Whale Watching: Impact of Large-Scale Transactions on SHIB's Price Volatility

Posted on by The INO.com Team

Shiba Inu (SHIBUSD) is an Ethereum-based altcoin. In contrast to Bitcoin, which is designed to be scarce, SHIB is intentionally abundant, with a total supply of one quadrillion. This allows users to hold billions or even trillions of SHIB tokens.

Originally created as a meme currency, Shiba Inu has evolved into a decentralized ecosystem. Upon its initial launch, 50% of the SHIB supply was placed in Vitalik Buterin's Ethereum wallet. Since then, SHIB's price surged from an all-time low of $0.000000000056 to an all-time high of $0.000084, marking a 150,000-fold increase. Subsequently, Vitalik donated 10% of his SHIB holdings, worth about $1 billion at the time, to a COVID-19 relief effort in India, and the remaining 40% was burnt.

Currently trading at approximately $0.000024 and valued at $14.11 billion by market cap, Shiba Inu has demonstrated remarkable performance, gaining more than 180% over the past year and over 200% over the past six months. The outstanding performance underscores Shiba Inu’s enduring popularity and speculative allure among cryptocurrency traders.

A major influencer shaping Shiba Inu’s price movements is the activity of large-scale holders, known as whales, who engage in significant transactions that can trigger notable price swings.

For instance, a recent event involved the transfer of a staggering 3 trillion SHIB tokens (valued at approximately $75.9 million) from an undisclosed wallet to the Robinhood platform. Such transactions signal the potential for substantial shifts in the market, acting as cues for other investors and impacting overall market sentiment, thereby contributing to price volatility.

Another key driver of Shiba Inu’s recent price momentum is the surge in token-burning activity. Token burning involves the permanent removal of tokens from circulation, effectively reducing the available supply of SHIB tokens.

The recent surge in Shiba Inu burn activity, which saw a remarkable 4000% increase in its burn rate in May, has tightened the supply-demand dynamics, instilling optimism regarding its potential path to a $0.001 SHIB price.

This deflationary mechanism has created scarcity, which is helping enhance the token's perceived value. Thus, investor confidence is bolstered, and positive sentiment towards SHIB is cultivated.

Earlier this month, Shiba Inu experienced a dramatic surge in its burn rate, escalating by over 5500% compared to previous levels. This surge led to the removal of 25.93 million SHIB tokens from its total supply within a 24-hour period. Such a significant reduction injected renewed optimism into the market outlook for the meme coin.

On top of this, Shiba Inu's fundamentals have received a boost as the meme coin secures a listing on the cryptocurrency payment platform CoinGate. This listing is anticipated to broaden Shiba Inu's utility, enabling users to utilize the meme coin for various commercial transactions like purchasing sports gear, gift cards, and more.

Among these transactions, users can now use Shiba Inu to pay for Airbnb accommodations and make purchases from select brands such as Nike and Zalando.

In light of meme coin flashing green signals on the charts, analysts have grown bullish, offering forecasts that span moderate gains of 20% to potential surges as high as 350% in the near future.

Although whale activity, token burns, and investor sentiment all exert significant influence, Shiba Inu’s price trajectory remains dynamic and prone to rapid fluctuations. As market participants navigate this evolving landscape, staying abreast of these key factors becomes imperative for making well-informed investment decisions and seizing potential opportunities within the SHIB ecosystem.

Pipeline Powerhouses: Oneok (OKE) vs. Williams Companies (WMB) as Dividend Plays

Posted on by The INO.com Team

Energy demand continues to rise worldwide, driven by the growing population, rapid urbanization, and economic development. Increased energy consumption across residential, commercial, and industrial activities necessitates the expansion and modernization of energy infrastructure to ensure a consistent supply of energy.

The energy infrastructure sector operates assets that offer services crucial for expanding the global economy and ensuring energy security. The industry is supported by stable cash flows, high barriers to entry, long-lived real assets, and inelastic demand, which collectively contributed to double-digit returns in 2023.

Energy infrastructure companies are well-poised to provide essential services for decades to come. In 2024, the sector’s total return is projected to be between 10% and 14%, driven by a dividend yield between 6%-7%, expected dividend growth of 3%-5%, and stock buybacks of 1%-2%.

Notably, as represented by the Alerian Midstream Energy Index, the energy infrastructure sector delivered an impressive 25% annualized return compared to the S&P 500’s 10% from December 31, 2020, to December 31, 2023.

Moreover, the growth in the U.S. natural gas and oil production volumes is expected to set new records, reinforcing the U.S. position as the world’s largest energy exporter.

