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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IBM’s Q3 Disappoints With Weak Software and Kyndryl Sales

even when omitting its poor-performing Kyndryl business to be spun off soon. As IBM nears the spinoff of its managed infrastructure business, to be known as Kyndryl, we think that the real drivers for the remaining company lie in IBM’s consulting and software businesses. While consulting revenue surpassed our expectations (and consensus’), IBM’s software revenue missed—leaving us wary of the remaining company’s performance after the spin-off.

IBM reported revenue of $17.6 billion in the quarter, marking flattish year-over-year growth. While IBM’s global business services segment was a standout, growing at 12% year over year, the rest of IBM’s businesses disappointed. The cloud & cognitive software segment grew only 3% year over year. And while global technology services, part of which will be spun off as Kyndryl, with revenue down by 5% year over year.

IBM reported operating margins of 9% in the quarter, down 310 basis points from the prior year period. Non-GAAP earnings per share for the quarter was $2.52.

It is expected that Kyndryl will continue its downward top line trajectory as mass migration of workloads to the cloud have enterprises opting for cloud vendors to manage their cloud infrastructure, rather than traditional IT services providers, like IBM. This makes the worst performance in the quarter a matter of only acceleration of such decline. For software, on the other hand, we believe it, along with consulting (known as global business services) are the main growth drivers for IBM post spinoff. . We formerly expected a stronger relation between consulting and software sales—with the former driving the latter.

We’re maintaining our fair value estimate of $125 per share for narrow-moat IBM. Shares are down 4% upon results, which has moved IBM into fair value territory. As a reminder, IBM plans to spin off shares of Kyndryl after market close on Nov. 3, so our $125 fair value estimate reflects the value of IBM’s stock pre spin-off.

Company profile

IBM looks to be a part of every aspect of an enterprise’s IT needs. The company primarily sells infrastructure services (37% of revenue), software (29% of revenue), IT services (23% of revenue) and hardware (8% of revenues). IBM operates in 175 countries and employs approximately 350,000 people. The company has a robust roster of 80,000 business partners to service 5,200 clients–which includes 95% of all Fortune 500. While IBM is a B2B company, IBM’s outward impact is substantial. For example, IBM manages 90% of all credit card transactions globally and is responsible for 50% of all wireless connections in the world.

(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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Omnicom’s Q3 Results Display Growing Demand for Ad Holding Firms Services

the firm has attained that position less through acquisitions and more through organic growth. With very well-recognized creative agencies and sub-holding companies such as BBDO and DDB, we expect Omnicom to maintain its market position as it generates competitive organic growth, continues to make acquisitions, and increases focus on the faster-growing emerging markets and the overall digital ad markets.

Through various acquisitions, the firm has transitioned from traditional advertising toward becoming a complete solution provider with digital (including online video, social media, and mobile), along with other services such as public relations. Compared with its peers, Omnicom has been relatively quiet on the acquisition front since it ended merger talks with Public is in 2014. However, top-line growth has been in line with or above the other ad-holding firms.

Financial Strength

Omnicom reported mixed third-quarter results as revenue slightly missed the FactSet consensus estimates while the firm beat bottom-line expectations. With strong double digit organic revenue growth, the revenue miss was mainly due to Omnicom’s disposition of ICON in June. Solid organic growth of 11.5% and favorable foreign currency exchange rates were only partially offset by negative impact from agency divestitures (negative 5.9%). Management guided to 2021 full-year organic revenue growth of 9%, which is slightly below our 9.5% projection. Operating margin of 15.8% during the quarter was slightly higher than last year’s 15.6% due to top line growth and lower costs associated with less occupancy and lower travel expenses. The firm expects full-year 2021 operating margin above 15.1% compared with our 15.1% assumption.

Omnicom has a net debt of $210 million, with debt/EBITDA and interest coverage averaging 2.5 and 9, respectively, during the past three years. These ratios will average around 2 and 14 during the next five years. While Omnicom has not been nearly as aggressive in pursuing the acquisition route as some of its peers, cash allocated toward acquisitions and dividends during the past three years has been equivalent to 4% and 32%, respectively, of the firm’s free cash flow.

Bulls Say’s 

  • Omnicom’s management team is very experienced and has delivered solid results over an extended period through a variety of economic environments.
  • Omnicom’s agencies, such as BBDO and DDB, are some of the most acclaimed in the business.
  • The strength of Omnicom’s three major global networks allows the firm to retain even dissatisfied clients by switching them from one award-winning network to another.

