Big Banks Sizzle, Chipotle Fizzles And Samsung Snags Some Sizzle Earnings

Sizzle:

PayPal: Two hundred and ten million of anything is a big number. But especially so when it comes in the form of active user accounts, and 17 million active merchant accounts. In the case of the former, the active user account base was up 6.5 million on a net basis, with an 80 percent gain from last year. That helped propel earnings results above the Street to $3.14 billion, better than the $3.09 billion the Street had expected. The transaction rate has grown too, to 32 times a year, from 29 last year. More people paying more often means more top line torque, of course.

Brexit: Brexit has its share of clouds, but might there be a silver lining in the fact that SMEs, as polled by MarketInvoice, have seen a boost in export business. That is tied to the weakening pound, which means that 90 percent of exporters have enjoyed a boon to profits. And 95 percent of those firms are looking to boost their exports.

Big Banks: No need for Congress to roll back regulations — a nice bottom line boost could come from Treasury actions. Dismantling Dodd-Frank may be off the table for now. But then again, some of the biggest players in the banking industry, such as Citi and JPMorgan, can see a cumulative growth in profits of as much as 30 percent, as noted by one sell-side firm, predicated in part on easing capital requirements.

Fizzle:

Chipotle: Everyone’s getting sick, and the company is being subpoenaed. OK, that’s a stark statement … but the company is indeed being subpoenaed. The latest one is tied to news of a norovirus at a Virginia restaurant that closed briefly. Bad press for Chipotle, to be sure, but how does the impact shake out? Investors may be the ones getting sick to their stomachs.

Whole Foods: Will Amazon get indigestion? Profits are down and so are same-store sales (even though it was a beat). The same-store sales, off 1.9 percent year on year, show a trend that has been in place for the past eight quarters. That and net income slipped to $106 million from $120 million, indicating some pressure on margins. No earnings forecasts from the company, so Amazon might have its work cut out for it in a battle against Costco and others.

Data Breaches: UniCredit is the latest casualty in a breach, with details on 400,000 customers showing that life is not always beautiful, to steal a phrase from a movie you’d remember. Customers who took out loans were hijacked, data-wise, and the breaches stretched from the end of October 2016 to a month ago.

Sizzle of the Week: Samsung’s Smashing Earnings

Samsung hit big with its second quarter earnings release this week — reporting 61 trillion South Korean won ($54.8 billion) in revenue, a year-over-year 19.8 percent increase and 14 trillion won ($12.6 billion) in profit, up 72.7 percent from a year ago.

That on its own is good news, but what makes the announcement really sizzle is the likelihood that the South Korean electronics maker is currently sitting in position to pass its chief rival Apple as the most profitable tech firm in the world.

Analysts are currently expecting Apple to report revenue of $44.9 billion and an operating profit of $10.5 billion, according estimates out of Reuters and Bloomberg data. A big second quarter surprise is never completely out of the question with Cupertino, of course, but it seems fairly unlikely that Apple will not find itself unseated by Samsung next week.

And in other disturbing, or at least pressure-raising, news for Apple, it looks like the Galaxy S8 phone (a direct competitor for its flagship iPhone) is a certified hit. The company reported profits of 4.1 trillion won ($3.6 billion), lower than the 4.3 trillion won ($3.8 billion) from a year ago. Samsung’s Mobile Chief Koh Dong-jin — in response to comments that the Galaxy S8 is less successful than the Galaxy 7 was — had noted that cumulative sales of the Galaxy S8 and S8+ smartphones were 15 percent higher than sales for the previous model.

“The mobile business will aim to sustain the strong sales momentum of premium smartphones through the release of a new Galaxy Note smartphone and continued sales of the Galaxy S8 and S8+. It will also continue to improve the lineup efficiency in the mid- to low-end segment to maintain profitability,” Samsung said in prepared remarks.

But while Samsung’s mobile moves are attention-grabbing, the business unit that propelled Samsung’s record-breaking earnings quarter was largely driven by skyrocketing demand for memory chips. The semiconductor unit (home of memory chips) posted 8 trillion won ($7.2 billion) in operating profit, or nearly half of Samsung’s total.

And, according to the experts, that momentum is looking solid to continue for the remainder of 2017, as rival smartphone makers continue to buy Samsung’s memory chips and other products.

Daiwa Capital Markets Analyst SK Kim wrote in an investor’s note that Samsung is likely on track for “a meaningful revenue increase” in the very near future, pushed by supplying “a major smartphone customer” with display panel in the next three months.

That “major smartphone customer” is probably Apple, since Samsung is making the displays for their upcoming iPhone release. So, in a sense, if the iPhone is a smash hit, that it is good news for Samsung’s bottom line.
Samsung itself, notably, is confident but a bit more cautious about the remainder of its 2017 performance than some analysts.

“Looking ahead to the third quarter, the company expects favorable semiconductor conditions to continue, although overall earnings may slightly decline quarter on quarter as earnings weaken for the display panel and mobile businesses,” Samsung Electronics noted in their post-earnings release.

Time will tell on Q3, of course, but for now, Samsung has notched the Sizzle of the week, and possibly the Sizzle of the Earnings Season.