📉 Most IPOs Fail

Hi! In today's newsletter: 1) Total Return of 6 Major Recent IPOs, 2) AutoZone: The Compounding Machine, 3) FedEx Earnings Visualized, and more!

Author

Carbon Finance
September 22, 2023

Happy Friday!

This week, the Fed decided to keep interest rates unchanged at 5.25% to 5.5%, with most officials projecting one more rate hike this year, as they aim to manage inflation and economic activity. Furthermore, Fed futures no longer show rate cuts until September 2024. We are definitely in unprecedented macro times. What happens next? Only time will tell.

In today’s newsletter:

  • 📉 Total Return of 6 Major Recent IPOs

  • 🛞 AutoZone: The Compounding Machine

  • 📦 FedEx Earnings Visualized

Let’s dive right in!

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📉 Total Return of 6 Major Recent IPOs

IPO fever is back. Tech startups are re-entering the IPO market with increased valuations, as seen with the recent market debut of chip company ARM. Following this, online grocery platform Instacart and marketing automation firm Klaviyo raised their IPO valuations.

Nonetheless, Instacart’s stock dropped nearly 11% after it’s debut, reflecting broader concerns in the IPO market about high interest rates and inflation. The current environment is very different from the IPO and SPAC booms of 2020 and 2021, with companies now grappling with a much more volatile market.

Analyzing some of the biggest IPOs from the past four years, we see that most of these companies have gotten absolutely hammered. Retail investors aren’t the only ones losing though. Reputable venture capital firms Sequoia Capital and Andreessen Horowitz are set to incur substantial paper losses of around 75% on their 2021 investment in Instacart.

🛞 AutoZone: The Compounding Machine

AutoZone's Q4 earnings per share of $46.46 and net sales of $5.69B both surpassed Wall Street estimates of $45.17 and $5.61B, respectively. However, the stock declined as domestic commercial sales of $1.49B fell short of the $1.55B analysts had forecasted.

Despite this, there's optimism due to the UAW strike potentially boosting sales. In addition, the company saw same-store sales rise 4.5%, which is higher than the 2.4% increase analysts expected. The stock is currently up 6% this year.

Over the last 25 years, AutoZone has greatly outperformed the S&P 500 with a total return of ~10,000% compared to the S&P 500’s ~480%. The company, which retails and distributes various automative parts and accessories, has essentially had uninterrupted growth, and management has rewarded shareholders with an incredible amount of share buybacks.

📦 FedEx Earnings Visualized

FedEx reported higher-than-expected quarterly profits with adjusted earnings of $4.55 per share, beating the average analyst estimate of $3.73. The company benefited from cost-cutting measures, strong pricing, and an influx of customers switching from rivals, like UPS, due to strike concerns.

Sales dropped 7% to $21.7B, slightly below the expected $21.8B. Despite this, FedEx raised the lower end of its annual earnings guidance from $16.50 to $17 per share, while maintaining the upper limit at $18.50. CEO Raj Subramaniam linked the strong performance to ongoing global transformation efforts aimed at improving efficiency.

🤖 Morgan Stanley Bot. Morgan Stanley $MS has launched an internal AI assistant based on OpenAI technology to streamline administrative and research tasks for its financial advisors. [F]

📣 New Alexa Leader. Amazon $AMZN is hiring Microsoft's $MSFT product chief, Panos Panay, to lead its Alexa and Echo division, as the longtime Amazon hardware chief Dave Limp prepares for retirement. [BB]

☁️ US Debt Hits All Time High. America's national debt surpassed $33T, intensifying concerns over the country's fiscal stability as Congress struggles to agree on federal funding. [NYT]

🆕 Bard Upgrade. Google $GOOGL is enhancing its generative AI chatbot, Bard, with features like fact-checking, integration with other Google products, and multi-user conversations, as it aims to further compete with ChatGPT. [R]

🛝 Park Expansion. Disney $DIS plans to nearly double its capital expenditures to around $60B over the next 10 years to expand and enhance its Parks, Experiences and Products segment, both domestically and internationally. [DIS]

Notable Companies Reporting Earnings Next Week:

  • Tuesday:

    • Costco ($COST), Cintas ($CTAS)

  • Wednesday:

    • Micron ($MU), Paychex ($PAYX)

  • Thursday:

    • Accenture ($ACN), Nike ($NKE)

  • Friday:

    • Carnival ($CCL)

All of the companies that are reporting earnings this week can be viewed here.

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