Aiera Investor Event Recap — Week of October 11, 2021

Q3 2021 earnings season kicked off this week with several major financial institutions reporting. Investment banking is at record levels for many, and banking execs provide commentary on macro headwinds such as labor, inflation, and supply chain challenges.

Financials Deliver Strong Q3 Results, Led Primarily by Record-Level Investment Banking & ACL Reserve Releases

Citi: Investment Banking and Trading Revenues | “I’m very proud to tell you that it was Citi’s best M&A quarter and the second best investment banking quarter in a decade and lending in the ICG grew again this quarter, albeit modestly. We also had a very strong quarter in equity markets, with revenues up 40% year-over-year. So despite that normalization in fixed income versus the pretty extraordinary performance of 2020, overall market revenues were only down 5%, and they were up 11% versus the third quarter of 2019.”

• Jane Nind Fraser, CEO & Director, Citigroup | Q3 2021 Earnings Call, October 14, 2021

Morgan Stanley: Investment Banking and Asset Management | “The work we have done to integrate our businesses across Investment Banking is clearly paying dividends. Of note, Investment Banking had its best quarter in history. And within that, M&A also produced its own record quarter. Equities were extremely strong and Fixed Income was stable. The Wealth Management business, which includes E*TRADE now, of course, is growing assets at levels far beyond what we’ve seen. Through the first 9 months, this business added over $300 billion of net new assets, compounding growth on a client asset base of over $4.6 trillion. And we believe this is going to be an economic engine for Morgan Stanley for decades to come.”

• James Patrick Gorman, Chairman & CEO, Morgan Stanley | Q3 2021 Earnings Call, October 14, 2021

Bank of America: Reserve Release and Net Charge-Offs | “On credit, we had a $242 million reserve release this quarter, however, the more direct indicator of improved asset quality is the decline in net charge-offs. Net charge-offs of $489 million were down 26% year-over-year and 22% lower quarter-over-quarter. Our credit card net loss rate for the quarter was 1.7%. Pre-pandemic, it was over 3%.”

• Paul M. Donofrio, CFO, Bank of America | Q3 2021 Earnings Call, October 14, 2021

JP Morgan: Investment Banking, M&A, and Reserve Release | “It was another strong quarter for investment banking, including an all-time record for M&A. And while loan growth remains muted, we see a number of indicators to suggest it has stabilized and may be poised to begin more robust growth across the company and particularly in card. And consistent with last quarter, credit continues to be quite healthy. In fact, net charge-offs are the lowest we’ve experienced in recent history. Let’s cover reserves… We released $2.1 billion this quarter, driven by less severe downside scenarios as the macro environment continues to normalize.”

• Jeremy Barnum, CFO, JPMorgan Chase & Co. | Q3 2021 Earnings Call, October 13, 2021

Wells Fargo: ACL Reserve Release | “Our results included a $1.7 billion decrease in the allowance for credit losses. This is reflective of the continuing improvement in credit performance and the economic recovery. If current economic trends continue, we would expect to have additional reserve releases.”

• Michael Santomassimo, CFO, Wells Fargo | Q3 2021 Earnings Call, October 14, 2021

Goldman Sachs: Investment Banking, Asset Management, and Wealth Management | “Our performance underscores the strength of our client franchise and a supportive market environment. In Investment Banking, we produced our second highest quarterly revenues. Our clients were extremely active. In Asset Management, assets under supervision hit another record of $1.7 trillion… And in Consumer Wealth Management, we had a record quarter.”

• David Solomon, Chairman & CEO, Goldman Sachs | Q3 2021 Earnings Call, October 15, 2021

Despite Persistent Macro Headwinds (Labor, Inflation, and Supply Chain), Optimism for Economic Growth Remains

Citigroup: Expect Challenges to Persist, But Able to Face Them | “We’re watching 3 things very closely: The slowdown in China and its impact on global growth; inflation and supply constraints in labor, materials and energy; and finally, what happens next with the U.S. debt ceiling negotiations. These are the issues which repeatedly surface in our conversations with clients… Our global network uniquely positions us to help our clients navigate the supply chain challenges so many of them are facing, a dynamic that we expect to persist for the near future.”

• Jane Nind Fraser, CEO & Director, Citigroup | Q3 2021 Earnings Call, October 14, 2021

JPMorgan Chase & Co: With Strong Growth, Inflation Concern Lessens | “I think people are always focusing too much on immediate concerns. If you have inflation of 4% or 5%, we’re still going to open deposit accounts and checking accounts and grow our business. If you look at the actual underlying numbers, we’re getting earnings per second, more customers, more accounts, more share. And at the end of the day, that is what drives everything.”