According to the Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO), the U.S. natural gas trade will continue to expand with the startup of new LNG export projects. Also, EIA expects increased natural gas exports by pipeline, primarily to Mexico.

In its STEO forecast, net exports of U.S. natural gas will rise 6% year-over-year to 13.6 billion cubic feet per day (Bcf/d) in 2024. In 2025, net exports are expected to grow another 20% to 16.4 Bcf/d. U.S. LNG exports are projected to grow by 2% in 2024 to an average of 12.2 Bcf/d and an additional 18% (2.1 Bcf/d).

As per a Research and Markets report, the oil and gas midstream market is expected to reach $43.41 billion by 2030, growing at a CAGR of 5.9% during the forecast period (2024-2030).

As the energy infrastructure sector has been a hotspot for dividend-seeking investors, ONEOK, Inc. (OKE) and The Williams Companies, Inc. (WMB) stand out as prominent players offering attractive yields and stable returns.

On April 18, OKE’s Board of Directors declared a quarterly dividend of 99 cents ($0.99) per share, paid on May 15 to shareholders of record at the close of business on May 1. Its annual dividend of $3.96 translates to a yield of 4.79% at the prevailing share price. Its four-year average dividend yield is 7.08%.

Further, the company’s dividend payments have increased at a CAGR of 2.7% over the past five years.

Meanwhile, on January 30, WMB’s Board of Directors approved a dividend of $0.475 per share, paid on March 25, to shareholders of record at the close of business on March 8. This represents a 6.1% increase from the company’s fourth-quarter 2023 dividend, paid in December 2023. Its annual dividend of $1.90 translates to a yield of 4.6% at the current share price.

Moreover, the company’s dividend payouts have grown at a CAGR of 5.4% over the past five years. Its four-year average dividend yield is 5.95%. Additionally, WMB has raised its dividend for six consecutive years.

Let’s examine OKE and WMB’s recent financial performance, strategic initiatives, valuation, and growth outlook more thoroughly to determine whether these stocks are worth buying or holding.

ONEOK, Inc. (OKE)

With a $48.23 billion market cap, ONEOK, Inc. (OKE) engages in the gathering, processing, fractionation, storage, transportation, and marketing of natural gas and natural gas liquids (NGL). It operates through four segments: Natural Gas Gathering and Processing; Natural Gas Liquids; Natural Gas Pipelines; and Refined Products and Crude. 

On May 13, OKE announced an agreement to acquire a system of natural gas liquids (NGL) pipelines from Easton Energy, a Houston-based midstream company, for around $280 million. The transaction encompasses nearly 450 miles of NGL pipelines in the strategic Gulf Coast market centers for NGLs, refined products, and crude oil.

These pipelines transport various liquid products through a portion of OKE’s capacity to current customers. The company intends to connect the pipelines to its NGL infrastructure in Mont Belvieu, Texas, and its refined products and crude oil infrastructure in Houston, thereby accelerating commercial synergies.

“We expect that this acquisition will accelerate the ability to capture commercial synergies related to our recent Magellan acquisition and future earnings growth,” said Pierce H. Norton II, OKE’s President and CEO.

Also, in March, ONEOK increased its stake in the Saddlehorn Pipeline Company by acquiring an additional 10% interest, bringing its total ownership to 40% as of March 31, 2024.

OKE’s trailing-12-month EBIT margin and net income margin of 21.17% and 12.54% are 11% and 9.7% higher than the industry averages of 19.07% and 11.43%, respectively. However, the stock’s trailing-12-month gross profit margin of 36% is 19.4% lower than the 44.68% industry average.

In terms of forward non-GAAP P/E, OKE is trading at 16.62x, 45.8% higher than the industry average of 11.40x. Its forward EV/EBITDA of 11.34x is 95.6% higher than the industry average of 5.80x. Also, its forward Price/Sales of 1.07x is 38.7% higher than the industry average of 1.49x.

For the first quarter that ended March 31, 2024, OKE reported a 12% year-over-year rise in Rocky Mountain region NGL raw feed throughput volumes. It posted a 4% increase in natural gas volumes processed and a 9% growth in Rocky Mountain region natural gas volumes processed.

ONEOK’s adjusted EBITDA from the natural gas gathering and processing segment and the natural gas pipelines segments were $306 million and $165 million, up 7.4% and 4.4% year-over-year, respectively.

However, the company’s total revenues declined 5.8% from the prior year’s quarter to $4.78 billion. Its operating income was $1.06 billion, a decline of 29.9% year-over-year. Also, net income available to common shareholders and EPS came in at $639 million and $1.09, down 39.1% and 53.4% from the previous year’s period, respectively.

