WSJ’s Dion Rabouin unpacks the latest GDP report and explains what it says about the state of the economy. Photo: Li Jianguo/Zuma Press
U.S.
economic growth surged this summer at the fastest pace since 2021, as consumers spent at a blockbuster rate that will be difficult to sustain.
Gross domestic product expanded at a 4.9% seasonally- and inflation-adjusted annual rate in the third quarter—more than double the second quarter pace—the Commerce Department reported Thursday. The acceleration won’t change the Federal Reserve’s plans to hold rates steady at their meeting next week.
FTX founder Sam Bankman-Fried will take the stand to testify in his own defense, his attorney said in a conference call Wednesday. The decision by his legal team sets him up for a cross-examination by federal prosecutors, who will be able to press him on the collapse of his crypto exchange FTX.
Bankman-Fried's decision to testify came after federal prosecutors and his defense team were able to secure the alleged fraudster an adequate supply of his ADHD medication. His defense had previously argued before the court that inadequate access to the medication impugned his ability to participate in his defense.
The FTX co-founder's legal team will begin its defense immediately after the government finishes its case, which is expected to take place Thursday morning. Prosecutors have one remaining witness to call, an FBI agent who will serve as a summary witness.
The defense will also call three other witnesses besides Bankman-Fried to the stand, defense attorney Mark Cohen said on the call.
His lawyers had opposed the government's request to begin their defense immediately after the government rested its case in a filing Tuesday night.
It is widely considered to be a risky maneuver. While his defense team will be able to question him and the former billionaire would be able to provide his own narrative on the collapse, it also opens up Bankman-Fried to a cross-examination by federal prosecutors. So far, the prosecution has called up several of Bankman-Fried's top executives to testify, including Nishad Singh and Caroline Ellison, his one-time romantic partner and former CEO of Alameda Research.
Bankman-Fried stands accused of fraud and money laundering in his role in the collapse of the multibillion-dollar crypto exchange FTX. Since the company filed for bankruptcy, Bankman-Fried has been accused of systematically pilfering billions in customer assets from the exchange's reserves to fund political contributions, real estate acquisitions and high-profile sponsorship deals.
The government has also presented extensive evidence to support its claims, including Signal chats and internal documents, which prosecutors allege show how Bankman-Fried orchestrated the spending of customer funds.
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Consumers have virtually no shortage when it comes to telecommunications providers. Whether it's Verizon, T-Mobile, or AT&T(T-1.83%), people are barraged with a recurring carousel of commercials filled with celebrities and catchy jingles. These marketing tactics can make it challenging to discern one company's product offerings over another. Luckily, investors are privy to the underlying trends of these operations and get a glimpse into the performance of the business during earnings season.
AT&T is gaining momentum across 5G mobility and fiber infrastructure, helping the company reduce net debt and increase free cash flow. In turn, the company's management remains committed to rewarding shareholders with its generous dividend.
Despite this progress, AT&T stock has been no stranger to gloomy investor sentiment for the last several years. In fact, the stock is trading near its lowest level in nearly three decades. While this doesn't look like a great picture, I think there are several reasons to believe that AT&T stock is worth a second chance. Let's dig in.
Higher value customers
For the quarter ended Sept. 30, AT&T reported revenue of $30.4 billion, up only 1% year over year. The table below illustrates the company's growth profiles across the mobility and wireline business.
Metric
Mobility
Wireline
Q3 revenue % growth year over year
2%
(4%)
Q3 adjusted EBITDA % growth year over year
7.6%
(7%)
Data source: Q3 investor presentation.
Investors can see that while revenue in the mobility business only grew by 2% in Q3, adjusted EBITDA increased significantly. Management attributed the growth to increases in wireless services and higher average revenue per user (ARPU). Moreover, churn in AT&T's postpaid phone division has improved significantly from last year, signaling lower customer turnover rates.
When it comes to the wireline segment, there is more than meets the eye. AT&T actually increased revenue in consumer wireline products driven by higher ARPU compared to last year. However, the company's business wireline division remains "in transition" as AT&T replaces legacy connectivity solutions with newer product offerings. For this reason, investors should expect more muted growth in that business.
Given the higher ARPU across multiple areas of its business, AT&T has enjoyed widening product margins, which is helping fuel a rising free-cash-flow profile. This is an important dynamic as it pertains to long-term debt levels and AT&T's liquidity position.
Image source: Getty Images.
Cash flow is king
From my stance, the most important nugget from AT&T's earnings report is the company's cash flow. Like many telecommunications businesses, AT&T carries a significant chunk of debt on its balance sheet. If the company is not growing and generating increasing profit, then the operation can quickly become overleveraged as debt payments loom. The table below illustrates AT&T's free cash flow and debt ratio over the past year.
Item
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Free cash flow
$3,840
$6,103
$1,004
$4,209
$5,182
Debt ratio
48.8%
56.1%
55.9%
54.8%
53.5%
Data source: Q3 investor presentation. Dollar figures in billions.