• James Dimon, Chairman & CEO, JPMorgan Chase & Co. | Q3 2021 Earnings Call, October 13, 2021

Bank of America: The U.S. Economy is Moving Along | “Our own research team expects the U.S. economy to grow 5.5%+ this year and 5.2% next year. These growth rates are more than twice the growth rates that occurred in a pre-pandemic decade or longer. Unemployment rates continue to fall back to pre-pandemic levels. While the U.S. still has issues around labor supply and supply chains of materials, the economy is moving along.”

• Brian Moynihan, Chairman & CEO, Bank of America | Q3 2021 Earnings Call, October 14, 2021

Wells Fargo: Consumers’ Low Debt Burdens are Promising for Economic Outlook | “As we look forward, while there certainly are risks that remain, including the latest wave of COVID infections, the recent U.S. fiscal policy stalemate and inflation concerns, the outlook for the economy is promising. Consumers’ financial condition remains strong with leverage at its lowest level in 45 years and the debt burden below its long-term average. Companies are also strong as well.”

• Charles Scharf, President & CEO, Wells Fargo | Q3 2021 Earnings Call, October 14, 2021

Goldman Sachs: Headwinds Being Monitored, Activity Remains High | “There are a number of emerging areas of uncertainty we’re paying close attention to. First, the trajectory of inflation, particularly wage inflation in the short term. Second, there remains significant uncertainty around the Delta variant. Third, there’s ongoing political debate in the U.S. over economic policy, including the potential for additional infrastructure deals, the longer-term extension of the federal debt ceiling and tax increases. And fourth, the U.S.-China relationship remains complicated. Taken together, these items have the potential to be a headwind to growth… As I look ahead, I remain optimistic about the opportunity set for Goldman Sachs and our ability to grow our firm. Activity levels remain high, particularly in investment banking and we have solid momentum in our asset management client business.”

• David Solomon, Chairman & CEO, Goldman Sachs | Q3 2021 Earnings Call, October 15, 2021

Q3 COVID Commentary — Headwinds, Tailwinds, and Outlook

Walgreens: Long-Term Opportunity Sparked by COVID | “COVID-19 sparked care site migration from primary care physicians, hospitals and even workplaces to pharmacies. We’ve administered more than 40 million COVID vaccines to date and have achieved 21% share of all COVID vaccinations administered in the fourth quarter. And we believe the transition of services from traditional health care settings will continue beyond the pandemic. 61% of health care leaders expect care delivery in nonclinical settings to accelerate post-COVID, and 60% of patients receiving care in hospitals would be willing to receive care in a lower acuity setting.”

• John Standley, President, Walgreens Boots Alliance | Q4 2021 Earnings Call, October 14, 2021

UnitedHealth: Non-COVID Care Expected to Recover in FY22 | “Our businesses are both growing and operating well with strong momentum heading into next year. While the pandemic-related impacts remain difficult to predict, given the current trends, we would expect a lower unfavorable COVID impact than experienced in ’21. Still, as the dramatic variation over the last 20 months has demonstrated to all, prudent management suggests we should offer an outlook respectful of the fact that the current situation is without precedent.”

• John F. Rex, CFO, UnitedHealth Group | Q3 2021 Earnings Call, October 14, 2021

Goldman Sachs: The Worst Days are Behind | “COVID-19 vaccination rates are rising around the world. I believe that we are likely past the worst of the pandemic effects on the global economy. And as technology behind the vaccines continues to improve, we will make further progress against the virus. There remains significant uncertainty around the Delta variant.”

• David Solomon, Chairman & CEO, Goldman Sachs | Q3 2021 Earnings Call, October 15, 2021

Delta Airlines: Demand Recovery Resumes Following Pause From COVID | “Our revenue recovery in the September quarter reached 66% of 2019 levels, progressing from 51% in the June quarter and just 25% at the start of this year. This was led by strong consumer demand, growing improvement in business and international travel and reflected the resilience of some of our diverse revenue streams which are already back to or higher than pre-pandemic levels. While the recovery in business travel paused in August and early September as case counts increased, demand has picked up since Labor Day.”

