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In today’s edition
- BYD: Europe strategy
- Disney: Mixed results
- Reddit: First earnings report post IPO
- Robinhood vs. SEC
- Bitcoin mining and energy consumption
Market Snapshot
US stock markets gained for the week, driven by resilience despite economic concerns. The S&P 500 climbed 1.9% to 5,222.68, marking its third consecutive weekly rise. The Dow Jones Industrial Average also advanced, gaining 2.2% to 39,512.84, while the Nasdaq Composite increased by 1.1% to 16,340.87.
Investor sentiment was tested by a significant drop in the University of Michigan’s preliminary Index of Consumer Sentiment for May, which fell to its lowest in six months at 67.4. This decline highlights ongoing worries about high inflation and its impact on consumer purchasing power, coupled with disappointing job market data suggesting an economic slowdown. These factors are closely watched as they influence the Federal Reserve’s decisions on interest rates.
Looking ahead, key reports on the Producer Price Index (PPI) and Consumer Price Index (CPI) scheduled for next week will provide further insights into inflation trends and potentially guide the Federal Reserve’s policy decisions.
Stock market closing data for the week of May 6th to May 10th, 2024
News Summaries
BYD, backed by Warren Buffett’s Berkshire Hathaway, aims to become the top battery-electric vehicle (BEV) seller in Europe by the decade’s end, outpacing rivals like Volkswagen and Tesla. This ambition follows its temporary status as the world’s largest EV brand last year. Despite a 42% drop in global EV deliveries in early 2024, BYD plans significant investments in European production to localize manufacturing, addressing logistical challenges and potential tariff impacts amid EU investigations into subsidy-driven price cuts by Chinese carmakers. The strategy includes launching a budget model, the Seagull, in Europe for under €20,000 and expanding local manufacturing with new factories in Hungary and potential additional sites. This move is poised to enhance competitiveness in a region slow to adopt charging infrastructure, evidenced by BYD’s current 1.7% market share in Western Europe as of the first quarter of 2024.
Despite Disney’s (Explore: DIS) streaming services posting their first operating profit of $47 million, reversing a previous $587 million loss, Disney shares fell this week due to concerns over slowing growth in its theme park division. The theme parks had seen a robust recovery post-pandemic, but hints of a cooling travel demand have worried investors. Additionally, the company reported a net loss of $20 million overall, attributed largely to goodwill impairments, despite a revenue of $22.1 billion. Excluding impairments, Disney’s adjusted earnings exceeded expectations, rising 30% year-over-year. The streaming sector’s progress, achieving profitability earlier than anticipated, marks a significant shift, although challenges like the upcoming losses from Disney+ Hotstar in India indicate mixed prospects ahead.
Reddit’s (Explore: RDDT) first earnings report since its IPO showcased a significant 48% increase in revenue to $243 million, surpassing the expected $214 million, driven by a 37% rise in daily active users to 82.7 million and an expanding advertising business. Despite a larger-than-expected net loss of $575 million, primarily due to IPO-related expenses, Reddit achieved its first adjusted quarterly profit of $10 million. The company’s share price soared over 12% after hours as it raised its Q2 revenue forecast to between $240 million and $255 million. CEO Steve Huffman highlighted ongoing investments in product quality and AI to enhance user engagement and moderation, while COO Jen Wong expressed uncertainty about the second half of the year, citing potential impacts from the US election on advertising.
Robinhood (Explore: HOOD), a brokerage with over 23 million investors and $119 billion in assets, has received a Wells notice from the SEC, indicating potential enforcement action over its cryptocurrency operations. Despite generating $135 million from crypto transactions in the previous year, Robinhood has avoided certain crypto services to comply with SEC regulations. The company, which has previously settled with the SEC for $65 million in 2020 and faced over $70 million in penalties from Finra in 2021, expressed disappointment at the SEC’s move, arguing that the cryptocurrencies listed are not securities. This legal stance emerges amid heightened SEC scrutiny following the FTX collapse and could lead to significant legal battles, with Robinhood’s management indicating a reluctance to settle, anticipating potential regulatory shifts after SEC chair Gary Gensler’s term ends within two years.
From the World of Crypto
The recent Bitcoin halving event on April 20 significantly reduced miner revenues, effectively halving them, which typically leads to the decommissioning of older, less efficient mining hardware. Despite this expected outcome, the Bitcoin network’s difficulty, a metric that gauges the computational effort required to mine Bitcoin, unexpectedly increased. This increase suggested an influx of new or more efficient mining machines joining the network, potentially buoyed by the temporary spike in transaction fees triggered by the introduction and quick downturn of the Runes protocol for Bitcoin tokens.
However, as the novelty wore off and the transaction fee surge subsided, the economic reality set in, leading to a decrease in mining activity. At the second difficulty adjustment post-halving, the network’s difficulty level returned to its pre-halving state. This adjustment indicates that some mining operations have ceased, aligning the network’s energy consumption more closely with the reduced miner revenue and illustrating a re-balancing of operational efficiency versus profitability within the Bitcoin mining ecosystem.
