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.

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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.

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Technology Stocks

Omicron Buoys Sonic Healthcare Coronavirus Testing but Our Long-Term View Stands

Business Strategy and Outlook

Sonic’s “medical leadership” model recognises the importance of the referring doctor as the company seeks to differentiate itself on service levels. Success in the model is evidenced by organic growth consistently tracking ahead of the market, suggesting market share gains. Sonic’s organic volume growth in its core laboratories segment has typically ranged between 3% and 4% and we forecast a similar rate over our 10-year forecast period. The volume growth is underpinned by population growth, aging demographics in developed markets, higher incidence of diseases and wider adoption of preventative diagnostics to manage healthcare costs.

Laboratory medicine, or pathology, has a high fixed cost of operation and thus benefits from volume growth to drive lower cost per test outcomes. Sonic benefits from cost efficiencies by maximising throughput through its network of labs and collection centres. Higher testing volumes result in a lower cost per test as labour, equipment, leases, transportation and overhead costs are all leveraged.

Financial Strength

Sonic is in a strong financial position. Free cash flow conversion of earnings prior to acquisition spend has averaged 98% over the last 10 years and has allowed Sonic to quickly repay the debt funding its acquisitions. At the end of fiscal 2021, Sonic reported AUD 921 million in net debt representing net debt/EBITDA of only 0.4 times, below the 2.0 to 2.7 times range targeted by management, and well below the 3.5 times covenant. Sonic also has a progressive dividend policy which is communicated as a minimum of an equal dividend per share to the prior year.

Our AUD 33 fair value estimate factors in 4% group revenue growth in a typical year and a midcycle operating margin of 14%. It is estimated that the deliver EPS growth of roughly 5% in a typical year. Partly offsetting this was the Australian government cutting the reimbursement rate for private providers to AUD 72.25 per test from AUD 85 prior, which is in place until June 30, 2022. The deal broadens Sonic’s existing U.S. footprint by instantly adding annualised revenue of roughly USD 110 million, or 7% of Sonic’s fiscal 2021 U.S. laboratory revenue.

Bulls Say’s 

  • Sonic boasts leading market positions in most of its geographies and benefits from cost advantage derived from scale. 
  • Pathology and diagnostic imaging are highly defensive industries that influence the majority of treatment decisions. 
  • Free cash flow conversion prior to acquisition spend has averaged 98% of earnings over the preceding 10 years and forecast to remain high, allowing Sonic ample flexibility to reinvest in the business.

Company Profile 

Sonic Healthcare is a global pathology provider. It is the largest private operator in Australia, Germany, Switzerland and the U.K., the second largest in Belgium and New Zealand and the third largest in the U.S. In addition to pathology, which contributes roughly 85% of group revenue, Sonic is the second largest player in diagnostic imaging in Australia and the largest operator of medical centres in Australia. The company typically earns about 40% of group revenue in Australia and New Zealand, 25% in the U.S. and 35% in Europe

(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.

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Technology Stocks

Adobe’s ARR Slip-Up and Light Guidance for 2022 Leave Shares Attractive; FVE Up to $630

Business Strategy and Outlook

Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud, which is now offered via a subscription model. The company has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation The benefits from software as a service are well known in that it offers significantly improved revenue visibility and the elimination of piracy for the company, and a much lower cost hurdle to overcome and a solution that is regularly updated with new features for users.

Adobe benefits from the natural cross-selling opportunity from Creative Cloud to the business and operational aspects of marketing and advertising. It is expected that Adobe will continue to focus its M&A efforts on the digital experience segment and other emerging areas. Adobe believes it is attacking an addressable market greater than $205 billion. The company is introducing and leveraging features across its various cloud offerings (like Sensei artificial intelligence) to drive a more cohesive experience, win new clients, upsell users to higher price point solutions, and cross sell digital media offerings.

Adobe’s ARR Slip-Up and Light Guidance for 2022 Leave Shares Attractive; FVE Up to $630

Adobe reported mixed fourth-quarter results, including revenue upside, messy billings, modest EPS upside, and light guidance. However, Morningstar analyst believe the outlook is better than it appears. After all, the 2022 outlook is just 1% below FactSet consensus, with pressure driven by having one less week than 2021 and foreign exchange combining to add a 300 basis point headwind to growth. After factoring guidance and results along with rolling with DCF forward,  analyst of Morningstar have raised fair value estimate to $630 per share from $610. 