• Edward Bastian, CEO & Director, Delta Airlines | Q3 2021 Earnings Call, October 13, 2021

And Now, a Look at the Week Ahead (Week of October 18, 2021)

Tuesday, October 19, 2021

Netflix (NFLX)

Q2 2021 Financial Recap

• Paid subscriber net adds of 1.54mm beat by 350k
• Total Revenue of 7.34bn was in-line with consensus (7.3bn)
• EPS of $2.97 missed by $0.19

Price Performance

• Q2 Earnings Call Price Reaction: +0.7%
• Intra-quarter Performance (since 7/21/2021): NFLX +18.0% vs. XLC — 2.1%

Intra-Quarter Events

• Netflix & Walmart Team Up for Exclusive New Retail Hub That Will Bring Popular Stories to Life
• Netflix Acquires Games Studio Night School Studio
• Netflix to Acquire Roald Dahl Story Company

Notable Topics from Q2 Call

• Games
• COVID
• Olympics
• Pricing
• Capital Return / Buybacks
• Long-term secular Internet growth
• Addressable Market Size

Key Quotes from Q2 Call

“The big picture that all investors get is being a secular Internet play. And as much as Amazon was strong in 2005 and 2008, all of us collectively underestimated the impact of what the Internet could do. And this is the Internet applied to entertainment. And consumer entertainment around the world is an enormous market. It has great potential for us and potentially our competitors. And so that big thesis is, again, what gets people excited. And when we’re growing revenue by 19%, it’s not that hard to grow 300 basis points of margin. As the revenue growth slows, it will get a little bit tougher, but we’ll continue to lean into that. And so I would say it’s fundamentally a story of this big secular revenue growth management team committed to growing profits and cash flows and then returning those cash flows through buybacks, which Spence got a big start on this quarter.”

• Wilmot Reed Hastings, Co-Founder, Chairman, President & Co-CEO, Netflix, Inc.

“I would say we’re working hard to think about how do we find this wide range of price points that speaks to a feature set and consumer needs in more affluent markets, and we’re really trying to find ways to add more value there, while we are also thinking about the sort of populations that you’re talking about and making sure that we’re increasing the accessibility of the service and really the ability to participate in and drive joy from the stories that we’re telling to more and more parts of the world’s population that don’t have as much means to pay. And of course, the trick there is to find the right feature set offerings that allow us to sort of broaden that range without cannibalizing the other layers.”

• Gregory K. Peters, COO & Chief Product Officer, Netflix, Inc.

“So just as we’ve continuously expanded the nature of our offering by adding new genres, unscripted film, local language programming, animation on and on. We think we have an opportunity to add gains to that offering and deliver more entertainment value to our members through that. And similar to what you’ve seen in that trajectory when we’ve added a new genre, that’s what we expect will happen with games. So this is going to be — it’s a multiyear effort. We’re going to start relatively small. We’ll learn, we’ll grow, we refocus our investment based on what we see as just continuously improving based on what our members are telling us is working.”

• Gregory K. Peters, COO & Chief Product Officer, Netflix, Inc.

“We are in the business of making these amazing worlds and great storylines and incredible characters. And we know the fans of those stories want to go deeper. They want to engage further. They actually want to direct a little bit where their energy goes. And what’s great about interactive is, first of all, you can provide universes that just provide a really significant amount of time that people can engage in and explore. They can also provide a little bit of intentionality. Where do they want to explore, what characters, what parts of the world, what parts of the timeline? So there’s just a lot of exciting things that I think we can do in that space. And we also feel that our subscription model yields some opportunities to focus on a set of game experiences that are currently underserved by the sort of dominant monetization models and games. We don’t have to think about ads. We don’t have to think about in-game purchases or other monetization. We don’t have to think about per-title purchases. Really, we can do what we’ve been doing on the movie and series side, which is just paper — laser-focused on delivering the most entertaining game experiences that we can’t. So we’re finding that many game developers really like that concept and that focus and this idea of being able to put all of their creative energy into just great gameplay and not having to worry about those other considerations that they have typically had to trade off with just making compelling games.”

• Gregory K. Peters, COO & Chief Product Officer, Netflix, Inc.

Wednesday, October 20, 2021

Tesla (TSLA)

Q2 2021 Financial Recap

• Total Revenue of $11.96bn beat by 6%
• GAAP EPS of $1.02 beat by $0.48

Price Performance

• Q2 Earnings Call Price Reaction: +1.1%
• Intra-quarter Performance (since 7/27/2021): TSLA +19.3% vs. CARZ +0.7%

Notable Topics from Q2 Call

• FSD (Full Self-Driving)
• Supercharger
• PowerWall
• Regulation
• Solar

Key Quotes from Q2 Call

“In terms of FSD subscription, we were able to launch full self-driving subscription last month. And we expect it to build slowly and then — but then gather a lot of momentum over time. Obviously, we need to have the full-self driving build widely available for it really to take off at a high rate and make a lot of progress there. So yes, I think FSD subscription will be a significant factor probably next year.”

