Sat, 25th February 2017

Anirudh Sethi Report


Archives of “expected value” Tag

Credit Suisse Announces Another 6,500 Layoffs After Reporting 2016 Loss

After Credit Suisse reported yet another significant loss for the full year 2016, amounting to 2.35 billion Swiss francs, more than the CHF2.07bn expected, the Swiss banking giant said it was looking to lay off up to 6,500 workers and said it was examining alternatives to a planned stock market listing of its Swiss business.

“We’re setting a target now of between 5,500 and 6,500 for 2017,” Chief Financial Officer David Mathers said in a call with analysts on Tuesday after the bank published earnings. The bank did not specify where the extra cuts would come but said this would include contractors, consultants and staff, Reuters reported.

For the fourth quarter, Credit Suisse reported a 2.35 billion franc net loss, largely on the back of a roughly $2 billion charge to settle U.S. claims the bank misled investors in the sale of residential mortgage-backed securities.  Despite the loss, Credit Suisse proposed an unchanged dividend of 0.70 francs per share, in line with market expectations.

CEO Tidjane Thiam, who took over at Switzerland’s second biggest bank just over 18 months ago, is shifting the group more toward wealth management and putting less emphasis on investment banking. As part of his turnaround plans, the bank is looking to cut billions of dollars in costs and cut a net 7,250 jobs in 2016 with more to follow this year.

Rolls-Royce confirms largest ever loss of £4.6bn

Image result for Rolls-RoyceRolls-Royce has confirmed the largest headline loss in its history, as a weak pound which affected its hedge book and a £671m settlement for historic corruption claims drove it to a pre-tax loss of £4.6bn.

However, the drop in profit did not affect the company’s dividend, and underlying profits before tax declined by much less than earlier analyst forecasts, down by 49 per cent to £813m, compared to expectations of £687m.

Rolls chief executive Warren East previously softened the blow of the settlement announcement by simultaneously reporting that profits and particularly cash would be ahead of earlier expectations.

Rolls said the difficulties in its marine business are expected to continue this year, but said it expects to nonetheless report “marginally higher” revenues, with “a modest performance improvement overall” and free cash flow “similar” to this year’s £100m.

How’s that oil demand picture looking OPEC? – India’s demand at the lowest for 13 years

One part of the OPEC production deal isn’t going according to plan

The main reason for the OPEC deal was to freeze production so that demand eats into the glut of supplies. That’s all well and good until the glaring floor in the plan comes home to roost, i.e demand doesn’t grow or worse, it drops.

So when one of the fastest growing countries sees oil demand fall the most in 13 years, there should be alarm bells ringing at OPEC.

Bloomberg has noted the drop which has seen India’s use of diesel drop 7.8% in Jan. Diesel accounts for around 40% of total fuel use. India also imports around 80% of it’s oil and the IEA said it will be the fastest user of oil through to 2040.

The drop is being tied in with the recent policy crackdown on high value bank notes, which is expected to shrink economic growth. One analyst expects that this is a one off and demand will pick back up in Feb. We’ll see whether he’s right no doubt. If he’s not then this could be a bigger issue for OPEC who will start to think about what to do with the current deal in a couple of months or so.

For me, the demand part of the OPEC puzzle was always the weak link and if demand doesn’t match expectations in relation to this deal, there’s going to be strong calls to expend it.

Overnight US Market :Dow closed +118 points ,Dow, S&P 500, Nasdaq blow past old records

Stocks were in rally mode Thursday as all three of the major indexes jumped to new all-time closing highs.

The Dow Jones industrial average jumped 118 points, or 0.6%, to 20,172.40.

Up by the same percentage were the S&P 500 and the Nasdaq composite — to their new highs of 2307.87 and 5715.18, respectively.

Investors weighed earnings from a batch of companies, including Twitter, Kellogg and Viacom. Energy stocks led the gainers as the price of crude oil headed higher. Utilities were down the most.

Benchmark U.S. crude gained 66 cents, or 1.3%, to $53.00 a barrel in electronic trading on the New York Mercantile Exchange, while Brent crude, the benchmark for international oil prices, added 40 cents to $55.52 a barrel.

