Happy Sunday, everyone.
“The Wise Owls (the FOMC) have realized their mistakes, and are now hell-bent on slaying the inflation dragon.”
The quote above comes from Richard Fisher, former Dallas Fed President. As you can tell from the response to the FOMC interest rate hike this week — he was pretty damn accurate.
Check out the Q&A below from Fed Chair Jerome Powell following the Fed’s 4th consecutive 75 bps rate hike (with zero dissents against the decision).
We encourage you to read every word.
Press Question — “It looks like stock and bond markets are reacting positively to your announcement so far. Is that something you wanted to see? Is that a problem, or how might that affect your future policy to see this positive reaction?”
Powell’s Answer — “What I’m trying to do is make sure that our message is clear, which is that we think we have a ways to go. We have some ground to cover with interest rates before we get to — before we get to that level of interest rates that we think is sufficiently restrictive…
I’ve also said that we think that the level of rates that we estimated in September, the incoming data suggests that that’s actually going to be higher. And that’s been the pattern… I would have little confidence that the forecast — if we made a forecast today, if we were doing an SEP (Summary of Economic Projections) today, you know, the pattern has been that, one after another, they go up. And you know, that’ll end when it ends, but there’s no sense that — you know, that inflation is coming down…I have a table of the last 12 months of 12-month readings and there’s really no pattern there. We’re exactly where we were a year ago…So I would also say it’s premature to discuss pausing and it’s not something that we’re thinking about.
That’s really not a conversation to be had now. We have a ways to go… And the last thing I’ll say is that I would want people to understand our commitment to getting this done, and to not making the mistake of not doing enough or the mistake of withdrawing our strong policy and doing that too soon.”
We can’t emphasize this enough — volatility isn’t going away anytime soon. The Fed just told us they have every intention to continue to raise interest rates until something breaks. If you’re interested in reading our initial Federal Reserve predictions and timeline, click here. If you’re interested in how we plan to play this game — click here.
More importantly, if you’re interested in learning about how rising interest rates will negatively impact multinational businesses based in the US (F/X headwinds) — we recently teamed up with Titan to help explain to their audience the facts. To read the entire breakdown, click here.
Week in Review — Too Long, Didn’t Read:
Uber is ~delivering~ on their adj. EBITDA promise to investors, AMD’s preliminary earnings results were spot on, PayPal’s turn around story has legs, Humana to see a +21% pop in 2022 EPS, Big Oil is getting ripped for its big profits, the US may be encouraging Ukraine to start negotiating concessions with Russia, Meta is set to fire thousands, the National Retail Federation sees a spending-filled holiday season, jobs reports appear to still be fairly healthy, and two leading US economic indicators flash some signs of a cooling economy.
Key Earnings Announcements:
Uber’s on track to generate $5B in adj. EBITDA throughout 2024, AMD is caught in a “down-cycle,” PayPal reaffirmed $900M and $1.3B in cost savings in 2022 and 2023, respectively, and Humana’s vertically-integrated business is a recipe for success.
Uber Technologies (UBER)
Key Metrics
Revenue: $8.3 billion, an increase of +72% YoY
Operating Loss: -$495 million, compared to -$572 million last year
Net Loss: -$1.2 billion, compared to -$2.4 billion last year
Earnings Release Callout
“Even as the macroeconomic environment remains uncertain, Uber’s core business is stronger than ever. Strong demand for our offerings, better marketplace efficiency, and our asset-light platform helped to deliver Adjusted EBITDA well above our guidance, even as foreign exchange and inflationary headwinds impact all global businesses.”
My Takeaway
That’s the story here right? Like beyond the incredible beat to the upside — this global company was somehow about to do that with some intense foreign exchange headwinds!
Here’s a major callout — despite all of these macro economic headwinds consumers are facing across the country right now (layoffs galore), Uber’s CEO said October is tracking to be the company’s best month ever for their Mobility business. Subsequently, Uber guided to $615M in adj. EBITDA in Q4 — much higher than Wall Street’s $565M expectation.
Wall Street is now expecting $138.5B in bookings, $38.6B in revenue, and $3.3B in adj. EBITDA during 2023 — with this adj. EBITDA figure climbing to $5.5B in 2024 (+67%). Is this your classic “flip to profitability” story in the making?
Here’s the deal — I still believe the market (especially unprofitable companies like Uber) is going to continue to trade down in the coming quarter. However, Uber made the claim of $5B in adj. EBITDA by 2024 and they’re sticking to it! I think a reversal in the markets during 2024 paired with FCF positive UBER = $40+ / share (20X 2024 FCF). There’s a lot that still needs to go right for this to happen — but it’s certainly possible. However, I’m not going to act like Uber is at the top of my watchlist.
Advanced Micro Devices (AMD)