Investors can see that over the past year AT&T has generated billions of dollars in free cash flow. In turn, the company has been able to use its cash flow to continue paying down debt as well as reward shareholders with a dividend. Although the company's debt ratio is higher now than it was a year ago, AT&T has gradually improved this metric during 2023.
Additionally, during the Q3 earnings call, management raised its free-cash-flow forecast by $500 million to $16.5 billion for the year. This is a positive sign as it signals strong momentum going into the end of the year and management's confidence that it will be able to continue paying down debt and "deliver additional shareholder returns."
Should you invest in AT&T?
When it comes to share valuation, I am going to focus on AT&T's forward price-to-earnings (P/E) multiple and its price-to-free cash flow.
The charts above show that AT&T stock trades at a P/E and price-to-free cash flow of just 6.1, both well below levels earlier this year. As I outlined above, the company's revenue growth is far from that of a growth stock. However, AT&T's expanding margins across core areas of the business have helped fuel some much-needed debt relief. Moreover, the excess free cash flow has been used to continue paying a nice dividend, currently yielding over 7%.
A contrarian investment strategy could be to take advantage of the depressed price to lower your cost basis, assuming you're an existing shareholder. While AT&T still has a lot to prove, the stock looks tempting at its current levels. I would argue that the business is moving in the right direction as it seeks to reinvent itself in an age of otherwise commoditized product offerings.
I think now is a great opportunity to dollar-cost average into the stock. However, I would urge investors to keep an eye on free cash flow and debt levels in future quarters to ensure the long-term thesis is upheld.
The California Department of Motor Vehicles has suspended Cruise from operating its driverless taxis in San Francisco, effective immediately, for allegedly withholding footage of a severe crash involving one of the company’s robotaxis.
The incident, the first AV-involved crash in San Francisco to result in severe injuries, happened after a human driver crashed into a woman crossing Market Street and hurled her into the path of an adjacent Cruise taxi before running off. Authorities have not yet arrested the suspected human motorist responsible for the crash.
Cruise’s handling of the Oct. 2 crash is what prompted state regulators’ suspension, according to the DMV’s Order of Suspension, first reported by Vice.
In that document, the DMV alleged that Cruise representatives did not initially show the entirety of the onboard camera footage captured by the robotaxi involved in the crash. The footage the company provided to DMV investigators and journalists who covered the incident showed the Cruise robotaxi braking hard after it collided with the pedestrian.
However, subsequent footage that the DMV obtained from Cruise after learning of its existence from another government agency shows that the robtaxi then performed a “pullover maneuver.”
Attempting to pull over after colliding with the pedestrian, according to the DMV, “indicates that Cruise’s vehicles may lack the ability to respond in a safe and appropriate manner during incidents involving a pedestrian so as not to unnecessarily put the pedestrian or others at risk of further injury.”
A Cruise spokesperson said that the company showed DMV investigators the complete video of the incident “multiple times” when the two parties met Oct. 3, the day after the crash. “They later requested a copy of the complete video, which we provided to them,” the spokesperson said.
The suspension means that Cruise cannot use its robotaxis without a human driver present, either for free or during paid rides. The company is still allowed to test its technology with a safety driver.
Cruise and Waymo both received regulatory approval in August to commercially operate their robotaxis at all hours in San Francisco. However, the DMV ordered Cruise to cut its fleet in half a week after its approved expansion as it investigated several recent crashes involving Cruise robotaxis.
The incident, the first AV-involved crash in San Francisco to result in severe injuries, happened after a human driver crashed into a woman crossing Market Street and hurled her into the path of an adjacent Cruise taxi before running off. Authorities have not arrested a suspect in the crash.
The state Department of Motor Vehicles has suspended the operating permit of General Motors-owned Cruise to make driverless trips in San Francisco.
Justin Sullivan/Getty Images
“Ultimately, we develop and deploy autonomous vehicles in an effort to save lives,” Cruise said in the statement. “In the incident being reviewed by the DMV, a human hit and run driver tragically struck and propelled the pedestrian into the path of the AV. The AV braked aggressively before impact and because it detected a collision, it attempted to pull over to avoid further safety issues. When the AV tried to pull over, it continued before coming to a final stop, pulling the pedestrian forward.”
According to the DMV, Cruise can request a hearing to reinstate its deployment permit, which allows the company to commercially operate its driverless taxis, within five days of its suspension. If that were to happen, the DMV would grant a hearing within 21 days of the request.
“To reinstate their permits, Cruise will need to provide the department with information regarding how it has addressed the deficiencies that led to the suspensions,” the DMV said in an email.
This year has been filled with milestones and setbacks for the emerging autonomous vehicle industry in San Francisco, where General Motors-owned Cruise and Alphabet-owned Waymo have sought to prove that their robotaxis can operate safely and profitably.
The Aug. 10 decision by the California Public Utilities Commission allowed Cruise and Waymo to charge for fully driverless rides at all hours across San Francisco at a time when both companies are expanding to other cities.