Company Profile 

Omnicom is the world’s second-largest ad holding company, based on annual revenue. The American firm’s services, which include traditional and digital advertising and public relations, are provided worldwide, with over 85% of its revenue coming from more developed regions such as North America and Europe.

(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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Aristocrat outspends rivals on research and development improving its competitive position

Aristocrat’s research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Aristocrat is among the top three global competitors in the highly competitive EGM market, alongside International Game Technology and Scientific Games. EGM sales have been particularly hard-hit as coronavirus-induced shutdowns, social distancing measures, and travel restrictions weigh on the firm’s customers. With less turnover likely up for grabs in the near-term, heavy discounting could weigh on Aristocrat’s profitability in the fiercely competitive electronic gaming machine industry. Aristocrat operates in a market protected from new entrants as stringent regulatory licensing requirements in major markets create barriers to entry for new players.

Financial Strength:

The fair value of Aristocrat has been increased by the analysts by 9% to AUD 36.00 following the announcement of a AUD 5 billion acquisition of U.K.-listed Playtech, AUD 1.3 billion equity raising, and virtual release of fiscal 2021 results.

Aristocrat Leisure is in strong financial health. At March 31, 2021, the company had AUD 1.3 billion net debt, equating to net debt/EBITDA of 1.2- down from AUD 1.6 billion in net debt, equating to net debt/EBITDA of 1.4 at Sept. 30, 2020. EBITDA interest cover is comfortable at over 9 times. With the AUD 1.3 billion capital raising, Aristocrat’s balance sheet is well-capitalised to absorb the AUD 5 billion acquisition of U.K.-listed Playtech, with pro forma net debt/EBITDA of 2.6. Aristocrat is expected to return to paying out dividends from approximately 30% of underlying earnings from fiscal 2021, ramping back up to 40% by fiscal 2022.

Bulls Say:

  • Aristocrat operates in a market protected from new entrants as stringent regulatory licensing requirements in major markets create barriers to entry for new players. 
  • Unlike the mature electronic gaming machine industry, the fast-growing mobile gaming market provides an avenue of strong growth for Aristocrat. 
  • Already boasting a portfolio of highly regarded electronic gaming machines, Aristocrat outspends rivals on research and development allowing the firm to improve its competitive position and protect its narrow economic moat.

Company Profile:

Aristocrat Leisure is an electronic gaming machine manufacturer, selling machines to pubs, clubs, and casinos. The firm is licensed in all Australian states and territories, North American jurisdictions, and essentially every major country. Aristocrat is one of the top three largest players in the space along with International Game Technology and Scientific Games. Through acquisitions of Plarium and more recently Big Fish, Aristocrat now derives a significant proportion of earnings from the faster growing mobile gaming business.

(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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Ionis’ Antisense Technology supporting a narrow moat

which seeks to prevent clinical manifestation of ALS in pre-symptomatic patients diagnosed using SOD1 and filament levels. While we could see a path to approval for the drug, either with continued follow-up from the Valor study or with data from Atlas, we continue to see failure as slightly more likely. Biogen’s broad neurology portfolio and pipeline as warranting a wide moat and Ionis’ antisense technology supporting a narrow moat. 

Comapany’s Future Outlook

The Valor study focuses on a small subset of ALS patients: those with the SOD1 mutation, who compose roughly 2% of ALS cases globally. Biogen and Ionis are also studying several other potential ALS drugs that are in earlier stages of development, including BIIB078, in phase 1/2 in patients with the C9Orf mutation (7% of cases, initial data expected in 2022). Biogen and Ionis are moving additional therapies for familial and sporadic (nonfamilial) forms of ALS into testing; for example, a phase 1 study of ataxin-2-targeting ION541/BIIB105 in sporadic ALS (which could address more than 75% of the broader ALS population) started in September 2020. 

Ionis is independently testing ION363 in patients with the FUS mutation (even rarer than SOD1), with phase 3 data expected in 2024. In cardiometabolic diseases, Ionis has several programs in late-stage studies, including the wholly owned APOCIII program (data in 2023, 2024), and Novartis-partnered Lp(a) program (2024 data). Ionis is also poised to enter phase 3 for its PKK-targeting therapy in hereditary angioedema, a competitive niche indication where Ionis has potential to be best in class.

