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Jesse S White
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Amazon Q2 Preview: Retail Business Expected to Beat Expectations
After the bell on August 3, Amazon will release its 2023 second quarter earnings report. Conditions of the U.S. consumer environment marginal upward in the second quarter, the focus of attention in this earnings outlook is on the magnitude of the rebound in the e-commerce business and whether the margins of the AWS business can improve.

Core viewpoints

  1. E-commerce business is expected to continue to create profit surprises

From the revenue side, the U.S. consumer economic environment improved in the second quarter compared with the previous quarter, and consumer confidence recovered as inflation declined to reduce consumer pressure. The economic situation in some European countries also synchronized with the recovery, and the base for the same period last year is low. The recovery of consumer spending will effectively support the growth of North American and international retail business. From the cost side, the results of cost reduction and efficiency improvement in the previous period have appeared quarter by quarter, and some internal and external unfavorable factors affecting e-commerce profit in the previous period, such as logistics and energy, have gradually eased in the past few quarters. The transformation of the logistics fulfillment network has helped to improve logistics speed and reduce fulfillment costs, improving e-commerce profitability. We believe that benefiting from the improved consumer environment, cost reduction and efficiency, logistics network reform in the second quarter, online e-commerce business revenue improvement space is considerable, e-commerce profits continue to exceed expectations is more likely.

  1. AWS business downturn may continue

Comparison of competitors in the same industry, Microsoft's Azure and other cloud services business growth of 26% in the second quarter, compared with 31% in the last quarter also declined further, and the management of the next quarter of the cloud business growth rate is relatively pessimistic. Revenue growth in April was about 500 basis points lower than in the first quarter of fiscal 2023, according to Amazon's management call last quarter. The cloud downturn is likely to continue, as the trend of enterprise customers cutting back and optimizing cloud usage did not pick up significantly in the second quarter. However, the downward trend in AWS margins is expected to stop in the current quarter, thanks to cost-cutting and efficiency measures such as layoffs and lower energy costs.

  1. Advertising business to maintain high growth rate

Advertising business revenue growth is expected to accelerate, and the advertising business showed clear signs of recovery from the second quarter reports of Google and Meta. In the relatively weak macro environment last quarter, Amazon's advertising business grew 20% year-on-year, reflecting strong growth. As advertisers are looking for more effective channels, Amazon is competitive with its more accurate lead generation and conversion rate by leveraging its large amount of user data and its closer proximity to end-user shopping needs. We expect the rebound in advertising revenue may accelerate in the second quarter, and the advertising business enjoys higher margins and is expected to contribute more profit in the second quarter.

Investment Recommendations

Based on the Bloomberg Consensus Estimates, Q2 sales are expected to be $131.6 billion, up 8.5% year-over-year, and operating profit is expected to be $4.7 billion, up 42% year-over-year; in the middle to upper range of management guidance;

We believe Amazon is expected to continue to beat market expectations for revenue and profit in the current quarter, benefiting from a clear path of improved performance in its North American and international retail businesses. However, any shortfall on the AWS front will affect share price performance to a greater extent. Given the unresolved macro headwinds in cloud computing, we believe that even if overall profit exceeds expectations, if AWS margins and growth do not outperform expectations in the current quarter or next quarter's guidance is poor, this will affect share price performance to a greater extent. Year-to-date Amazon stock price rose nearly 50%, after the performance of the upside space although there is but more limited. In terms of options strategy, investors are advised to adopt Covered Call strategy.

Risk Tips

Cloud business is not as expected; consumer confidence is not enough; industry competition intensifies; regulatory policy risk

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Have really enjoyed using Amazon's pay feature on other sites a lot. Solid experience. Unlikely to do numbers that impact overall business, but could lead to something interesting down the road (think Shop pay)
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Telecom Sector in a Downturn: Opportunity for Bargain Hunting?
The telecom sector experienced a significant decline on July 17th, with stocks like $T and $VZ dropping approximately 6.7% and 7.5% respectively, making them among the worst-performing companies in $SPY.

The catalyst for this downturn was the recent downgrade of $T's rating by $JPM due to concerns about its wireless and broadband business progress.

