Tesla’s Capital Raise Gets $3 Billion Bigger on High Demand
Will the sun smile upon Tesla Inc (NASDAQ:TSLA) and CEO Elon Musk’s ambitious goals for his first mass market electric car, the Model 3? From the standpoint of credit-rating firm Moody’s Investor Services and senior vice president and analyst Bruce Clark, it is clear now more than ever that all is riding on the Model 3 for Musk.
Particularly following Tesla’s reveal last week that a $1.5 billion sale in senior notes to generate Model 3 financing, while a capital raise is no surprise, it has emerged earlier than the rumor mill had been anticipating. Amid cash burn risks at the foreground, Musk has dotted all the i’s and crossed all the t’s for his company’s first high-yields bond sale in its history, all while boosting the offering size. According to the Wall Street Journal, Musk is looking to bring in $1.8 billion from the sale at a yield of 5.75%- as in $300 million surpassing the initial sale plans. In other words, debt demand lingers at steep levels.
Clark sees no easy uphill battle ahead when glancing at the upcoming year, pinpointing the largest hurdle as “considerable execution risks associated with the rapid ramp up in production of a totally new vehicle.”
As such, taking under account Tesla is looking at “large cash requirements through 2018,” Moody’s believes the electric car giant merits a B2 corporate family rating with a stable outlook.
Clark argues, “Tesla faces significant risks as it attempts to take production of the Model 3 from a targeted rate of 5,000 per week in early 2018 to 10,000 per week by year-end 2018. This targeted plan could put full-year production in excess of 350,000 units. This compares with a U.S. market for full electric vehicle that was approximately 85,000 units in 2016″
“Such a startlingly rapid ramp in production is an important element in Tesla staying ahead of the likely competitive surge that will come from other more established automakers and, potentially, technology firms such as Apple and Google,” adds the credit-rating analyst.
Ultimately, “With the Model 3 Tesla has brought together the technologies, design and manufacturing processes that have the potential to produce a profitable, high-volume electric vehicle that also has advanced autonomous driving capabilities,” concludes Clark- it is just a matter of whether or not Musk can stand in the fire of mastering elusive execution and all of its ramp-up costs.
TipRanks analytics indicate TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 7 remain sidelined, and 5 are bearish on the stock. With a loss potential of nearly 11%, the stock’s consensus target price stands at $318.77.
Nvidia Offers Optimal Buying Opportunity
NVIDIA Corporation (NASDAQ:NVDA) shares closed Friday trailing 5% following last Thursday evening’s earnings showcase. Investors had reasons to appreciate the chip giant’s second fiscal quarter results and third fiscal quarter guide, but were in full fleeing mode nonetheless, perhaps with data center growing just slightly and a looming operating expense outlook moving forward.
Loop Capital analyst Betsy Van Hees assesses Nvidia with full bullish trumpets in hand, not only not backing off from her positive conviction, but in fact growing increasingly confident.
For Hees, this “pull-back creates [a] compelling entry point,” leading her to maintain a Buy rating on shares of NVDA while lifting the price target from $137 to $181, which implies a 16% increase from where the stock is currently trading.
While Nvidia boasted a “very robust print and guide,” the analyst notes the stock was also “priced for perfection,” elaborating that the catalyst for the stock plummeting after-hours was room to become wary: “We think when investors looked under-the-hood, the modest 2% QoQ growth in data center in FQ2 (Jul) 2018, roughly $150MM upside from demand in crypto currency mining, and the large step-up in the FQ3 (Oct) 2018 OpEx guide gave them pause for concern […]”
For the fiscal third quarter, revenue guide also yielded a beat, guided up to $2.35 billion that handily topped the Street’s expectations of $2.14 billion. GAAP GM was guided to 58.6% with pro forma GM guided to 58.8%. However, GAAP operating expenses likewise took “a large step up” from last quarter’s $614 billion to $675 billion, with pro forma OpEx surging from $533 million last quarter to $570 million.