While the technology is flourishing elsewhere, robotaxis in San Francisco — a notoriously challenging environment for drivers, human and robot alike — have divided residents and city officials since they increased driverless operations last year.
Fire officials have lambasted the technology because they say driverless taxis’ occasional erratic behavior has interfered with emergency response efforts. Transportation officials say self-driving cars have impeded public transit, traffic and construction on local streets.
A spokesperson for the Fire Department told the Chronicle that firefighters in recent weeks have “seen a drop in AV incidents, we feel, because they were ordered to have less on the roadways.”
The DMV, which issues the permits for AV companies to commercially operate in California, launched an investigation into Cruise a week after the CPUC’s decision, citing a spree of collisions involving the company’s taxis.
Aaron Peskin, president of the city’s Board of Supervisors, said Cruise’s suspension is “better late than never.”
“San Francisco has long held that Cruise vehicles were not ready for prime time and the state should never have allowed their unlimited deployment in the first place,” Peskin told the Chronicle.
City officials are still pushing for the CPUC to grant a rehearing that could reverse the commission’s decision. Such a move is unlikely to stamp out robotaxis’ presence in San Francisco but would remove Cruise and Waymo’s ability to charge for driverless daytime rides. The commission in August rejected a separate request by the city attorney to pause enforcement of its decision pending a rehearing.
While Tuesday’s news validated concerns by city officials wary of autonomous vehicles’ performance, the technology has seen growing use by residents in recent months, with both companies reporting tens of thousands of users in San Francisco.
Robotaxi supporters say city officials have been overly eager to assign blame to driverless taxis for causing disruptions, and the AV companies say their driverless vehicles mostly operate without incident in San Francisco.
Cruise says it has cooperated with regulators throughout the investigation. The company said it planned to roll out technological upgrades to its robotaxis that would make them more adept at responding during emergencies.
Cruise had been operating in the city with half its San Francisco fleet — no more than 50 driverless taxis during the day and 150 vehicles at night. Its suspension by the DMV means only Waymo’s robotaxis will be available for driverless rides in San Francisco.
The Mountain View-based company was operating about 250 robotaxis before the CPUC’s August decision, though it’s unclear whether Waymo has added vehicles to its San Francisco fleet.
“Public safety remains the California DMV’s top priority, and the department’s autonomous vehicle regulations provide a framework to facilitate the safe testing and deployment of this technology on California public roads,” the DMV said in its statement. “When there is an unreasonable risk to public safety, the DMV can immediately suspend or revoke permits.”
Clean energy will transform the global energy system by 2030, and solar and EVs are providing “hope for the way forward,” according to the IEA’s new “World Energy Outlook 2023,” released today.
The International Energy Agency (IEA) describes a global energy system in 2030 that includes almost 10 times as many EVs on the road worldwide compared to 2023. In 2020, the authors note, 1 in 25 cars sold was electric – and in 2023, it’s now 1 in 5. So in light of that, it’s not hard to imagine how EV adoption momentum is going to propel forward so dramatically for the rest of the decade.
In 2030, the IEA is now projecting that solar is going to generate more electricity than the entire US power system does currently. It expects renewables’ share of the global electricity mix to reach nearly 50%, up from around 30% today. It sees three times as much investment going into new offshore wind projects than into new coal- and gas-fired power plants. And it expects heat pumps and other electric heating systems to outsell fossil fuel boilers globally.
“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if,’ it’s just a matter of ‘how soon’ – and the sooner the better for all of us,” said IEA executive director Fatih Birol.
Solar is leading the renewables revolution from the front. Renewables are set to contribute 80% of new power generation capacity to 2030 under current national policies, with solar alone accounting for more than half of this expansion. The world is projected to deploy 500 GW of solar by 2030, but it’s also set to have manufacturing capacity for more than 1,200 GW of solar panels per year. If the world were to reach deployment of 800 GW of new solar capacity by the end of the decade, that would lead to a further 20% reduction in coal-fired power generation in China in 2030 compared with a scenario based on today’s policy settings.
And in a major first in an IEA World Energy Outlook scenario, it’s predicting that the share of fossil fuels – to be clear, that’s natural gas, coal, and oil – in global energy supply, which has been stuck for decades at around 80%, declines to 73% by 2030, with global energy-related CO2 emissions peaking by 2025.
Global energy think tank Ember calculated that the IEA has upgraded the estimated renewables growth in its 2023 report by a mighty 62% from last year’s outlook. “This report signals a major upgrade to the outlook for renewables,” said Ember’s global insights lead, Dave Jones. “It’s been a long time coming, but renewable electricity will soon be built at a scale that can at last halt the rise of fossil fuels, not just within the power sector, but across the entire economy.”
If countries deliver on their current energy policies and climate pledges on time and in full, clean energy progress will move even faster. But stronger measures are still needed to “keep alive the goal of limiting” global warming to 1.5C, asserts the IEA, and it states that to do so is “possible but very difficult.”
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