☁️ Sky Is the Limit for This Entertainment Stock

Plus, what a Chinese economic slowdown means for businesses everywhere

July 24, 2024

Pencils down, it’s time for lunch. Here’s what you missed this morning:

  • 🟥 | Market Snapshot: The Nasdaq Composite fell nearly 3% as disappointing earnings from Tesla and Alphabet led the tech sector lower.

  • ⬇️ | In focus: Applications for a mortgage to purchase a home dropped another 4% last week compared to the previous week. This comes in spite of a drop from 6.87% to 6.82% for the average 30-year-fixed-rate mortgage.

  • 🤕 | Noteworthy: China’s economic slowdown is already taking a toll on the bottom line of companies that do business in the country. This is most notably seen in European companies like Hugo Boss, Burberry, and Daimler. For example, Swatch Group has seen a 30% decline in Chinese sales as the nation’s consumers become more cautious.

  • ☁️ | The Midday Trade: Sky Is the Limit for This Entertainment Stock. Scroll down for more.

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STREET STATS

MORNING MOVERS

TSLA: Tesla’s stock tumbled this morning after the EV maker reported its second straight quarterly loss as rising competition dented sales and margins (NYP)

GOOG: Shares of Google's parent company, Alphabet, fell after its earnings met expectations, but it missed on YouTube ad revenue (CNBC)

LW: American food processing company Lamb Weston’s stock is on track for its worst day ever following disappointing fiscal fourth-quarter earnings (Barron’s)

TXN: Shares of Texas Instruments rose after the chipmaker provided a sales outlook that signaled its inventory glut is coming to an end (Bloomberg)

META: Meta’s stock fell after announcing it plans to release a free version of its Llama artificial intelligence model (CNBC)

TOP CALLS

Brown & Brown: Truist Securities Maintains Buy on Brown & Brown, Raises Price Target to $112 (Trade It)

Seagate: Cantor Fitzgerald Maintains Neutral on Seagate Tech Hldgs, Raises Price Target to $125 (Trade It)

Enphase Energy: Craig-Hallum Maintains Buy on Enphase Energy, Raises Price Target to $153 (Trade It)

Chubb: B of A Securities Maintains Neutral on Chubb, Raises Price Target to $264 (Trade It)

Spotify: Benchmark Maintains Buy on Spotify Technology, Raises Price Target to $430 (Trade It)

Capital One: B of A Securities Maintains Buy on Capital One Finl, Raises Price Target to $161 (Trade It)

THE MIDDAY TRADE

Fresh of an IPO

For investors interested in the creator economy space, Goldman Sachs (GS) thinks that Webtoon Entertainment (WBTN) is a great play. The company had its IPO last month, with the stock debuting at $21 per share.

According to analyst Eric Sheridan, the company is well-positioned for growth in both the web-comics space and the overall creator economy. Given its current valuation, Sheridan believes it has a solid risk/reward ratio as it expands throughout North America.

Growth Catalysts

Sheridan sees three distinct factors that will drive the company forward. First and foremost, he believes it has exposure to multiple markets, including paid content, advertising, and global entertainment.

Next up is revenue, which he thinks could grow at a compound annual rate of 19% through 2029, bringing total revenue to $3.5 billion. He sees paid content growth, ad revenue, and adapting its content to different mediums as catalysts.

Additionally, he believes the company will be able to improve its margins and use cost leveraging.

Margin Growth

The firm has given it a buy rating and a price target of $62, a 159% increase from Monday’s close.

Sheridan is predicting that Adj. EBITDA margin will grow to around 17% by 2029. Aside from the reasons listed above, he believes that shifting dynamics, optimizing revenue share agreements and fixed R&D and G&A costs will help it achieve this.

For a newly public company, according to Goldman, the sky is the limit.

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SURVEY THE STREET

Tesla reported its second-quarter results after the bell yesterday and revealed some bad news for the EV giant.

Tesla’s Q2 net income fell 45% compared to the same period a year ago due to price cuts issued to compensate for slowing EV demand.

However, Elon Musk wants investors to look past its sluggish sales and earnings and consider its future as a leader in artificial intelligence, going as far as to say everything beyond autonomy is just “noise.”

Musk believes his company will soar to new heights upon the release of the Tesla robotaxi and its Optimus humanoid robots.

Are you bullish or bearish on Tesla?

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Plus, Yesterday’s Poll + Results:

🟨🟨🟨🟨🟨⬜️ Bullish 🐂 

🟩🟩🟩🟩🟩🟩 Bearish 🐻 

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