Company Profile 

Ionis Pharmaceuticals is the leading developer of antisense technology to discover and develop novel drugs. Its broad clinical and preclinical pipeline targets a wide variety of diseases, with an emphasis on cardiovascular, metabolic, neurological, and rare diseases. Ionis and partner Biogen brought Spinraza to market in 2016 as a treatment for a rare neuromuscular disorder, spinal muscular atrophy. Ionis subsequently brought two additional drugs to market via its cardiovascular-focused subsidiary Akcea, including ATTR amyloidosis drug Tegsedi (2018) and cardiology drug Waylivra (Europe, 2019).

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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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TSMC Q3 Profits Top Our Expectations ;Strong Long-Term Outlook Trumps Near-Term Supply Chain Woes

The firm has long benefited from semiconductor firms around the globe transitioning from integrated device manufacturers to fables designers. The rise of fabless semiconductor firms has been sustaining the growth of foundries, which has in turn encouraged increased competition.

To prolong the excess returns enabled by leading-edge process technology, or nodes, TSMC initially focuses on logic products, mostly used on central processing units, or CPUs, and mobile chips, then focuses on more cost-conscious applications. The firm’s strategy is successful, illustrated by the fact it’s one of the two foundries still possessing leading-edge nodes when dozens of peers lagged.

The two long-term growth factors for TSMC: First, the recent consolidation of semiconductor firms is expected to create demand for integrated systems made with the most advanced nodes. Second, organic growth of AI, Internet of Things, and high-performance computing, or HPC, applications may last for decades. AI and HPC play a central role in quickly processing human and machine inputs to solve complex problems like autonomous driving and language processing. Cheaper semiconductors have made integrating sensors, controllers and motors to improve home, office and factory efficiency possible.

TSMC Q3 Profits Beat Our Expectations. Strong LongTerm Outlook Trump Near-Term Supply Chain Woes

During the third-quarter revenue was TWD 415 billion, up 11.4% from the previous quarter and in line with our forecasts. Gross and operating profit rebounded 1.2 and 2.1 percentage points respectively to 51.3% and 41.2%. We think this set of results is commendable, especially amid the market’s concerns of weak smartphone and PC outlook for the second half of 2021.

For the fourth quarter of 2021, TSMC anticipates top line to range between USD 15.4 and 15.7 billion, or 3.5-5.5% sequential growth.Gross and operating margins are guided to range between 51% and 53% and 39%-41% respectively, up 1.5 and 0.5 percentage points against third quarter. 

Management confirmed a fab in Japan, subject to board approval. The fab will focus on specialty applications based on 22nm and 28nm processes, which we believe to be mainly image sensors and high-end automotive microcontrollers. Management treaded carefully regarding price hikes by only saying customers are willing to pay more for the additional value that TSMC can offer in both legacy and leading-edge processes. We are not worried about TSMC hitting physical limits for now, as its suppliers ASML and Tokyo Electron have outlined innovations to sustain performance improvements up to 2030.

Financial Strength 

TSMC has maintained a net cash position for the last 10 year-ends, and together with its low cost of debt, demonstrates the success of its strategy to focus on premium products. The company has issued about TWD 97.9 billion (USD 3.5 billion) in domestic debt at less than 0.7% yield and USD 4.5 billion in overseas debt at less than 3.1% yield year to date in 2021, which is small relative to its balance sheet. We estimate TSMC to maintain a net cash position for the next five years. The annual gross margin has fluctuated between 45% and 51% for the past decade. TSMC has never stopped paying dividends since its first distribution in 2004 with only one minuscule 1% cut in 2008. The company is committed to not cutting dividends. We forecast dividends to increase to TWD 12 per share by 2024.

Bull Says

  • TSMC should consistently earn higher gross margins than competitors because of its economies of scale and premium pricing justified by cutting-edge process technologies. 
  • TSMC wins when customers compete to offer the most advanced processing systems using the latest process technologies. 
  • TSMC will benefit from more semiconductor firms embracing the fabless business model.

Company Profile

Taiwan Semiconductor Manufacturing Company, or TSMC, is the world’s largest dedicated chip foundry, with over 58% market share in 2020 per Gartner. TSMC was founded in 1987 as a joint venture of Philips, the government of Taiwan, and private investors. It went public as an ADR in the U.S. in 1997. TSMC’s scale and high-quality technology allow the firm to generate solid operating margins, even in the highly competitive foundry business. Furthermore, the shift to the fabless business model has created tailwinds for TSMC. The foundry leader has an illustrious customer base, including Apple and Nvidia, that looks to apply cutting-edge process technologies to its semiconductor designs.

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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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Netflix’s Growth Will Increasingly Come From Outside the U. S

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The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as “Stranger Things.