According to recent discussions by management, the expectations for wireless (reduced in May and June) and broadband (in June) have been lowered. AT&T is facing modest pressure in its mobile business (from Verizon, T-Mobile, and cable TV), consumer wireline business (from cable TV and fixed wireless access), and ongoing pressure in its business wireline segment.

The projected growth rate for mobile communications is expected to decline from 4.7% in 2021 and 3.5% in 2022 to just 2.5% in 2023. Prepaid gross add share has declined from 32% in 2022 to an estimated 30% this year.

In late June, AT&T's CFO reported that new mobile subscribers were around 300,000, significantly lower than the Wall Street analyst forecast of 476,000.

Regarding its broadband fiber business, AT&T is expected to regain some market share for its cable TV companies but is also facing rising bandwidth costs. The company is preparing to cut expenses to repay debt.

While AT&T continues to generate "substantial" free cash flow, the amount available for debt repayment or share buybacks is limited. Cash generation from DirecTV will continue to decline, with half of the approximately $8 billion in free cash flow being used to pay dividends, further diminishing its appeal to shareholders.

With the upcoming $2.4 billion C-Band payment at the end of 2023 and higher taxes, the company's balance sheet repair funds will be quite limited.

As a result, even though companies in this industry are currently undervalued, at historical lows, and still offer decent dividends, investors remain uninterested.
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Why did Pfizer lead the decline in the pharmaceutical sector?
On June 26, the pharmaceutical sector of US stocks generally fell, among which giants $PFE Led the decline by 3.6% as the company said it would stop developing its experimental weight loss and diabetes drug Lotiglipron.

This highly anticipated drug showed elevated liver enzymes (toxic side effects) in experimental patients in mid-term clinical studies. These elevated enzymes often indicate that liver cells are damaged, although patients do not have liver-related symptoms or side effects at present.

Meanwhile, Pfizer said it was focusing on another oral obesity drug, danuglipron, which is undergoing a phase II clinical trial that has been fully recruited.

People with type 2 diabetes lost weight after taking high doses of Danugliplon twice a day for 16 weeks, according to results released last month. It is expected that the final plan of Phase III clinical trial plan on Danugliplon will be completed by the end of 2023.

Why stop this diet drug pipeline, which has a significant impact on the company's stock price?

First, drugs that have entered mid-term clinical trials often have a relatively high probability of success, so the market often thinks that the failure of this pipeline will have a great impact. Pfizer was the first company to announce that small molecule oral diet pills entered the middle and late clinical stage. There are two varieties in the pipeline: danuglipron and lotiglipron, in which danuglipron needs to be taken twice a day, while lotiglipron only needs to be taken once a day. In terms of convenience, lotiglipron is better, so the market is more optimistic about lotiglipron.

Although Pfizer will continue to promote the development of danuglipron and optimize it to be eaten once a day, it is doubtful whether it will have the same curative effect in the follow-up experiments.

Second, lose advantage in small molecule competition. This pipeline of weight loss and diabetes drugs is not unique to Pfizer, Lilly and $NVO The company also has similar pipelines. Although Pfizer first entered the clinical phase 2 trial, now $LLY Orforglipron overtook Pfizer in progress and entered Phase 3 first. Therefore, Pfizer's defeat is also considered by the market to have lost its first opportunity.

Oral GLP-1 Confers up to 14.7% weight loss at 36 weeks for adults with obesity
In fact, there are more than 150 new drugs for studying GLP-1 in this track, and the indications cover type 2 diabetes, obesity, nonalcoholic steatohepatitis, Alzheimer's disease and other diseases. Among them, the hottest one, which is also the industry benchmark, is Novo Nordisk's smeglutide, which is already on the market. It reduces blood sugar level by simulating the effect of GLP-1. It is an injectable drug, which only needs to be injected once a week and can last for several days.

Online Exhibition

Pfizer had great ambitions for the small molecule drug market before, hoping to win 10 billion of the 27 billion market. After all, oral drugs have different advantages over injectable drugs, and the market target groups are also reported to be different. However, if the efficacy and safety of these small molecule oral drugs are not comparable to the current industry benchmarks, it will be difficult to gain a larger market share even after the clinical trials are over and put on the market.