“The strength of our business, underscored by accelerating volumes and a positive synergy outlook, resulted in an increase to our 2024 financial guidance and provides significant momentum into 2025,” said Pierce H. Norton II.

ONEOK increased 2024 net income guidance by $70 million to a midpoint of $2.88 billion. The company raised its EPS to a midpoint of $4.92. Also, its adjusted EBITDA guidance increased by $75 million to a midpoint of $6.175 billion.

Furthermore, its 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion. The company also expects that additional annual synergies will meet or surpass $125 million in 2025.

Looking ahead, analysts expect OKE’s revenue for the fiscal year (ending December 2024) to increase by 32% year-over-year to $23.34 billion. However, the consensus EPS estimate of $4.97 for the current year indicates a decline of 9.3% year-over-year. Moreover, ONEOK has missed consensus revenue estimates in all four trailing quarters and consensus EPS estimates in three of the trailing four quarters.

For the fiscal year 2025, the company’s revenue and EPS are estimated to grow 6.4% and 10.4% year-over-year to $24.83 billion and $5.49, respectively.

Shares of OKE have surged nearly 23% over the past six months and more than 44% over the past year.

The Williams Companies, Inc. (WMB)

With a market cap of $50.30 billion, The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. Its four business divisions include Transmission & Gulf of Mexico; Northeast G&P; West; and Gas & NGL Marketing Services. 

During the quarter of 2024, WMB placed Transco’s Carolina market link into service. This development contributed to additional fee-based revenues.

 The midstream company finished 2023 with a deal to acquire a portfolio of natural gas storage assets from an affiliate of Hartree Partners LP for $1.95 billion.

The transaction includes six underground natural gas storage facilities in Louisiana and Mississippi with a total capacity of 115 Bcf, 230 miles of gas transmission pipeline and 30 pipeline interconnects to LNG markets, and connections to Transco, the nation’s largest natural gas transmission pipeline.

These Gulf Coast natural gas storage assets are strategically located to take advantage of solid LNG and power demand fundamentals, boosting the company’s earnings growth.

WMB’s trailing-12-month gross profit margin of 60.70% is 35.9% higher than the 44.68% industry average. Its trailing-12-month EBITDA margin of 28.40% is 148.4% higher than the 11.43% industry average. However, the stock’s trailing-12-month ROTC and ROTA of 6% and 5.47% are lower than the industry averages of 7.75% and 5.74%, respectively.

In terms of forward non-GAAP P/E, WMB is trading at 22.65x, 98.6% higher than the industry average of 11.40x. Also, its forward EV/EBITDA and Price/Sales of 11.27x and 4.86x are unfavorably compared to respective industry averages of 5.80x and 1.49x.

In the first quarter that ended March 31, 2024, WMB’s service revenues increased 12.5% year-over-year to $1.91 billion, but its total revenues came in at $2.77 billion, down 10.1% from the year-ago value. Its adjusted EBITDA grew 7.7% year-over-year to $1.93 billion.

The adjusted EBITDA growth was driven by the continued outperformance of its transmission, storage, and gathering businesses, which delivered 13% higher adjusted EBITDA compared to the same period in 2023. Also, contracted transmission capacity achieved another record of 33.9 Bcf/d in the first quarter, up 4.3% year-over-year.

In addition, the company’s adjusted net income and earnings per share were $719 million and $0.59, up 5.1% and 5.4% from the prior year’s period, respectively. Its available funds from operations increased 4.3% year-over-year to $1.51 billion.

“Crisp execution by our teams in both integrating newly acquired assets and building large-scale organic projects has us on track to be in the top half of our original 2024 guidance range,” commented Alan Armstrong, president and CEO of WMB.

He added, “Our track record of generating predictable, growing earnings in all market cycles underscores the value of Williams as a resilient, long-term investment with a strong dividend.”

Williams projects adjusted EBITDA at the top half of its 2024 guidance range of $6.8 billion and $7.1 billion. It continues to expect 2024 growth capex of $1.45-$1.75 billion and maintenance capex of $1.1-$1.3 billion, which includes capital of $350 million for emissions reduction and modernization initiatives.

For 2025, WMB expects adjusted EBITDA between $7.2 billion and $7.6 billion, with growth capex between $1.65 billion and $1.95 billion and maintenance capex between $750 million and $850 million, which includes capital of $100 million based on a midpoint for emissions reduction and modernization initiatives. Also, it continues to anticipate a leverage ratio midpoint for 2024 of 3.85x.

