Category: Technology

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

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Financial Markets Sectors Technology Technology Stocks

Megaport Ltd – Company achieved 2,455 customers across 768 Enabled Data Centres

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Investment Thesis:

  • MP1 is a global Software Defined Network provider, focusing on cloud connectivity. As such, the Company is leveraged to the rapid growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.  
  • MP1 has a scale advantage over competitors. MP1 has over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take several years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
  • Strong R&D program ensuring MP1 remains ahead of competitors.
  • Strong cash balance of $104.6m. 
  • Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.

Key Risks:

  • High level of execution risk (especially with respect to development). 
  • Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition. 
  • Heavy reliance on third party partners (especially data centre providers and cloud service providers). 
  • Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services. 
  • Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).

Key highlights:

(1) Revenue increased +42% over pcp to $51.2m, driven by increased usage of services across all regions, with North America delivering strongest growth across all regions, increasing +55% over pcp, followed by Europe (+35% over pcp) and Asia Pacific (+28% over pcp). Monthly recurring revenue (MRR) increased +46% over pcp to $9.2m, driven by strong customer growth compounded with a 5% increase over pcp in services per customer. 

(2) Profit after direct costs improved +69.4% over pcp to $30.9m, driven by revenue growth and a controlled network cost. 

(3) Opex increased +42% over pcp with employee costs increasing +40% over pcp amid investment in headcount to support business growth (employee costs as a percentage of revenue declined -100bps over pcp to 55%), marketing (+126% over pcp) and travel (+1481% over pcp) costs increasing amid a gradual return of travel and conference activities following global easing of Covid-19 restrictions, and IT costs increasing +106% over pcp due to expensing of Software as a Service (SaaS) costs, previously capitalised, following a change in accounting policy. 

(4) The Company achieved 2,455 customers (up +7.4% over 2H21) across 768 Enabled Data Centres (420 located in North America, 208 in EMEA and 140 in Asia Pacific). 

(5) The Company ended the half with cash and equivalents position of $104.6m, down -23.2% over 2H21.

Company Description: 

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform. 

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Financial Markets Sectors Technology Technology Stocks

Microsoft remains well positioned to strengthen its market leadership in cloud computing

Investment Thesis:

  • Cloud products are growing at attractive growth rates as the Company continues to innovate. 
  • Exposure to the fast growing online gaming segment. 
  • New product release and updates to existing suite of products.
  • Solid free cash flow generation and strong balance sheet. 
  • Strong management team.  

Key Risks:

  • Competitive & macro pressures in key markets – if the growth rate for Azure slows the market would view this as a negative in our view.   
  • New product releases or updates fail to resonate with customers leading to product switching to competitors. 
  • U.S. trade war with China escalates, given MSFT uses parts from China.  
  • Value destructive acquisition(s). 
  • Adverse movements in currency (USD). 
  • Intellectual property theft and piracy.
  • There is significant optimism priced into MSFT’s share price (the stock is well owned by investors), and as such any disappointment on growth or strategic misstep could see the stock disproportionately de-rate lower.

Key highlights:

  • Driven by rising digital shift by enterprises, MSFT’s cloud growth continued to exceed management’s expectations (Intelligent cloud revenues came in at $18.3bn in 2Q22, up +26% YoY
  • Management also announced an extension of infrastructure to the 5G network edge. As the demand for cloud infrastructure services continues to surge in the post Covid-19 era, benefiting from organisations upgrading their legacy IT infrastructure and migrating to cloud-based workloads
  • Well positioned to strengthen its market leadership in cloud computing (as of FY21 MSFT’s cloud revenues grew at a higher rate than top player AMZN, with a 3-year average of +70% compared to +39.8% for AMZN), aided by growth in on-premise amid its large enterprise partner ecosystem
  • Public-cloud infrastructure, in-turn driving the overall margin expansion for the Company (large fixed costs should continue to get better diluted with the rapid increase in revenues, driving segment’s operating income at a higher rate than revenue). 
  • Management announced the acquisition of Activision Blizzard for $68.7bn. The acquisition remains the last piece in the puzzle for MSFT to exert dominance in Metaverse, with the Company now owning the hardware, cloud services and content to dominate gaming industry.

Company Description: 

Microsoft Corp (MSFT) develops, manufactures, licences, sells and supports software products. Microsoft offers operating system software, server application software, business and consumer applications software, software development tool and Intranet / Internet software. The Company has three main segments: (1) Productivity and Business Processes; (2) Intelligent Cloud; and (3) More Personal Computing.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Sectors Technology Technology Stocks

SAP reported solid 2Q21 result with revenue of €6.7bn

Investment Thesis :

  • Leading market share positions in on-premise enterprise resources planning (ERP) and on-premise customer relationship management (CRM) markets with customers in over 180 countries and strong brand awareness. 
  • The market is undervaluing SAP’s CRM business (relative to its peer group such as Salesforce.com).
  • Support revenues and Cloud subscriptions provide recurring revenue, which gives SAP a defensive profile. 
  •  Competent management team. 
  •  Strong operating and free cash flow generation with attractive dividend policy (payout ratio of at least 40%)

Key Risks

  • The Slower take-up for HANA and S/4HANA. 
  • Deteriorating sentiment if the economy and IT spending weakens. 
  • Market share loss in software revenue driven by cloud migration. 
  •  Aggressive M&A with risk of overpaying. 
  • Additional opex spending dampening margin expansion. 
  •  Key-man risk due to management changes. 
  • Competition from other established players like Microsoft, Salesforce.com and Oracle

Key highlights of FY 2021

Ongoing momentum in the business saw management slightly raised the bottom end of their previous guidance, which may have disappointed the market (i.e. investors may have been expecting a bigger bump up). Management’s 2021 outlook (non-IFRS @ CC): Cloud Revenue €9.3 – 9.5bn (prev. €9.2 – 9.5bn), up +15-18%; Cloud and Software Revenue €23.6 – 24.0bn (prev. €23.4 – 23.8bn), up +2-3%; and Operating Profit €7.95 – 8.25bn (prev. €7.8 – 8.2bn), flat to -4%. Management reiterated their operating cash flow guidance of approx. €6.0bn and FCF above €4.5bn.

2Q21 results highlights : Relative to the pcp: 

  • Total group revenue of €6.7bn was up +3% (in CC terms), driven by Cloud up +17%, Software licenses and support down -2% (Software Licenses down -13%, Software Support up +1%), Cloud and Software up +5% and Services down -7%. SaaS/PaaS cloud revenue (excluding Intelligent Spend) was up+25% (CC). Software Licenses were down -13% (CC) as expected and were ahead of expectations. Current Cloud Backlog (CCB) was up +20% (CC terms) to €7.8bn, with SAP S/4HANA CCB up +48% to €1.1bn.
  • From a region perspective, Asia Pacific & Japan revenue was solid (Cloud up +23% in CC; Cloud & Software up +6% in CC) while Americas (Cloud up +12% in CC; Cloud & Software up +5% in CC) and EMEA (Cloud up +23% in CC; Cloud & Software up +5% in CC) also saw good growth. Operating profit of €1.9bn was down -2% on pcp, but up +3% in CC terms. Operating margins were down -30bps to 28.8%

Company Profile:

SAP SE (SAP) is a global software and service provider headquartered in Walldorf, Germany, operating through two segments: Applications, Technology & Services segment, and the SAP Business Network segment. The Applications, Technology & Services segment is engaged in the sale of software licenses, subscriptions to its cloud applications, and related services and the SAP Business Network segment includes its cloud-based collaborative business networks and services relating to the SAP Business Network (including cloud applications, professional services and education services). SAP is the market leader in enterprise application software and also the leading analytics and business intelligence company, with the Company reporting that more than 77% of all transaction revenue globally touches an SAP system.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Financial Markets Sectors Technology Technology Stocks

Alphabet Inc. earnings momentum to continue driven by Cloud Business and focus on AI and Machine Learning

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Investment Thesis:

  • Commands a strong market position in online advertising and online eyeballs. 
  • Search advertising increasing its share of advertising spend. 
  • Leveraged to online video steaming and advertising via YouTube. 
  • Strong balance sheet with over US$130bn in cash, which gives flexibility to invest in growth options or undertake capital management initiatives. 
  • Focus on innovation across advertising businesses, which should help to sustain growth. 
  • Strong management team. 
  • Value accretive acquisitions in existing and new growth areas. 
  • Recent disclosure suggests GOOGL’s Cloud business building good revenue momentum.

