Ghost Global (Amazon | Twitter | Tesla | Verizon | AT&T)

Ghost Global is a weekly segment brought to you by the Ghost Grads on a rotational basis. This week, Sinawo Bikitsha updates us on news from some of the biggest names on the US market.

Amazon and One Medical

Amazon announced an agreement to buy US healthcare provider One Medical for $3.9 billion in cash, yet another push from the eCommerce giant into the medical industry. This was particularly good news for One Medical shareholders, as the share price was trading at around $10 before the announcement and the Amazon offer is $18 per share!

Amazon plays in many verticals and healthcare is one of them, with strategies around online pharmacy and telehealth services. Amazon’s reputation doesn’t always work in its favour, with some commentators expressing concern about Amazon having access to medical records. Leaving that aside, the strategy here is clearly to make healthcare and the purchase of related products more convenient for customers.

Not everyone believes in the dream, as Amazon’s public policy and communications executive Jay Carney has been snatched up by Airbnb. Amazon previously lost its Amazon Web Services executive Charlie Bell to Microsoft. The company has lost at least four executives since Jeff Bezos stepped down as CEO in 2021 to go off and live the playboy lifestyle (literally).

Amazon will release its second quarter results on 28th July. The first quarter wasn’t great, with just a 7% increase in sales and a net loss of $3.8 billion after writing down the investment in EV business Rivian by $7.6 billion. The market will be anxious about new numbers.

Twitter blames everyone else

Twitter didn’t take long in its announcement to blame Elon Musk’s cold feet for its poor results in the quarter. Twitter is pursuing legal action against Elon Musk to force him to perform – a legal way of saying that Twitter wants him to stick to the contracts.

Twitter shareholders would love it if the company would perform as well, especially after a revenue decrease of 1% year-on-year and a net loss of $270 million. Only $33 million in costs can be attributed to the negotiations with Musk, so there are many other problems in the Twitter business model.

The biggest issue is its expenses, which jumped by a rather shocking 31% year-on-year.

Tesla margins under pressure

Tesla’s second quarter automotive revenues were lower than the preceding two quarters. On a year-on-year basis, automotive revenue was up 43%. A bigger concern and one that we are seeing across the market is pressure on gross margin, which came in at 27.9%. This is way down from 32.9% in Q1’22. In fact, this is lower than any quarter in the past year!

Operating margin of 14.6% was a decent outcome when you consider the pressures further up the income statement. This is down from 19.2% in Q1’22 but is in line with the second half of 2021.

The market is highly focused on free cash flow and Tesla had a tough quarter in that regard, with free cash flow of $621 million. Although this is in line with Q2’21, it is way down from the levels seen in the past few quarters.

The crypto fans won’t be impressed with the latest result, as Tesla has converted 75% of its bitcoin holdings into fiat currency (i.e. good old fashioned dollars and other currencies).

Tesla is facing much stiffer competition these days, not least of all from fellow American manufacturer Ford. Tesla sold over 1.1 million cars in the past 12 months and Ford is aiming for 600,000 electric vehicle unit sales in 2023.

Tesla is a favourite for short sellers because the valuation is so divorced from reality. This is a dangerous game, as a rally of over 11% in the past month has demonstrated once more. This year though, Tesla is down 32%.

Verizon and AT&T – tough times for telecoms

Verizon and AT&T did some synchronised swimming with their share prices and not in the right direction:

Verizon reported a drop in service revenue by 3.9% and in net income by 10.7%. Operating margins fell from 31.9% to 27.9%. These aren’t pretty numbers and they were driven by a loss in retail customers, which did nothing to encourage the market. The company noted tight competition and inflationary challenges as part of the drivers of this result. The CFO talked about remaining “confident in our long-term strategy” with perhaps the only highlight being decent gains in the number of business customers.

AT&T reported better results than Verizon, yet the share price still took a knock. Revenue grew by 2.2% and there were positive net additions to subscriber numbers. The troubles came in the operating margin, which fell from 21.2% to 16.7%.

Even the telecoms businesses aren’t immune to the effects of inflation.

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