We believe that many consumers use, and will continue to use, SVODs like Netflix as a complementary service, especially as SVOD prices increase and pay television bundle prices decrease. Larger firms like Disney and WarnerMedia have launched their own SVOD platforms to compete against Netflix. We think this usage pattern and increased competition will constrain Netflix’s ability to raise prices without inducing greater churn. 

We expect that Netflix will expand further into local-language programming to offset the weakness of its skinny offering in many countries. This will likely generate a competitive response from the firm’s global and local rivals, which will augment their own first-party content budgets. In turn, we think Netflix’s international expansion will continue to hamper margin expansion.

Netflix’s Growth Will Increasingly Come From Outside the U. S.

Netflix reported decent third-quarter results as subscriber growth beat the low guidance issued a quarter ago but this is below the previous two years. The lower subscriber growth reflects not only saturation in its largest markets but strong competition in the regions with the most potential growth remaining, including Latin America and India. 

While we now project that EMEA will have more members than the U.S. by the first quarter of 2022, its revenue and implied margin contribution will remain much lower as its ARPU only hit $11.65 in the quarter. We continue to project price increases for the region but still expect a large gap between it and the U.S. to persist over the next five years.

Asia-Pacific, Netflix’s supposed long-term growth engine, increased revenue year over year by an impressive 31% in the quarter but ARPU remained under $10 and actually declined sequentially. We expect ARPU to decline going forward as the firm rolls out low-price plans in more countries across the region. 

Financial Strength 

Netflix’s financial health is poor due to its weak free cash flow generation, large number of content investments that require outside funding (primarily debt), and content obligations. Debt has been taken on to fund additional content investments and international expansion. The company’s weak free cash flow due to this spending is a concern, as we don’t see the need to spend decreasing in the near future. As of June 2021, Netflix has $14.9 billion in senior unsecured notes that do not have borrowing restrictions, but a relatively small amount due in the near term ($500 million due 2021, $700 million due 2022, $400 million due 2024, and $800 million due 2025), as the firm generally issues debt with a 10-year maturity. Netflix also has a material quantity of noncurrent content liabilities ($2.7 billion recognized on the balance sheet and over $15 billion not yet reflected on the balance sheet).

Bull Says 

  • Netflix’s internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years. 
  • Netflix has built a substantial content library that will benefit the firm over the long term.
  • International expansion offers attractive markets for adding subscribers.

Company Profile

Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.

 (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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Xero Investors Should Check Its ARPU and CAC in Its Interim Financial Result

SME accounting software users have historically shown little inclination to switch providers, and Xero enjoys annual customer retention rates of over 80%.

The transition from desktop- to cloud-based products offers a rare opportunity for relatively new providers to win market share via the transition of customers to cloud-hosted SaaS products that offer material productivity improvements. We expect switching costs to recapture their earlier resilience once customers transition to cloud products and accounting software becomes more integrated with third-party software.

Xero Investors Should Check Its ARPU and CAC in Its Interim Financial Result

Xero has announced little of note since its fiscal 2021 financial result in May 2021. However, the company will announce its interim fiscal 2022 financial result next month, which is likely to reignite investor attention. However, Xero shares are materially overvalued and the current market price of AUD 145 per share is significantly above our AUD 50 fair value estimate. 

Although Xero reported a NZD 20 million profit after tax in fiscal 2021, this was partly due to the company’s decision to cut back on spending in the first half.In the long term, we expect Xero’s EBIT margin to expand significantly, from 7% in fiscal 2021 to 30% by fiscal 2027.

We expect investors to largely overlook Xero’s profitability at its interim result and instead focus on other metrics like subscriber growth, revenue growth, customer acquisition costs, or CAC, and annual revenue per user, or ARPU. Particularly focused on ARPU because it forms a key component of our investment thesis, and expected that strong price-based competition to limit Xero’s ability to raise prices. This will be interesting because a strong subscriber growth figure may be supported by weak ARPU growth or possibly strong CAC growth, indicating Xero is competing harder for customers.

Financial Strength

 Xero is in reasonable financial health but needs to maintain high revenue growth rates to increase profits and justify its market capitalisation. We expect EBIT margins to expand to around 30% by fiscal 2025, in line with peer companies. As the company matures, we expect the capital-light business model to enable strong cash generation. Strong customer retention rates of over 80% should mean earnings volatility will be relatively low in the long term.

