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😬 From Haven to Hellhole?
Plus, Comcast keeps shedding subscribers. Bulls are buying anyway.
Happy Sunday to everyone on The Street.
This week's intro is dedicated to last week's question: Who got the better end of the ESPN Bet deal: Dave Portnoy, PENN Entertainment, or Bob Iger and Disney? Here are the results:
🟩🟩🟩🟩🟩🟩 Dave Portnoy (183)
🟨⬜️⬜️⬜️⬜️⬜️ PENN Entertainment (47)
🟨⬜️⬜️⬜️⬜️⬜️ Bob Iger & Disney (43)
And I have to share some of the responses because they're great and I want more of these. Here's a sample:
DW said: “Short term, Portnoy wins. He sold his company then got it back, and he owes PENN nothing, no matter how much ESPN pays him. Longer term, I think PENN is expecting ESPN to take Barstool over 100% in a few years, and they’ll get 50% of however many $ billions they pay for it.”
WC said: “PENN dropped Portnoy like he had herpes—he's a loser. Disney is the bigger loser though for leasing the ESPN I.P. to Penn (a low-roller) in a fire sale because Iger seems to be in panic mode.”
Murray said: “This is actually a question?”
ED said: “Given he paid only one dollar and gets 50% of whatever he may be able to sell the company for plus the money he made when he sold it to Penn he will be the big winner in the short run.”
SD said: “Dave won't sell. But he can’t expand into his own sports book now, where most of that $600m value would be. He’s going to have to stay in the media/news and beverages space ”
For what it's worth, I think Portnoy "won" as well. I don't think he'll ever sell to ESPN. Who knows, I could be wrong, especially if they offer a deal that makes him a billionaire or multi-billionaire.
Anyway, moving on. What I really wanted to talk about this week was all of the action in the homebuilding and Single-Family Rental (SFR) space. Between Warren Buffett, MetLife Investment Management (MET), and even local deals like Lennar's push into Lake Worth, there is a lot going on.
I think I'm going to save it for my monthly deep dive, the Last Cast Letter. Click here for a quick, one-click signup.
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Review
US stocks were mixed on Friday, leading to a third-straight week of losses as the 10-year US Treasury yield rose.
On the earnings front, Chinese electric car maker Xpeng reported a record quarterly loss of $384 million. Despite a hit on its gross margin, which turned negative last quarter, the company’s second-quarter revenue met expectations. It forecasts deliveries to jump by 35% in the third quarter.
In company-specific news, SpaceX turned a profit of $55 million in the first quarter of 2023 thanks to surging revenues, according to The Wall Street Journal. SpaceX is betting on its monster rocket Starship, the largest and most powerful ever flown, to enable it to add more satellites to its Starlink network and unlock a new avenue for commercial rocket service.
In other news, the heavily indebted Chinese property developer Evergrande Group filed for Chapter 15 bankruptcy protection in a US court. Evergrande posted a combined loss of $81 billion over the past two years after struggling to finish projects and repay suppliers and lenders. The filing comes amid concerns China's property sector troubles could spill over to other parts of the economy, which has already seen faltering growth.
In total for the week, the Dow Jones Industrial Average finished 2.2% lower, while the S&P 500 shed 2.1%. The Nasdaq Composite was down 2.6%.
Preview
Tuesday, investors will get an update on existing US home sales for July. In June, existing home sales dropped to the lowest level in five months.
On Wednesday, a flurry of mortgage data will be released including applications, refinancings, and an update to the 30-year fixed-rate mortgage rate, which currently sits at 7.2%. Additionally, investors will get an early look at August industry activity in manufacturing and services through the S&P Global (SPGI) flash PMI, ahead of the full reports next week.
On Thursday, Wall Street will receive an update on durable goods orders, which jumped 4.7% in June. Like every Thursday, the Labor Department will release initial jobless claims. Americans filing for unemployment hit a seven-week high of 239,000 in the week ended August 12 but remains in line with pre-pandemic trends.
