Category: Technology Stocks

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.

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.

Categories
Technology Stocks

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

Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

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.

Categories
Technology Stocks

BorgWarner Positioned for Growth From Globally Ubiquitous Clean Air Regulations

price of btc is going to breakout

Business Strategy and Outlook

BorgWarner is well positioned to capitalize on industry trends arising from global clean air legislation, consumers’ demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. BorgWarner is well positioned for the trends in the auto sector that will result in revenue growth in excess of the growth in global automobile demand. 

Turbochargers, one of BorgWarner’s products for which it commands an industry-leading market share and accounted for 24% of 2020 revenue, are a cost-effective way for OEMs to improve engine efficiency. Fuel-injection technology from the Delphi acquisition also improves efficiency. Combined, both technologies increase fuel economy, lowering tailpipe emissions. Dual-clutch transmissions, which contain eight or more gears, compared with older technology automatic transmissions equipped with four gears, can generate 5%-15% in fuel savings. Torque transfer devices enable all-wheel drive and four-wheel drive for globally popular sport utility and crossover vehicles.

Financial Strength

BorgWarner maintains a solid balance sheet and liquidity that, relative to many other parts suppliers, makes for strong financial health. Despite being acquisitive, the company has pursued a conservative capital strategy as total debt/total capital has averaged less than 15% over the past 10 years. Total adjusted debt/EBITDAR, which takes into consideration operating leases and rent expense, averaged less than 1 times over the same period. However, we think the company could have taken more advantage of the benefits of financial leverage without incurring the pitfalls of excessive debt.

The company refinanced a $251 million senior note that was due in September 2020. BorgWarner maintains a $2.0 billion multicurrency revolver that matures in March 2025. The company’s unsecured commercial paper program allows up to an aggregate $2.0 billion in principal amount outstanding. Total combined drawn borrowing between the revolver and commercial paper program is not permitted to exceed $2.0 billion. With the completed all-stock deal to acquire Delphi Technologies, trailing 12-month pro forma debt/EBITDA was 3.0 times. However, excluding the dramatic COVID-19 impacted second quarter and using the trailing 12-months EBITDA ending with the first quarter, BorgWarner proforma debt/EBITDA was 1.7 times, a relatively healthy result.

Bulls Say’s

  • Global clean air legislation enables BorgWarner’s top-line growth to exceed worldwide growth in demand for light vehicles. 
  • The popularity of sport utility and crossover vehicles around the globe supports growth in BorgWarner’s torque transfer technologies. 
  • Volkswagen, Ford, and Hyundai are BorgWarner’s three largest customers and, on average, make up about one third of revenue.

Company Profile 

BorgWarner is a Tier I auto-parts supplier with four operating segments. The air management group makes turbochargers, e-boosters, e-turbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, powertrain sensors, cabin heaters, battery heaters, and battery charging. The e-propulsion and drivetrain group produces e-motors, power electronics, control modules, software, automatic transmission components, and torque management products. The two remaining operating segments are the eponymous fuel injector and aftermarket groups. The company’s largest customers are Ford and Volkswagen at 13% and 11% of 2020 revenue, respectively. Geographically, Europe accounted for 35% of 2020 revenue, while Asia was 34% and North America was 30%.

(Source: Morningstar)

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
Technology Stocks

Amazon.com Inc (AMZN) reported a solid 4Q21 results driven by very strong growth rates in previous quarters

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

Investment Thesis:

  • Well positioned as a market leader in e-commerce and cloud computing.
  • Strong operating cash flow profile provides the Company with significant amount of flexibility. 
  • Large base of loyal customers.
  • Strong senior executive team.
  • Entry into new regions (e.g. India) – although this is not without risk.
  • Re-accelerating investment expenditure should be positive for future revenue and earnings growth.

Key Risks:

  • It is a complex business with a lot of moving parts, thus forecasting future earnings can be difficult. 
  • Further de-acceleration in advertising revenue.
  • Increased investments fail to yield adequate returns to justify AMZN’s trading multiples. 
  • Increased e-commerce competition domestically and internationally.
  • Decrease in operating margins of AWS due to increased competition and price cuts.
  • Increased regulatory scrutiny (India being a good example).
  • Increase in overheads like free shipping and higher labor cost leading to margin contraction.  

Key highlights:

  • Relative to the previous corresponding period (pcp), 4Q21 group net sales were up +9% to $137.4bn, driven by AWS (up +40%) and Advertising Services (up +32%).
  • Operating income of $3.5bn was down -49% (due to inflationary pressures and disruptions to operations from Covid-19) and net income increased +99% to $14.3bn, predominantly due to the pre-tax valuation gain of $11.8bn on AMZN’s investment in Rivian Automotive Inc.
  • AWS (Amazon Web Services), with net sales up +40% YoY, had another very strong quarter despite lapping strong growth rates in previous periods (4Q20 was up +28%).
  • AMZN will increase the price of Prime in the U.S. in 1Q22, but at this stage has no plans to raise rates in any other region.
  • AWS is currently available in 25 regions globally, with management looking to launch in 8 more regions in the next few years.
  • Management provided good colour around staffing challenges on the analysts briefing and believe they may be through the peak of it.

Company Description: 

Amazon.com Inc. (AMZN) is a multinational technology company focusing in e-commerce, cloud computing and artificial intelligence. It is the largest e-commerce marketplace and cloud computing platform in the world as measured by revenue and market capitalization. The company operates through three segments; North America, International and Amazon Web Services (AWS).

(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
Technology Stocks

GOOGL’s 4Q21 results highlighted the strength in Google’s Search business

85215903 - attractive businessman using mobile phone while having lunch

Investment Thesis:

  • Commands a strong market position in online advertising and online eyeballs. 
  • Search advertising increases its share of advertising spend. 
  • Leveraged to online video streaming 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 GOOGLE’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 impact the way GOOGLE does business (e.g. forced changes to products). 
  • Expenses such asTAC (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: 4Q22 group results. 

Relative to the previous corresponding period (pcp), group revenues of $75.3bn was up +32% (or up +33% in constant currency). Group cost of revenues of $32.9bn was up +26%, mostly driven by other cost of revenues (up +25% to $19.6bn). The drivers of this were: content acquisition costs (primarily driven by costs for YouTube’s advertising-supported content); costs for subscription content; hardware costs; and costs associated with data centers and other operations. Operating income of $21.9bn was up +40%, with operating margin at 29%. Net income of $20.6bn was up +36%. GOOGLE maintains an attractive free cash flow profile, delivering FCF of $18.6bn in 4Q21 and $67bn in FY21. The Company ended FY21 with $140bn in cash and marketable securities and repurchased a total of $50bn shares in FY21.

Google Services is driven by strong consumers: Overall Google Services revenue for FY21 of $237.5bn was up +41% YoY, a significant acceleration on FY20A growth of +11%. 4Q21 revenue of $69.4bn was up +31% YoY, “driven by broad-based strength in advertiser spend and strong consumer online activity.” Over 4Q21, “retail was again by far the largest contributor to year-on-year growth of our ads business. Finance, media and entertainment, and travel, were also strong contributors.”

Company Profile

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 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
Technology Stocks

Arista Shining From High End Switching Demand Turned on as Cloud Data Centers Expand

Finance and Economy Chart for Dollar Gold Euro Currencies Trading View

Business Strategy and Outlook

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and it is alleged customers will remain loyal to the firm’s Extensible Operating System software and peripheral products. Arista’s initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises. 

It is seen EOS’ novelty lies in its single software image that provides a consolidated view of device activity from end to end and its ability to centrally upgrade the entire network. EOS contains leading software-defined networking features while remaining intuitive and fully programmable. Additional software offerings like CloudVision expand functionality and interoperability across networks. Arista uses merchant silicon for its hardware, which is held, allows the company to focus on its core competencies. 

Arista works closely with its core customers to optimize their networking ecosystems, which it is alleged, can strengthen its customer switching costs. To expand its customer base beyond the data centers of hyperscale cloud providers, enterprises, service providers, and financial institutions, Arista entered into the campus market. The adjacent move is due to requests from existing customers desiring one software platform across networking locations, and Arista has bolstered its clout with wireless and security capabilities. Even with current customer concentration risk, It is viewed, that Arista is growing alongside key customers and that new ventures have expanded from core competencies.  It is held that Arista is well positioned as a pioneer in the new age of software-defined networking and will continue to be a leader in next-generation switches and routers.

Financial Strength

It is considered Arista to be in a financially healthy position; its zero-debt balance and $3.4 billion in cash, cash equivalents, and marketable securities as of the end of 2021 provide flexibility for the future. With no stated plans to return capital to shareholders, the company’s investment plan is fixated on developing products and expanding sales. It is held that the company’s financial health will remain stable and that cash could be deployed for growth via bolt-on products or technologies.

Bulls Say’s

  • Demand for EOS continuity across networks should proliferate Arista’s installation base. Installation base growth causes new customers to consider Arista during upgrades. 
  • Arista has been a first mover on its path to rapid profitable growth. Upcoming industry disruptions that Arista may lead include 400 Gb Ethernet switching and campus market splines. 
  • Instead of relying on partnerships to plug portfolio gaps, Arista might be able to make accretive acquisitions in adjacent markets that could catalyze growth in areas such as analytics, access points, and security.

Company Profile 

Arista Networks is a software and hardware provider for the networking solutions sector. Operating as one business unit, software, switching, and router products are targeted for high-performance networking applications, while service revenue comes from technical support. Customer markets include data centers, enterprises, service providers, and campuses. The company is headquartered in Santa Clara, California, and generates most of its revenue in the Americas. It also sells into Europe, the Middle East, Africa, and Asia-Pacific. (Source: MorningStar)

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
Technology Stocks

AMD Completes Acquisition of Xilinx; Firm’s Narrow Moat Is Strengthened With FPGA Leader

Business Strategy and Outlook

Advanced Micro Devices designs an array of chips for various computing applications. AMD operates in the x86-based duopoly with Intel that dominates the PC and server CPU markets. Morningstar analysts think AMD benefits from intangible assets related to its x86 instruction set architecture license and chip design expertise, which gives analyst confidence that the firm will generate excess returns over the cost of capital over the next decade and thus warrants a narrow economic moat rating.

Morningstar analysts thinks the firm is well positioned to enjoy data center growth driven by the shift from on-premise to cloud computing. In the mature PC market, Morningstar analysts think AMD will also gain share at Intel’s expense in the coming years. One potent risk for both AMD and Intel is the shift to ARM-based CPUs in both PCs and servers, though analysts expect x86-based chips to remain dominant for the foreseeable future. AMD has focused on utilizing its CPU and GPU technology in semicustom processor applications, such as game consoles. AMD’s semicustom processors have been included in recent Microsoft Xbox and Sony PlayStation game consoles. AMD also competes against Nvidia in the discrete GPU market, though Morningstar analysts don’t believe AMD is as competitive in GPUs as it is in CPUs.

AMD Completes Acquisition of Xilinx; Firm’s Narrow Moat Is Strengthened With FPGA Leader

In February 2022, AMD acquired Xilinx to bolster its product portfolio and better diversify its revenue. Xilinx is the leader in the field-programmable gate array niche of the chip industry. Consequently, Morningstar analyst are raising its fair value estimate for AMD to $130 per share from $128. The updated fair value reflects the combined entity .Management expects annualized cost synergies of $300 million within 18 months, based on synergies in cost of goods sold and shared infrastructure through streamlining common areas. Morningstar analysts assume the joint firm will enjoy better cost economics at TSMC, with both standalone AMD and Xilinx being prominent customers of the foundry leader. 

Financial Strength 

At the end of June 2021, the firm reported $2.6 billion in cash and cash equivalents against $313 million in long-term debt. The firm has been doing a nice job of paying down debt in recent years to create a more resilient capital structure. While the firm has generated solid cash flow in recent years, the company’s longer-term competitiveness remains heavily dependent on the ability of AMD to retain healthy market share across PC, server, and GPU segments.

Bulls Say

  • AMD’s recent CPU and GPU offerings have been more competitive with Intel and Nvidia’s products, respectively, and utilize TSMC’s leading-edge process technologies. 
  • AMD’s GPUs are highly sought after in cryptocurrency mining. Should blockchain technology take off, AMD could be well positioned to take advantage. 
  • AMD has its sights set on Intel’s dominant server CPU market share, and its EPYC server chips have proved to be comparable or even superior to certain Intel chips in many benchmark tests.

Company Profile

Advanced Micro Devices designs microprocessors for the computer and consumer electronics industries. The majority of the firm’s sales are in the personal computer and data center markets via CPUs and GPUs. Additionally, the firm supplies the chips found in prominent game consoles such as the Sony PlayStation and Microsoft Xbox. AMD acquired graphics processor and chipset maker ATI in 2006 in an effort to improve its positioning in the PC food chain. In 2009, the firm spun out its manufacturing operations to form the foundry GlobalFoundries. In 2022, the firm acquired FPGA-leader Xilinx to diversify its business and augment its opportunities in key end markets such as the data center.

 (Source: Morningstar)

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
Technology Stocks

Uber’s Q4 results beat expectations; Margin expansion to continue on all fronts; Shares attractive

Business Strategy and Outlook:

Mobility demand continued to approach pre-pandemic levels, which further attracted drivers and stabilized prices for riders, expanding the adjusted EBITDA margin, displaying the platform’s strong network effect moat source. The firm’s ability to further monetize the platform via advertising and other verticals is also appealing. 

It appears that normalcy after the pandemic includes not only spending more time out of home and traveling, but also still ordering food and other products online for delivery or pickup as delivery continued to grow. While the mobility take rate dipped, the delivery take rate increased 60 basis points from last quarter and around 5 percentage points year over year.

A slowdown in the decline in air travel is witnessed, which we believe indicates that Omicron has already peaked and demand for travel and therefore airport rides and overall mobility demand may accelerate again. As Uber’s strong network effect continues to attract consumers, advertisers have begun to spend more on the firm’s marketplace platform.

Financial Strength:

Management guided to first-quarter year-over-year gross bookings growth deceleration due to a slight impact from omicron, which appears to have already peaked. Uber generated $25.9 billion in total gross bookings during the quarter, up 51% year over year, with contributions from mobility (up 67%), delivery (34%), and freight, which spiked 245% from last year due to the acquisition of Transplace. Mobility gross bookings hit 84% of pre-pandemic levels during the quarter, up from 79% in the third quarter. While the mobility take rate dipped, the delivery take rate increased 60 basis points from last quarter and around 5 percentage points year over year. Net revenue of $5.8 billion during the quarter was up 105% from 2021. Mobility net revenue grew 55%, while delivery net revenue went up 78%. Monthly active platform users increased 27% from last year to 118 million. Trip requests came in at 1.77 billion (up 23% year over year); however, due to omicron, frequency, or trips per user, declined nearly 10% from last year but stayed within the 14-15 trips range. 

Company Profile:

Uber Technologies is a technology provider that matches riders with drivers, hungry people with restaurants and food delivery service providers, and shippers with carriers. The firm’s on-demand technology platform could eventually be used for additional products and services, such as autonomous vehicles, delivery via drones, and Uber Elevate, which, as the firm refers to it, provides “aerial ride-sharing.” Uber Technologies is headquartered in San Francisco and operates in over 63 countries with over 110 million users that order rides or foods at least once a month. Approximately 76% of its gross revenue comes from ride-sharing and 22% from food delivery.

