Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Wednesday’s Market Movers: NVIDIA Corporation (NVDA) Soars, Yelp Inc (YELP) Plunges, Walt Disney Co (DIS) Dips

Nvidia Reaps Rewards from Surging Interest in AI Technology

NVIDIA Corporation (NASDAQ:NVDA) is trading up over 14% in Wednesday’s trading session after the graphics chip maker skipped past Wall Street estimates with its beat-and-raise results for the first fiscal quarter of 2018. Nvidia reported earnings per share (EPS) of $0.79 on revenue of $1.94 billion, storming past the anticipated $0.66 EPS and $1.91 billion revenue.

Nvidia has come a very long way since the first quarter of last year- revenue is up 48% y-o-y and EPS is up by an incredible 126%. Encouragingly for investors second quarter revenue guidance of $1.89 billion to $1.95 billion shows that NVDA stock has no intention of slowing down. Indeed, revenue rose in each of Nvidia’s four platforms- gaming, professional visualization, data center, and automotive. Most notably, data center revenue tripled, which Nvidia attributed to the surging interest in artificial intelligence (AI)- the “most important technology force of our time” according to Nvidia CEO Jensen Huang.

“The AI (artificial intelligence) revolution is moving fast and continuing to accelerate,” Huang said in a statement. “Nvidia’s GPU (graphics processing unit) deep learning platform is the instrument of choice for researchers, internet giants and startups as they invent the future.” In the quarter, Nvidia launched the GTX 1080 Ti, which runs 35% faster than the GeForce GTX 1080 GPU, at the annual Game Developers Conference in San Francisco. The more advanced GTX 1080 Ti is designed for 4K gaming and high-end VR experiences.

Top Needham analyst Rajvindra Gill concurs. The analyst says that NVDA is at the front of the AI intelligence revolution “with its combination of deep learning SW algorithms and powerful GPUs. Google Compute Cloud, AWS, MSFT Azure, IBM, Tencent, Bidu, Alibaba to name a few are using NVDA’s AI GPUs.” GPUs can be used by cloud companies to reduce costs and by internet companies for deep learning strategies. Gill, who is ranked #28 out of 4,563 analysts tracked by TipRanks, reiterated his buy rating on the stock today with a very bullish $130 price target (26% upside from the stock’s current price).

Gaming also came in strong dispelling the myth of a gaming slowdown with Q1 revenue of $1.03 billion. The Pascal-based GPUs, gaming notebooks, and Tegra gaming platform are particularly popular with gamers says Nvidia. Rajvindra Gill also pointed out that Nvidia will benefit as about 70% of Nvidia’s installed base of 100MM users will be looking to upgrade to the newer Nvidia Maxwell GPU.

However, some analysts are more cautious. Although pleased with Nvidia’s performance, five-star Oppenheimer analyst Rick Schafer reiterated his hold rating on the stock. He says “we continue to be impressed with NVDA’s best-in-group growth profile, trading at 29x our CY18E, we believe risk/reward is balanced as NVDA faces increasingly tough comps with TTM revenue up 46%.”

Overall the stock has a moderate buy analyst consensus on TipRanks. In the last three months, Nvidia has had 11 buy, 3 hold and 3 sell ratings. Meanwhile the average analyst price target of $123.31 still stands at a considerable 19.79% upside from the current share price.

Advertiser Churn Brings Yelp Crashing Down

Yelp Inc (NYSE:YELP) is sinking by a whopping 20% in today’s trading following the release of disastrous Q1 results and very disappointing guidance. The online review site posted revenue of $197.3 million, far below the consensus estimate of $198.4 million. GAAP EPS was $0.06 versus the consensus estimate of $0.08. Yelp also trimmed its full year sales forecast down to $850-865 million versus the previous guidance of $880-900 million.

What went wrong? A decline in account retention is the main culprit according to Yelp, which also saw the carryover effect of soft local sales production in the fourth quarter as a contributing to the slowdown. In particular Yelp blamed the problem on a “distinct cohort of advertisers” that had different retention characteristics and “had trouble competing in the ad system with some of the more established businesses.”

However Yelp said that is was been working hard to correct the problem: “It was all hands on deck, obviously, at that point, and we put a team in place to focus on that particular cohort and that particular profile. And we’re able to really course-correct in a pretty short period of time.” Indeed, Yelp pointed out that results are already improving with better results for March/April.

“The damage to the 2017 outlook and near-term estimates is done” says Cantor Fitzgerald analyst Kip Paulson. However, despite reducing his price target to $39 from $46 to reflect the lower guidance, ultimately Paulson is still bullish and even calls the falling shares a “buying opportunity”. The three-star analyst is positive on “Yelp’s exclusive focus on the substantial local advertising opportunity, incremental revenue growth from still-nascent national and self-serve channels and transactions, organic scale and network effect, and attractive valuation relative to LT growth/profitability potential.”

But top Oppenheimer analyst Jason Helfstein is not impressed. He reiterated his hold rating on the stock. Analysts are also nervous about the prospect of increased competition from  bigger companies like Google or Facebook for smaller local advertisers. Shares are already down to $35 from their $42 peak in February.

TipRanks reveals that Yelp has a moderate buy analyst consensus rating with 7 buy, 5 hold and 1 sell ratings published on the stock in the last three months. As prices are falling, the average analyst price target of $39.94 is now a 15.10% upside from the current share price.

Disney Flops on Revenue Shortfall

Walt Disney Co (NYSE:DIS) shares are dropping by 3% in Wednesday’s trading after the House of Mouse announced mediocre results for the second quarter. EPS came in at $1.50 with $13.34 revenue, up 2.8% for the quarter. The EPS beat the forecast $1.41 but revenue failed to match the expected $13.45 billion.

ESPN, a US-based global cable and satellite sports television channel owned by Disney and the Hearst Corporation continued to drag the stock down. ESPN experienced both a decline in subscribers and an increase in programming costs- which is problematic because the channel is locked into multi-year contracts for sports rights. Disney says it is tackling this in a number of ways including by creating subscription products that give consumers direct access to content, for example with Hulu and BAMTech.

On the flip side, Disney’s new theme park in Shanghai is a booming success. Even though it has only been open for less than a year, the park has already been visited by close to 10 million guests says Disney.  “The addition of the new Toy Story Land will only add to the park’s popularity and is just the first of several planned expansions in Shanghai” CEO Robert Iger revealed.

Analysts gave a mixed reaction to the results. On the bear side, Brian Wieser from Pivotal Research gave the stock a sell rating with a very low price target of $85 (24% downside). He explained his decision as due to the outlook for Media Networks which is Disney’s TV-focused subsidiary: “Although we think that Disney can probably grow faster than most of its peers in the long run because of its global studio and parks businesses, it is also more weighted down by tepid growth and longer-term margin compression at Media Networks.”

Although Wieser has a five-star rating on TipRanks, the financial accountability engine also shows that his performance on Disney is less impressive with a 20% success rate and -1.4% average return. In contrast UBS analyst Douglas Mitchelson spied a buying opportunity. He reiterated his buy rating with a $130 price target saying that DIS has one of the industry’s strongest balance sheets in the industry.

With a moderate buy analyst consensus rating, TipRanks shows that in the last three months Disney has received 7 buy, 5 hold and 2 sell ratings. We can also see on TipRanks that the average analyst price target of $119.54 is a 6.67% upside from the current share price.