Technology ("Bubble") Companies Corner
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Went through last 4 pages and found no specific topic on technology companies. So either no one is making money there and there's an educational gap how to value unprofitable multi-billion market cap companies, or conversely, everyone IS busy making money, in which case I congratulate you.
Increasingly my focus shifts away from Baltic Equities to technology asset-light, high gross margin businesses. 2020 was a steep learning curve year and I summarized my learnings in an article called:
Value Investor's "Expensive" Fallacy which goes into more detail about SaaS business model and shortfalls of traditional valuation methods.
Obviously times are very accommodative, and change in central banks policies might put a paw on SaaS valuations, but I guess there's no denying tech stocks and their business are economically superior.
Additionally, technology sector as a whole experiences secular growth, with plenty of growth left.
Cloud adoption:
Ecommerce in UK:
So I hope moderators and the public will not be mad if I share my observations and articles here from time to time.
Safe and profitable 2021! -
It's quite natural to invest heavily in early stage to build business scale and moat, which in turn leads to pricing power in later stages. Netflix was a front runner for a long time, but "streaming wars" now get very competitive with highly capitalized players trying to get a slice of consumer attention (Apple TV, Amazon Prime Video, Disney+). Anyway, this concept translates into most of technology businesses.
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Points against Spotify:
-Any highly capitalized player can hurt whole audio streaming industry economics for years
-2019 program direct to consumer to ditch record labels was dropped. Artists find value in distribution power
-Labels getting stronger with social media partnerships.
More on audio streaming industry:
https://www.bloomberg.com/news/articles/2020-12-18/record-labels-reap-billion-dollar-bonanza-from-tunes-on-social-media -
Notes and opinion on Facebook Q4 earnings release / webcast:
Disclosure: I don't own the stock. NOT a fan of company ethics, product. Beware of my antipathy.
"Privacy first social platform" - golden nugget from Mark. It doesn't matter what you utter, it does matter what you do, Mark.
[in end-to-end encrypted conversations] "minimum meta data to prevent spam" - forgot to add "and targeting".
"WhatsApp & direction we are heading with messenger are the best private social apps available". Cross a word that does not fit in the sentence. Agree on convenience, especially going for SuperApp vision in the west (integrated shopping) but private, c'mon man..
In open text Mark attacks Apple on iMessage privacy flaws, stating privacy backdoors are open unless you disable icloud (can't confirm). Sees growing pains competing with Apple on multiple fronts. Recent focal - IDFA:
#WhatsApp privacy: "giving time to understand what this update really means". As mentioned previously, #Facebook has leverage to do what it wants, sufficient moat to trade-off some aspects of user satisfaction for utility.
Ecommerce: "offering tools to businesses for free" - welcome to Square at 2009. Let me remind: organic reach is near non-existent. Facebook pushes tools for Small and medium businesses (SMB's) with one leg and has both hands open for advertising budget. Aside from hypocrisy, SMB's and FB achieve win-win.
Because let's face it: Facebook has best ad targeting game in town, and if the product does not suck, it's high ROI ad-spend for SMB's. My long term take for IG Shops and the like FB ecommerce efforts - it will annihilate EBAY and pose significant threats to players like ETSY All direct questions for shops/ecommerce dodged. "nice uptick, still very early days". Sellers and shoppers - great UX.
As with most of big tech, FB can dampen margins (0% take rate) for quite some time to win some seller ground:
Huge hopes for next computing platform (AR/VR) might be a self fulfilling prophecy. Oculus II was "one of hot holiday gifts"
Growing dev community: 60+ devs earning "millions" vs few months ago (noted x2 increase), which helps closing the loop:
>more devs > richer eco system / more apps / games > more users > more devs. All in $FB hands with imagination-limited monetization opportunities there. Augmented glasses - some years ahead.
Financials
Strong Q4 rebound that lots of you interested in the stock have probably went over it by now. In short 20' FY:
-Cash + markt. securities: 61.9B
-FCF 23B vs 20.7B YoY (+11%; +90% Q4 YoY!)
