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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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.

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Financial Markets Sectors Technology Technology Stocks

Apple Inc is focused on sustaining growth and margins

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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.

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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 )

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

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.

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Sectors Technology Technology Stocks

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

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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.

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Shares Technology Stocks

ResMed witnesses strong revenue growth of 10%

Investment Thesis:

  • Global leader in a significantly under-penetrated sleep apnea market
  • High barriers to entry in establishing global distribution channels
  • Strong R&D program ensuring RMD remains ahead of competitors
  • Momentum in new masks releases
  • Bolt-on acquisitions to supplement organic growth 
  • Leveraged to a falling Australian dollar

Key Risks:

  • Disruptive technology leading to better patient compliance 
  • Product recall leading to reputational damage 
  • Competitive threats leading to market share loss
  • Disappointing growth (company and industry specific)
  • Adverse currency movements (AUD, EUR, USD)
  • RMD needs to grow to maintain its high PE trading multiple. Therefore, any impact on growth may put pressure on RMD’s valuation

Key highlights:

  • The net result was strong revenue growth of 10% for our ResMed business in the June quarter
  • In 4Q21, Revenue in the U.S., Canada, and Latin America (excluding Software as a Service), grew +18%, over the pcp, on demand for sleep devices and masks, including recovery of core sleep patient flow that was previously impacted by Covid-19 and increased demand following a recent product recall by one of RMD’s competitors, partially offset by lower Covid-19 related demand for RMD’s ventilators
  • Revenue in Europe, Asia, and other markets grew by 2% on a constant currency (CC) basis, on strong sales across RMD’s mask product portfolio, partially offset by weaker device sales due to the incremental Covid-19 respiratory care revenue in the pcp
  • Excluding the impact of the incremental respiratory care revenue associated with Covid19, revenue increased by 35% on a constant currency basis
  • Software as a Service revenue was +5% higher than the pcp, on continued growth in resupply service offerings and stabilising patient flow in out-of-hospital care settings

Company Description: 

ResMed Inc (RMD) develops, manufactures, and markets medical equipment for the treatment of sleep disordered breathing. The company sells diagnostic and treatment devices in various countries through its subsidiaries and independent distributors. RMD reports two main segments – Americas and Rest of the World (RoW) – with US its largest market. The company is listed on the Australian Stock Exchange (ASX) via CDIs (10:1 ratio).

(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
Shares Technology Stocks

Xero Ltd. delivered strong results with improving key metrics

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Investment Thesis:

  • Competent leadership team with a proven track record of delivering strong growth (Strong top-line momentum driven by strong support of accountants and bookkeepers with annualised monthly recurring revenue increasing at CAGR 32% and strong subscriber growth with positive LTV (Lifetime Value) trends (over FY15-19, ANZ LTV grew at CAGR 48% and International LTV grew at CAGR 65%)). 
  • Solid product offering that is secure, scalable and efficient technology which is competing against competitors with technology that has legacy issues. We note that XRO’s small business platform is an ecosystem of more than 700 connected apps backed by a community of more than 50,000 users of XRO’s API developer tools. Going forward the Company could potentially increase its revenue by monetising its platform in other ways like charging third party app developers. 
  • Potential for meaningful acquisitions to fill gaps in product capability. In our view, the Company is well positioned to make acquisitions going forward (given its balance sheet and funding status). 
  • The Company continues to focus on cloud accounting, and we see significant upside potential in the sector given the fact that the current levels of small business cloud accounting adoption globally is estimated to be less than 20% of the total market or opportunity across English-speaking countries in which the Company operates.

Key Risks:

  • Decrease of migration to cloud software. 
  • Currency headwinds due to weakening of NZ$ relative to AUD, USD and Pound. 
  • Deteriorating sentiment if the economy and IT spending weakens. 
  • Excessive competition from other established players like Intuit leading to loss of market share. 
  • Inability to extract higher operational efficiencies as the Company scales up. 
  • Issues in gaining market share especially in markets with established incumbents.

Key highlights:

  • Improving trends in key metrics – (1) subscriber growth; (2) higher ARPUs (average revenue per user); and (3) lower churn.
  • A key catalyst for XRO’s share price going forward will be execution and growth in North America. 
  • Despite relatively mature markets in New Zealand and Australia, XRO’s subscriber growth in 1H22 in both markets (NZ +16% and Aus +22%) was a standout from our perspective.
  • The Company finished 1H22 with net cash position of NZ$125m and has total available liquidity of NZ$1.2bn.
  • Operating revenue was up +23% (or up +26% in constant currency) to NZ$505.7m, with total subscribers up +23% to 3.0m and ARPU (average revenue per user) up +5% to NZ$31.32
  • The financial position for different markets of Xero are as follows:
  • Australia: Segment revenue was up +22% to NZ$225m, with net additions up +24% and subscribers up +22% to 1.24m. 
  • New Zealand: Segment revenue was up +13% to NZ$72m, with net additions up +55% and subscribers up +16% to 480,000. 
  • United Kingdom: Segment revenue was up +33% to NZ$133m, with net additions up +160% and subscribers up +23% to 785,000. 
  • North America: Segment revenue was up +5% to NZ$30m, with net additions up +130% and subscribers up +23% to 308,000. 
  • Rest of World: Segment revenue was up +72% to NZ$46m. with net additions up +136% and subscribers up +48% to 201,000.

Company Description: 

Xero Ltd (XRO) is a software as a service (SaaS) company, engaged in the provision of a platform for online accounting and business services to small businesses and their advisors. The Company operates through two operating segments: Australia and New Zealand (ANZ), and International (UK + North America + Rest 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.