April 26, 2023 – Random View

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  1. FRC plummeted 50% yesterday and has dropped another 30% today to 5.6 (it was 16 before releasing the earnings report). Facts:

    1. FRC relies on loans from the Federal Reserve to stay alive. However, its operational profit margin is lower than the borrowing rate. So, even if it can sell its high-quality assets (mortgages) to sustain itself (noting that the past long-term loan rates were very low, selling would result in a loss), it will struggle to pay interest in the long run.
    2. The conference call notes mention exploring a strategic plan, but I doubt they'll find anyone to take over.
    3. The conference call didn't allow analysts to ask questions.

    Conclusion: I'm pessimistic. It may be acquired at an extremely low price. Even with government intervention, it's tough for FRC to find buyers, let alone on its own.

  2. U.S. Consumer Spending: Major companies such as Coca-Cola, Pepsi, McDonald's, and General Motors have released excellent quarterly reports. Especially GM, which has raised its annual earnings forecast. I believe the Q1 reports are lagging indicators, incorporating strong data from January and February, but retail data shows a clear decline starting in March. We shouldn't be overly optimistic about consumption.

  3. GM: Not only are they raising prices, but they're also building factories. However, I think their CEO remains overly optimistic, even when stating that Q1 growth is unsustainable. The main reason is that GM's overall industrial chain can't compete with Tesla. By the time GM's new factory is operational, Tesla's Mexico factory will be ready for mass production (if allowed to export to the U.S.). Given the current trend, I don't see any advantages for GM.

  4. Google, Microsoft & Meta:

    1. Google: From its financial report, the performance is average. Revenue, EPS, and YouTube's earnings exceeded expectations, but cloud business fell short (though as of now, this sector has finally started making profits). The vital search business saw a 5% QoQ decrease in revenue, in line with the recent economic downturn. The advertising segment has stagnated as companies are cutting costs.
      • My view is that the real concern is how much Google's search business has been affected by the emergence of OpenAI. The 5% decrease isn't as significant as many predicted. Still, I firmly believe: new technologies are overestimated in the short term and underestimated in the long term. The impact of ChatGPT is persistent and isn't reflected in a single financial statement. If Google doesn't develop a chat-AI business model that suits its characteristics, I fear they'll soon be left behind. Lately, I believe the most noteworthy aspect is Google's cloud service. It's their first time turning a profit in this sector, and I expect its direction to remain unchanged in the short term. This service could bring a valuation increase of a couple of hundred billion dollars, considering cloud technology underpins AI.
    2. Microsoft: I believe the market is most concerned with Azure (though I strongly prefer AWS and GCP over it). Azure's business grew by 27%, meeting expectations but marking its slowest growth in years. Some analysts believe this growth rate is still too high given the recessionary environment, pointing to Google Cloud as an example. Yet, Microsoft's profits are decent, and enterprise orders even increased by 11%, ensuring future performance. Hence, the stock surged. As for Bing+ChatGPT, launched a month ago, I haven't seen significant changes. Yet, based on my modest understanding of Microsoft's approach, I suspect they have something big in the pipeline. After all, Microsoft has been emulating Apple's style for years now.
    3. Meta: Their most crucial advertising business performed surprisingly well. I took a quick listen to their Earnings Call and felt everything seemed decent apart from user-related data (I always distrust easily manipulable data, I trust tax data the most!). Long-term, I remain extremely pessimistic. If Google is bound to decline, then Meta will fall even faster.

  5. Microsoft will undoubtedly be the market's focal point in the future. The primary focus, in my opinion, would be how the introduction of ChatGPT or similar AIs into various services can attract more-than-expected customers and whether they can raise prices subsequently.