Key Risks:

  • Threat of increased regulatory scrutiny, including concerns around consumer privacy and personal data.
  • Regulatory changes which impacts the way GOOGL does business (e.g. forced changes to products). 
  • Expenses such as TAC (traffic acquisition costs) increase ahead of expectations and which the company is unable to pass onto customers. 
  • Deterioration in economic conditions, which would put pressure on the advertising revenue. 
  • Competition from companies like Facebook Inc., Amazon etc. could put pressure on margins. 
  • Potential return from investment on new, innovative technology fails to yield adequate results.

Key highlights:

  • GOOGL reported a very strong quarter, with revenues of $61.9bn up +61.6% (or up +57% in constant currency).
  • Total Google Services revenues of $57.1bn was up +63%, with Google Search & Other up +68.1% (led by strong growth in retail), YouTube ads up +83.7% (driven by brand and direct response) and Google advertising up +60.4% (driven by Ad Manager and AdMob)
  • Google Cloud revenue was up +53.9% to $4.6bn, driven by growth in infrastructure and platform services. GOOGL’s total cost of revenues of $26.2bn was up +41%, driven by growth in TAC (traffic acquisition costs), which was up +63% to $10.9bn. Group operating income was up +203.3% to $19.4bn (with margin expanding to 31.3% from 16.7% in pcp), driven predominantly by Google Services (up +134.2% to $22.3bn).
  • GOOGL continues to spit out significant amount of cash from operations, reporting free cash flow of $16.4bn in 2Q21 and $58.5bn over the trailing 12 months.
  • At the end of the quarter, the balance sheet had $136bn cash (& equivalent). The Board has amended the existing $50bn stock repurchase program to permit the repurchase of both Class A and Class C shares.

Company Description: 

Alphabet Inc is headquartered in Mountain View, California, and provides online advertising services across the globe. It offers performance and brand advertising services through Google and Other Bets segments. The Google segment offers products, such as Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, Hardware, Search, and YouTube, as well as technical infrastructure. This segment also offers digital content, cloud services, hardware devices, and other miscellaneous products and services. The Other Bets segment includes businesses, including Access, Calico, CapitalG, GV, Verily, Waymo, and X, as well as Internet and television services.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Financial Markets Sectors Technology Technology Stocks

Equinix reports strong results driven by increased gross bookings in key American regions

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Investment Thesis:

  • In our view, considering the quality of the business, EQIX is trading at fair valuation (from the perspective of trading multiples, dividend yield and our DCF valuation). 
  • Attractive long-term outlook in global digitization and data requirements of companies, with 5G and cloud computing as key drivers. 
  • Businesses moving away from on-premise centres towards colocation and cloud networks. 
  • Diversified client base and revenue stream minimises contractual risk. 
  • Opportunity for future market share expansion via potential acquisitions.

Key Risks:

  • Increases to operating expenses – particularly electricity costs. However, the contracts between Equinix and its customers provide for rights and protection clauses to permit the Company to pass on electricity cost increases that exceed 5%. 
  • Rising technology and acceptance of cloud-based services may incentivise businesses to fully leverage cloud infrastructure rather than connecting with IBX data centres. However, management has downplayed these concerns, stating that there must still be direct interconnection between Cloud and businesses within the data centres. 
  • Newer IBX data centres have twice the cooling needs as old centres. Potential power limitations could force the company to have a lower utilization rate of its cabinets.  
  • Increased competition in the industry from the likes of Google, Apple, Microsoft and Digital Reality Trust, and the possibility of formation of strong strategic alliances amongst competitors 
  • EQIX is subject to exchange rate risk due to the company’s diverse geographical scale of operations. However, the company hedges many of these exposures. 
  • REIT classification mandates a minimum of 90% of taxable income paid to shareholders. This may hinder EQIX’s ability to increase its cash via retained earnings and could render the company’s balance sheet inflexible.