Financial Strength 

Adobe enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenues, and high and expanding margins. As of November 2021, Adobe has $5.8 billion in cash and equivalents, offset by $4.1 billion in debt, resulting in a net cash position of $1.6 billion. Adobe has historically generated strong operating margins. Free cash flow generation was $6.9 billion in fiscal 2021, representing a free cash flow margin of 43.7%.Morningstar analyst believes that margins should continue to grind higher over time as the digital experience segment scales. In terms of capital deployment, Adobe reinvests for growth, repurchases shares, and makes acquisitions. The company does not pay a dividend. Over the last three years Adobe has spent $2.8 billion on acquisitions, $9.6 billion on buy-backs, while share count has decreased by 15 million shares. Morningstar analyst believes that the company will continue to repurchase shares as its primary means of returning cash to shareholders over the medium term and will continue to make opportunistic and strategic tuck-in acquisitions.

Bulls Say 

  • Adobe is the de facto standard in content creation software and PDF file editing, categories the company created and still dominates. 
  • Shift to subscriptions eliminates piracy and makes revenue recurring, while removing the high up-front price for customers. Growth has accelerated and margins are expanding from the initial conversion inflection. 
  • Adobe is extending its empire in the creative world from content creation to marketing services more broadly through the expansion of its digital experience segment. This segment should drive growth in the coming years.

Company Profile

Adobe provides content creation, document management, and digital marketing and advertising software and services to creative professionals and marketers for creating, managing, delivering, measuring, optimizing and engaging with compelling content multiple operating systems, devices and media. The company operates with three segments: digital media content creation, digital experience for marketing solutions, and publishing for legacy products (less than 5% of revenue).

 (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.

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Technology Stocks

Visa Inc. FY21reported solid results driven by diversification of revenue and recovery of global economies

Investment Thesis 

  • Stands to benefit from the increased digitization of money with the global amount of payments made via card or digitally exceeding physical cash for the first time in 2016. 
  • Expansion of new flows and use cases. 
  • Visa stands to benefit from the improving momentum in Europe and India. 
  •  Strong partnerships with first class financial institutions including increased ease in working with fintech partners (as Visa opens up its APIs to fintechs). 
  •  Continued investment in technology and cyber security. 
  •  Strong management team. 
  • Solid fundamentals with recurring revenues, high incremental margins, low capital expenditure and high free cash flow.

Key Risks

  • Cyber security attacks. 
  • Increased regulatory environment and government-imposed restrictions on payment systems. Antitrust remains a hot topic in the market. 
  •  Margin deterioration due to intense competition from alternative payment processing providers. 
  • Higher expenses and incentives. 
  •  Deterioration in global growth or consumption.

FY21 Results Highlights

V’s FY21 results beat consensus estimates with net revenue of $24.1bn (vs $24bn), driven by the continuation of the recovery in many global economies and the increased diversification of revenue with new flows and VAS. Cashflow generation remained strong (FCF up +50% over pcp) and shareholder returns continued with the Board authorizing a +17% increase in the quarterly dividend in addition to conducting $8.7bn in repurchases (has $4.7bn of remaining authorized funds for share repurchase). Maintain Buy – solid top-line growth over the medium term amid buildout of new payment types – BNPL, cryptocurrency and B2B – with recovering credit and crossborder travel and new flows in VAS (amid strong demand for cybersecurity, marketing and data analytics) driving further acceleration. In the near-term, a faster than expected recovery in cross-border travel could represent upside to management (expected to reach 2019 levels by summer 2023) and consensus earnings estimates.

Outlook

Management expects: (1) 1Q22 net revenue growth in the high teens (will moderate through the year), client incentives as a percentage of gross revenue to be 26- 27% (in-line with 4Q21), operating expenses growth in the mid-teens amid sustained investment spending combined with low comparable in pcp, non-operating expense of $120- 130m, and tax rates of 19-19.5%. (2) FY22 value-added services growth of high teens and client incentives as a percent of gross revenues of 26-27% (consistent with 4Q21 levels, gradually reaching pre-Covid growth of +50-100bps each year due to the impact of new deals and renewals), which combined with the expected benefit from revenue mix improvement as cross-border travel continues to recover (cross-border travel is expected to recover steadily through FY22 and reach 2019 levels by the summer of 2023). Partially offset by the lapping of incentive reductions from FY21 due to the Covid impact, resulting in high end or mid-teens net revenue growth (including over 0.5% of exchange rate drag from the strengthening dollar). Operating expenses to grow in the low teens, with expense growth higher in 1H22 and moderate in 2H22 as the Company lap the resumption of investment spending in FY21, non-operating expense to be $120-130m each quarter and tax rate to be 19-19.5%. 

