HP shares have become an unexpected success story in the world of technology

[ad_1]

Text size

An HP printer. Courtesy of HP

Intel lost nearly 10% on Friday after the microprocessor company forecast disappointing earnings for its fourth quarter. Earnings for the third quarter were well above Street’s estimates, but the chip maker noted that revenue from its PC business was 2% lower than the previous year’s level and 4% lower than that. in the June quarter, due to lower notebook PC production amid “industry-wide component shortages.” . ”

Intel’s troubles (ticker: INTC) come at a sensitive time for the PC industry, which saw a noticeable increase in demand during the pandemic. Apple (AAPL), Dell Technologies (DELL), and HP Inc. (HPQ) have seen an increase in laptop sales over the past 18 months, as people have switched to work and learning from home.

The average US family barely had more than one PC when Covid hit, forcing consumers to buy new PCs, printers, mice, keyboards and webcams.

Many investors doubt the boom will last, a view apparently confirmed by Intel’s forecasts. But HP suggests otherwise. Once driven primarily by the printer ink and toner business, it is showing an impressive wave of innovation. On Thursday, HP held its first analyst meeting in two years and received surprisingly good news that resulted in the stock climbing 7%.

HP now expects non-GAAP earnings for fiscal year 2022 to be $ 4.07 to $ 4.27 per share, up from Street’s previous consensus of $ 3.78. CFO Marie Myers made it clear that most of the improvement would come from reducing the number of shares, as HP continues to buy back shares aggressively. CEO Enrique Lores said HP intends to continue returning at least 100% of its free cash flow to holders via repurchases and dividends. He says HP shares, which hit just over seven times the new ’22 fiscal profit forecast, are too cheap. HP also increased its annualized dividend by 29%, to $ 1 per share, increasing its yield above 3%.

Lores admits that PC drive growth will be moderate and sees manufacturing problems in Southeast Asia creating product shortages until at least mid-2022. But he estimates that the total market for addressable PCs and related products and services is now down. $ 560 billion, $ 200 billion larger than HP predicted just two years ago. Microsoft’s launch of Windows 11 (MSFT) could also boost PC sales in 2022

UBS analyst David Vogt, in a research note, says he was impressed by the company’s “confidence” in higher PC margins and sustainable revenue growth. He thinks HP will buy back $ 6 billion of shares next year, more than 15% of its current market value.

With a history of improving growth, shareholder-friendly policies, and one of the cheapest stocks in the tech sector, HP looks like a huge buy.

Apple’s push to protect consumer privacy by limiting targeted advertising on iPhones, announced more than a year ago, is finally hitting online businesses where it hurts the most: profits. How widespread the damage will be is expected to become clearer next week as Facebook, Twitter and Alphabet all report September quarter results.

Social network Snap (SNAP) stunned Wall Street on Thursday with disappointing third quarter results and weak fourth quarter outlook. Snap partially blamed the global supply chain crisis; Companies struggling to meet demand aren’t inclined to spend more on direct response ads to generate orders they can’t fulfill.

The other issue that Snap highlighted was the impact of changes to Apple’s privacy rules. Apple now requires companies offering iPhone apps to allow consumers to decide if they want their activities to be tracked across apps, websites and devices. This makes it harder for advertisers to target specific audiences and measure the effectiveness of their ads.

This is a particular problem for Snap. Needham analyst Laura Martin notes that it generates 100% of its revenue from mobile devices, half of that from direct response advertising, ads intended to stimulate consumer purchases. He estimates that ads on Apple devices account for 70% of Snap’s revenue. Martin and other analysts point out that Facebook (FB) advertising activity closely resembles that of Snap, which explains Facebook’s nearly 6% selloff on Friday, ahead of its upcoming earnings report on Monday.

The ramifications of Apple’s changes are far-reaching. Mark Mahaney, an analyst at Evercore ISI, points out in a research note that the changes “will be disruptive, in some cases, very disruptive both for online advertising platforms and for a very large number of Internet advertisers, especially mobile marketers. direct response “.

The Snap news triggered a large selloff Friday in both social media headlines and digital ad providers. Snap lost around 25%, with Twitter (TWTR) down 4% and Alphabet (GOOGL) down 3%. Meanwhile, Amazon.com (AMZN) was down 2%, ahead of the earnings release next week. Persistent supply chain problems are a problem and could harm the giant e-tailer’s advertising business. But for Amazon there is a potential offset. Direct response advertisers who have relied on Facebook and Snap ads could pass more dollars to Amazon, where they wouldn’t rely on Apple’s advertising platform for targeting.

We will know more in the next week.

Write to Eric J. Savitz at [email protected]

[ad_2]