Ticker Reports for September 8th
GE Vernova's Rally Could Continue as Wind Business Gains Ground
Shares of energy business GE Vernova LLC (NYSE: GEV) surged to all-time highs at the end of August, the first time the firm's stock ascended to $200 per share since it was spun off from parent company General Electric Co. (NYSE: GE) several months prior. The recent uptick in share price may be most closely linked to a massive increase in global power demand thanks to economic growth, the proliferation of new technologies making use of sizable quantities of electric power, and summer heatwaves.
Stepping back from the advantageous position GE Vernova currently enjoys as a power supplier in a high-demand environment, investors will want to know whether this newly independent company can maintain this upward trajectory over a longer period. Though GE Vernova was only listed earlier this year, it benefits from legacy infrastructure that allows it to include upstream and downstream power generation operations and a broad array of wind, gas, and electricity products and services.
Mixed Earnings Reveal Positive Income, Cash Flow Trends
GE Vernova's second-ever quarterly report contained mostly good news and some bad news. At a crucial time when demonstrating profitability is crucial, the company delivered a net income of $1.3 billion, leading to EPS that beat analyst predictions.
Additionally, the energy firm turned around last year's pre-spin-off cash outflows, instead generating cash flow from operating activities of slightly under $1 billion. This left GE Vernova with a cash balance of $5.8 billion at the end of the quarter, healthily balanced against total debt of under $1 billion.
One area that was lacking was revenue, as total revenues of $8.2 billion represented just a 1% year-over-year improvement and fell short of consensus estimates.
GE Vernova's Power Unit Buoys Other Business Lines
By far the best-performing of GE Vernova's three units in terms of revenue, Power experienced orders growth of 30% year-over-year for the most recent quarter. A full $4.5 billion of quarterly revenue—more than half of total revenues for the period—came from the company's Power unit.
For GE Vernova, the strength of its power business means it has the flexibility to adjust and improve its electrification and wind arms, with a particular focus on the latter. For the second quarter, the company's Wind unit saw orders and revenues decline. This unit was the only one of GE Vernova's three primary business lines to experience declines in both of those categories. As a result, Wind remains unprofitable, although its situation is improving. With cash on hand and supported by strong power demand, GE Vernova can shift its focus toward profitable on shore wind projects in favor of costly offshore projects.
Despite a 44% year-over-year decrease in Wind orders, revenue for that segment fell at only half that rate, suggesting that GE Vernova's wind business is experiencing beneficial pricing momentum.
GEV's Big Bump From Jefferies
To start September, analysts from Jefferies began covering GE Vernova with an initial buy rating and a lofty price target, giving the company a 30% upside potential. As a fledgling independent company, retail investors may be inclined to wait to hear from analysts across Wall Street before making significant moves on Vernova shares. It's no surprise, then, that the share price reached its peak around the same time as Jefferies released its commentary.
Another major question from potential investors—and one that analysts cannot answer—is both whether and when GE Vernova may begin to issue dividends. Not only would doing so entice investors with the potential for passive income on their investments, but it would also further strengthen the company's signaling that its financial health and cash positions are strong. If the company is prioritizing reconfiguring its Wind arm, it may be less likely that we'll see dividend payments start up until a later quarter.
Positioning and Demand for GE Vernova
GE Vernova currently benefits from two vital advantages: it has well-established divisions across multiple power modalities, and each of those units stands to benefit from a protracted increase in global power demand. To be prepared to continue to ride the recent rally beyond this particular moment, the company is moving to maximize efficiency in its Wind business, a move that could bring this segment into profitability and further boost top- and bottom-line performance.
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DraftKings vs. DoubleDown: Growth in the Online Gambling Boom
Online betting is a large and fast-growing business: as of 2023 the U.S. online gambling market was estimated to have revenue of around $11 billion, with an industry-wide compound annual growth rate through 2030 of an impressive 12%. The majority of American adults (55%) participated in at least one form of gambling in the last year and placed around $120 billion in legal sports bets. And online betting is increasingly popular as it becomes widely legalized throughout the U.S.
With so much potential for growth in the industry, online betting companies like DraftKings Inc. (NASDAQ: DKNG) and South Korean firm DoubleDown Interactive Co. Ltd. (NASDAQ: DDI) are jostling for dominance and market share. There are significant differences between these two firms—DraftKings has a market capitalization of over $31 billion, many times that of DoubleDown at around $700 million, for example, and they focus on sports betting and casual mobile gaming, respectively—but in an industry that is rapidly shifting each offers both draws and potential barriers for investors.
DraftKings: Strong Market Share, Dominant Technology, Thorny Regulatory Landscape
As one of the oldest online betting companies—it launched in 2012, years before the 2018 Supreme Court decision that allowed states to authorize online sports betting individually—DraftKings has built a position as a major player in the U.S. sports betting market. Together with rival Flutter Entertainment plc (NYSE: FLUT), the parent company of FanDuel, DraftKings enjoys the majority of market share in this country.
One of the keys to DraftKings' success has been its size and influx of revenue, as the firm reported second-quarter revenues of $1.1 billion, a 26% year-over-year improvement driven by both continued engagement from existing customers and new customer business.
DraftKings also aggressively expands its offerings and strengthens its position as a technological leader in the space through acquisitions. In late August, it announced plans to acquire B2B micromarket pricing company Simplebet, a company that utilizes machine learning and automation to supplement the betting experience for customers. While this expansion strategy has meant periods of net losses—it reported net losses attributable to shareholders of $78.7 million in the latest quarter, an improvement of nearly $475 million in net losses one year previously—it has effectively squeezed many would-be competitors out of the market.
