Founder, Chairman, CEO and President of Amazon Jeff Bezos gives a thumbs up as he speaks during an event about Blue Origin’s space exploration plans in Washington, U.S., May 9, 2019.
Clodagh Kilcoyne | Reuters
At an all-hands staff meeting in March, Amazon CEO Jeff Bezos told employees that he’s fascinated by the recent developments in the auto industry, adding that it was one of the main reasons why Amazon led a $700 million investment in the electric vehicle startup Rivian in February.
“If you think about the auto industry right now, there’s so many things going on with Uber-ization, electrification, the connected car — so it’s a fascinating industry,” Bezos said according to a recording of the meeting CNBC has heard. “It’s going to be something very interesting to watch and participate in, and I’m very excited about that whole industry.”
Bezos’s comments give a rare glimpse into his interest in the auto industry, which Amazon entered in February through its investments in Rivian and another self-driving tech start-up, Aurora. Investing in autonomous technology could eventually help Amazon offer faster and cheaper delivery, as well as automation in other areas, like its cashier-free grocery stores.
Rivian is best known for its electric trucks and has raised $1.4 billion in funding so far, including $500 million from Ford in April. Aurora, a self-driving tech startup run by former Uber, Google, and Tesla executives, is now reportedly worth over $2 billion following its $530 million funding round in February.
Following those two investments, Amazon’s ownership stake in private companies shot up to almost $1.4 billion last quarter, marking the first time it crossed the $1 billion mark since disclosing that figure in 2015. That’s up by almost $1 billion from the previous quarter, and roughly five times more than what it owned just two years ago, filings show.
Amazon doesn’t break out individual investment amounts, but discloses the total value of its equity and equity warrant investments in both public and private companies.
Amazon did not respond to a request for comment.
Investing in autonomous companies gives Amazon “greater insights into cutting edge technology” that could directly help its core e-commerce business, according to Gene Munster, an analyst at Loup Ventures. The investment in electric and self-driving cars, for example, could give insights into improving Amazon’s last mile logistics strategy and potentially reduce its overall shipping costs, he said. Amazon’s shipping cost jumped 21% to $7.3 billion last quarter.
“It’s a form of outsourced R&D,” Munster said.
There are many ways that autonomous technology could help Amazon. In January, for example, Amazon rolled out a new self-delivery robot called Scout, and it has also partnered with self-driving truck startup Embark to handle parts of its cargo shipments. When it first launched the Amazon Go cashierless stores in 2016, Amazon said it used the same technology found in self-driving cars.
More important, the investments signify Amazon’s growing appetite for spending on other companies, both public and private, as the company faces slowing growth despite hitting record profits and cash flow.
In the first quarter, Amazon had $4.4 billion in operating profit and a cash balance of $47 billion, both record-highs. But its quarterly revenue growth was just 16.9%, the slowest since 2015.
Meanwhile, filings show that Amazon spent a total of $1.2 billion in cash payments related to “acquisition and other investment activity” in the first quarter, a record amount for a single quarter excluding the third quarter of 2017, when it spent $13.7 billion to buy Whole Foods. During the quarter, Amazon bought Eero for roughly $100 million and CloudEndure for $250 million, while its two largest investments were in Rivian and Aurora, according to Pitchbook. Amazon continues to be an aggressive investor this quarter, having led the $575 million funding round in Deliveroo last week.
While that’s a tiny amount relative to Amazon’s total revenue ($232 billion in 2018) or assets ($178 billion as of the first quarter), it’s still a notable shift from its reputation for being a low-key corporate investor, according to Daniel Aobdia, an accounting professor at Northwestern University.
“Amazon is stepping up its investment in start-ups, and this has been made easier because of the increased cash flows from operations,” said Daniel Aobdia, an accounting professor at Northwestern University. “This is an interesting development, in line with Amazon being interested in expanding its businesses in several different directions.”
During the March staff meeting, Bezos tried to temper expectations by saying that he doesn’t view the Rivian investment to turn into Amazon’s next growth driver yet. He said it’s still just a minority investment and electric cars wouldn’t become the company’s next major “pillar” anytime soon.