What is the current situation facing Pfizer?

Year-to-date, Pfizer's share price has pullback/retracement by 27%, while $XLV Only 2.5% callback,$IBB The callback range is only 3.21%. At the same time, Novo Nordisk surpassed Pfizer in market value and became the largest pure pharmaceutical company in market value. Why is Pfizer pullback/retracement, as the leader, so big?

We believe that pessimism is mainly worried about future growth options after COVID-19, and the impact of uncertain acquisition strategies on the company's financial statements.

As we all know, Pfizer's Paxlovid, due to its high pricing and hard demand, gained explosive revenue during COVID-19, and it was also the highest-selling small molecule drug in the world in 2022, leading Eliquis in the second place by more than 60%.

Because of the sweeping of Covid-19, Pfizer was fortunate to get a nouveau riche performance growth on this drug. At the same time, the vaccine of Covid-19 also made Pfizer earn a lot of money. In 2022, more than half of its revenue came from drugs and vaccines of Covid-19, and the company's share price increased by 66% in 2021.

But when you come out to mix, you always have to pay back. When the impact of COVID-19 has passed, these increases are naturally spit out.

At the same time, Pfizer is a company that obtains more potential pipelines through acquisition, and the acquisition itself is prone to higher financial leverage, and there is also the risk that the drug market will not be as expected.

Therefore, investors gave up decisively after Pfizer made a lot of money for two years, not because they despised the savings in its pocket (there may be higher dividends and repurchase actions), but because they were more worried about the future revenue falling short of expectations.

At present, the market may overestimate the revenue from COVID-19 after 2023. Of course, the uncertainty of the pharmaceutical industry is quite large, and it cannot be ruled out that COVID-19 virus will mutate again and form new varieties in the future, and Pfizer's drugs will have the opportunity to go out again.
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Why do UNH, CVS, etc. fall sharply? Don't rush to bargain-hunting?
Although there was an intraday FOMC interest rate meeting on June 14th, the market's previous expectation of "skipping the rate hike in June, but there was hawkish wording" was almost the same, so the Qifubiaozhun on the disk was not as big as imagined.

However, there is a collective drop in the sector (in sharp contrast to the glory of the chip industry), that is, medical insurance, the main reason is $UNH The CEO of $GS Medicare costs this year will be the upper limit of, or even exceed, expectations, according to an investor conference.

The implication is that the expenditure of medical insurance companies will increase and the profit margin will be hit.

Companies related to this have fallen sharply, including $CI $ELV $HUM $ALCH Pharmacies including medical insurance $CVS.

In this regard, the CEO of UNH said that after COVID-19, more and more people have medical needs including surgery, resulting in extra costs.

The proportion of premium expenditure for medical expenses is expected to reach or slightly exceed the upper limit of 82.6% of the annual outlook given by United Health
That is, because of COVID-19.

This matter is very interesting. We need to think from many angles, whether it is like what he said.

First, does COVID-19 have sequelae? How big is the impact? My own feeling after having it is that it does have an impact on physical fitness, but it is difficult to estimate how big it is. However, for the elderly or those with poor resistance and basic diseases, it is estimated that more medical services will not run away, otherwise the price of medical insurance in 22 years will not rise so much.

Western media generally do not report the impact of COVID-19 sequelae. On the one hand, this affects the economy and people's mentality, on the other hand, it conflicts with their propaganda. After all, minzhuziyou is above everything else. European and American governments and many people want to dilute its influence. If this is the case, UNH can only swallow this bitter fruit silently and reimburse the people honestly.

Second, is the cost of more medical services one-off? This is the most important factor for investors to consider. More people need medical services? The number of times you need medical services has increased? Can directly affect the cost of UNH. If the impact of COVID-19 on people's health exists for a long time, does it mean that the cost of medical services will increase for a long time?

That is, the actuaries of these insurance companies need to revise the model.

Then, unless the cost of medical insurance increases, the long-term profit margin of medical insurance companies will be affected.

The following is the change of medical insurance price in the CPI sub-item of the United States. It can be seen that it has gone up wildly in 22 years and is vomiting back in 23 years.