Street expects WMB’s revenue and EPS for the fiscal year (ending December 2024) to decrease 5.2% and 4.58% year-over-year to $10.34 billion and $1.82, respectively. For the fiscal year 2025, the company’s revenue and EPS are expected to increase 11.4% and 12.3% from the prior year to $11.52 billion and $2.05, respectively.

WMB’s stock has gained more than 15% over the past six months and approximately 42% over the past year.

Bottom Line

The energy infrastructure sector is well-poised for robust growth and expansion, driven by rising global energy demand amid a growing population, urbanization, and economic development. The industry’s stable cash flows, high barriers to entry, and inelastic demand contributed to impressive double-digit returns in 2023.

Further, the sector is projected to deliver a total return of 10% to 14% in 2024, supported by attractive dividend yields, dividend growth, and stock buybacks. OKE and WMB are critical players within the sector, each with strategic initiatives and strong dividend profiles.

ONEOK’s raised financial 2024 guidance reflects favorable industry fundamentals across its system and continued confidence in synergy expectations. However, the company’s recent first-quarter 2024 results indicate mixed performance, with revenue year-over-year declines and pressure on profit margins.

Despite these challenges, OKE’s dividend yield remains attractive, and its long-term growth outlook is supported by surging energy demand and infrastructure expansion.

Similarly, Williams has demonstrated solid financial health with strategic investments and integration of newly acquired natural gas storage assets. While the company reported year-over-year growth in service revenues and adjusted EBITDA in the first quarter, overall revenues have declined.

WMB’s strong dividend track record and future growth projections underscore its potential as a resilient, long-term investment. The company leverages its existing infrastructure and project development capabilities to serve growing domestic and global security needs while creating sustainable value for its shareholders.

Given the mixed fundamentals, it seems prudent for investors to hold OKE and WMB stocks and wait for better entry points. Both companies offer attractive dividends and long-term growth prospects, but market conditions and stock valuations should be carefully considered to maximize investment returns.

3M's Dividend Cut Signals Shift in Investor Strategy: What Does It Mean for Shareholders?

Posted on by The INO.com Team

With a $56.02 billion market cap, 3M Company (MMM) offers diversified technology services, focusing on consumer goods, safety and industrial, healthcare, and transportation sectors. On May 14, MMM declared a dividend on the company’s common stock of $0.70 per share for the second quarter of 2024, payable on June 12. 

The company has paid dividends to its shareholders without interruption for more than 100 years. However, the newly declared dividend is down from the previous quarter’s dividend of $1.51, and this dividend cut will end a 64-year streak of increases.

Let's delve into the implications of 3M’s significant dividend reduction for investors, examining the reasons behind this decision and its effects on shareholder value.

3M Spun-Off Its Healthcare Business

In April, MMM successfully completed the planned spin-off of its healthcare division, which formally launched Solventum Corporation as an independent company. Solventum is now publicly traded on the New York Stock Exchange under the ticker symbol SOLV.

“This is an important day for 3M and Solventum, and I extend my sincere congratulations to members of both teams who have made this possible,” said Mike Roman, 3M chairman and CEO. “Both companies are positioned to pursue their respective growth and tailored capital allocation plans, and I am excited to see both companies succeed as they innovate new solutions and create value for their respective stakeholders.”

Given the spin-off of its healthcare business, 3M’s recent dividend cut was not surprising. The launch of Solventum as an independent entity impacted MMM’s financial landscape, as the healthcare segment accounted for nearly 30% of the company’s free cash flow.

Now, the consumer and industrial products company is aiming for a dividend payout ratio of approximately 40% of adjusted free cash flow compared to about 60% before the Solventum spin-off.

MMM’s annual dividend of $2.80 translates to a yield of 5.05% at the prevailing share price. Its four-year average dividend yield is 3.75%.

Lost Dividend Aristocrat Status

The recent dividend reduction will cause 3M to lose its status as a Dividend Aristocrat, a company that has increased its dividend payouts for at least 25 consecutive years. Once 3M is removed, the S&P 500 Dividend Aristocrat Index will consist of 66 components.

S&P Global reviews the index qualification once per year in January, suggesting that 3M stock might remain in the index until early 2025.

The removal from the index is not expected to impact the stock significantly. Former 3M CEO Mike Roman had already informed investors about resetting the company’s dividend post the April 1 spinoff.

3M’s stock soared toward a 16-month high on Wednesday after the company cut its quarterly dividend but by less than what was anticipated.