In earnings news:

Amazon Tumbles: Misses Revenues, AWS Disappoints, Guides Lower

Jeff Bezos magic may be running out, because one quarter after the stock plunged when the company missed earnings (with revenues in line) and guiding lower, moments ago AMZN did a twofer, and despite beating the bottom line, it posted a big miss on the top line. As a result, the reason why Amazon is tumbling some 4% after hours is because despite reporting Q4 EPS of $1.54, on expectations of $1.40, or a 55% increase in profit, is that Q4 revenue of $43.7 billion in its strongest quarter missed expectations of $44.9 billion, if 22.4% higher than a year ago.

Amazon’s operating income of $1.26 billion was just above the high end of its guidance of $1.25, and beat Wall Street estimates of $1.13 billion. Also troubling: Amazon’s “holy grail”, AWS, reported sales growth of 47%, however, it was not enough and led to $3.54 billon in high margin sales, below the $3.61bn in consensus estimates, suggesting that the cloud wrs are finally starting to impact Jeff Bezos too.

The guidance was also troubling, with the company now expecting Q1 operating income between $250 and $900 million, below the street’s expectation of $1.3 billion, on revenue of $33.3 to $35.8 billion, below the street’s consensus of $36 billion.

with the company now expecting Q4 operating income between $0 and $1.25 billion, below the street’s expectation of $1.7 billion, on revenue of $42 to $45.5 billion, roughly in line with consensus of $44.6 billion.

The full guidance:

Facebook Surges To Record High After Smashing Expectations On 1.86 Billion Monthly Users

So much for worries about tech companies rolling over.

After yesterday’s AAPL beat which nonetheless resulted in one of the biggest intraday jumps in its stock in history, sending it highest over 6% today, moments ago Facebook reported results which crushed expectations, and have sent the company higher as much as 3%. The street was expecting $8.81 billion in revenue and EPS of $1.34. Instead it got revenue of $8.81 billion, a 51% increase from 2015 – 84% of which came from mobile – and EPS of $1.44, a 78% increase.

It achieved this with Daily Average Users of 1.23billion, above the 1.21billion expected, up 18% Y/Y, while Monthly active users soared to 1.86 billion, also above the 1.84 billion expected, and up 17% from a year ago. This means that as of this moment more than a quarter of the world’s population logs in to Facebook at least once a month.

Putting Facebook’s results and unprecedented user growth in context, in one year, Facebook added some 269 million monthly active users, roughly all of Twitter’s user base, in just the past year.

Here are the details reported by Facebook.

  • Daily active users (DAUs) – DAUs were 1.23 billion on average for December 2016, an increase of 18% year-over-year.
  • Mobile DAUs – Mobile DAUs were 1.15 billion on average for December 2016, an increase of 23% year-over-year.
  • Monthly active users (MAUs) – MAUs were 1.86 billion as of December 31, 2016, an increase of 17% year-over-year.
  • Mobile MAUs – Mobile MAUs were 1.74 billion as of December 31, 2016, an increase of 21% year-over-year.

Finally, the biggest factor was Mobile monthly users, which soared to 1.74 billion as of Dec. 31, an increase of 21% Y/Y.  Also, if there was any concern about ad revenue slowing down, that too can be ignored for now: Mobile advertising revenue represented approximately 84% of advertising revenue for the second quarter of 2016, up from approximately 80%  in Q4 2015.

Apple to slice iPhone production 10%

Apple will trim production of its iPhone family around 10% on the year in the first quarter of 2017, according to calculations by The Nikkei based on data from suppliers.

This comes after the company slashed output in January-March 2016 due to accumulated inventory of the iPhone 6s line at the end of 2015. That experience led Apple to curb production of the iPhone 7, introduced in September, by around 20%. But the phones still have sold more sluggishly than expected. Information on production of the latest models and global sales suggests cuts in both the 7 and 7 Plus lines in the coming quarter.

 The larger iPhone 7 Plus, which features two cameras on its back face, remains popular. But a shortage of camera sensors has curbed Apple’s ability to meet demand for the phones.
 U.S. research company IDC forecasts global smartphone shipments in 2016 on par with the 2015 level. Even Apple has had difficulty creating appealing new features, stifling demand from customers who otherwise would look to upgrade to the latest device.