To round out the week, Fed Chair Jerome Powell will speak at the Jackson Hole Symposium on Friday. Investors will be eager for more insight into the central bank’s stance on interest rates for the remainder of the year.
Earnings Spotlight
Tomorrow, in addition to Zoom (ZM), EV company Faraday Future (FFIE) will report its quarterly earnings. The California-based startup recently delivered its first AI-powered vehicle, the FF 91 2.0 Futurist Alliance, marking a major step toward revenue generation.
Tuesday, Lowe’s (LOW) will look to improve on Home Depot’s earnings. The retailer’s main competitor reported sliding sales last week. Later in the morning, Dick’s Sporting Goods (DKS) will keep the retail reports rolling.
On Wednesday, investors will get the latest earnings from NVIDIA (NVDA). Last quarter, the chipmaker got a major boost from the popularity of AI, catapulting it into the $1 trillion market cap club. Cloud computing company Snowflake (SNOW) will also report.
On Thursday, Intuit (INTU), Dollar Tree (DLTR), and Affirm (AFRM) will hand in their report cards. Intuit is expected to speak on its partnership with OpenAI to bring generative AI to its considerable suite of software tools, including TurboTax, Credit Karma, QuickBooks, and Mailchimp.
Comcast Is Losing Cable Subs. Bulls Are Still Buying
Comcast Gives Investors Exposure to More Than Cable TV
If you’re looking for a cheap way to get digital exposure, then you may want to consider Comcast (CMCSA). The nation’s biggest broadband cable provider acts as a conduit to a host of growing markets, including generative AI, online gaming, the Internet of Things, and the Metaverse.
Trading at about 11 times earnings, Comcast is a lot cheaper than leaders in those burgeoning industries such as NVIDIA (NVDA), Meta Platforms (META), and Netflix (NFLX). Sure, shares of Comcast hit a 52-week high in August, but the stock is still 25% lower than its 2021 peak.
Growth Pillars
The reason for the sell-off is Comcast’s cable business. As it stands, many investors still consider Comcast a cable TV provider, not a broadband company. Cable TV is struggling, with most people trading their cable boxes for streaming devices. This year, the percentage of American households paying for cable TV will drop below 50% for the first time in years. In the quarter ending in June, Comcast had fewer than 15 million video customers, marking a 12.6% year-over-year decline.
But Comcast is more than just cable TV. It owns Universal Studios and theme parks, the Peacock streaming video service, NBC, CNBC, MSNBC, and one-third of Hulu through NBC. The media giant has branched out even further into the sports arena, purchasing the Philadelphia Flyers professional hockey team, and internationally with its acquisition of the British media company, Sky. Its stake in Hulu could be sold to Walt Disney (DIS) next year and should come with a hefty price tag.
Stock Really Cheap?
Comcast executives argue investors should put aside the cable business and value the company's six growth businesses, which include broadband for residential homes and businesses, wireless services, streaming services, studios, and theme parks. Combined, these units generate around $70 billion yearly, with Comcast projecting its contribution to reach 75% of its revenue in the future.
Comcast believes its stock is undervalued, trading at a 40% discount to the S&P 500, despite growing at over twice the rate of the S&P.
Comcast has long grown out of the typical cable TV provider. The company is in growth mode which could entice investors with an eye for value.
Are you bullish or bearish on Comcast over the next 12 months? |
How Wall Street Is Playing The Digital Ad Market
Meta, Google See an Uptick in Digital Ad Spending
The digital marketing industry was written off a mere year ago as investors braced for a decline in digital ad spending amid a sluggish economy and Apple's (AAPL) privacy changes.
Turns out that was much ado about nothing. Both Alphabet (GOOGL) and Meta Platforms (META) recently posted earnings that were better than expected and pointed to growth in digital advertising.
Google saw a 3% year-over-year increase in ad revenue, with YouTube ad revenue besting Wall Street’s forecast for $7.43 billion. Meanwhile, Meta reported a 12% year-over-year ad revenue increase, marking the first double-digit jump in sales for the social media giant since 2021.
Meta, Alphabet Too Pricey?