However, the price changes of medical commodities have been showing a normal growth trend, and medical services may not increase so fast due to the bargaining power of insurance companies.

But at present, the cost of medical insurance can't keep up with the price growth of medical services and medical goods, which is definitely not good news for medical insurance companies.

Therefore, if the medical insurance company can successfully raise the price without affecting users' purchase of insurance, then it can really tide over this difficulty.

In the secondary market, these big medical insurance companies often have heavy positions in institutions (just like domestic insurance companies, there is no hot money willing to play games). Therefore, this large selling on June 14th is an institutional behavior, and obviously many institutions also smell danger.

However, institutional positions do not change when they are said to change. When they reduce their positions in this industry, they also need to find similar substitutes, otherwise they will passively increase the proportion of other positions and increase their risk exposure.

So what kind of company can replace the medical insurance company?

Since your CEO said that medical services (including surgery) have become more, is it directly beneficial for such companies that provide medical services directly? Companies with a large-scale network of outpatient day surgery centers (ASC) have an opportunity. For example $SGRY $THC $HCA

They were all yesterday's winners.
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Why can't Disney eat the benefits of rising US stocks?
Big tech companies have gone crazy recently, but not all other industries can keep up with the market, even the industry leaders.

Although $NFLX The stock price hit a new high in the year, but its peers $DIS But there is no similar performance. After Q1 financial report, the trend of the two companies obviously showed great differences.

If Netflix can hit the hot spot of "AIGC", so can Disney in theory. If Netflix's advertising business exceeds expectations and the impact of shared accounts is obvious, Disney can do the same thing. More importantly, Disneyland has remained strong since the price increase last year, and the two parks in China are expected to perform well this year, so why are investors still not interested in Disney?

From the company level, the profit rate of the company has not recovered to the level before the epidemic, which is mainly due to the loss of streaming media business. After Bob Iger came back to power, the main goal of streaming media business became "self-reliance", at the cost of declining growth rate and freezing (or declining) market share.

Disney's streaming services, including Disney +, Hulu and ESPN +, have been unable to generate positive cash flow despite the increase in subscriptions. Disney's shareholder structure is not like Netflix, so executives tend to be conservative in the choice of "development or survival".

Disney itself attaches importance to the cost structure and reduces the content cost, and the postponement of some projects may also have a certain impact on future revenue. For example, according to several media reports, the third work of Avatar series was originally scheduled to be released in December 2024, but it has been postponed until December 2025. In addition, the other two sequels of Avatar series have been postponed for three years, and will be released in 2029 and 2031.

Marvel's two upcoming "Avengers" franchises have also been delayed by a year to release in May 2026 and May 2027, according to reports. The release of the next Star Wars movie has also been postponed by one year, and will be in May 2026.

From the market sentiment, they are all entertainment and content service providers, but Disney lacks the attribute of "technology", so it is difficult to win the favor of investors in the technology industry. Because the market's attitude towards optional consumer industries is full of differences, different companies have different business pressures under the environment of high inflation and high interest rates, so it is often difficult for industries to reach a consensus. Investors can only "choose the best".
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Oracle hit a record high, and Q4 financial report expressed AI opportunities
$ORCL The stock price hit a record high after the Q4 financial report after June 12th. Obviously, the recent AI concept has made the company a hot target. The outstanding performance of cloud business has helped the company's revenue and profit both exceed expectations. The development of AI also relies on software services, so it will continue to bring growth to the company, and investors also have great expectations.

In the past 20 days, the company's share price has risen by more than 30%, but on June 12th, it performed very well (+6.0%), and remained optimistic (+3.9%) after the after-hours financial report was released, but there was no double-digit increase.