Japanese demand for the iPhone 7 line is strong, thanks in part to the phone’s compatibility with contactless IC chip readers, commonly used for services such as payment. But this country makes up just 10% or so of the global smartphone market, and cannot compensate for sluggishness overall.

Japanese component producers will again feel pain from the coming cuts. But orders from Chinese smartphone makers, as well as growing demand for automobile technology linked to automated driving, will soften the blow. A source at a major parts producer called Apple’s production cut “within expectations,” saying the company has reduced the role Apple plays in its overall business.

Japan – Trade Balance (November): Y 152.5bn (expected Y 227.4bn)

There is some encouraging news for the Bank of Japan to take into this week’s policy meeting as trade data showed the pace of deterioration in imports and exports during November eased and came in better than forecast.

The pace of import growth improved to minus 0.4 per cent year-on-year in November from a 10.3 per cent contraction in the previous month. This was a better result than the average 2.3 per cent decline expected by economists.

Similarly, there was also an improvement in export growth last month, which showed a contraction of 8.8 per cent year-on-year contraction, almost half the 16.5 per cent decline in October. Economists expected a 12.1 per cent drop.

Japan’s trade surplus narrowed to ¥‎152.5bn($1.29bn) last month from a revised ¥‎496bn (previously ¥‎496.2bn) in October. On an unadjusted basis the trade surplus rose to ¥‎536.1bn last month from a revised ¥‎466.8bn (previously ¥‎474.3bn). Both versions of the trade surplus came in below expectations, though.

Goldman’s FOMC Postmortem: “Faster Pace Of Hikes Reflects An Economy Close To Full Employment”

While Yellen is still speaking, here is Goldman’s assessment of what the FOMC meant with its statement:

BOTTOM LINE: The FOMC raised the funds rate target range, as widely expected. In the accompanying projection materials, the median estimate of rate hikes for 2017 increased, and now shows three hikes for the year instead of two. The statement said that the committee aims to see only “some” further improvement in labor market conditions.


1. The FOMC announced an increase in the target rate for the federal funds rate to 0.50-0.75% from 0.25-0.50%, as widely expected. The post-meeting statement indicated that an increase was warranted due to “realized and expected labor market conditions and inflation”. The committee said that the stance of policy remained “accommodative” (rather than “moderately accommodative”, as in Chair Yellen’s recent Congressional testimony), which would help achieve “some further strengthening” in the labor market—with the “some” qualifier added to the statement at this meeting. Elsewhere the statement noted that the economy has been “expanding at a moderate pace”, and noted that inflation expectations in the bond market had increased “considerably”.

2. In the Summary of Economic Projections (SEP), participants made relatively few changes to their economic projections, but some upgraded their projections for the funds rate. The median projections for the funds rate showed three rate increases next year, up from two at the September meeting, with no changes to the number of hikes in 2018 and 2019. Longer-run projections for the funds rate also edged up, with the median rising to 3.0% from 2.9% previously. Elsewhere, the SEP showed slightly higher growth and headline inflation and lower unemployment for this year and also slightly higher growth and a lower unemployment rate for 2017. With a stable long-run unemployment rate but lower unemployment rate projections in 2017 and 2019, the higher projected pace of hikes next year may reflect the committee’s assessment that the economy is close to full employment.

Twitter to cut 9% of workforce, user growth tops forecasts

Twitter shares popped in early trading after the social media site said its user growth climbed more than expected in the third quarter and that it would cut up to 9 per cent of its global workforce.

The California-based company said its advertising revenue growth slowed to 6 per cent from a year ago in the third quarter reaching $545m. It had slowed to 18 per cent in the second quarter, from 37 per cent in the first three months of the year as Twitter’s advertising business — which accounts for 90 per cent of its revenue — continued to be hamstrung by the rise of online video.

Meanwhile, average monthly active users rose 3 per cent in the latest quarter from a year ago to 317m, ahead of Wall Street expectations for 315.2m. That compared with 313m in the previous quarter.