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Market Snapshot
As investors comb through a plethora of earnings and economic data and await the Federal Reserve’s monetary policy announcement on 1st Feb ‘23, U.S. stocks concluded a trading session higher. On stocks, logistics giant UPS reported higher-than-forecasted earnings; McDonald’s outperformed forecasts; Pfizer outperformed expectations but provided lower-than-anticipated guidance; and, General Motors outperformed forecasts and provided a bullish outlook for the entire year.
News Summary
Netflix had a surprisingly strong fourth quarter, with both profit and membership growth exceeding expectations. According to its recent earnings report, operating income fell by 64% since last quarter despite new subscribers growing by 7.7 million instead of the forecasted 4.5 million. Typically, margins in the fourth quarter are low because that’s when Netflix spends the most on content and marketing. However, this quarter’s revenue came in 1.7x higher than last quarter’s forecast, primarily due to the growth and retention of subscribers. Netflix plans to accelerate its revenue growth by launching paid sharing and building its ads offering.
A new digital wallet is being built by a consortium of big US banks (Wells Fargo, Bank of America, JPMorgan Chase, and four others) to compete with PayPal and Apple Pay. The product would be managed by Early Warning Services, the bank-owned technology provider behind Zelle, the latter being the peer-to-peer money transfer service with over 100 million users. The service would link to users’ debit and credit cards and ease online checkout on merchant websites. Based on a McKinsey survey, 69% of American consumers use a digital wallet when shopping online. This new digital wallet will give banks access to revenue and user data during these transactions.
As impressive as ChatGPT is, its current version has severe limitations. As mentioned in our blog, the system runs probabilistic inference of the large language model and renders the highest likelihood response. The AI is trained on billions of words extracted from the internet, and since parts of the internet are rife with toxicity and bias, the quality of responses is easily affected. This was an issue with ChatGPT’s predecessor GPT-3, which would often give violent, racist, or sexist responses. To tackle this challenge, OpenAI, ChatGPT’s developer, used outsourced Kenyan workers to manually identify texts with descriptions of violent or sexual content. Incidentally, Time magazine released a report on its investigation of OpenAI’s labor practices in relation to these “invisible” workers.
Adani Group – an India-based multinational conglomerate run by the world’s fourth-richest person, lost $12 billion in market value after coming under attack from a short-seller. Nate Anderson’s Hindenburg Research levied fraud accusations against Gautam Adani and the group of companies in his name. Following a 2-year investigation, Hindenburg Research published a lengthy report detailing “brazen stock manipulation and accounting fraud schemes” over the course of decades. The allegations include corporate fraud, tax havens, offshore shells, capital siphoning, money laundering, and tax theft.
After announcing plans to lay off 10,000 employees, Microsoft reported a mediocre second quarter. Quarterly revenue increased by 2%, largely thanks to continued growth in its cloud computing unit. Meanwhile, the Personal Computing division, which includes Windows, Xbox, and PC hardware, fell by 19% as a result of the PC market downturn. CEO Satya Nadella suggested customers were being a bit more circumspect in their spending: “Organizations are exercising caution given the macroeconomic uncertainty.”