• Elon R. Musk, Technoking of Tesla, CEO & Director, Tesla, Inc.

“It also seems that public sentiment towards EVs is at an inflection point; and at this point, I think almost everyone agrees that electric vehicles are the only way forward. Regarding supply chain, while we’re making cars at full speed, the global chip shortage situation remains quite serious. For the rest of this year, our growth rates will be determined by the slowest part in our supply chain, which is there’s a wide range of chips that are, at various times, the slowest parts in the supply chain.”

• Elon R. Musk, Technoking of Tesla, CEO & Director, Tesla, Inc.

“We expect to basically have 0 cobalt in the future. So I do — maybe with — I think probably there is a long-term shift more in the direction of iron-based lithium-ion cells over nickel. As the energy density of sort of iron ore or the iron phosphate — might as well just call it iron. The phosphate is taken for granted. But iron-based cells, lithium-ion cells and nickel-based lithium-ion cells, I think probably we’ll see a shift. My guess is probably to 2/3 iron, 1/3 nickel or something in that order. And this is actually good because there’s plenty of iron in the world. There’s an insane amount of iron. But nickel is — there’s much less nickel, and there’s way less cobalt. So it is good for relieving the long-term scaling to move to iron-based cells mostly. And I think long term, possibly all — there’s a good chance that all stationary storage, that is Powerwall and Megapack, moves iron, which is most likely the case since you do not need to transport it and there’s [less volume that match] constraint for stationary storage. So then nickel would be for — really for long-range road transport, ships and aircraft, that kind of thing.”

• Elon R. Musk, Technoking of Tesla, CEO & Director, Tesla, Inc.

“We’re currently thinking it’s a real simple thing where you just download the Tesla app and you go to a Supercharger, and you just indicate which stall you’re in. So you plug in your car even if it’s not Tesla, and then you just access the app and say turn on this stall that I’m in for how much electricity. And this should basically work with, I think, almost any manufacturer’s cars. There will be a time constraint. So if the charge rate is super slow, then somebody will be charged more because the biggest constraint at the Superchargers is time, how occupied is the stall. And we’ll also be smarter with how we charge for electricity at the Superchargers. So rush hour charging will be more expensive than off hours charging because there are times when the Superchargers are empty and times when they’re jampacked. And so it makes sense to have some time-based discrimination.”

• Elon R. Musk, Technoking of Tesla, CEO & Director, Tesla, Inc.

Thursday, October 21, 2021

Snap Inc. (SNAP)

Q2 2021 Financial Recap

• Total Revenue of $982mm beat by 17%
• GAAP EPS of -0.10 beat by $0.08

Price Performance

• Q2 Earnings Call Price Reaction: +16.2%
• Intra-quarter Performance (since 7/23/2021): SNAP +18.3% vs. XLK +2.2%

Intra-quarter Events:

• Snap Inc At Goldman Sachs Communacopia Conference
• WPP Collaborates with Snap for Launch of Augmented Reality
• Robinhood Partners With Snapchat To Distribute Its Financial News Service Snacks

Notable Topics from Q2 Call

• Spotlight
• Stories
• Lenses
• IDFA
• iOS

Key Quotes from Q2 Call

“This quarter we grew both revenue and daily active users at the highest rates we have achieved in the last 4 years.”

• Evan Spiegel, Co-Founder, CEO & Director, Snap Inc.

“We are also collaborating with a variety of partners to power AR experiences in their own applications with Camera Kit, which brings the power of the Snapchat camera to partner applications using our SDK. This quarter, we rolled out a number of Camera Kit partnerships worldwide, including with Walt Disney World.”

• Evan Spiegel, Co-Founder, CEO & Director, Snap Inc.

“We have observed a number of changes in content engagement as we evolve our content products and manage through the mixed impacts of the pandemic. For example, global time spent watching content on Snap grew year-over-year, while lapping the boost in engagement we saw at the onset of the COVID-19 pandemic. But we have also observed a year-over-year decrease in daily time spent watching user-generated Stories created by friends, even as the number of daily viewers of that content has grown year-over-year. We believe this is due in part to a decline in the volume of daily Story posting activity on Snapchat, coinciding with mobility restrictions and behaviors related to the COVID-19 pandemic, which reduces the amount of content created by friends that is available to watch.”

• Evan Spiegel, Co-Founder, CEO & Director, Snap Inc.