Q4 Performance Preview

Revenue was 13.84 billion US dollars, an increase of 18% year-on-year at a fixed exchange rate, higher than the market expectation of 13.72 billion US dollars;

Among them, the revenue from cloud services and licensing support reached 9.37 billion US dollars, a year-on-year increase of 25%, higher than the market expectation of 9.11 billion US dollars; The cloud business revenue of IaaS and PaaS was 4.39 billion US dollars, an increase of 55% at a fixed exchange rate, higher than the market expectation of 4.04 billion US dollars; The revenue of strategic back-office SaaS applications increased by 4%, of which Fusion ERP increased by 17% and NetSuite ERP increased by%; Hardware services reached US $850 million, up 1% year-on-year, which was equal to the market value of US $840 million. Software was US $1.46 billion, higher than the market expectation of US $1.45 billion, with a year-on-year increase of 78%.

Gross profit was 10.11 billion US dollars, lower than the market expectation of 10.39 billion US dollars;

Comparable earnings before interest and tax (EBIT) was US $6.16 billion, higher than the market expectation of US $6.12 billion, and EBIT profit rate was 44.49%.

The adjusted EPS was $1.68, which was higher than the market expectation of $1.53.

The company's free cash flow was $3.73 billion, higher than the market expectation of $2.46 billion.

Investment highlights

AI gives cloud business considerable opportunities.The company's two strategic cloud businesses are growing, and the cloud application and infrastructure businesses are very obvious. The company also said that Oracle's Gen2 Cloud has the highest performance and lowest cost GPU cluster technology in the world, and Nvidia is also using this cluster. The company is cooperating with Nvidia to build the world's largest high-performance computer.

Oracle Cloud Infrastructure

With the growth of cloud business revenue, the company's profit margin is expected to keep improving.At the same time, the company has been expanding its data center capabilities, and as these new cloud areas continue to fill, the profit margin has also improved. On the other hand, with the continuous integration of the acquired healthcare IT giant Cerner, the company's operating profit has increased to 44%, and will continue to strive to improve Cerner's profitability to Oracle standards and continue to obtain economies of scale from cloud computing.

Cash flow growth is optimistic, but we should also pay attention to the impact of repaying huge net debts (acquisitions) in a high interest rate environment.


The company's current 12-month dynamic P/E is 36 times, which is naturally not high compared with SaaS companies, compared with $MSFT $35 times equal.

At the same time, due to the growth expectation, it is expected that the forward-looking P/E in fiscal year 2023 will be about 21 times, which is lower than the average of 31 times in the software industry. At present, the valuation level is relatively neutral.
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Apple named Unity. Should we get on the bus now?
With the traditional "Just one more thing" moment in the Jobs era,$AAPL CEO Tim Cook introduced Apple Vision Pro, a highly anticipated new VR glasses product, at WWDC on Monday.

Apple Vision Pro headset
Although it is not known how big the market for this product will eventually be, and the pricing of nearly $3,500 may make many consumers give up buying, this technology is really interesting. Vision Pro will allow users to see a larger screen through headphones and will be controlled by eyes, hands and voice, unlike $META The Oculus uses an external hand controller like that.

Quest 2-Etopia
At present, the most mature commercial direction of virtual reality is games, because Apple mentioned at the meeting that it is related to $U Cooperation, the latter's share price rose from the ground on Monday, and even blew once, closing up 17%.

What kind of company is Unity?

Unity is one of the most widely used game engines among mobile game developers in the world. It was established earlier. Since 2004, it has aimed at the creation and operation of real-time 3D interactive content, which provides a foundation for the later construction of various AR and VR interactive experience content. In addition to Apple's iOS, developers can also develop efficiently and conveniently across platforms on Unity, and can create and deploy on more than 20 platforms at one time, including Windows, Mac, iOS, Android and PlayStation $SONY, Xbox $MSFT,$NTDOY Switch and leading AR enhanced and VR virtual reality platforms.

For example,Tencent Holdings The glory of the king was developed in Unity3D.Activision Blizzard The "Hearthstone Legend" client is also developed with Unity3D. These enterprises can maintain rapid development, and the development of virtual reality and augmented reality industries all need Unity3D game engine, which also brings opportunities to Unity.
VR applications usually require high transmission speed for high-definition 3D scene data. With the advent of 5G era, the bandwidth throughput has increased, which also provides the possibility for fundamental changes in products.

What does Unity's business include?

Unity's business has three parts, including Operate Solutions, Create Solutions, and Others, among which the first two parts are mainly.