(Source: Morningstar)

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
Shares Technology Stocks

Twitter’s strong user growth and monetization keeps firm on track

Business Strategy and Outlook:

Despite the top-line miss, both user growth and revenue per user was impressive, as the firm continues to capitalize on the growing demand for brand and direct response advertising. Twitter’s effort to focus more on advertising opportunities is believed to mix well with its balanced brand and direct response revenue base in the long run, allowing the firm to capture more small- and medium-size business ad revenue and tap further into ecommerce growth. the firm has taken the right steps to focus on generating growth in advertising revenue. Following the sale of MoPub, the firm properly reallocated investment into direct response and commerce offerings, which should allow it to attract more small- and medium-size businesses and balance brand advertising. In addition, Twitter’s efforts to provide easier contextual advertising options combined with further user personalization and improvements to user experience in the app could attract even more brand advertising dollars. With the continuing user growth, it is expected that Twitter’s subscription products to slightly reduce its dependency on advertising.

On the commerce front, Twitter for Professionals profile options will attract more businesses as usage of the platform’s Shop module, which allows businesses to highlight their products to be purchased on Twitter, will drive transaction volume higher. However, the firm does face significant competition on this front, including from the likes of Facebook, Pinterest, and, of course, Amazon.

Financial Strength:

Total revenue came in at $1.6 billion, up 22% from last year, with growth in both advertising revenue (22%) and data licensing and other revenue (15%), bringing total revenue for the year to $5.1 billion in 2021. The firm’s user count increased 13% year over year to 217 million, with U.S. and international users up 3% and 16%, respectively. Management claims user numbers improved because of Twitter’s new single sign on feature and improved notifications that attracted former users to return to the platform. n the fourth quarter, costs and expenses totaled $1.4 billion, an increase of 35%, mainly due to increased investment in research and development as well as sales and marketing. The firm generated operating income of $167 million (11% margin) compared with operating income of $252 million (20% margin) last year

Company Profile:

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%)

(Source: Morningstar)

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
Technology Stocks

Twilio’s software building blocks are constructing a cloud communications empire

Business Strategy and Outlook:

Twilio is a cloud-based communication-platform-as-a-service, or CPaaS, company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows developers to integrate messaging, voice, and video functionality into business applications. We believe narrow-moat Twilio has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform. 

In a go-to-market model that focuses on empowering developers to utilize the APIs to build products in a highly customized fashion, Twilio has been able to expand into use-cases that would be difficult to penetrate otherwise. For widely sought-after use-cases, Twilio has developed solution applications, like Flex Contact Center, which combine various channel APIs into a unified interface to create use-case-specific solutions.

Financial Strength:

Twilio is in a healthy financial position. Revenue is growing rapidly, and the company is beginning to scale, while the balance sheet is in good shape. As of December 2021, the company had cash and short-term investments of $5.4 billion and a debt balance of $985.9 million. In March 2021, Twilio issued $1.0 billion of senior notes, consisting of $500 million of 3.625% notes due 2029, and $500 million of 3.875% notes due 2031. In June 2021, the company redeemed its prior convertible notes, due March 2023, in their entirety. Since raising approximately $150 million in its IPO in 2016, Twilio has completed several secondary offerings, recently announcing a $1.8 billion offering of its Class. A common stock in 2021.Twilio has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. Twilio does not pay a dividend, nor repurchase stock, and for a young company in a relatively nascent industry, we find it appropriate that the company focuses capital allocation on reinvestments for growth.

Bulls Say:

  • The addition of SI partnerships and solution APIs should lead to increasing success in winning enterprise customers, which not only offer a greater lifetime value for a proportionally smaller acquisition cost, but also tend to be stickier customers. 
  • Twilio has stellar user retention metrics, with churn consistently below 5% and net dollar retention north of 130% in recent years. 
  • As Twilio focuses on developing more solution APIs and growth shifts from usage-based messaging to SaaS-like priced solutions, there should be a natural uptick in both gross margins and recurring revenue.

Company Profile:

Twilio is a cloud-based communication platform-as-a-service company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows software developers to integrate messaging, voice, and video functionality into new or existing business applications. The company leverages its Super Network, Twilio’s global network of carrier relationships, to facilitate high speed cost-optimized global messaging and voice-based communications.

(Source: Morningstar)

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.