Ad revenue is nowhere near its pace of growth in years past, but the industry is in a much better position than last year. In an interview with CNBC, Rohit Kulkarni, an analyst at Roth Capital Partners, commented: “We have seen greater evidence of a return to normalcy in a way that was not contemplated earlier this year.”
When it comes to getting exposure, investors may want to follow Alphabet and Meta, who together make up half of the ad market. With AI trending, shares of both stocks have surged. Sure, they are expensive now, but according to Paul Meeks, a portfolio manager at Independent Solutions Wealth Management, ignoring the trend would still be a bad bet.
“I know the temptation would be to go after companies like Pinterest and Snap — cheaper ways to play the same theme — but those companies, when they report, seem to continuously disappoint,” Meeks told CNBC.
Don’t Forget Amazon
Then, there’s Amazon (AMZN).
While investors have been drawn in by Amazon's Web Services, with online advertising revenue up 22% year-over-year, Amazon's ad business has also seen growth.
The numbers have caught Wall Street by surprise: “I usually don’t like to chase stocks, but I still see an urgency to buy it,” Meeks said.
Are you bullish or bearish on the digital advertising market over the next 24 months? |
PRESENTED BY SEMPRA
A Growth-Focused Utility with a Historically Strong Dividend
We’re celebrating 25 years of success with total shareholder returns up 1,200% and 810% Market Cap Growth since our formation in 1998. At Sempra, progress means investing in the infrastructure needed for the energy transition and providing safe, reliable and increasingly cleaner energy to those we are privileged to serve. Join us on our journey and learn about our strategy for the next 25 years.
From Haven to Hellhole? Multifamily Sector Shows Cracks In Foundation
Rising Debt Costs Puts This Area of Real Estate in Peril
Low vacancy rates and rising rents have long made apartment buildings a safe haven for real estate investors. But now, with the Federal Reserve's interest rate hikes, mortgages on multifamily properties are causing trouble in the once-resilient real estate sector.
The sudden increase in debt costs is driving down the values of apartment buildings. According to data from CoStar (CSGP), apartment values fell by 14% for the year ended in June. In 2022 values rose 25%. Mortgage delinquencies are still low, but are starting to rise as borrowing costs double, building expenses increase, and rent growth slows.
More Delinquencies Coming?
As it stands, it's not too bad yet for multifamily property holders. But these conditions may soon change.
The amount of outstanding multifamily mortgages has more than doubled in the last ten years, standing now at $2 trillion. That’s close to twice the amount of debt in the commercial real estate market. And, according to data from Trepp, $980.7 billion of multifamily debt comes due between now and 2027.
Multifamily building owners in major cities including Los Angeles, Houston, and San Francisco have already defaulted on loans. Meanwhile, the Wall Street Journal reported Blackstone (BX) is in special servicing on mortgages on 11 apartment buildings in New York City.
The Writing on the Wall
Tides Equities out of LA spent $6.5 billion since 2016 to purchase apartment buildings in the Southwest, catering to lower and middle-income renters.
In 2021, Tides was gearing up to raise rents by 44% in the next three years, but that hasn’t worked out. The company told investors raising rents was not viable as renters were becoming cash poor. In fact, some properties weren’t earning enough to cover debt payments without an infusion of more capital from investors. The company is currently working with lenders to avoid defaulting on struggling properties.
The once resilient multifamily real estate market is falling on tough times. Distress might just be starting to work its way through the market.
Are you bullish or bearish on the multifamily sector over the next 12 months? |
Last Week's Poll Results
Are you bullish or bearish on Nike over the next 24 months?
🟩🟩🟩🟩🟩🟩 🐂 Bullish
🟨🟨🟨⬜️⬜️⬜️ 🐻 Bearish
Which company do you think will outperform over the next 12 months?
🟩🟩🟩🟩🟩🟩 ON Holdings
🟨🟨🟨⬜️⬜️⬜️ Deckers
🟨🟨🟨⬜️⬜️⬜️ Lululemon
🟨🟨⬜️⬜️⬜️⬜️ Nike
Join the conversation