J.P. Morgan analyst Stephen Tusa expressed “relief” that the dividend wasn’t slashed even more. With 553.36 million shares outstanding as of March 31, the new annual dividend rate of $2.80 per share translates to a total annual payout of approximately $1.55 billion. Tusa noted that this payout is higher than the expected $1.4 billion.

While the dividend cut may initially impact investor sentiment and income, the broader market’s reaction suggests that it has anticipated and priced this adjustment due to 3M’s spin-off of its massive healthcare business, Solventum.

Investors should monitor the company’s financial reports, strategic moves, and efforts to address underlying challenges, which could ultimately shape the trajectory of shareholder value in the upcoming quarters.

First-Quarter Results and Updated Full-Year 2024 Guidance Reflecting Completion of Solventum Spin

For the first quarter that ended March 31, 2024, MMM’s revenue of $8 billion surpassed analysts’ estimate of $7.66 billion. Its organic sales grew 0.8% year-over-year, marking the first positive growth in the past five quarters. Its adjusted operating income margin was 21.9%, up four percentage points year-over-year.

The company posted adjusted earnings per share of $2.39, compared to the consensus estimate of $2.11, and up 21% year-over-year. During the quarter, 3M’s adjusted free cash flow was $0.8 billion. Moreover, the company returned $835 million to shareholders via dividends.

Furthermore, as of March 31, 2024, the materials company’s cash and cash equivalents stood at $10.91 billion, compared to $5.93 billion as of December 31, 2023. The company’s total current assets were $21.61 billion versus $16.38 billion as of December 31, 2023.

Starting in the second quarter of 2024, Solventum’s historical earnings results will be reported within 3M’s financial statements as discontinued operations.

According to the full-year 2024 outlook, the company projects adjusted organic sales growth to be flat-2%. Also, its adjusted earnings per share is expected to be between $6.80 to $7.30.

Strategic Initiatives and Legal Settlements

On May 3, 3M announced a 90,000-square-foot expansion at its facility in Valley, Nebraska, boosting the plant’s manufacturing capacity and adding around 40 new jobs. The $67 million investment includes new production lines, equipment, and a warehouse, enabling 3M to meet customer demand for its personal safety products more efficiently.

In addition, MMM is making changes in its leadership structure. On March 12, the company announced the appointment of William M. “Bill” Brown as chief executive officer, effective May 1, 2024. He succeeded Michael Roman, who was appointed to the role of Executive Chairman of the 3M Board of Directors, also effective May 1.

“Bill's strong track record as a CEO for a global technology company makes him the right leader for 3M,” said Michael Roman. “He brings a wealth of experience in strategic leadership, innovation, and operational excellence to 3M. I look forward to working with him to build on our momentum in my new role as executive chairman.”

Further, 3M has faced substantial lawsuits, but they are beginning to resolve these issues. On April 1, 3M’s previously announced settlement with U.S.-based public water suppliers (PWS) to address PFAS in drinking water received final court approval.

This marks another significant development for 3M as it remains committed to its objectives. The final approval of this settlement and the company’s ongoing progress to cease all PFAS manufacturing by the end of 2025 will further its efforts to minimize risk and uncertainty in the future.

The company also settled the Combat Arms Earplug litigation. More than 99% of claimants have signed on at the last registration date, marking a significant stride in resolving this long-running dispute.

Bottom Line

MMM delivered better-than-expected first-quarter 2024 results as it returned to organic sales growth and achieved doubt-digit growth in adjusted earnings. The company enhanced performance in its businesses through effective operation management, successfully executed the Solventum spin-off, and finalized two major legal settlements.

The significant progress 3M has made in executing its strategic priorities set the stage for long-term value creation for shareholders, particularly as Bill Brown assumes the role of the CEO.

The recent dividend cut by 3M, following the spin-off of its healthcare division Solventum, was largely anticipated by investors and analysts as part of its broader strategic realignment. While the cut ended a streak of 64 straight years of increases, it was less than feared; 3 M’s stock is trading higher.

Moreover, the stock has surged nearly 3% over the past five days and more than 8% over the past month.

Analysts at J.P. Morgan upgraded 3M to Overweight from Neutral and raised its price target on the stock from $110 to $111.

The upgrade reflects “a combination of an attractive valuation, an increasingly cleaned up balance sheet, with the dividend cut catalyst behind them now, and a turn in earnings momentum on a bottom in electronics, with better visibility on remainco fundamentals,” Stephen Tusa said in a note to clients.

Moving forward, investors should closely monitor 3M's financial performance, execution of strategic plans, and ability to capitalize on growth opportunities. The company’s trajectory in addressing underlying challenges and creating long-term shareholder value will be the key factors influencing investor sentiment and decision-making in the upcoming quarters.

