Exceptional Earnings Cause +65% Jumps Among Stocks 📈

🐺 Hi pack-mates,

This is Howling Markets, the newsletter that doesn’t need a cost leader to attract interesting financial news!

Today we will be covering:

• Education: What Is a Share Buyback? 🔁

• ARM’s Share Price Jumped By +65% 📈

• Disney’s Investors Finally Heard Great News After Years of Losses 🎉

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Is a Share Buyback?

Have you ever wondered what a company does at the end of the year after having spent 12 months maximizing profits? How is this money spent?

Well, the most popular alternative is denominating the profits as “retained earnings” and then keeping this additional money to invest in the company’s operating activities during the next fiscal year trying to generate even more money.

In this case the shareholders’ remuneration is indirect and it is based on an expected greater stock appreciation thanks to the additional investments.

The second alternative is opting for direct remuneration through a dividend payout. In this case the shareholders will simply receive a check with their share of the company’s profits.

However, there is also a third, and far less common way, of remunerating the shareholders. This method consists in shares buybacks, or share repurchases, where the company uses their profits to repurchase their own shares from the open market.

This type of indirect remuneration causes an increase in the share price due to the decrease of available shares in the market. Additionally, this method is also a great alternative for companies when their share price is particularly low. In this case, they can scoop up quite a few shares at a bargain price and then reissuing them at a later date, raising more capital without diluting their equity.

Disney’s Investors Finally Heard Great News After Years of Losses

Disney, the entertainment colossal almost everyone grew up with, just announced some great news that might start to make up for the years of losses and sub-par performance that have been characterizing the company.

Since the pandemic, not only most movies and TV series released by Disney were barely able to surpass their production costs, but also its newly launched streaming platform Disney+ never managed to close a quarter in the green.

However, Disney’s chief executive Bob Iger announced on the 8^th of February a series of great news that sent the market through the roof.

First, he remarked the company’s intent to increase their cost savings by targeting a cost reduction of $7.5 billion in 2024. Then, using this money, Iger announced a $3 billion share buyback program and a 50% dividend increase.

Additionally, the CEO announced that this year’s streaming services’ losses have been reduced by $300 million and that they will be implementing strategies to increase their profitability, such as adopting more severe rules about password sharing.

Finally, the icing on the cake is the higher than expected Earnings Per Share (EPS) reported at the end of the year. The realized EPS came in at $1.22 while analysts only expected $0.98.

Such an EPS jump, together with the great company news, caused the stock price to gain +11.50% on Thursday, reaching an impressive YTD gain of +22.66%.

Today’s Howling Question

And now, it is time for our howling question!

We have briefly mentioned that Disney went through a tough period after the pandemic due to a serious drop in profits, both from their streaming services and their movies.

Do you know how much these losses impacted the company’s share price since its peak in March 2021?

a)  -10%

b)  -25%

c)  -45%

d)  -60%

e) -75%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

ARM’s Share Price Jumped By +65%

The semiconductor industry is the extremely particular and oligopolistic market that controls everything related to the materials, design and production of chips.

Among the most established market participants, such as Nvidia, Samsung, Intel, AMD and others, ARM has made its way through the pack since its IPO occurred less than a year ago.

The success of ARM, as expressed by the company’s CEO, is due to the surge in demand for new AI applications and the ability of their newest chip, the ARMV9, to satisfy them.

As a matter of fact, the company announced that industry giants such as Google, Samsung, Apple, Nvidia, and Amazon have started using this new chip to run large language models and implement new AI features.

The chip’s demand increased ARM’s earnings from royalties and licenses above the analysts’ forecasts, inducing an upward revision of future EPS and revenues.

Additionally, another crucial factor that played a significant role in this violent move is the fact that Japan’s SoftBank, the investment bank that helped ARM perform its IPO, only sold 10% of the shares to the public while holding the remaining 90%.

This causes a severe lack of liquidity that amplifies the market movements when there is a significant change in demand. As a result, once the better-than-expected earnings were announced, ARM’s share price increased by almost +65%, before slightly coming down and closing at +47.89%.

Equity and Debt Markets Update

And now, our daily markets update!

Thursday has been a completely still day for the stock market which did not move more than 0.1% in either direction throughout the entire trading session and mostly hovered around 0.0%. In the end, stock closed +0.06%.

However, as you can see, the S&P 500 breached the $5000 mark!

Bond yields, instead, have been slightly more volatile as Thursday was the first day of the larger government bond auctions, we had talked about a couple of newsletters ago. More bonds, lower prices. Lower prices, higher yields.

Because of this, the 10 year US government bond yield increased by an additional +0.75%.

Answer

The correct answer is d) -60%

The price really fell quite a lot, from over $200 to just below $80, in less than two years. To put things into perspective and to understand how far the price really dropped, an investor could have purchased a Disney share for $80 bucks in 2014!

Howl-Worthy Memes 😂

🐺 See you next time!

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