Among them, Operate Solutions accounts for more than half of the company's revenue, and most of them come from advertising and cloud service revenue. Cloud business mainly uses basic tools to process in-game data, while advertising business adopts the form of accurate push, and the profit method is revenue sharing. The amount of revenue from this accurate delivery mainly depends on the number of customers and the improvement of GMV conversion rate by algorithms.

Developer solutions are mainly game engine software, and Create Solutions is mainly for creators to easily develop, edit and iterate interactive 2D and 3D content in real time.

In addition, Unity provides customers with hierarchical subscription plans (packages are divided according to customer income, solutions at different price points (0-1800 US dollars) meet the needs of users at different stages, and different versions meet the needs of various industries), aiming at meeting the needs of different types of customers.

Other businesses include strategic cooperation with other hardware/gaming machine/equipment manufacturers. Although the overall entertainment and leisure industry environment is currently challenged, for Unity, the recent acquisition of Weta and ironSource is expected to generate additional value for the company, and Weta's tools are expected to start making profits in 2023; In combination with ironSource, Unity has made some gains in mediation and improved the performance of both networks.

How is Unity financially?

Unity's revenue in the past 2023 Q1 was US $500 million, an increase of 56% year-on-year. Excluding the acquisition part, it actually decreased by 2% on a comparable basis, and there was no increase. At the same time, it is estimated that Q2 revenue will increase by 72-75% year-on-year, and increase by 6-8% on a comparable basis. It should be noted that there is a monetization problem in the second quarter of 2022, and the adjusted income may be the same as last year.

Among them, the revenue of developer solutions increased by 14% year-on-year in the first quarter, and the growth rate was 17% excluding the revenue of strategic partners. Unity attributed the slowdown to a shift away from professional services and increased reliance on partners for project implementation. Unity is partly due to a decline in professional services. Unity is reducing the importance of professional services and increasing utilization with partners such as Booz Allen and Capgemini. These partners help customers implement digital twins, Booz is more involved in government projects, and Capgemini works in various industries such as energy. Working with partners will help Unity expand its creative business and enable the company to continue to benefit from high-profit cloud revenue. However, the company's customer churn rate is still low and has improved over time.

The operational service business still faces resistance in the weak macro environment, but it is expected that with the realization of synergy between Unity and ironSource, the growth will accelerate in 2023. For example, the ironSource advertising network is moving to the more advanced Unity ML model, while Unity advertising network adopts ironSource bidding model.

On the customer side, the number of major customers of Unity has been flat or declining in recent quarters. At present, it relies on ironSource to maintain the status quo, which may be more the result of slowing consumption growth than customer loss. At present, the company's residual performance value (RPO) is US $559 million, down from US $620 million last quarter. Software deferred revenue also dropped to about $300 million from $320 million in the previous quarter.

On the profit side, gross margins continue to decline, but this should be reversed as Weta monetizes its business faster. At the same time, the company continues to lay off employees, including reducing the number of management levels, partly because of digesting recent acquisitions and realizing cost synergies.

Is Unity worth buying now?

First of all, whether it is VR, AR or AI, Unity has great opportunities to benefit from it. Generative artificial intelligence will become a great boost to the game industry. Artificial intelligence will make the construction of 3D experience simpler and realize new experiences that cannot be realized at present.

Unity is developing editor tools and plans to open up a market for generative artificial intelligence so that it can benefit from the progress of the whole ecosystem. This includes the Unity Editor and the Unity Runtime.

In addition, Unity has recently raised the price of some subscription services, and the impact of customer churn is really small, which shows that the company has a strong competitive position and high pricing power. In the future, growth is expected to come from usage, because Unity believes that as developers start to use more AI tools and build a more advanced world, there is great potential to increase assessable revenue over time.

From the valuation point of view, because EBITDA has just started to make profits, the company is more suitable to compare with its peers by multiple of income. Of course, some investment banks take the profit expectation after 2024 as the benchmark and discount it to the present to calculate the target price.