Key highlights:

  • Over the quarter, revenues up +8% to $1.7bn, adjusted EBITDA up +7% and AFFO was ahead of management’s expectations.
  • Strong quarterly result, with revenues up +8% to $1.7bn, adjusted EBITDA up +7% and AFFO growth of +10% (normalised and constant currency) was ahead of management’s expectations.
  • Interconnection revenues grew +12%
  • On a normalized and constant currency basis, Americas’ revenue growth of +8% YoY was among the highest in as many quarters. Adjusted EBITDA of $326m was up +3%.
  • Asia-Pacific reported normalized and constant currency revenue up +11% YoY and normalised MRR up +9% YoY, with management noted MRR growth was partially impacted by Covid related constraints in Singapore and political uncertainty in Hong Kong.
  • Total gross debt at the end of the quarter was $11.8bn, with weight average borrowing costs of 1.72% (95% of the debt is at fixed rate) and weight average maturity of debt 9.6 years. 
  • Net leverage ratio at the end of the period was 3.8x

Company Description: 

Equinix (NASDAQ: EQIX) is a leading company in internet connection and data centres. It is the global market leader in colocation data centre industry, providing data services and platforms for over 9800 companies across 24 countries. This allows companies to connect to their online ecosystem and meet their interconnection needs for their business operations. EQIX also offers additional solutions such as the Equinix Cloud Exchange Fabric to connect data centres to cloud networks, and the recently introduced Equinix SmartKey to offer encryption protection for the data security management of companies.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Financial Markets Sectors Technology Technology Stocks

Apple Inc is focused on sustaining growth and margins

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

Investment Thesis 

  • High barriers to entry.Strong strategic position in the rapidly growing global smartphone market especially with high end consumers. Loyal consumer base resulting in lower competitive pressure, and higher pricing power. 
  • Large cash balance and strong free cash flow supporting share buyback and dividend payout.
  •  Leading positions in iPhone; iPads; and Macs. 
  •  Services segment remains on track to double FY16 revenue by FY20. 
  • In terms of Other products (such as wearables and home products), AAPL seized the leading position off the back of a surge in smartwatch sales in a market expected to grow single digit till 2022 and double digit thereafter. 
  • Strong senior executive team reducing (not totally eliminating) key man risk.

Key Risks

  • Geo-political tensions. The current trade war between the US and China pose a threat to the company’s future profits. AAPL currently obtains components from single or limited sources (mostly China), the Company is subject to significant supply and pricing risks. Also, Greater China is a major market contributing to approximately 21% (Q218) of total revenue and any retaliatory efforts from Beijing could impact those sales. 
  • Whilst there are only a handful of competitors, the competition is Intense from Android manufacturers. The most notable competitors in the smartphone market (which contributes 62% of Apple’s revenues) are the Korean giant Samsung and two rapidly growing Chinese smartphone players in Huawei and Xiaomi. On raw performance specs (i.e., camera, maps, screen size, charge time, etc.), one may assert that AAPL devices are technically inferior to a handful of Android devices. 
  • Movements in U.S. dollar (USD). The greenback’s strong gain recently (due to rise in U.S. interest rates and moderating growth in other parts of the globe) has seen it rise to the highest level in nearly seven months, meaning foreign currency earnings of AAPL can be worth less when translated back to USD. The weakness in foreign currencies relative to USD will have an adverse impact on net sales during 2018.

Key highlights to 4Q18 results

  • 4Q18 revenue of $62.9bn, up +20% from the year-ago quarter, and quarterly diluted EPS of $2.91, up +41%, driven by record sales and strong momentum for iPhone, Wearables and Services. On the conference call, management highlighted “[revenue] was ahead of our expectations. That’s an increase of 20% over last year and our highest growth rate in three years”. 
  •  Gross margin was 38.3%, flat sequentially, in line with management’s expectations, as leverage from higher revenue offset seasonal transition costs. 
  •  International sales (61% of the quarter’s revenue) was strong, especially in Japan, up +34%, Rest of Asia Pacific, up +22%. The Americas (44% of revenue) saw revenue of $27.5bn, up +19%, whilst Europe at $15.4bn, was up +18% and China was up +16% at $11.4bn. 
  • Services revenue reached an all-time high of $10.0bn. Excluding a one-time favorable adjustment of $640m (in 4Q17), Services revenue grew from $7.9bn to $10bn, up +27% over the pcp. 
  • By product, iPhone, Services and Other products saw 29%, 17% and 31% sales growth, respectively, whilst disappointingly, iPad and Mac saw -15% and 3% sales growth respectively. 
  • iPhone ASP was $793 compared to $618 a year ago, driven by strong performance of iPhone X, 8 and 8 Plus, as well as the successful launch of iPhone XS and XS Max in the September quarter this year, while we launched iPhone X in the December quarter last year.