But he went on to highlight one other reason he was drawn to the Rivian investment: its founder and CEO R.J. Scaringe. Calling him “incredible,” Bezos touted Scaringe’s decade long experience in the auto space, adding that his personality perfectly fits in with Amazon’s culture and values.
“As with most of our major investments, and acquisitions, we’re always looking for mission-driven entrepreneurs — missionaries instead of mercenaries,” Bezos said. “And the guy who leads the company, a guy named R.J., is one of the most missionary entrepreneurs I’ve ever met.”
UBS earnings Q2 2019
UBS announced a net profit of $1.4 billion for the second quarter of 2019. This compared to a net profit of 1.28 billion Swiss francs ($1.29 billion) in the second quarter of 2018.
The Swiss-lender announced that this is the highest second-quarter net profit since 2010. The profit boost comes in despite declines in both its investment bank and wealth management divisions.
Here are some key highlights for the quarter:
- Operating income hit $7.5 billion versus $7.6 billion a year ago
- Return on tangible equity stood at 11.9% versus 12% a year ago
- Common equity tier 1 capital ratio of 13.3% versus 13.4% a year ago
“We saw a normalization of the environment coming out of a good March into the rest of the quarter. I’d say the highlights were clearly: diversification paid off again,” Sergio Ermotti, chief executive officer of UBS told CNBC’s Joumanna Bercetche.
UBS shares hovered around the flatline shortly after the market open.
Global Wealth Management down
UBS, however, saw a decline in its global wealth management business compared to a year ago. The bank reported an operating profit of $886 million compared to over $1 billion in the second quarter of 2018.
Profits in its investment bank division also fell from a year ago. It registered an operating profit of $440 million in the second quarter for this year compared to $571 million a year ago.
Speaking to CNBC, Ermotti explained that “the u-turn in the interest rate environment in the U.S. has created pressure.”
Market expectations point to an interest rate cut by the Federal Reserve later this month. The central bank had embarked on a normalization path in 2015, after the global and sovereign debt crises. However, recent data has shown worsening economic conditions in the U.S.
In Europe, the outlook is similar for monetary policy. The European Central Bank (ECB) said in May that if incoming economic data does not show an improvement, then the central bank will be prepared to announce more stimulus.
Ermotti told CNBC that he is not sure whether further easing will propel the economy. “I’m not sure going deeper into negative territory or using the QE (quantitative easing) is the way to get out of the problems…We need more structural answers,” he said.
Ermotti warned “there are severe broader considerations than just the banking industry” from low rates.
Ermotti’s comments come in after the Swiss-lender warned in its latest results that a return to monetary stimulus from various central banks could dent profits going forward. “A sharp drop in interest rates and expected rate cuts will continue to adversely affect net interest income compared with last year,” UBS said.
However, the Swiss bank expects that a diversified business, stronger investor sentiment and higher market volatility will help offsetting impacts from changes to monetary policy.
In the previous quarter, UBS had announced that cutting an extra $300 million from its 2019 costs after anticipating the fall in revenues.
“We constantly look at ways from a structural and tactical point of view, and the 300 million were pretty much tactical. We always think constantly on how to optimize our cost base but at the same time we are investing in the future,” Ermotti said Tuesday.
Q2 net profit falls 18% amid Popular costs
Santander said on Tuesday second-quarter net profit fell 18% from a year earlier, due to one-off restructuring costs from its acquisition of troubled lender Banco Popular and a weak performance in Britain.
The euro zone’s largest bank in terms of market cap — which took over Banco Popular in June 2017 — reported a net profit of 1.39 billion euros ($1.56 billion) for the April to June period, topping analysts’ expectation of 1.29 billion euros in a Reuters poll.
Steady growth in Latin America business volumes, where it makes 46% of its earnings, was not enough to offset charges of 706 million euros, mainly in Spain.
Like its European rivals, Santander is struggling to lift earnings from loans in its home market with interest rates hovering at historic lows.
“We have delivered the strongest underlying quarterly performance in over 8 years, reflecting the progress that we have made in our commercial and digital transformation,” Jose Garcia Cantera, chief financial officer of Santander, told CNBC’s “Squawk Box Europe.”
“Our businesses in both North and South America continue to perform extremely well and while the charges relating to ongoing infrastructure in Europe have impacted attributable profit — something that we anticipated — we are already starting to see the value that this will create going forward,” Cantera said.