When compared with the industry in terms of overall income multiple, Unity's income multiple (EV/Sales) is 8.7 times, which is higher than the industry average of 6.6 times. However, if the current two businesses are valued separately, the developer business with great potential will be valued at 9 times and the operation service at 3 times, and the expected market revenue of Unity2024 will be valued at 40 US dollars per share.

Relatively optimistic investors may also value with higher income expectations.

Therefore, for Unity, the short-term price has risen to a position close to the valuation target, and shorting is definitely not cost-effective. In the future, it is very likely that with the performance exceeding or falling short of expectations, it will bring greater stock price changes.Considering the current cooperation with Apple, there will be more market capital inflow and the stock price will have a certain premium.
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With Apple mentioning Unity, they're going to be top of mind for a lot of investors now.
Thoughts on Apple's AR Device
Firstly, let's talk about the price. With a price tag of over $3,000, it's clear that it's too expensive for most people. The majority of average consumers might be deterred and simply remain as bystanders.

Secondly, compared to Facebook's device, Apple's AR device lacks any significant standout features. It basically shifts the battery component to an external source, making it lighter overall. However, those who have used Facebook products know that wearing a device resembling a mobile phone on your head for long periods, which emits considerable heat radiation, isn't particularly comfortable. The overall experience is just average, at best.

Thirdly, compared to revolutionary products like Chat GPT, an intelligent and versatile solution that addresses real pain points, Apple AR seems to be nothing more than a display in front of your eyes. In essence, it lacks true functionality and may only offer modest help in daily life and work. It may ultimately become nothing more than a gaming device.

Lastly, judging from Facebook's significant retreat from virtual reality, it's evident that this type of product has little future. Most people are ultimately gravitating towards solutions like Chat GPT, which truly represent the future and the ultimate direction. It's all about going all-in with Microsoft, not Apple. That's the ultimate conclusion. Thank you.

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It might be painful to use VR for a long time in the beginning but overtime, people get used to it and the pain isn't there. It's like when people started using laptops and they started seeing neck pain or iPhones and insomnia/eye pain.
Is there any contradiction in employment data? Do you support continuing the rate hike or supporting the new high of US stocks?
Last Friday, the non-farm payrolls data released by the US Department of Labor was obviously off the charts. In May, the number of new non-farm payrolls in the United States was 339,000, almost double the median market expectation of 195,000. At the same time, the non-agricultural employment data in March and April was significantly revised, and the number of new non-agricultural jobs in March was revised from 165,000 to 217,000; In April, the number of new non-agricultural jobs was revised up from 253,000 to 294,000.

United States Non Farm Payrolls

Among them, education, medical care, commerce, leisure accommodation and other service industries are still the main sources of employment growth. Previously, due to the mismatch of the labor market, some vacant positions in the service industry were supplemented.

On the other hand, paradoxically, the unemployment rate rose by 0.3 percentage points from last month to 3.7%, and the number of employed people in the household sector survey decreased by 310,000.

United States Unemployment Rate

At the same time, the growth rate of hourly wage slowed down, with a month-on-month increase of 0.3%, in line with expectations, with a year-on-year increase of 4.3% and lower than the expected value of 4.4%.

United States Average Hourly Earnings YoY

The gap between business survey data and household survey data widened, and household survey data unexpectedly showed the biggest decline since April 22, reducing 310,000 jobs. And the weekly working hours also declined from last month.

These factors help to reduce the worry about wage inflation.

As we mentioned before, enterprise survey and household survey have their own advantages and disadvantages, and the difference is mainly because:

A. From the sample size,The sample size of enterprise survey is much larger than that of household survey. This makes the former statistically less error, so it is intuitively more reliable.

b. From the perspective of survey scope, the household survey covers a wider range because it interviews individuals in different families, not limited to groups employed by enterprises and institutions. For example, the survey includes unincorporated self-employed persons, unpaid domestic workers, agricultural workers and private domestic workers that cannot be covered by the enterprise survey.

c. Household surveys do not double-count the employment of individuals because they are interviewed, butThere may be double counting in enterprise surveyFor example, one person works in multiple jobs.

Does this employment data support the Fed to continue its rate hike, or does it support US stocks to move to new highs?