Why Analysts Are Bullish on SoundHound's Long-Term Growth Potential

Posted on by The INO.com Team

The enthusiasm surrounding SoundHound AI, Inc. (SOUN) is palpable. With solid revenue growth and strategic collaborations underlining its long-term potential, the stock has gained immense traction among investors. In this piece, we will evaluate why analysts are bullish about SOUN’s growth prospects.

SoundHound is at the forefront of voice-based conversational AI technology, offering solutions that enable seamless interactions across numerous languages. Its AI system is deployed in various sectors, including customer service call centers, restaurant ordering platforms, and automotive systems. With a market cap of $1.62 billion, SOUN falls within the mid-cap category, making it an attractive option for investors seeking growth opportunities in the AI sector.

SOUN’s shares have delivered an outstanding performance, gaining nearly 150% year-to-date and more than 135% over the past three months. Excellent, isn’t it? Moreover, despite recent pullbacks, the stock is comfortably above its 200-day moving average of $3.05, indicating an upward trend.

SoundHound’s Strategic Partnerships and Acquisitions

On May 9, SOUN partnered with Perplexity, the conversational AI-powered answer engine. This partnership is geared toward enhancing voice assistant functionality across several devices, such as cars and IoT devices, by integrating online LLMs (Large Language Models), making it the most advanced voice assistant on the market.

Moreover, the company closed the previously announced acquisition of SYNQ3 Restaurant Solutions in the March quarter, becoming the largest provider of voice AI for restaurants in the U.S. With more than 10,000 signed locations and significantly more in the pipeline, this acquisition expands SOUN's presence in this sector.

Impressively, the restaurant segment now contributes approximately 30% of the company's total revenue, surpassing initial forecasts set for FY24 by a significant margin.

Additionally, SoundHound has forged collaborations with major brands such as Applebee’s and Church’s Chicken, augmenting its market presence and revenue streams. Furthermore, the company has secured agreements to integrate its voice assistant technology into the luxury vehicle lineup of a leading Asian electric car manufacturer and a major U.S.-based EV maker’s entire fleet later this year.

SOUN's partnership landscape remains vibrant, as demonstrated by its recent collaboration with NVIDIA Corporation (NVDA) on March 18, 2024. Under this partnership, the company would deliver in-vehicle voice-enabled generative AI responses that operate seamlessly without needing connectivity.

In light of these advancements, SOUN experienced a surge in demand for its voice AI solutions across the automotive and restaurant sectors. By securing significant brand partnerships, the company propels its growth trajectory and solidifies its position in the competitive conversational AI market.

Solid Financial Performance and Growth Outlook

In the first quarter that ended March 31, 2024, SOUN reported strong top-line performance, with a remarkable 73% year-over-year growth in revenues to $11.59 million, beating analyst expectations of $10.10 million. The company's three-pillar strategy, focusing on AI for customer service, in-car systems, and IoT devices, fueled its performance with notable expansions in its drive-thru AI service and Smart Ordering offering.

The company’s non-GAAP profit increased 56.8% year-over-year to $7.59 million. Meanwhile, its cumulative subscriptions and bookings backlog grew 80% to $682 million, driven by solid product royalties and a robust automotive segment. Moreover, it witnessed a 60% year-over-year increase in the annual run rate of queries, which was over 4 billion in the first quarter.

Keyvan Mohajer, CEO and Co-Founder of SoundHound AI remarked, “Voice AI is rapidly becoming indispensable for customer service, as evidenced by the growing demand for subscriptions.”

However, on the bottom line, the company continued to grapple with profitability issues, reporting a non-GAAP net loss of $19.88 million or $0.07 per share, alongside an adjusted EBITDA loss of $15.40 million.

Despite these setbacks, SOUN revised its full-year revenue guidance upward (on the lower end), projecting a range of $65 to $77 million. It also aims to achieve adjusted EBITDA profitability by 2025, where the company anticipates even greater growth, with revenue exceeding $100 million (more than double the $45.9 million it reported in 2023).

Mixed Analyst Expectations

Street expects SOUN to generate a revenue of $13.75 million for the second quarter (ending June 2024), indicating a 57.1% year-over-year increase. Yet, the company is expected to report a loss per share of $0.08 for the ongoing quarter.

Furthermore, for the fiscal years 2024 and 2025, analysts anticipate a revenue surge of 53.7% and 45.6% on a year-over-year basis, reaching $70.52 million and $103.35 million, respectively. However, earnings per share is predicted to remain in negative territory at least over the next two years.

