Microsoft’s Nuance’d Buyout, Alibaba Bites Billions & Uber Reality
Microsoft’s New Dragon Force
On a cold April morning, in the time before the market light. In flames of Microsoft’s eternal reign, we ride toward the fight…
That, Great Ones, is about all the lyrics I know to DragonForce’s “Through the Fire and Flames.” What? It’s a really fast song.
Anywho, Microsoft (Nasdaq: MSFT) announced this morning that it is buying Nuance Communications (Nasdaq: NUAN) for $16 billion — making this Ol’ Softy’s second-biggest acquisition ever, right behind the $26 billion it paid for LinkedIn back in 2016.
Nuance might not ring a bell for many of you, but the company specializes in using artificial intelligence (AI) for speech recognition. It also makes one of the most popular speech-to-text software packages on the market: Dragon NaturallySpeaking. (Hence the DragonForce lyrics up above. Cheesy, I know, but it’s Monday … what are ya gonna do?)
Now, you might be thinking: “Sure, speech-to-text is cool and all … but it’s not $16 billion cool.”
If Nuance’s only claim to fame was allowing my father-in-law to send weirdly worded texts via speech-to-text on his smartphone … I would be first in line to agree with you. I mean, let’s be real. The combination of speech-to-text and smartphone autocorrect has birthed some interesting conversations to say the least.
However, the real value in Nuance’s AI technology is more … shall we say, nuanced?
No. No, we shall not say that at all. We shall groan at that pun. That’s what we shall do.
Fair enough. Then let’s get to the point, shall we? Nuance’s biggest revenue generator is providing speech transcription tools for the healthcare industry. Its health care speech-to-text AI package can transcribe doctor’s visits, customer service calls and voice mails.
Just imagine legible doctor’s notes! It boggles the mind. I joke, but data accuracy in health care is a must, and Nuance is at the forefront of making that happen. Well … after the $16 billion acquisition, Microsoft is now at the forefront of health care data accuracy.
Microsoft plans on utilizing Nuance’s AI software in its health care cloud products division, which was launched last year. In a post on Twitter, CEO Satya Nadella wrote: “AI is technology’s most important priority, and healthcare is its most urgent application. Together with Nuance, we will put advanced AI solutions into the hands of professionals to drive better decision-making and create more meaningful connections.”
Cool beans. Personally, I was hoping for a sell-off on the news so that I could pick up MSFT stock at a discount. No dice on that front, however. Despite the overall market trending lower today, MSFT bounced between breakeven and fractional gains — which is something given the size of the buyout and investors’ nervousness in the market lately.
Through the fire and flames, Microsoft bulls carry on.
And you? Why … I have your biggest AI tech opportunity right here!
The Good: Alibaba & The 40 Thieves
Because mutiny on the bounty’s what we’re all about, Alibaba’s (NYSE: BABA) gonna board your ship and turn it on out.
The Chinese e-commerce giant heaved a massive sigh of relief this morning. You might remember that Alibaba was under scrutiny by the Chinese government for anti-competitive practices.
There was even talk of breaking up Alibaba, though that was mostly analyst speculation.
In reality, China settled on fining Alibaba $2.8 billion — a record fine by Chinese regulators — and a requirement that Alibaba submit a “self-examination compliance report” within three years. It’s no “Yo ho ho and a bottle of brass monkey,” but it’s better than a breakup or harsher penalties, that’s for sure.
In a statement, Alibaba accepted the penalty with grace:
The penalty issued today served to alert and catalyze companies like ours. It reflects the regulators’ thoughtful and normative expectations toward our industry’s development. It is an important action to safeguard fair market competition and quality development of internet platform economies.
Well, “grace” is a nice way of saying: “Thank you for not breaking us up. We’ve learned our lesson … probably.”
Alibaba bulls were relieved to have this whole debacle behind them, as BABA shares surged more than 8% on the news.
The Bad: Cached Out
You’d think that pandemic-induced lockdowns would be a boon for cannabis companies. Nowhere to go and nothing to do but watch TV, play video games and partake in the devil’s lettuce. But, as Aphria’s (Nasdaq: APHA) quarterly report shows, it’s not quite that simple.
The Canadian cannabis company reported a fiscal third-quarter loss of $0.15 per share, down from a profit of $0.02 per share last year and triple Wall Street’s expectation for a $0.05 per share loss.