Company Profile

Visa Inc. (NYSE: V) is the world’s leader in digital payments and one of the most recognized brands around the world, with a mission to connect the world through innovative, reliable and secure payment networks, enabling individuals, businesses and economies to thrive. The Company’s advanced global processing network, VisaNet, facilitates authorization, clearing and settlement of payment transactions, providing secure and reliable payments across borders and within countries. The Company operates in party models, which include card issuing financial institutions, acquirers and merchants. The Company’s products/services include core products, processing infrastructure, transaction processing services, digital products, merchant products, and risk products and payment security initiatives. Its relentless focus on innovation is a catalyst for the rapid growth of connected commerce on any device, and a driving force behind the dream of a cashless future for everyone, everywhere.

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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Technology Stocks

REA Group reports strong FY21 earnings driven by growth in Australia segment

Investment Thesis:

  • Clear #1 market position in online property classifieds, with consumers spending over more time on realestate.com.au app than the number two website. 
  • Growth opportunities via expansion into Asia and North America. 
  • Recent strategic partnerships with National Australia Bank (property finance) could potentially be positive in the long term. 
  • Upside in key markets – particular in areas where REA is under-penetrated and could potentially win market share from competitors. 
  • New product developments to increase customer experience. 
  • Regular price increases help offset listing pressure.

Key Risks:

  • Competitive pressures lead to a further de-rating of the PE-multiple. 
  • Volume (listings) outlook remains subdued in the near term. 
  • Execution risk with Asia/North America strategy. 
  • Failing to get an adequate return on the recent acquisition of iProperty. 
  • Value/EPS destructive acquisitions. 
  • Decline in Australian property market. 
  • Given REA trades on a very high PE-multiple, underperforming to market estimates can exacerbate a share price de-rating. 
  • Recent tightening of lending practices by banks would affect Financial services business.

Key highlights:

  • REA reported strong FY21 results, with core operations revenue of $928m, up +13%, or excluding acquisitions, up +11%, on strong performance in its Australia segment.
  • EBITDA (incl. associates) was up +19% to $565m, on strong cost management with core operating cost growth (excluding acquisitions) contained to 3% over the pcp.
  • Margin of 60% was flat relative to the pcp. Net profit of $318m was up +18% equating to EPS of 247 cents, up +21%.
  • The Board declared a final dividend of 72cps fully franked which brings the full year dividend to 131cps, up +19%. 
  • Following several acquisitions, REA retained a strong balance sheet, with debt of $414m and a cash balance of $169m at year end.
  • REA refinanced syndicated debt facilities and funded the Mortgage Choice acquisition via a bridge facility with NAB for $520m. The bridge facility matures in July 2022, with management stating they expect to replace this with a new syndicated facility in 1Q22
  • Australia segment highlights:
    • Residential: revenue increased by +18%, on higher national listings (up +15% over the pcp, with Melbourne, up +11% and Sydney, up +25%), improved depth and Premiere penetration, increased subscription revenues and continued growth in add-on products.
    • Commercial and Developer: revenue was up +5% with Developer benefiting from a +17% increase in new project commencements, driven in part by Government stimulus, an increase in project profile duration and higher subscriptions, partially offset by lower Commercial revenues as the impact of Covid dampened listing volumes.
    • Media, Data & Other: revenues were broadly flat over the pcp, as growth in Data and Media revenues were offset by lower revenues in Other.
    • Financial Services: revenue was up +9% driven by higher settlements, increased broker recruitment and improved productivity, which was offset by lower partnership revenue as the current NAB agreement performance payments reached maturity in September 2020.

Company Description: 

REA Group (REA) provides online property listings, web management, financial services and data analytics to the real estate industry via advertising services. For consumers, REA offers the largest online real estate search engine in Australia. The Company also has operations and growing presence in Asia and other parts of the world.

(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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Technology Stocks

Accenture Posts Stellar Results as Compressed Transformations Accelerate Demand; Raising FVE to $258

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Business Strategy and Outlook

Accenture is one of the largest IT-services companies in the world, providing both consulting and outsourcing capabilities. It is expected that Accenture’s growth will remain at a healthy and gradual pace, rather than a massive uptick. 

As a consultant, Accenture provides solutions for specific enterprise problems as well as broad-scope strategies in addition to integrating software for more than 75% of the global top 500 companies. As an outsourcer, Accenture offers business process outsourcing like procurement services as well as application management. 

