News and analysis

CarMax (KMX) quarterly report came out on April 11, vividly displaying why any immediate investment into the used car market still sounds like not a good idea. The stock quickly lost ground, wasting a double-digit number of percentage points as a response to its net income drop to $0.32 per share against $0.44 cents per share a year ago, also compared to much stronger $0.52, $0.75 and $1.44 per share in the previous three quarters. Analyst polls estimated a net income per share at about $0.50, which would be 56% better than the reality.

This almost looks like a financial fiasco in the company's efforts to withstand slowing demand in the segment. CarMax Q4 2023 revenue decreased by 1.7% to $5.6 billion, slightly below consensus expectations of $5.8 billion, indicating the lack of gross marginality of the business. This happened even though the total supply of unsold used vehicles on dealer lots grew by 9% YoY to 2.27 million units in March, according to Cox Automotive data. CarMax CEOs delayed their own goal of selling over 2 million units annually, when measuring combined retail and wholesale actions, to between 2026 and 2030, from its prior target of 2026.

A "higher-for-longer" Fed fund rates is demonstrably bad for car sales volumes, be it new generation Tesla cars or just pre-owned vehicles, while operating costs for warehouses are growing. Besides, easing some semiconductor constraints in North America may help marginally improving orders for new cars, leaving used-car sales under the same pressure. Meanwhile, the entrance of Asia players offered significant discounts. Therefore, North American and European operators of the used car market need to sell many great cars at cheaper prices. CarMax already posted its official warning of a potential "hit to profit-sharing revenue" due to inflationary impact to its partners, before last Christmas. "While affordability of used cars remains the challenge for consumers, pricing improved during the quarter," Enrique Mayor-Mora, executive vice president and CFO admitted.

It was only a smaller division of CarMax Auto Finance, which managed to get a 19% better income due to "a lower provision for loan losses" and an increase in average managed receivables. Yet, this was rather news from the side business, which was clearly not enough to be optimistic. The company added that it is now focused on enhancing its omni-channel experience and leveraging data science and automation. Carmax said it delivered "strong retail and wholesale" graphic processors, which helped to increase "used saleable inventory units" more than 10%, but used total inventory units was unchanged despite innovations. The company seeks to achieve efficiency improvements in its core operations, believing that they "are well-positioned to drive growth as the market turns", according to Enrique Mayor-Mora. This may be useful to strengthen competitiveness in better times for the segment. Yet, the current challenges are too heavy to be ignored by market crowds.

Broadcom is an American semiconductor and infrastructure software development company. Soon it is expected to close a merger deal with VMware, a cloud computing and visualization company, that will open new cross-sales opportunities for Broadcom to boost its revenues. Broadcom stocks are now 25% off their peak values.

According to the Q3 FY 2022 financial report that ended July 31, consolidated revenues grew by 25% year-over-year to $8.46 billion, and EPS went up by 40% to $9.73 per share. The semiconductors segment, that added 32% year-over-year, was the primary driver for the company’s profit. The company’s free cash flows (FCF) topped $4.3 billion, allowing it to spend $1.7 billion on dividends and 1.5 billion on the shares repurchase program. The company is planning to continue spending at least 50% of FCF on dividends that added 43% every year on average since 2016. 

According to the Q4 FY 2022 forward guidance, the company is expecting its revenues to go up by 20% year-over-year to $8.9 billion and for EDITDA to go up by 25% to $5.6 billion. Broadcom has great experience in expanding its product portfolio by M&A operations, and apparently it will continue on this way. The company is also expected to benefit greatly from the $52.7 billion CHIPS bill in the United States.

Avalanche is ranked by Coinmarketcap at the 12^th position by market cap with $7.8 billion, which is 4% less than Ethereum’s market cap. AVAX prices dropped by 82% of its peak values, allowing investors to buy it at early 2021 prices. Avalanche’s infrastructure consists of three logically isolated networks, each of these with their own processing, validators, and own set of rules.

This platform is often compared to the existing internet web infrastructure with core connection protocols like HTTP, surrounded by a huge number of networks to their apps. Avalanche allow for the creation of public and private systems as a blockchain or DAG (Directed Acyclic Graph) and for the use of different virtual machines for apps, including EVM engine (Ethereum Virtual Machine) that allows Enthereum network programs to be developed.

Avalanche includes C-chain to create smart contracts that are processed on an advanced EVM engine, P-Chain that coordinates validators that process transactions and also allows for the creation and management of new subnetworks, and X-Chain which is a directed acyclic graph regulating issuance and trade of cryptoassets. DAG systems record new transactions on top of the old ones, allowing for processing speed to be increased and for capacity substantially. It is quite different to other blockchains, where transactions are compiled in blocks in order to be processed.

The advantage of Avalanche is that it provides anyone with the opportunity to create his or her own isolated blockchain with its own set of parameters, including access to apps and the programming language with which it will work. Every subnetwork can process around 4,500 transactions per second compared to 14 processed by the Ethereum network.

SAP stocks have lost 30% since the beginning of 2022. The German tech company develops enterprise software and solutions to manage business operations. For example, one of its services can be used  to manage all business travel financial activities and related spending. In other words, it is quite a routine company with  a stable and strong cash flow. Once SAP software is installed on a corporate level it is hard to do without it as it is deeply integrated into the business core processes. Moreover, SAP is restructuring its business model around its subscription base and this will allow for cash flows to be even more predictable and balanced through the financial year. Such a model is in favourable to Wall Streel investors.

The war in Ukraine has a 300-million-euro negative effect on SAP business, and it is only a marginal 1% of the overall revenue base for the company, while its dominance in the ERP segment is secure. The revenues added 11% year-on-year to 7.08 euros in Q1 2022. The revenues grew by 6% in  Q4 2021.

The company has made some successful M&A deals, acquiring Qualtrics, a cloud-based subscription software platform, that delivered +48% revenue in Q1 2022. This company had a gross margin above 90% in 2021 while SAP’s gross margin was at 70% for the same year.

SAP management promised to triple its cloud-based business by 2025, and boost revenues to 22 billion euros, while operational profit is forecasted to grow by 40% from the current 8.4 billion euros. This is a very extensive growth for the company that has a high P/E ratio at 17. The company may not perform very high growth rates as its younger tech sector peers, but it may certainly recover to new all-time highs in the long-term perspective. However, the sector may require several quarters to recover, and the recovery would be headed by such reliable companies as SAP with a low risk profile.

This ETF invests in green energy ventures. The pandemic led to a 300% increase of its share price. But since the beginning of 2022 they have lost 30%, twice as much as the S&P 500 SPY ETF. The net capital which has outflown from the Fund has reached $31.5 billion over the last 12 months, while the major outflow was recorded in December 2021. However, its shares are still seen to be overbought as P/E multiplier is at 24 that is well above the average of 20 for the EFT’s that are linked to the S&P 500, while the dividend yields are above PBD’s numbers.

Inflation in the United States is rising negatively affecting all shares with a high P/E ratio. So, we may expect a further decline of the PBD share price and other similar assets that cannot be protected from rising risks. Traditional energies are looking more attractive on this background and could be a perfect hedge asset amidst geopolitical uncertainties.