Stocks to watch for 2022
Are they going up, or are they going down? This time, it might go both ways as companies reposition themselves in the market after the effects of the Covid-19 pandemic.
As markets become more competitive, we take a look at two American companies: Peloton and Alphabet. One brings a stock split to make its shares more "affordable", while the other works on regaining its market value after a good shopping spree in a highly conducive environment.
Peloton Interactive Inc (PTON)
Digital fitness company Peloton has made it on to the target list of several tech stocks such as Nike, Amazon.com, and Apple (which some analysts believe is heavily involved).
On 8 February, the company's share price surged by as much as 25% after news of the company restructuring, introducing a new CEO, and reducing costs.
Let's catch up on what brought the company to its mid-term lows. During the pandemic, Peloton was among the companies that benefited from consumers' depressed lockdown spending, especially during the hard lockdown period. As demand increased during the period, with revenue growth in the double digits, the company increased its spending in employment, output, and an acquisition valued at $420 million. This was without expectation of a drop in product demand.
Outgoing Peloton CEO, John Foley, described the experience as "humbling".
On the road to recovery, one measure includes cutting costs. Commenting on the work that needs to be done, chief financial officer Jill Woodworth added, "we're going to study what our post-Covid demand is without going dark on marketing, to better understand the baseline, and we're going to get back to efficient marketing next year. "We’ll go back to the basics over the next several quarters,” she said.
Despite the net loss recorded during the second quarter (FY22 Q2), subscription revenue, which makes up 30% of the group's sales, increased to $337.5 million, representing a 73% growth for the quarter. Sales in the group's largest segment declined by 8%. Total sales during the quarter were up by 6%, reaching $1.13 billion vs $1.06 billion in the previous competitive period (PCP). The company closed the quarter with 2.77 million connected fitness subscribers.
In a letter to shareholders, Foley added, "We are taking steps to best position Peloton for sustainable growth while also establishing a clear path to consistent profitability."
Given the current market condition, the company expects revenue to reach approximately $950 million to $1 billion for the third quarter, with a predicted full-year revenue of between $3.7 billion and $3.8 billion.
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Alphabet Inc-Cl A (GOOGL)
Google's parent company, Alphabet, is preparing for one of the most extensive stock splits at a ratio of 20-for-1. This comes after the company beat the expected earnings and revenue.
According to Sundar Pichai, CEO of Google and Alphabet, "Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses across our most important products."
In 2021, during the third quarter of the calendar year (CY21 Q3), Alphabet made headlines when it launched its AI company focused on industrial robot software development. The company is expected to help drive growth in Alphabet’s businesses, especially Google Cloud, a business of Alphabet that launched its AI-based visual inspiration tool.
Looking at the recent financials, Alphabet’s revenue for the quarter increased to $75.33 billion vs the expected $72.17 billion; this represented a 32% year-over-year (YoY) growth in revenue. Income from operations increased to $21.8 billion during the period. Despite the decline in YouTube revenue as the group's position is challenged by other social media platforms, Alphabet’s revenue across all other businesses increased with "other bets" reported at $181 million, a slight decline from $196 million in the previous period.
Alphabet outperformed expected earnings by Refinitiv by $3.35, reaching $30.69 per share vs $22.30 per share in the PCP.
"Our fourth-quarter revenues of $75 billion, up 32% YoY, reflected broad-based strength in advertiser spend and strong consumer online activity, as well as substantial ongoing revenue growth from Google Cloud," Ruth Porat, CFO of Alphabet and Google, added.
As part of the upcoming stock split, investors are expected to receive 20x additional shares once approved, while the share price reduces in value by the same ratio. Alphabet’s new trading price estimates with a current price of $2900 are around the $140 per share mark which is expected to take place in July 2022.
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Informed decision
For tech stocks, especially during this period, volatility remains on the menu of the market, especially looking at the fact that inflation has spread wider beyond just a rise in prices that only interest rate hikes can reduce. This for one may play a contributing factor to fuelling volatility of the market, mainly tech, as central banks review measures to fight inflation.
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Sources – EasyResearch, Alphabet Inc-Cl A, Peloton Interactive Inc, CNBC.
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