As per the opinion of Morningstar analyst, there is always something new in the realm of enterprise technology to keep Accenture relevant and engaged with its most important customers. It’s wide moat stems from intangible assets associated with a stellar reputation for reliability and strategic and technological know-how, especially with large, risk-averse enterprise customers. It is also believed that  Accenture benefits from high customer switching costs as its key customers are loath to switch service providers for large or ongoing contracts. Further, as per Morningstar analyst Accenture generates industry-leading returns on capital because of its scale, given that there are only so many blueprints and software partners that an IT-services company needs to solve enterprise problems. Plus, with Accenture having one of the largest IT workforces (at half a million) and an industry-leading number of diamond accounts (typically $100 million annually or more), smaller IT-services companies may find it hard to keep up with the increasing innovation and know-how required to service enterprise technology.

Accenture Posts Stellar Results as Compressed Transformations Accelerate Demand; Raising FVE to $258

Wide-moat Accenture reported excellent first-quarter results, with the top and bottom line exceeding both management’s and our expectations. Accenture experienced broad-based growth in the quarter, benefiting from accelerating digital transformations throughout all end markets. Outperformance was industry, geography, and deal-size agnostic–reflective of the tremendous demand environment Accenture is experiencing. It is  believed that Accenture is uniquely positioned to address compressed transformation, a demand phenomenon that reflects enterprises requiring all-comprehensive digital and cloud transformations in a faster time span. This broad-market trend toward clients taking on more change at once will accelerate and continue to build an impressive pipeline. On the back of increasing alignment of Accenture’s end markets with its business transformation backed value proposition, Morningstar analysts increased our fair value estimate to $258 per share from $236. 

Financial Strength

Accenture’s financial model requires very little debt and generates significant cash flow. The company has an extremely low debt/capital ratio of 0.3% and produced slightly over $3 billion in free cash flow in fiscal 2021. Morningstar analysts are confident that it will be able to deliver on significant share repurchases, dividend expansion, and acquisitions going forward, as it is expected that free cash flow to the firm will expand to over $8 billion by fiscal 2026. Most important is Accenture’s returns on new invested capital. While Accenture has similar operating margins to peers like Cognizant and Capgemini, it is able to achieve much greater returns on new invested capital than its peers because of its size, as per Morningstar analyst. This is possible in the industry because most major consulting/IT-services companies need the same partnerships with major software companies and all need blueprints to solve common enterprise problems. 

Bull Says

  • Accenture will increase wallet share with its enterprise customers as the technology landscape becomes increasingly complex. 
  • Accenture will rely more on automation to handle some of its business process outsourcing, allowing for margin expansion. 
  • Accenture’s mix shift away from more commoditized offerings should boost profitability.

Company Profile

Accenture is a leading global IT-services firm that provides consulting, strategy, and technology and operational services. These services run the gamut from aiding enterprises with digital transformation to procurement services to software system integration. The company provides its IT offerings to a variety of sectors, including communications, media and technology, financial services, health and public services, consumer products, and resources. Accenture employs just under 500,000 people throughout 200 cities in 51 countries.

(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.

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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
Technology Stocks

Threat-prevention Solution providing robust growth for Palo Alto Network Inc

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Business Strategy and Outlook

Palo Alto Networks became a leading cybersecurity provider through its next-generation firewall appliance altering the requirements of an essential piece of networking security. The firm’s portfolio has expanded outside of network security into areas such as cloud protection and automated response. Looking ahead, Palo Alto’s nascent threat-prevention solutions will provide robust growth along with a significantly improved margin profile.

Core to Palo Alto’s technology is its security operating platform, which provides centralized security management. The ability to add technologies via subscriptions in the Palo Alto framework can alleviate complications by providing more holistic security, which can generate sustainable demand. Palo Alto will continue to outpace its security peers by focusing on providing solutions in areas like cloud security and automation. Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks. Although it is expected that Palo Alto will remain acquisitive and dedicated to organic innovation, significant operating leverage will be gained throughout the coming decade as recurring subscription and support revenue streams flow from its expansive customer base.

Financial Strength 

Palo Alto is financially stable and would generate strong cash flow as it expands its operating margin profile. The company has historically operated at a loss (excluding fiscal 2012), and we expect it to turn profitable by fiscal 2023 on a GAAP basis. Palo Alto ended fiscal 2021 with $2.9 billion in cash and cash equivalents and total debt of $3.2 billion in 2023 and 2025 convertible senior notes. The $1.7 billion 2023 notes mature in June 2023 and have a 0.75% fixed interest rate per year paid semiannually, while the $2.0 billion of notes that mature June 2025 have a 0.375% interest rate paid semiannually. Palo Alto issued note hedges for both maturity dates to alleviate potential earnings per share dilution. The company announced a $1.0 billion share-repurchase authorization in February 2019, which was increased to $1.7 billion the following year with an expiration at the end of 2021, and has subsequently extended the program. Palo Alto continues to use share buybacks to return capital to shareholders, and believe that it will not pursue any dividend payouts.