“Additionally, we are seeing early promise in showcasing the best and most entertaining Snaps from our community on Spotlight. While we are still in the early phases of launch and iteration, we are excited about our learnings and progress so far. Engagement is growing rapidly as we roll out Spotlight worldwide, with Spotlight DAU growing 49% quarter-over-quarter, and average daily content submissions more than tripling when compared to the prior quarter. We are also seeing time spent growing rapidly, with daily time spent per user on Spotlight in the United States growing more than 60% in the last quarter, giving us additional confidence in our ability to build Spotlight into a meaningful business over time.”

• Evan Spiegel, Co-Founder, CEO & Director, Snap Inc.

“As Apple rolled out its App Tracking Transparency-related changes near the end of Q2, we observed higher opt-in rates than we are seeing reported generally across the industry, which we believe is due in part to the trust our community has in our products and our business. Apple’s rollout of the most recent iOS update came later in Q2 than initially anticipated, and the pace of updates by iPhone users has also been slower than we anticipated. This has given us more time with advertisers to navigate the transition but also means the effects of these changes will come later than we initially expected.”

• Jeremi Ann Gorman, Chief Business Officer, Snap Inc.

Friday, October 22, 2021

American Express (AXP)

Q2 2021 Financial Recap

• Total Revenue of $10.24bn beat by 8%
• GAAP EPS $2.80 beat by $1.17

Price Performance

• Q2 Earnings Call Price Reaction: +4.3%
• Intra-quarter Performance (since 7/24/2021): -1.2% vs. XLF +5.0%

Intra-quarter Events:

• American Express Co At Bernstein Autonomous Research Future Of Commerce Symposium

Notable Topics from Q2 Call

• Customer acquisition
• Improving consumer credit
• Travel
• Co-brand
• Consumer spending recovery

Key Quotes from Q2 Call

“We’ve also ramped up our acquisition engine over the past several quarters, and we’re really pleased to see that overall acquisitions of proprietary cards, which include our co-brands, have continued to increase with 2.4 million new cards acquired in the quarter. In fact, demand for our premium fee-based products accelerated this quarter, with acquisitions of U.S. Consumer and Small Business Platinum and Gold cards well above 2019 levels and exceeding prior quarters, contributing to the continued double-digit growth in net card fees. Early spending on these new accounts is strong.”

• Stephen Joseph Squeri, Chairman & CEO, American Express Company

“We continue to see excellent credit performance with both delinquency and write-off rates improving further and reaching near historic lows in the quarter. We’re also seeing continued improvements in Card Member spending. Spending recovery accelerated in Q2 with overall billed business volumes growing 51% in the quarter on an FX-adjusted basis versus last year and exceeding pre-pandemic levels in June. Goods and services volumes continued to strengthen, increasing 16% globally on an FX-adjusted basis versus Q2 2019. Travel and entertainment spending also accelerated in the quarter, particularly in the U.S., where a growing percentage of the population is now fully vaccinated. In fact, we saw a surge in spending by U.S. Consumer Card Members across all T&E categories. with overall U.S. Consumer T&E spending reaching 98% of pre-pandemic levels in June and continuing to grow into July. T&E spending outside the U.S. continues to recover more slowly due to the overall — due to lower overall vaccination rates and government-imposed restrictions in some geographies.”

• Stephen Joseph Squeri, Chairman & CEO, American Express Company

“We’re also seeing solid spending growth in key travel-related co-brand portfolios. Volumes on both Delta and Hilton co-brand cards increased by double digits versus pre-pandemic levels in the quarter, driven by the same trends of continued strong growth in goods and services spending and an acceleration in the recovery of T&E spend. In addition to investing in retention and acquisition activities as a customer-focused company led by innovation, a key part of our investment strategy is geared toward delivering a continuous stream of differentiated products, services and capabilities that provide additional value to our current customers and attract new ones to the franchise.”

• Stephen Joseph Squeri, Chairman & CEO, American Express Company

“Importantly, relative to 2019, total network volumes, billed business and processed volumes were all down just 2% on an FX-adjusted basis and surpassed pre-COVID levels for the month of June. The acceleration in billed business is being driven by both spending on goods and services, which was up 16% versus 2019, as you can see on Slide 4, and by a notable improvement in spending on travel and entertainment in the second quarter. Overall T&E spending reached nearly 70% of 2019 levels as we exited Q2. This is a level we originally expected we would not reach until the fourth quarter of this year. So to see it recovering more quickly than we had expected and without it coming at the cost of any slowing in the growth in goods and services spending is a positive indicator for us.”

• Jeffrey C. Campbell, CFO & Co-Vice Chairman, American Express Company

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