-Other revenue (mainly #Oculus) 1.8B vs 1B YoY (+72%)
-Operating margin +4%
+25B contribution to buybacks. Shares outstanding:
2016: 2.89B
2020: 2.85B (-1.4%)
Past buybacks had been quite strategic in my opinion
But barely moved the needle on EPS (compensating dillusion effect from stock based compensation). What 25B buyback size tells me:
1. Mark sees shares as undervalued
2. Will have more firepower on moving stock going forward -
Digital Turbine (APPS) is one of my portfolio companies. (read it as a disclaimer if you wish)
Digital Turbine operates a SaaS platform where OEM's/ Telecom carriers and advertisers exchange interests. Either I have not seen or it's a sole player so far operating in app pre-install space.
In last 3 days Digital Turbine is up +40%. Over 100% growth surprised even my wildest expectations. Below are some of my notes from $APPS earnings call and earnings release (Q4 / FY 2021 Q3)
First off, business makes sense. Attention economy pays for eye balls. It's far more efficient to have your app on new device load than to chase user across the web. Digital Turbine sits at the very center of this cross road of advertisers budget flows.
Devices are up +65M in Q4. Currently over 570M devices have went through $APPS platform. Historic on-boarding
from December slide deck:
That's a second consecutive quarter of 60M+ addition. Management gave no indications of slowing down. Majority of device growth - international. Result of ramping up international partnerships
Diversification is a long term goal of company. In everything:
-products
-business models
-partners
-geographies
-advertisers.
International partner revenue now 1/3 revenue vs 20% just year ago - strong strategy execution.
Multiple Tier 1 partnerships this year (!), which will grow DAU (daily active users) - crucial metric for advertisers to bid up.
"Expanding offering beyond smartphones is a natural step forward" - TV offering launches later this year. Don't know enough if this steps on $ROKU territory in some way. Either way, I assume focus is international.
Mobile Pose acquisition last year now contributes:
1. recurring revenue 50% vs 10% last year.
2. driving margin expansion.
Management warned margin can fluctuate QoQ, but strong conviction on expansion.
Seems like business growths on every segment.
Q: "Do you have to chase these carriers or are they calling you?"
In US carriers have more control over device. Internationally it's just a SIM dealer and partnership is with OEM.
Direct A: "we are always calling people and we have people calling us. It's a two-way street"
Financials.
-Revenue: 88.6M (+146% YoY)
-GAAP Net income: 14.5M (+436% YoY)
-Gross margin: +43% (+400bps)
-9M OCF: 48.6M (+243% YoY)
-9M FCF incl. M.Pose acquisition: 34.1M (+203% YoY)
Paying up for quality stock:
TTM FCF yield: 0.57%.
Stock. Note log scale. Company history is fuzzy, went over some mergers, but when CEO Bill Stone came in 2012, in several years rearranged on a clear growth trajectory. -
Krdi äge. Siis kui aktsia on aastaga 30x tõusnud, siis tullakse seda siia eksponeerima. Kus Sa aasta tagasi olid?
Aga kui suutsid sõidu kaasa teha, siis palju õnne ja jaga oma annet (ma mõtlen raha) heategevusega. -
All of my market moves are public on social accounts within days of order execution. That goes for APPS too (In another post I have doubled position size). However I don't want to "lure" followers directly, but rather to openly discuss business models and how market perceives valuations, which is counter intuitive for a lot of investors (certainly for me a year ago).
If I sustain current performance for several years, I'll share charitable activity. Appreciation in one stock says nothing about one's wealth.
Yes valuation is currently excessive. So it is for a lot of other names. What will change that?
-Rising rates
-Stop of QE
-Deteriorating macro economy
-Deteriorating big tech financials (highest SPX weights, unlikely looking at momentum)
-anything I miss..? -
Comprehensive slide deck from Octahedron Capital. Topics include:
-Digital Advertising
-Gaming & Content
-Payments & Fintech
-On-Demand & E-commerce
-Software
Whole presentation: link. -
Long time no visit in LHV, sorry. Busy busy.
Youtube gaming head shared a slide I found interesting.
Gen Z eye balls are shifting from away from TV. Explains recent Netflix move to gaming. Worth studying gaming industry closer, especially broad IP holders.
Recommended reading (not finished myself):
Part 1 /4 on VIdeo games industry
Also broad strokes of cash flow trickle down in industry:
