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Tesla Stock Getting Attractive At This Price, Says Goldman Sachs

Electric automaker Tesla ( TSLA ) got an upgrade Wednesday, as Goldman Sachs said the current share price isn’t accounting for the firm’s “disruptive potential.” Goldman Sachs analyst Patrick Archambault lifted his rating on Tesla stock to buy from neutral, though he kept his price target at 250, as the stock has fallen well below that level over the last three weeks. Tesla stock was up 4% in early trading on the stock market today , near 213. “While we believe the (production) volume targets are ambitious, Street and investor expectations seem more grounded, and following a 23% decline in the share price post the Model 3 unveil , we do not believe Tesla shares are fully capturing the company’s disruptive potential,” Archambault wrote in his research note. “This, combined with a more stable macro backdrop (relative to January/February) and increased confidence in Model 3 demand (from orders and our competitive benchmarking), drives attractive risk/reward.” Unlike his counterpart at Evercore last week, Archambault didn’t sound confident that Tesla could achieve its goal of 500,000 vehicles built by 2018, a new target CEO Elon Musk announced in Tesla’s its Q1 earnings report this month. The new goal is two years earlier than planned. But Archambault also thinks that most of Wall Street doesn’t really believe it either, lowering the downside risk. “While management was not clear why goals were set so aggressively, we view the adjustment as a target aimed at motivating employees and suppliers,” wrote the analyst. “We also believe these projections are heavily discounted with Street estimates for 2018 EBITDA and net income (excluding some of the more extreme outliers) coming in 21% and 24% below our base case.”

Baidu, Tencent May Rule Digital Ads In China, Like Facebook, Google

Baidu ( BIDU ) and Tencent ( TCEHY ) will dominate digital advertising in China, much as Alphabet ’s ( GOOGL ) Google and Facebook ( FB ) do in the U.S., says Goldman Sachs. Facebook and Google combined are “implied to represent” around 70% to 80% of the U.S. digital ad market’s dollar growth in 2016 and 2017, Goldman Sachs said in its research report. “ Consistent with the rest of the world, China’s digital advertising continues to take a growing share of total media ad spend,” wrote Goldman analyst Heather Bellini. “China total online spending was $33 billion in 2015, or 45% of total media spending, and is on track to exceed more than half of total ad spend in China in 2016. “Tencent and Baidu, principally the leading social and search engine in China, respectively, contributed 56% of the ad revenue growth among the major Chinese online market companies that are covered by (Goldman Sachs).” Goldman Sachs says the “Seven Pillars” of China’s Internet market are games, online advertising, e-commerce, travel, local services, finance and cloud computing. Tencent, a rival of Alibaba Group ( BABA ), has the dominant gaming platform in China, while Baidu is the search leader. Baidu is ramping up its Internet finance arm and making efforts in autonomous vehicles. Alibaba and Tencent lead in cloud computing. “Social advertising, online video and search will be the three growth drivers for the online advertising industry into 2020,” Goldman Sachs said. “For search, Baidu has demonstrated consistent paid click and cost-per-click trends with market leaders Google and (top Russian search provider)  Yandex ( YNDX ). Baidu looks primed for better mobile monetization as the gap between mobile and desktop cost-per-click narrows. “Given China’s large social media user base, we expect mobile ad spending to become an important theme in advertising. Applying Facebook’s successful social mobile monetization, we believe Tencent could benefit most, given its powerful social asset, Weixin. Online video is the fastest growing vertical and major driver of traffic in China. Baidu-owned  iQiyi, Alibaba’s Youku  and Tencent are the top three players in mobile online video.” In the U.S., meanwhile, the online ad market grew by $23.5 billion in 2015, Goldman Sachs said. Google’s net advertising revenue increased by $6.9 billion, while Facebook’s ad revenue increased by $5.6 billion.

Alibaba Rival Tencent’s Profit Jumps 33% On Mobile Games, Entertainment

Tencent Holdings’ investment in NBA broadcasts, mobile games and entertainment content is paying off, driving first-quarter earnings at Asia’s biggest instant messaging company to a record. Net income climbed 33 percent to 9.18 billion yuan ($1.4 billion), the Shenzhen-based company said on Wednesday. That compares with the 8.71 billion-yuan average of estimates compiled by Bloomberg. After converting WeChat and QQ from message services into social network giants, with more a billion combined users, Tencent ( TCEHY ) added streaming content such as National Basketball Association games to attract big-budget advertisers. That spurred a 73 percent surge in online ad revenue during the quarter, even as the Chinese economy slows. “Advertising is rising at a much faster pace than the rest of the company,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. “It has a huge advantage in attracting advertisers with its huge traffic volume via instant messaging, its portals and video sites.” Sales jumped 43 percent to 32 billion yuan in the quarter, beating estimates for 30.3 billion yuan. Revenue from the Value Added Services unit, which includes online games and messaging, rose 34 percent to 25 billion yuan. Adding titles such as Wind Saga and Kungfu Frontier not only helps make money from existing users, it attracts even more customers to the platforms. The company is buying up the rights for anime, comics and novels to convert them into content and boost its slice of a China mobile gaming market expected to reach 68.8 billion yuan by 2018. WeChat had 762.4 million monthly active users and the mobile version of QQ had 658 million users at the end of the quarter. Adding online payments and facilitating e-commerce are part of Chairman Ma Huateng’s efforts to make money from China’s 688 million Internet users. Shares of Tencent fell 1.1 percent to HK$161.10 in Hong Kong before earnings were announced. The stock has gained 5.6 percent this year, compared with a 2.4 percent drop for New York-listed Alibaba Group Holding ( BABA ). To strengthen its dominance in instant messaging, it created a service called Enterprise Weixin for the office that enables chat and company notices. Ma has identified online health care, education and the anime industry as potential areas of growth for this year. In a proposal to China’s National People’s Congress this year, Ma suggested that the government allow doctors to freelance, build online personal medical files, and relax digital content policies to help China’s Internet sector to prosper. The company is in the process of raising as much as $4 billion in a syndicated loan to fund its expansions, people familiar with the matter said in May. Tencent announced 40 deals worth $19.6 billion of acquisitions and investments in the past 12 months, according to data compiled by Bloomberg.