One of the most volatile stocks on the market, Sunedison Inc (NYSE:SUNE), is once again having another extreme day of trading. SUNE stock yesterday soared 70% because an internal probe of the company found no evidence of fraud. That’s a good thing, right?
Well today, shares of SunEdison are down just over 30% during morning trading, and this decline is most likely related to the company discussing with creditors about restructuring financing. The discussions are ongoing and there is no guarantee that a deal will be reached.
According to a report via Bloomberg, “The company and its first- and second-lien lenders entered into a confidentiality pact on March 17 for the financing transactions in a potential bankruptcy filing, the company disclosed in a regulatory filing to the Securities and Exchange Commission, which included a 34-page slide presentation to creditors.”
SunEdison needs a $310 million loan to fund it through a potential bankruptcy process, according to estimates in the March 17 presentation per Bloomberg. The company projected using a total of $779 million in cash for the first quarter.
The negotiations come as SunEdison faces default on at least $1.4 billion in loans and credit facilities, and after it failed to make a $2.6 million interest payment on its 2% convertible bonds maturing in 2018. The company is flirting with bankruptcy and according to Bloomberg, “analysts said the disclosure may please creditors.”
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Netflix, Inc. (NASDAQ:NFLX) is set to report first-quarter 2016 results on Apr 18. In the last quarter, the company delivered a positive earnings surprise of 250%. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 70%.
This streaming giant saw robust growth in the past year driven by rapid geographical and content expansion plans. But if we look closely, the trend may not continue this time around. Let’s see how things are shaping up for this announcement.
Last quarter, Netflix surprised everyone by launching services in 130 new countries simultaneously, establishing its presence in a total of 190 countries. In addition, the company had taken quite a number of initiatives to expand its content portfolio rapidly.
However, investors need to watch out for astronomically increased expenses, which are likely to affect financials this time around. The company itself had projected margins to be soft in the first quarter of 2016 as it will be the first to include the after-effects of such massive international expansion. Even revenues will be adversely impacted as the company made the services available for free in the first month to attract new users.
In such a scenario, even the company’s strength in original programming and a decent paid subscriber base might not be enough to overcome the woes. Furthermore, the company also faces stiff competition from bellwethers like Amazon.com AMZN, Hulu and Time Warner’s TWX HBO.
Goldman Sachs Group Inc
Goldman Sachs Group Inc (NYSE:GS) is scheduled to report first-quarter 2016 results, before the opening bell on Apr 19.
Last quarter, Goldman recorded a positive earnings surprise of 24% and a 6.8% year-over-year increase. Results reflected higher investment banking revenues, aided by an increase in client activity levels. However, effective cost control measures were overshadowed by higher legal expenses.
Recently, Goldman acknowledged several facts regarding how the Wall Street giant made “false and misleading representations” to potential investors about the quality of loans it securitized and also the manner in which it safeguarded the investors in its residential mortgage-backed securities (RMBS). The acceptance formed a part of the previously disclosed $5.1 billion settlement which was finalized this week. The settlement announced in January this year impacted fourth-quarter 2015 earnings by about $1.54 billion after tax.
Yet, Goldman has recorded an average positive surprise of 22.03% for the trailing four quarters. Thus, the company’s ability to tide over the tough industry situation is in question and the chances of succumbing to the trading slump are high.
Overall, the banking industry has experienced a number of headwinds during the first quarter including heightened market volatility, decline in commodity prices, weak emerging markets, restricted business and consumer spending, rate hike uncertainty and falling energy prices.
Concerns over macroeconomic issues have made the market lose investors. Revenues will likely be hit by a slump in trading revenues as ambiguity over several global and domestic issues kept investors on tenterhooks. Though trading activities picked up slightly in March, it failed to offset the declines recorded in the first two months of the quarter.
Per data compiled by Thomson Reuters, firms across the world raised $12.4 billion through IPOs during the quarter which was down 69% year over year. Notably, proceeds from US IPO listings decreased 92% year over year. Further, the data projected equity underwriting fees for the industry as a whole in the first quarter to be nearly 54% lower than that of the prior-year quarter.
Notably, with Goldman holding the fifth spot among the U.S. investment banks during the quarter and year-over-year market share declining 1.4%, equity underwriting revenues are bound to decline.
On the investment banking front, according to Thomson Reuters data, global investment banking fees declined 29% year over year, with the U.S. recording a 32% decline due to reduced M&A activities. Moreover, the equities division expects a slowdown due to cautious steps taken by investors amid uncertainties surrounding global economies and the timing of the next domestic interest rate hike.
Despite the rise in loan demand, the top line will continue to remain under pressure due to the impact of the still low rate environment on net interest income.
For Goldman, disciplined compensation levels and focus on non-compensation expenses have contributed pre-tax margin expansion of 440 basis points since 2012. Therefore, continuation of expense management is expected in the quarter.
Notably, this banking giant failed to impress analysts with its level of activities during the quarter. Amid the industry-wide weakness, which is anticipated to affect the company’s financials, several analysts significantly lowered their earnings estimates. The Zacks Consensus Estimate fell around 5.5% to $2.57 per share over the last 7 days.
Yahoo! Inc. (NASDAQ:YHOO) is expected to report first-quarter earnings on Apr 19 after the bell. Let’s see what happened last quarter
Yahoo’s fourth quarter revenue managed to beat the Zacks Consensus Estimate although its earnings were disappointing. That was only part of the story. Not only did the company write down $4.46 billion in goodwill, it also admitted that more than a billion of that was from acquisitions made by current CEO Marisa Mayer.
The core Mavens business continued to decelerate (grew 57.8%, 60.2%, 43.1% and 25.9% year over year in the last four quarters, or 44.1% growth in 2015). Moreover, management guidance of $1.8 billion implied a growth rate of 8.7% this year, so even more of a slowdown.
Management blamed the Mavens slowdown on a maturing mobile search business and sure enough, overall search results were horrendous: Paid clicks dropped 10% year over year, the first decline in the last two years.
To top it all, guidance was dismal. For quarter one, Yahoo projected revenue on a GAAP basis of $1.05-1.09 billion and revenue on an ex-TAC basis of $820-860 million, both numbers reflecting significantly lower average growth than in the last five years. It also projected depreciation & amortization of $150 million, stock based expenses of $115 million adjusted EBITDA of $100-120 million and non GAAP operating income of -$50 to $30 million.
Full-year projections were revenue of $4.40-4.60 billion (down 9.4%), TAC of $1.00 billion, depreciation & amortization of $550 million, EBITDA of $700-800 million and non GAAP operating income of $150-250 million.
In short, growth rates are coming to a screeching halt. In that light of course the recently announced restructuring actions made sense; including the 15% reduction in workforce and closure of five offices in Dubai, Mexico City, Buenos Aires, Madrid and Milan. (This was in addition to the 22 offices and 120 products that were shuttered last year.)
More bad news? Mayer said that since things were not doing so good, the underperforming parts of the business needed to be hacked. While this would further reduce overall revenue, there would be a positive impact on profitability.
This set the stage for the announcement earlier this month (through statements to prospective buyers) that 2016 revenue would decline 15% and earnings over 20%. Further, the workforce would be further cut by 1.5K to 9K. Total restructuring charges are expected to be $64-78 million, of which $40-48 million was for severance and related cash expenditures.
Going Forward, all the bad news is right there before us so suffice it to say that there won’t be too many surprises when Yahoo reports after the bell on Apr 19. The only thing that could move the shares is some update on the sale plans that everyone is hankering for.