Company Profile

Apple Inc. (AAPL) designs and manufactures media devices and personal computers (Macs), and sells a variety of related software, services, accessories, networking solutions and third party digital content and applications. The company leads the world in innovation with iPhone, iPad, Mac, apple watch and Apple tv.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Sectors Technology Technology Stocks

Electronic Arts delivered strongest 2Q earnings in its entire history driven by Apex Legends and FIFA

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

Investment Thesis:

  • Attractive long-term drivers in online gaming 
  • Strong core franchises in Madden NFL, FIFA, The Sims and Need for Speed 
  • New product release surprise on the upside including Apex Legends 
  • The growing popularity in Esports should benefit EA
  • Mobile advertising presents significant opportunity (though not without execution risk)
  • Solid free cash flow generation and strong balance sheet, the Company has ample room to support capital management initiatives (such as a share buyback)

Key Risks:

  • New competition and new product release from existing competitors could impact EA’s growth rate.  
  • Key franchises or new product releases fail to attract gamers or meet investor growth expectations. 
  • Cloud gaming could be disruptive for incumbents. 
  • Adverse regulatory changes. 
  • Concentration of revenue / earnings to a small group of games. 
  • Disruption to mobile growth (e.g. growth in smart glasses displaces smartphones). 
  • Loss of content licensing agreements with owners (FIFA, NFL)

Key highlights:

  • Electronic Arts Inc (EA) delivered the strongest 2Q in the history of EA, beating consensus estimates at both the top line ($1.83bn vs estimate of $1.75bn) and bottom line (EPS of $1.02 vs estimate of $0.56) driven by live services led by Apex Legends (reached $1.6bn in lifetime bookings) and FIFA Ultimate Team.
  • The Company’s net bookings of $1.85bn beat management’s guidance by $126m
  • Management remained positive on the launch of Battlefield 2042 (over 7.7 million players took part in the beta) noting that interest in Battlefield 2042 is higher than the interest the Company received heading into 2018’s Battlefield
  • the acquisitions of Glu, Codemasters, Metalhead and Playdemic should help EA make mobile a major growth driver (important to sustain topline growth as console and PC engagement declines as the pandemic recedes), and strong digital mix for full game sales
  • After a successful relationship between EA and soccer’s global governing body FIFA over multiple decades, it appears recent contract renewal discussions are not going well as the disagreement comes down to fees
  • Net bookings of $7.625bn (vs $7.3bn previously) driven by ongoing strength from Apex and FIFA and just under $100m from six months of Playdemic, partially offset by pressure on some of mobile titles including product changes and IDFA impacts
  • Management closed the acquisition of Playdemic, further strengthening the mobile native organization within EA, which management expects could be sharply focused on accelerating growth in portfolio of more than 15 top mobile live services as well as introducing new experiences that take powerful IP including Battlefield in the expanding mobile audience.

Company Description: 

Electronic Arts (NASDAQ: EA) is a leading digital interactive entertainment company, with leading gaming brands globally. The Company develops and distributes content and services on mobiles, personal computers (PCs) and gaming consoles. Some of the Company’s key franchises Madden NFL, EA SPORTS FIFA, The Sims and Need for Speed. The Company’s portfolio of games includes fully owned original IP games and also licensed content. Apex Legends, Anthem, Battlefield, The Sims, EA SPORTS, Need for Speed, Dragon Age, and Plants vs. Zombies are trademarks of Electronic Arts Inc. John Madden, NFL and FIFA are the property of their respective owners and used with permission. According to EA data, the Company has greater than 300 million registered players around the globe.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.