“We think investors’ concerns that data center growth has slowed and topped out are unwarranted as FQ2 was a transition quarter to Volta. With Volta ramped, we are modeling a return to double-digit growth in FQ3. We are also cautious on how much more legs the demand from crypto currency mining has and we are modeling that business to flatten out in FQ3 and decline -20% YoY in F2019. We expect strong demand in data center and gaming in F2019 to more than offset the declines of crypto […]” asserts Hees, who projects data center will surge 14% year-over-year come fiscal 2019 with gaming advancing 25% year-over-year.
However, for Nvidia to truly tackle a rise in operating expense guide, the analyst contends, “[…] we believe NVDA must continue to spend to maintain its leadership position. We believe there is leverage in the model in F2019 driven by revenue growth and expanding margins.”
TipRanks analytics demonstrate Nvidia as a Buy. Based on 25 analysts polled by TipRanks in the last 3 months, 16 rate a Buy on Nvidia stock, 6 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $153.60, marking a nearly 2% downside from where the stock is currently trading.
Snap: Near-Term Eyebrow Raiser, But Long-Term Growth Opportunities at Play
Snap Inc (NYSE:SNAP) shares were crashing 14% on Friday after the company exposed some “near-term sna(p)fus” that have many jumping ship in the second-quarter earnings upshot of disappointment.
Top analyst Mark Mahaney at RBC Capital is not one of these bears, though, as he recognizes Snap’s failings can pave the way to bigger long-term opportunity at stake.
Therefore, the analyst reiterates an Outperform rating on Snap stock while chopping the price target from $31 to $20, which represents a 69% increase from where the shares last closed.
For the second quarter, Snap reported a rise in daily active users (DAUs) of 7 million quarter-over-quarter to 173 million, meeting the analyst’s prediction, but shortchanging the Street’s expectations that had modeled for a 9 million DAU increase, considering 8 million had been added in the first quarter. Thankfully, DAUs fared better in the popular Snapchat app parent company’s North American base, amassing 4 million, followed by Europe and the rest of the world (ROW) each collecting 2 million more.
True- DAU trends may have some on the Street scared off, but “IF Snap continues to be successful with product innovation, we would expect an inflection point in DAUs in ’18,” notes the analyst. Positively, “SNAP noted users continue to spend more time, create more snaps and visit more frequently,” and Mahaney takes notice.
However, in reaction to the weakness witnessed in the print, the analyst has cut his 2017 revenue expectations 28% and lowered 2017 adjusted EBITDA expectations from ($756) million to ($780) million, with “overly opaque” third-quarter revenue comments from management responsible for Mahaney’s decreased forecasts. The analyst notes that Snap disappointed the Street’s projections, with revenue missing by 3%, EBITDA by 7%, and Net DAU’s by 2 million. Yet, “While results are weaker than expectations, we still argue against results altering our long-term thesis. Way too early with much of the market still up for grabs,” argues the analyst, still bullish on Snap’s prospects.
In the grander scheme, “At the margin, we have less conviction in our Outperform rating, as reflected in our materially reduced estimates and PT. That said, NA DAU Adds and the Gross Margin results were two clear positives. And we still view SNAP as one of the clear innovation leaders (both re: consumers & advertisers) in the ‘Net Sector. Finally, we believe SNAP is putting in place the pieces (product innovations like Maps, Android ecosystem improvements, and self-service ad solutions) that can drive a fundamentals re-acceleration in ’18,” comments Mahaney. The analyst concludes that while some might see the company’s present DAU base as “limited” when up against Facebook’s that towers eight times larger, he sees this from a half-glass full perspective. Coupled with a low ARPU of $1.05, 7 times smaller than rival Facebook’s, the analyst believes these areas actually are “[…] creating substantial growth opportunities IF SNAP executes extremely well…”
Mark Mahaney has a very good TipRanks score with a 74% success rate and a high ranking of #7 out of 4,618 analysts. Mahaney garners 23.1% in his yearly returns. However, when recommending SNAP, Mahaney forfeits 33.9% in average profits on the stock.
TipRanks analytics exhibit SNAP as a Hold. Out of 26 analysts polled by TipRanks in the last 3 months, 8 are bullish on Snap stock, 13 remain sidelined, and 5 are bearish on the stock. With a return potential of 33%, the stock’s consensus target price stands at $15.74.