The fair value estimate of $585 per share is consistent with a fiscal 2022 enterprise/sales ratio of 11 times and 4% free cash flow yield and upgraded its moat to wide.

Bulls Says 

  • Adding on modules to Palo Alto’s security platform could win greenfield opportunities and increase spending from existing customers. 
  • Palo Alto could showcase great operating margin leverage as it moves from brand creation into a perennial cybersecurity leader. Winning bids should be less costly as the incumbent, and we think Palo Alto is typically on the short list of potential vendors. 
  • The company is segueing into high-growth areas to supplement its firewall leadership. Analytics and machine learning capabilities could separate Palo Alto’s offerings.

Company Profile

Palo Alto Networks is a pure-play cybersecurity vendor that sells security appliances, subscriptions, and support into enterprises, government entities, and service providers. The company’s product portfolio includes firewall appliances, virtual firewalls, endpoint protection, cloud security, and cybersecurity analytics. The Santa Clara, California, firm was established in 2005 and sells its products worldwide.

(Source: Morningstar )

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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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Check Point Software Technologies Ltd: Changing the cybersecurity mindset in a hybrid cloud world

Business Strategy and Outlook

Check Point Software Technologies is a top player in the cybersecurity market. It generates revenue from selling products, licenses, and subscriptions to protect networks, cloud environments, endpoints, and mobile users. Historically, firms purchased security point solutions to combat the latest threats and had to manage various software and hardware vendors’ products simultaneously. Changing the cybersecurity mindset in a hybrid cloud world, Check Point’s Infinity architecture consolidates various security products into a single management plane that deploys the latest updates across all attack vectors. With its vast customer base of over 100,000 businesses and renowned product leadership for existing threat technology, it is believed that Check Point’s consolidated security architecture provides ample upselling and cross-selling opportunities as enterprises increase their reliance on cloud-based products and distributed networking. With its growth lagging security peers, Check Point will ramp up sales and marketing efforts to showcase the advantage of its platform approach and next-generation security offerings. Check Point has adjusted its selling model to be subscription-based, and further ingrain the company with businesses that favor predictable operating expenditures. Its subscription-based Infinity Total Protection architecture offers all of Check Point’s products on an annual pay-per-user basis. This concept may help permeate Check Point’s product throughout an organization, since there are no additional costs for using more products, which then creates higher switching costs and better customer retention.

Check Point Software Moat Ratings upgraded to wide and increased fair value from $ 132 to  $137

Morningstar analysts have upgraded its moat roating for Check point Software to wide from narrow. For moat trend,analyst maintained a stable view of point in regards to the firm and increased its fair value estimate is now $137 from $132. Check Point’s shares attractive for patient investors in the steady, but lower growing firm.For Check Point’s stable trend, analyst  believes the company has a large, loyal customer base that relies upon its sticky products, but a conservative approach of investing in development and sales and marketing efforts has caused leading competitors to make inroads in the broader security landscape.

Financial Strength

Check Point can be viewed as financially stable firm that should continue to generate strong operating cash flow. .At the end of 2020, the company had no debt with $4.0 billion in cash, equivalents, and marketable securities. Check Point has never paid a dividend, and it is expected to continue to repurchase shares following the announcement of an additional $2 billion buyback authorized during 2020 (with a $350 million cap per quarter).Outside of the repurchase program, it is also expected that Check Point to primarily use its cash for operating expenditures to capitalize on customers requiring cloud-based threat protection. Additionally, Check Point will continue to make tuck-in acquisitions to bolster its presence in the cloud and mobile-based security markets.

Bulls Say 

  • Customers may adopt Check Point’s Infinity platform over using multiple vendors for cybersecurity protection. This should further embed the company’s products and increase switching costs. 
  • Check Point’s movement into cloud-based and mobile user security offers large growth opportunities to supplement its network security portfolio. Its existing customer base may prefer Check Point for security consistency. 
  • Increasing subscription-based sales and growing recurring revenue should further bolster Check Point’s stellar operating margin profile.

Company Profile

Check Point Software Technologies is a pure-play cybersecurity vendor. The company offers solutions for network, endpoint, cloud, and mobile security in addition to security management. Check Point, a software specialist, sells to enterprises, businesses, and consumers. At the end of 2020, 45% of its revenue was from the Americas, 43% from Europe, and 12% from Asia-Pacific, Middle East, and Africa. The firm, based in Tel Aviv, Israel, was founded in 1993 and has about 5,000 employees.

(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.