Additionally, the company has surpassed consensus revenue estimates in three of the trailing four quarters, suggesting a strong likelihood of continuing its growth trajectory in the upcoming quarters.

Bottom Line

SOUN’s first quarter establishes the tone for 2024 as another year of solid growth for the company. The growing necessity of voice AI in customer services is reflected in the increasing demand for its subscription services. Leveraging over two decades of technology innovation and billions of customer interactions, SoundHound, as an AI company, excels in delivering top voice AI technology in the market.

Across automotive and customer service, renowned global brands are turning to the company for unparalleled experiences.

Wedbush analyst Daniel Ives reaffirmed an “Outperform” rating for SOUN, setting a price forecast of $9. After the first quarter results, the analyst stated that the company continues to witness robust demand for its voice AI products within the automotive and restaurant sectors. This growth is driven by securing major brand partnerships, thereby grabbing market share in the conversational AI market.

Also, analysts at Cantor Fitzgerald upgraded SOUN stock to “Neutral” from “Underweight.” In a separate development, Cantor Fitzgerald analyst Brett Knoblauch upgraded the stock from Sell to Hold.

Although the stock shows potential for growth driven by the booming interest in AI technologies, it is currently plagued by profitability issues. SOUN’s trailing-12-month EBITDA margin, net income margin, and levered FCF margin of negative 125.2%, negative 186.2%, and negative 58.2% compare to the industry averages of 9.82%, 2.48%, and 10.05%, respectively.

Looking at valuation, we believe that the stock is trading at a premium compared to its peers. SOUN’s forward EV/Sales of 23.05x is 715.4% higher than the industry average of 2.83x. Likewise, in terms of forward Price/Sales, the stock is trading at 24.74x, higher than the industry average of 2.88x.

Nevertheless, SoundHound AI's intrinsic value lies in its technological advancements and market positioning, particularly in conversational AI technologies.

Considering these factors, SOUN presents a potentially lucrative yet volatile investment profile. Therefore, investors should carefully monitor future earnings reports and corporate developments before making investment decisions.

Fiserv (FI): The Hidden Blue Chip Gem in Fintech

Posted on by The INO.com Team

With a $90.21 billion market cap, Fiserv, Inc. (FI) provides payments and financial technology services globally. Over the past few years, the broader fintech sector has struggled due to banks’ reluctance to experiment and interest rate hikes impacting payment volumes.

However, Fiserv stands out as a strong performer as the company has long-standing contracts with major banks. FI’s stock has surged more than 80% over the past five years. Moreover, the stock has gained nearly 25% over the past six months.

Further, the fintech company has secured significant attention from institutions lately. Institutions own around 92.5% of FI. JPMorgan Chase & Co, Vanguard Group Inc, Nuveen Asset Management, LLC, Charles Schwab Investment Management Inc, Envestnet Asset Management Inc, Scharf Investments, LLC, DSM Capital Partners LLC, and UBS Group AG bought more FI stock. 

Institutional investors generally conduct in-depth research and analysis before investing, which can be viewed as a vote of confidence in FI’s potential. They are known to have the resources and specialized knowledge for extensively researching investment opportunities that are not open to retail investors.

So, the increasing buying activity from several institutions reflects an optimistic sentiment toward FI’s performance and growth outlook.

Let’s analyze FI’s latest earnings report and other factors driving institutional interest in this payment processing company.

Robust First-Quarter 2024 Results

For the first quarter that ended March 31, 2024, FI’s revenue increased 7.4% % year-over-year to $4.88 billion. The company’s processing and services revenue rose 8.9% year-over-year. Its adjusted operating income was $1.63 billion, up 13.4% from the previous year’s quarter.

In addition, Fiserv’s adjusted net income and earnings per share came in at $1.12 billion and $1.88, increases of 12% and 19% year-over-year, respectively. Further, as of March 31, 2024, the company’s total current assets stood at $37.09 billion, compared to $34.81 billion as of December 31, 2023.

During the first quarter, the company repurchased 10.2 million shares of common stock for $1.5 billion.

Regarding outstanding financial performance, Frank Bisignano, Chairman, President, and Chief Executive Officer of Fiserv, added, “We continued to execute on our resilient business model by improving productivity, delivering innovative products and services, and cross-selling into our diverse and high-quality client base.”

Upbeat Full-Year 2024 Outlook

For the fiscal year 2024, FI affirmed the organic revenue growth outlook of 15% to 17%. The company also raised its earnings per share guidance to $8.60 to $8.75, representing a growth of 14% to 16% for 2024.