The Federal Reserve will hold a meeting on interest rates in June, but officials in rate hike are still divided. One view is that the current data is not enough to support stopping the rate hike and supporting the further tightening of monetary policy. Those who hold this view include Dallas Fed Chairman Logan, Atlanta Fed Chairman Bostic, St. Louis Fed Chairman Brad and other officials. Another view tends to suspend the rate hike to wait for more economic data to be released. Those who hold this view include Federal Reserve Chairman Powell, Vice Chairman Jefferson, Philadelphia Fed Chairman Haka, Chicago Fed Chairman Goolsby and others.

So the problem now is that if you look at the non-agricultural employment data, you obviously support the rate hike in June; If you look at the changes in unemployment rate and wage growth rate, you can also suspend it for one month and consider it in July. In this way, whether there may be a rate hike in June or not, the vote of Fed officials may be very divided.
However, US stocks didn't take rate hike seriously at all.

The US stock market led by the Nasdaq index has broken through one after another. At the same time, it measures the volatility of the S&P 500 S&P 500 Volatility Index (VIX) It has also fallen back to 14.6, the lowest since the outbreak on February 14, 2020. Investors' pricing of downside risk protection is extreme, as if there is no downside risk.

This includes hedge funds that have been allocating less to technology stocks (relative to the broader market) since the beginning of this year, according to $GS Their positions in the seven major technology stocks are 15% lower

Who will support the new high of US stocks next?

Value investments (large companies with lower valuations and better cash flow) may be favored again.

When the real interest rate is positive and the growth rate is slow, value investment tends to perform better. But when real interest rates have slowed recently, value investments have lost much of their advantage in relative terms. If the trend of real interest rate is likely to continue, then the possibility of a soft landing of economy is greater, and investors may continue to favor value investment in the second half of the year.

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Why does C3. AI, which has reached a new high this year, still have no chance?
Because it is not an AI company.

$AI Q4 results for fiscal year 23 ending May 31 were announced after May 31.

Revenue was $72.4 million, higher than the expected $71.37 million, and the adjusted loss per share was $0.13, which was better than the expected loss of $0.17. Among them, the revenue from subscription is $560,000, accounting for 79% of the total revenue.

Non-GAAP gross profit was USD 530,000 and non-GAAP gross profit margin was 9%.

GAAP's remaining performance obligations ("RPO") were US $381 million, which was lower than the expected US $405 million.

For the performance outlook of Q1 in fiscal year 2024, the revenue is 70-72 million US dollars, and the market expectation is 71.34 million US dollars, which is basically flat; Non-GAAP lost $25-30 million;

For the overall outlook of fiscal year 2024, the revenue is 295-300 million US dollars, and the market expectation is 266 million US dollars.

Key points of investment

Is Q4's performance ideal? We can only say that there is a gap with market expectations. Among them, RPO is the target that investors pay more attention to, and it also represents the potential of the company's future performance, which leads to a sharp drop due to falling short of expectations. More importantly, the market expects AI-related businesses to not appear.

In fact, C3. AI is not an AI stock at all. Although it is also subscription income, it is more like an "intermediary company". When clean energy was on fire, it was called C3. Energy;; Later, IOT caught fire and changed it to C3. IOTL;; Now AI is on fire. It changed its name to C3. AI. Just because AI is the outlet, it robbed this unique code, so it was classified as AI concept stock. The emergence of ChatGPT will not benefit all software companies. On the contrary, because AI improves productivity, many so-called software service companies are likely to be replaced by big models and become victims instead.

Please note that in the first half of this year, C3. AI Was shorted by research institutions.

On the other hand, the valuation level of C3. AI is not low. Because it has been in a long-term loss, the current PS is as high as 16 times, far higher than the industry average of 6 times. At the same time, the company's forward-looking EV/Sales is as high as 10 times of the revenue forecast for the next fiscal year, which is 5 times higher than the industry average.

The reason why this ticket will skyrocket and plummet is that too many bears are pouring in, which leads to a game among retail investors and becomes a typical "meme" stock.

The short ratio of this stock is as high as 29%, so we need to be careful about the risk of short backlog.

$AI stock is just trying to be what is hot in the market. In my opinion this distracts from their business.
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