News and analysis

Movies and series are not the only sources for income for streaming services. One of the major sources is the broadcasting of sport events. All major streaming platforms are now struggling to get the rights to broadcast the NFL Sunday Ticket. Apple has offered $3 billion for it while Disney and Amazon are left behind with a $2 billion bet. Google has recently joined the competition to take over the broadcast from Youtube.

Nevertheless, Disney made other significant deals to broadcast sports like a $2.7 billion contract with Monday Night Football, contracts with La Liga football, and NHL for another $0.6 billion a year. Disney has more contracts to broadcast more than 22,000 sport events for its ESPN+ channel. And that costs a bulk of money. Disney has raised monthly ESPN+ subscription by $3 to $9.99 compared to $5.99 in 2020 and $4.99 in 2018. Another subscription price hike may stimulate users to switch to the Disney Bundle service that includes Disney+, Hulu and ESPN+. ESPN+ itself generates $4.73 per client, only 4% up compared to 2021. Thus, promoting clients to the larger service could be justified, and may add $72 per client a year. The problem is that a further increase of the cost could not be as successful as the monetisation potential, which is rather limited. The increase of the Disney Bundle subscription cost may churn clients to move to cheaper Disney+ or ESPN+ subscriptions. The company received $4.9 billion in subscription revenues in Q2 2022 with a net operational loss of $0.9 billion. Expensive sport broadcasting licenses is the major reason for such a loss. ESPN+ itself generates $110 million a month but this is  not enough to cover licenses fees, even together with advertising revenues. Other streaming giants are generating massive cash flows which they can spend on their development. So, market positions of Disney may suddenly become less sustainable than traditionally considered.

Despite strong financials shares of Airbnb have been trading 40% off their prices from the beginning of 2022. Thus, investors have a great opportunity to add shares of the perspective company to their portfolios with a significant discount. The major bullish driver for Airbnb stocks is the recovery of travel activities. The number of apartment owners willing to lease their property is constantly rising and therefore directing more clients to the Airbnb platform. More options for apartment owners and travelers like Split Stays, AirCover, and simplified searches with Airbnb Categories, along with professional photo service to owners, could expand the company’s market share.

The market positioning of Airbnb seems to be very strong as many people are moving to the online working format while changing their locations more frequently. This trend supports the company’s financials as its revenues rose by 70% year-on-year to $1.51 billion in the first quarter of 2022, beating consensus at $1.45 billion. Moreover, revenues grew by 80% year-on-year compared to the pandemic-free Q1 2019.

Cooperation with hotels is another growth source for the platform. Bookings and other services are charging significant commissions, while hotels are not happy with it anymore as the number of bookings declined dramatically during the two pandemic years. Airbnb pioneered cooperation with boutique hotels and may engage other peers very soon.

The enterprise value (EV) is at $58.6 billion with expected revenue at $8.2 billion, up by 38% year-on-year. This puts the forward EV/S at 7.1, which is a very low figure for a company with such strong financials. Net cash flows over the recent 12 months were at $2.9 billion; adjusted EBITDA moved to the positive territory for the first time in the company’s history to $226 million, while the EBITDA margin was at 15%. The number of booking for the first quarter of 2022 rose by 59% to 102.1 million nights. Booking for the 30+ nights segment grew the most to 20% of overall bookings.

The mid-term target price for Airbnd is forecasted above $150 per share.

High fuel prices certainly affect airline stock prices. But is it so dramatic? Airlines have fewer flights in 2022 while their revenues are close to 2019 figures. According to the U.S. Bureau of Economic Analysis the price of an average airline ticket in 1978 was $695 and if we consider  the change in inflation since then, we may see that things are not so bad as  now the price of an average airline ticket is at $297. It is estimated that the average American could have travelled by air 43 times a year back then,  compared to 117 times this year. In other words, rising ticket prices could hardly affect airlines business.

American Airlines has seen a 12% rise for Q2 2022 revenues compared to the same period of 2019 despite the number of passengers dropping by 8%. The risk of rising pilot wages by 17% by 2024 should be mentioned. This raise was decided by the company after a bug was discovered in the internal staff distribution system that prompted a shortage of pilots compared to the scheduled flights. This bug allowed pilots to refuse to pilot 12,075 flights in order to pressure the company to raise salaries. This refusal resulted in a triple hike of pilots’ wages to fly during the hot summer season. Other airlines like Delta and United Airlines have been forced to raise wages too considering understaffing after the COVID-19 pandemic.

American Airlines has a large $25 billion debt that primarily rose due to new aircraft purchases. The company has $12 billion of fixed assets. The company’s management is planning to lower its net debt to $15 billion by 2025, which would increase net cash flows improving its fiscal balance. The forward P/EPS ratio for 2023 is forecasted at 6.4, which is extremely low for an airline.

The mid-term target price for American Airlines is at $20.

The strategy to open long positions for Google and short positions for Apple stocks may become a balanced hedge opportunity in times of economic downturn. Apple stock prices were expected to benefit from the development of VR and Apple car segments, but there are no details on the progress on Apple cars so far. It is not even clear if Apple will create these cars on its own or if it will cooperate with third-party car manufacturers.

Alphabet, a Google parent company, has already been testing self-driving vehicles in San Francisco, and is cooperating with Uber Freight to facilitate highway unmanned cargo transports. More than a half of the 4.1 million miles travelled by self-driving vehicles in the United States last year were made by Alphabet vehicles. Apple self-driven car prototypes may not appear before 2024.

Google Glasses are created with technology that was bought together with Focal startup in 2020. Together with Google cloud, Youtube and Waymo, an autonomous driving technology development company, and also a subsidiary of Alphabet, revenues are expected to grow fast over the coming years. The revenues of Alphabet are expected to add 19% in 2023 vs 6.5% by Apple, in 2024 they are planned to grow by 13.8% and 5.5% respectively. In other words, revenues of Alphabet are expected to grow three times more than Apple, while their P/E ratio in 2022 is expected at 14 and 20 respectively.

The mid-term target price for GOOGL shares is at $2,700.