“Fiserv remains committed to our virtuous cycle of investment, revenue growth, operating leverage, capital return and re-investment for further growth, reinforced with a focus on clients, operational excellence, and a strong balance sheet,” stated CEO Frank Bisignano.

He added, “This proven model, along with our strong first quarter results, led us to raise our 2024 adjusted earnings per share outlook for the full year.”

Favorable Analyst Estimates

Analysts expect FI’s revenue to increase 8.2% year-over-year to $4.88 billion for the second quarter ending June 2024. The consensus EPS estimate of $2.10 for the ongoing quarter indicates an improvement of 16% year-over-year. Moreover, Fiserv has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Furthermore, FI’s revenue and EPS for the fiscal year (ending December 2024) are estimated to grow 7.5% and 15.6% year-over-year to $19.39 billion and $8.70, respectively. For the fiscal year 2025, Street expects the company’s revenue and EPS to increase 8.7% and 16% from the previous year to $21.08 billion and $10.09, respectively.

Recent Strategic Partnerships and Product Launches

On May 8, FI announced that WaFd, Inc. (WAFD) selected its CashFlow CentralSM to bolster its small business banking offerings. This move will allow WaFd Bank small business customers to access a full range of capabilities to handle incoming and outgoing payments through their digital banking relationship, streamlining their financial management and saving them time.

CashFlow Central, developed by Fiserv in collaboration with prominent B2B payments-as-a-service platform provider Melio, is a unified digital payment and cash flow management platform. This solution enables small businesses to send electronic invoices, accept payments via ACH transfers or credit cards, digitize supplier invoices, and make payments to billers and suppliers via bank accounts or credit cards.

Also, on April 17, FI launched the Clover Kiosk and an enhanced Clover Kitchen Display System to enable restaurants to streamline operations and improve the customer experience. Designed for seamless integration with each other and additional Clover software and hardware, these solutions facilitate end-to-end order management with up to 40% lower cost of ownership than competitive offerings.

In February, Fiserv partnered with Genesis Bank, one of the two diverse multiracial Minority Depository Institutions (MDIs) in the nation, to boost economic empowerment and create an optimistic impact in local communities. Under this collaboration, small businesses, mainly in low-to-moderate income (LMI) communities served by Southern California-based Genesis Bank, will have access to customized technology packages.

These bundles, specifically designed to tackle these businesses' challenges, offer access to select Clover point-of-sale (POS) technology from Fiserv with no or low entry costs and discounted subscription fees.

Solid Profitability

FI’s trailing-12-month EBITDA margin of 42.20% is 85.2% higher than the 22.80% industry average. Similarly, the stock’s trailing-12-month levered FCF margin of 20.34% is 15.7% higher than the industry average of 17.58%. Its trailing-12-month CAPEX/Sales of 7.56% is significantly higher than the industry average of 1.94%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 11.01% and 3.50% favorably compared to the industry averages of 10.58% and 1.05%, respectively.

Bottom Line

FI extended its robust revenue growth and margin expansion into 2024, resulting in a 19% year-over-year earnings per share growth during the first quarter. Following an outstanding financial performance, the company raised its adjusted EPS outlook to $8.60-$8.75 for 2024.

Fiserv maintains its resilient business model by enhancing productivity, introducing innovative products and services in areas such as account processing and digital banking, payments, and merchant acquiring and processing, and expanding sales opportunities within its diverse and high-quality client base.

Moreover, FI was named one of Fortune® America’s Most Innovative Companies for the second consecutive year. This designation highlights organizations leading the way in innovation in the U.S. Each pillar, including product innovation, process innovation, and innovation culture, contributed equally to the overall innovation score.

According to Statista, the digital payments market’s total transaction value is expected to reach $3.07 trillion in 2024. Digital Commerce will be the market’s largest segment, with a projected total transaction value of $2.26 trillion this year. Further, the total transaction value is estimated to show a CAGR of 10.7%, resulting in a total of $4.62 trillion by 2028.

The digital payments industry’s promising outlook should bode well for FI.

In addition, analysts are bullish about Fiserv’s growth trajectory. Citigroup analysts raised the price target for FI stock from $171 to $180 while maintaining a Buy rating. Also, TD Cowen adjusted the price target to $175 from $167, reaffirming a Buy rating on the stock. In line, analysts at UBS Group maintained a Buy rating while increasing the price target from $170 to $185.

Several factors, such as solid financial performance, leading position in the fintech industry, and bright growth prospects, have driven a strong level of institutional interest in FI, as reflected by the fact institutions own more than 92% of the stock.

Given this backdrop, it could be wise to invest in this stock for substantial gains.