Net interest income, a measure of earnings on loans minus deposit costs, was 8.95 billion euros, up 5.6% from the second quarter of last year and 3.1% higher against the previous quarter due to a solid lending growth in Latin America.
Analysts had forecast a NII of 8.76 billion euros.
In Britain, its third-largest region, profit fell 41%, partly due to restructuring costs of 26 million euros and provisions of 80 million euros.
Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank’s strength, of 11.3%, compared with 11.23% in the previous quarter.
Shares of the bank were up over 2% shortly after the opening bell.
Coca-Cola raises revenue forecast after earnings beat
Coca-Cola on Tuesday reported quarterly earnings and revenue that beat analysts’ expectations, driven by sales of its namesake soda brand.
Shares of the company jumped 5.6% in early trading. The beverage giant’s stock, which has a market value of $230.6 billion, is up 14% in 2019. Shares of rival PepsiCo, which are valued at $182.8 billion, have been closing the gap with Coke, rising 18% over the same period.
“Our strategy to transform as a total beverage company has allowed us to continue to win in a growing and vibrant industry,” CEO James Quincey said in a statement.
Here’s what the company reported for its fiscal second quarter compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Adjusted earnings per share: 63 cents, adjusted, vs. 61 cents expected
- Revenue: $10 billion vs. $9.99 billion expected
The beverage giant reported net income of $2.61 billion, or 61 cents per share, up from $2.32 billion, or 54 cents per share, a year earlier.
Excluding items, Coke earned 63 cents per share, topping the 61 cents per share expected by analysts surveyed by Refinitiv.
Net sales rose 6% to $10 billion, narrowly beating expectations of $9.99 billion. Coke raised its full-year outlook for revenue and now expects organic revenue growth of 5% rather than 4%.
“We think the dollar is towards the end of a strong cycle,” CFO John Murphy said.
The company attributed its strong performance during the quarter to 4% volume and transaction growth in Coke’s namesake brand. Its Zero Sugar line once again saw double-digit volume growth across the globe.
Quincey told analysts that nearly 25% of the company’s revenue now comes from new or reformulated beverages, up from 15% just two years ago.
During its second quarter, Coke partnered with Netflix to bring back New Coke and help promote the third season of “Stranger Things.” It also rolled out Coca-Cola Plus Coffee in more markets, as the company expands into different kinds of caffeinated drinks.
That includes Coke’s first energy drink under the Coca-Cola brand. Coca-Cola Energy uses caffeine from naturally derived sources and is available in 14 countries, including Japan and South Africa. By the end of 2019, the beverage giant plans to bring it to Mexico, Brazil and four more countries.
Quincey declined to share any plans to sell Coca-Cola Energy in the U.S. but said it would benefit the company to wait to learn more from early markets before entering its home market. In July, an arbitrator ruled that Coke can peddle the energy drink under the terms of its contract with Monster Beverage.
The company has also launched its first product line with Costa Coffee since it acquired the U.K. coffee brand in January for $4.9 billion. The canned coffee drinks contain double shots of espresso and will launch in Poland and China this year. There are no plans to introduce the ready-to-drink coffee beverages in the U.S.
Coke reiterated its fiscal 2019 earnings forecast, saying that earnings per share could fall or rise by 1%. The company had pointed to currency fluctuations, Fed rate hikes and changing tax rates as reasons for its gloomy earnings projection. Murphy told analysts on the conference call Tuesday that “currencies have gotten worse,” but he expects a more “benign” currency environment in 2020.
Net sales in the Asia Pacific and Europe, Middle East and Africa segments were flat for the quarter, largely due to the impact of currency. Revenue in Latin America fell 6% because of a 13% currency headwind, although Coke said it had strong performance in Mexico and Brazil. Quincey told analysts that Mexico’s economic growth is slowing, so the company is tweaking its strategy for the country.
North America was the only region to reported net revenue growth. Price hikes and packaging initiatives helped propel revenue growth of 2%. The company said that it saw strong performance from soda, water, sports drinks, juices and dairy and plant-based beverages.
Correction: An earlier version misstated the amount of the Costa deal. It was $4.9 billion when it closed, according to a Coca-Cola spokesperson.
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