DraftKings offers sports betting in 25 states and Washington, D.C., and it must contend with a varied set of regulations as it continues to expand its offerings. This has implications for its financial position: in its latest quarterly report, DraftKings reduced its fiscal 2024 adjusted EBITDA guidance range to between $340 million and $420 million, down from a range of $460 million to $540 million, in part because of a tax rate change in Illinois.
DoubleDown Interactive: Small in Size, But Impressive Fundamentals
In the second quarter, DoubleDown's revenue climbed by over 17%, an impressive achievement in a landscape in which social casino gaming is declining but nonetheless growing at a slower pace than DraftKings. DoubleDown's revenue growth was also fueled in part by acquisitions, including last fall's acquisition of iGaming technology firm SuprNation, but it rose also thanks to a 27% surge in average revenue per daily active user.
DoubleDown's strengths also include operational efficiency. In the latest quarter, it lowered sales and marketing expenses year-over-year, driving net margins of 34.9%. Thanks to free cash flow of $34 million, it ended the quarter with over $300 million in cash and cash equivalents.
The firm may be undervalued thanks in part to its small size and relative obscurity compared with larger rivals. It enjoys a forward P/E ratio of 6.0 and a P/B ratio of 0.9.
DKNG vs. DDI: Two Solid Options
In the past year, DraftKings shares are up just under 18% while DoubleDown stock has risen nearly 45%. What's more, analysts view both DraftKings and DoubleDown as solid options with plenty of upside potential: average price targets project 39% upside for DraftKings and 43% for DoubleDown.
Key distinctions between the companies could drive investors to one or the other, including overall size and market type and the fact that DoubleDown has maintained profitability while DraftKings has spent more heavily to grow.
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Blade Air Mobility: This Under-the-Radar Stock Could Double Soon
Blade Air Mobility (NASDAQ: BLDE) is not only a stock with an interesting name, but it could also be a big-time investment, according to Wall Street analysts. Its average price target of $7.30, implies this stock could provide a double bagger return or greater.
However, the skies haven’t been all that clear lately for the firm’s share price. The company’s three-year total return is -67%, and year to date, it's down 18%. This leaves the industrial company greatly trailing its sector in 2024. The Industrial Select Sector SPDR Fund (NYSEARCA: XLI) has provided a total return of over 12%.
Let’s explore what exactly Blade Air Mobility does and its opportunities to understand the potential reasoning behind analysts' bullishness.
Blade: An Innovator in Urban Air Logistics
Blade has two operating segments: Passenger and Medical. The Passenger segment consists of two key products: short-distance and jet. The short-distance product provides helicopter and seaplane travel in the U.S., Canada, and Europe for distances under 100 miles.
Meanwhile, the jet product primarily generates revenue through charters and by-the-seat transport between New York and South Florida.
One key point about Blade’s business model is that it only owns 10% of its aircraft. Described as "asset-light," the company contracts out most of the actual flying to third parties. Blade pays these parties fixed hourly rates, ensuring that they only bear costs when flights actually occur.
Blade provides value in organizing the logistics of this travel. Its “customer-to-cockpit” software allows it to manage and track flights in real-time. It also provides passengers, pilots, and hospitals with customized information that is important to them.
The Medical segment contains the MediMobility Organ Transport service. This service transports human organs from donors to recipients quickly. When donating organs, it is important to complete the process fast.
For example, if someone needs a heart transplant, they will only be able to get it from a recently deceased donor. Once you remove the heart from the body, it can only survive for several hours. In this scenario, Blade’s software would organize the logistics of transporting the organs quickly. Blade’s aircraft operators would then transport the heart from the donor’s hospital to the recipient's hospital to help ensure the transplant would be successful.
At the beginning of the firm’s history, its passenger segment was the primary source of revenue. However, in 2022, the company unlocked a massive demand in the medical segment, and revenues increased by 380%.
Mixed Recent Financial Performance
Strong growth in the segment continued in 2023, with revenue rising 76%. Over the past six months, MediMobility made up 62% of the firm’s total revenue. Short distance accounted for 26%, and Jet accounted for 12%.
Over two of the last four quarters, the company has achieved positive earnings before interest, taxes, depreciation, and amortization (EBITDA). The first time it achieved this was in Q3 2023. The operating margin of the last 12 months improved from -41% in Q2 2022 to -17% in the latest quarter.
However, revenue growth has slowed rapidly, coming in at just 11% last quarter. Blade is still a small firm and needs to find a way to grow faster.
Geographic Expansion and Next-Gen Aircraft Could Reinvigorate Growth for Blade
In the long term, analysts may base their lofty price targets for Blade on an infusion of growth and profitability through two ways: geographic expansion and Electric Vertical Aircraft (EVAs). Blade has a lot of room to expand within the U.S., where it gets 84% of its revenue.
Blade's primary markets right now are New York, Los Angeles, and Miami, but it can still expand to many other cities throughout the country and internationally. Blade's new partnership with Qatar Airways will connect customers with helicopter transit to Monaco.
Additionally, the adoption of EVAs could help reduce costs and increase profits. Companies like Joby Aviation (NYSE: JOBY) and Archer Aviation (NYSE: ACHR) are working on this technology. Experts expect Joby's revenues to rise to $1.8 billion by 2029. Today, they are almost nothing. This suggests a potential explosion in demand for this technology over the coming years.
Blade predicts that using EVAs could immediately translate to a 14% cost reduction per flight and, over time, a 24% cost reduction. This would go a long way toward helping the firm be consistently profitable. It could also promote growth, allowing the firm to charge lower rates and reach a group of less wealthy customers.
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