Net revenue also missed expectations, arriving at C$153.6 million versus Wall Street’s target of C$161.5 million.
Naturally, Aphria blamed the miss on the pandemic stating that the lockdowns “were greater than we initially anticipated for the cannabis industry.” So, while your customers are in the perfect situation to sit back, relax and smoke a bowl, if they can’t get your product because they can’t leave the house … that’s a bit of a problem.
Despite the poor performance, Aphria remained upbeat about the future, citing “strategic opportunities for incremental growth” and “parlay[ing] our branded consumer products into additional complementary product offerings.”
I’m sure we can both recognize corporate BS speech at this point. Basically, Aphria hopes that growth will return once the pandemic is gone and it sees global opportunities for expansion. Its merger with Tilray (Nasdaq: TLRY) will certainly help there, but I don’t expect real, meaningful growth in the cannabis market until the U.S. finally legalizes it at the federal level.
The Ugly: Gross Uber Bookings
Have you ever seen one of those hot rod cars that smoke their tires at a stoplight?
They’re simultaneously cool and annoying … though, the older I get, the more annoying tire-smoking is.
That’s how I feel about Uber Technologies (NYSE: UBER) today. The company announced that its mobility business (i.e., the ride-hailing we all think of when we think of Uber) exceeded $30 billion in gross bookings in March. It was Uber’s highest gross bookings since March 2020.
It also shouldn’t have been a surprise to Wall Street investors. In fact, Uber’s statement on the increased bookings is essentially a microcosm of the U.S. economy:
As vaccination rates increase in the United States, we are observing that consumer demand for Mobility is recovering faster than driver availability, and consumer demand for Delivery continues to exceed courier availability.
So, vaccines and the end of pandemic lockdowns is increasing demand … and Uber is struggling to meet that demand because it doesn’t have enough drivers. Overall, this is a good development for Uber, as it gives the company pricing strength as it brings on more drivers to meet demand.
However, buried in today’s bullish announcement was another warning for Uber bulls. The company quietly said that the settlement with U.K. drivers — you know, the one that forces Uber to treat those drivers like employees? — will decrease its first-quarter revenue and earnings.
Given that Uber has yet to report a profitable quarter, this is not good news for UBER investors. In fact, if more countries follow the U.K.’s example, this revenue and earnings warning could be downright bearish for UBER.
Are you ready for the earnings rumble?
It’s hard to believe, but we’re heading into earnings season once again this week. So, it’s time to be on the lookout for continued COVID-19 cop-outs and pandemic pretexts. I have a feeling that with the U.S. economy blazing a path to recovery, Wall Street isn’t going to be as forgiving this time around.
Let’s see who’s on the EarningsWhispers.com docket as we rocket toward earnings:
Now that is a bonanza of banks if I’ve ever seen one.
From global financial powerhouses like JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) to financial services behemoth BlackRock (NYSE: BLK) to regional banking giant PNC Financial (NYSE: PNC) … nearly every aspect of the financial sector is on trial this week. And with the stock market rallying and the Federal Reserve maintaining low interest rates, I expect strong results from these financial specialists.
But while financials will rule the week and likely the financial media’s headlines, I’m much more interested in results from three companies that could set the tone for U.S. economic recovery expectations.
The first is Taiwan Semiconductor (NYSE: TSM). With the global semiconductor shortage, everyone will be waiting on pins and needles for Taiwan Semiconductor’s report. But it’s not the prior quarter that investors will be scrutinizing, it’s Taiwan’s outlook for the year. The company provides manufacturing for Apple, Advanced Micro Devices and NVIDIA, just to name a few. So, any update on production could go a long way toward settling concerns over global chip shortages.
The second company I’m closely watching this week is Delta Air Lines (NYSE: DAL) … for obvious reasons. Demand for air travel is on the rise, and Delta’s projections for air travel growth will also serve as a good indicator of U.S. economic growth.
Finally, I’m keeping a close eye on Alcoa (NYSE: AA) … and once again, I’m looking for projections. Alcoa is one of the biggest aluminum producers in the world, and the company could benefit from the Biden $2.9 trillion infrastructure plan and from ramped-up demand in the automotive and aerospace markets.
But that’s just like, my opinion … man. I’m interested in what you think, Great Ones. What companies are you watching this earnings season and why? Drop us a line and let us know at GreatStuffToday@BanyanHill.com.
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Until next time, stay Great!
Editor, Great Stuff