Why Tesla’s [TSLA] Stock Split Matters | Canada News Media
Connect with us

Business

Why Tesla’s [TSLA] Stock Split Matters

Published

 on

August 31st, 2020 by


Note: Nothing below is investment advice.

If you’ve been following the stock price lately, you might be forgiven if you think Tesla has had a huge cresting of news lately. In fact, on the day my previous article was published, Tesla stock closed at $1500.84. Today, as I write this, the stock price is currently at $2,213.40 per share, right before the split occurs.

While I suppose it could be argued, I feel like the biggest news affecting the price of the stock between those two dates is the upcoming stock split that will be completed Monday, August 31, and that’s what I want to dive into here. Stock splits shouldn’t matter, but I think the market is getting this one right, because Tesla presents a unique situation. So, let’s dive in!

Why Stock Splits Shouldn’t Matter

Before understanding the difference between Tesla and regular stock splits, let’s make sure we are all on the same page about what a stock split does.

A stock split is exactly what it says it is — the company takes a share and splits that into a predetermined number of shares, which are all worth 1/X of the value of the original share (with X being the number of shares they are split into).

Stocks can also reverse split, where a company will combine multiple shares into one, with the new share price being equal to the price of the shares that were combined. Groupon is an example of a company that did this recently, performing a reverse split of 1-for-20, meaning that if you had owned one share — as I happen to, thanks to opening a Robinhood account — you (or I) now own 1/20th of a share.

When these splits occur, nothing else really changes. The value of the company remains the same. Now you just have more shares, or in the case of a reverse split, fewer shares, that combine for the same total amount of cash value. Earnings per share calculations change based on the new amounts, and can be confusing when you are looking at older articles about profit that don’t automatically update, but a stock split doesn’t change any fundamentals about the company. For instance, as before the split, Tesla will still have over $500 million of warranty repair reserves that it could immediately recognize as revenue.

The point is that stock splits really don’t change anything.

I feel it’s also worth pointing out that stock splits are often done by companies that have been gaining in value, while reverse splits tend to occur with companies that are in trouble. Reverse stock splits can be used to try to keep their shares listed on exchanges that have minimum share price rules, as that is important for getting equity investors to actually purchase them. A cynical person could say it also tricks investors into thinking the company has had a boost. I was sort of excited to discover the stock tracker program I use suddenly showed my single share of Groupon way up, and I was wondering what happened. Maybe I should start caring about it.

But standard stock splits have mostly fallen out of favor. The main reason for them is to to make shares seem more affordable to small investors. Today, with a number of the brokerages that target small investors, like Robinhood, offering the ability to purchase fractional shares — or the ability to buy as little as 1/1,000,000th of a share — a number of places have argued that stock splits weren’t interesting any more, and they were mostly for investors to see share prices soaring into the stratosphere.

The market response to Tesla’s announcement has blown a bit of a hole in that argument, and I think there is a really good reason for it.

What’s The Benefit?

While stock splits don’t affect overall company valuation, earnings, losses, or anything else, there is one thing that they do impact — and that’s the ability to vote your shares. Many of the companies that offer fractional shares do not allow fractional shareholders to vote their shares. Robinhood is one of the few that I could find that does allow you to vote, and collates those votes.

In the case of most companies, the ability to vote your shares probably isn’t a big deal. Institutional investors and “retail” investors often see Tesla in wildly different ways. Many of us who started diving into Tesla expected to find some positive and negative information. Last October, I wrote an article about why I originally made a small, 8 share investment into Tesla — I felt that it was a risky stock but one that had potential to increase astronomically in the future. That date in October, I identified 11 points where I saw Tesla doing significantly better than most analyses were showing, and as I’ve continued my own analyses, I couldn’t find evidence where I didn’t believe that the company would execute and grow quickly.

While it seems like Wall Street analysts are starting to understand the bull thesis on Tesla — although, I think a lot of them upgrading their price targets is due to herding (worth a future article of it’s own sometime) — you can still find incredibly silly arguments regularly pushed and promoted. There are still many analysts pushing the argument that Tesla is just a car company. There are still articles written claiming that demand doesn’t exist.

If you’ve dug for your own evidence, those arguments fall apart with actual research. Most of the articles I’ve written are me looking at bear theses to see if they’re valid. With companies I invest in, the bears often have decent points. Tesla is the one company I’ve ever held that I haven’t found a single bear argument with which I agree.

This has everything to do with the stock. Shareholders can force companies to allow shareholders to vote on resolutions that can force companies to change the direction of the company or how it’s managed. Carl Icahn and Dan Loeb are two investors known for that.

It isn’t unrealistic to think that Tesla could have an activist shareholder force a vote on something that might drastically change the direction of the company. In the past earnings call, Elon Musk said, “What bugs me the most right now is that our cars are not affordable enough.” Imagine if an activist investor forced Tesla to hold a proxy vote on if the company should reduce the price of its vehicles or make more money. It isn’t hard to envision a world in which the institutions who own the stock but don’t seem to understand it decide to vote for profits over price.

While I think that Tesla would easily survive such a vote — after all, Elon Musk owns around 20% of the outstanding Tesla shares — the more retail investors have access to voting shares, the more likely the company is to be insulated from changes those Wall Street types may think would make the company better.

Conclusion

I was ecstatic when I heard that Tesla would be splitting its shares, for exactly this reason. With how far off Wall Street investors have been about Tesla so far, I feel any potential reduction in the influence of institutional investors who may be swayed by an activist who attempts to have a proxy vote to change the company is a good thing.

While there are no hard numbers out there, it’s believed around 75% of Tesla is owned by institutional investors and Tesla executives. If retail investors make up the missing 25%, ensuring as many of those investors as possible can vote means that, when combined with Tesla executives, the company should be able to continue to execute it’s strategy exactly how it best sees fit, without outside interference.

And that, to me, is worth a premium.

Disclaimer

I am a Tesla [NASDAQ:TSLA] shareholder who has purchased shares within the preceding 12 months. Research I do for articles, including this article, may compel me to increase or decrease stock positions. However, I will not do so within 48 hours after any article is published in which I discuss matters that I feel may materially affect stock price. I do not believe that my voice could or should influence stock price by itself, and I strongly caution anyone against using my work as your sole data point to choose to invest or divest in any company. My articles are my opinion, which was formulated using research based on publicly available data. However, my research or conclusions may be incorrect.



About the Author

A businessman first, the Frugal Moogal looks at EVs from the perspective of a business. Having worked in multiple industries and in roles that managed significant money, he believes that the way to convince people that the EV revolution is here is by looking at the vehicles like a business would.

 

 

Source:- CleanTechnica

Source link

Business

Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

Published

 on

 

Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

Source link

Continue Reading

Business

TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

Published

 on

 

CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Business

BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

Published

 on

 

BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending

Exit mobile version