British American Tobacco (BTI) warns it may lose over $31 billion in revenue following plans to write down the value of certain US cigarette brands. The tobacco giant cited higher inflation driving greater consumer demand toward more affordable cigarette and vaping options, broadly impacting the outlook for premium brands like Newport, Camel, and Natural American Spirit.

Yahoo Finance's Rachelle Akuffo and Akiko Fujita break down the details of this trending ticker, expanding upon the rocky outlook for British American Tobacco and its competitors.

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Video Transcript

RACHELLE AKUFFO: The looming death of cigarettes. Now British American Tobacco said it may take a $31 billion hit as it writes down the value of some of its US cigarette brands. The maker of Lucky Strike and Dunhill cigarettes pointed to macroeconomic headwinds for the company as inflation pushes customers towards cheaper brands and vapes. Now according to a spokesperson, in terms of the specific brands, Newport, Camel, Pall Mall, and Natural American Spirit would be affected.

Now to be clear, this doesn't affect the day-to-day operations. But it's really about investors honing in on the long-term implications here, which is why we saw the stock really taking a hit this morning. I thought it was interesting, because there seems to be sort of mixed messaging coming from analysts here, even though they acknowledge some of the pressure that you're seeing. Regulators cracking down on some of these, especially in the UK. But globally, we're seeing this crackdown when it comes to cigarettes.

Also, they mentioned this use of illegal vapes taking a chunk out of the bottom line here. And then, obviously, people trying to have healthier lifestyles. And so, we've seen BAT really try and broaden some of its horizons here, which is why even though it's taking this hit in terms of how it values this, based on what people are willing to spend, it's not going to be this $80 billion on the balance sheet that they had been expecting. But they have now shifted to looking at generating revenues through vaping and some of their non-cigarette options as well, which is why analysts at Jefferies saying, look, people are being too negative about it.

Yes, there are some downsides to the cigarette business. But there are some other parts of the business that should perhaps be getting some attention. Meanwhile, RBC Capital Markets said the outlook somewhat grim for British American Tobacco. So I guess depending on which side you're focusing on, if you're focusing on the future of disposable vapes versus the actual future of the bread and butter of their business, which was traditional cigarettes, it's a tough one to measure here.

AKIKO FUJITA: I mean, at the end of the day, it is just a downward decline, right? I mean, that chart pretty much says it because of regulation, where things are today. I mean, things don't look good for a lot of these companies. And you point to what happened with British American Tobacco. But you see Philip Morris and Altria down on the back of this as well.

You've got to wonder how much revenue you can certainly generate from vapes. And this is something that we have seen tobacco companies trying to get that right mix haven't been able to land on that, because at the end of the day-- I don't know, Rachelle. I don't know how much cigarettes cost today. But it has been a steady decline for a lot of these companies trying to find a better mix in this current environment.

RACHELLE AKUFFO: It's true. And the chief executive saying they actually have an ambitious target of generating 50% of its revenues from non-combustible. So non-cigarettes and some of these vapes by 2025, because of this new mix that they're looking at here. But the trend is clearly going down, that people are just not willing to buy the cigarettes. And certainly, when money's already tight, not able to spend on it as well.