate over the stocks’ pricing will continue, but Ives and Backe expect the group to swing higher even in the face of the broader rotation to value.
“We believe the underlying fundamental stories and white-hot growth creates a yellow brick road to an upward bullish trend,” they said.