Bulls Say 

  • Xero is experiencing strong revenue and customer growth driven by the transition of desktop accounting software to the cloud, a trend we expect to continue for at least the next decade.
  • Xero operates in the software sector, which is typically an industry with low capital intensity and strong cash generation. We expect Xero to generate strong returns on invested capital and free cash flow in the long term. 
  • Xero has already achieved dominant positions in the New Zealand and Australian cloud accounting markets and is a leading competitor in the U.K. and U. S. markets.

Company Profile

Xero is a provider of cloud-based accounting software, primarily aimed at the small and medium enterprise, or SME, and accounting practice markets. The company has grown quickly from its base in New Zealand and surpassed local incumbent providers MYOB and Reckon to become the largest SME accounting SaaS provider in the region. Xero is also growing internationally, with a focus on the United Kingdom and the United States. The company has a history of losses and equity capital raisings, as it has prioritised customer growth.

 (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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Netwealth’s FUA Continues to Grow Quickly But FUA Fees to remain Under Pressure

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The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. Netwealth does not own investment management or financial advisory businesses. 

The company has also benefited from regulatory changes such as the Future of Financial Advice, or FOFA, reforms, which require financial advisors to act in their clients’ best interests. These reforms have encouraged financial advisors to break away from vertically integrated, and potentially conflicted, wealth management businesses to operate as independent financial advisors, or IFAs, and use independent investment administration platforms, such as Netwealth, in the process.
Netwealth has also benefited from the banning of trail commission fees previously paid by investment administration platforms and investment advisors for recommending their products. This has encouraged financial advisors to seek new fee sources, including managed accounts, which were mainly available on the independent platforms. 

The vertically integrated incumbent platform providers continue to develop their platforms, which poses a long-term competitive threat to Netwealth.

Netwealth Remains Overvalued Despite FUA Growth Upgrade

Netwealth’s share price jumped 16% following its third-quarter update, which included an increase to fiscal 2022 funds under administration, or FUA, net inflow guidance to AUD 12.5 billion from AUD 10 billion. However,the market overreacted to the announcement, is overly focussed on FUA and revenue growth, and is ignoring likely long-term outlook on profits and cash flows. 

We have maintained Netwealth’s earnings forecasts and fair value estimate at AUD 6.50 per share, which is well below the current market price of AUD 16.56 per share.

Financial Strength 

Netwealth is in good financial health because of its service-based and capital-light business model, which has little need for debt or equity capital. The company expenses, rather than capitalises, research and development costs, which results in strong cash conversion and means most operating cash flow is available for dividend payments. The profitable business model ensures dividends are fully franked, which we consider to be sustainable. We consider management’s target dividend payout ratio of 60%-80% of Netwealth’s statutory net profit after tax to be sustainable.

Bulls Say

  • Netwealth has only a small proportion of the investment administration market, at around 4%, but has won market share quickly, and significant growth potential remains. 
  • Netwealth has a low fixed-cost base which means operating leverage is high and further strong revenue growth should be amplified at the EPS level. 
  • The investment administration platform industry has been growing at a low-double-digit CAGR in recent years, and we expect a high-single-digit CAGR over the next decade, providing a strong underlying tailwind for Netwealth.

Company Profile

Netwealth provides cloud-based investment administration software as a service, or SaaS, in Australia via its proprietary platform. Netwealth’s platform provides portfolio administration, investment management tools, and investment and managed account services to financial intermediaries and directly to clients. The company charges SaaS fees based on funds under management on its platform. Netwealth also offers Netwealth-branded investment products on its platform which are managed by third-party investment managers.

 (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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HubSpot Narrow Moat Carves Out Rapid Growth for Marketing Automation in Midmarket

We see small/medium businesses and the midmarket as being underserved by enterprise software providers, as the smaller deal sizes make it harder to serve efficiently. Therefore, we believe that HubSpot’s robust and expanding suite has helped carve out a meaningful niche.

HubSpot provides a suite of software solutions that helps companies grow better. The five hubs (marketing, sales, service, operations, and CMS) combine to create the growth platform. HubSpot operates a “freemium” model that has allowed it to gather hundreds of thousands of free users, with approximately 15% of these moving into paid solutions. From the free version, a three-tier system emerges: starter, professional, and enterprise. HubSpot’s goal is to create as wide a funnel as possible for customer gathering, and then move users up the pricing tier as they evolve, upselling them to additional hubs as their needs change.

Company’s Future Outlook

We believe HubSpot is a financially sound company with a solid balance sheet, improving margins, and rapidly growing revenue. Capital is generally allocated to growth efforts, strategic investments, and acquisitions, with no dividends or buybacks on the horizon.As of 2020, HubSpot had $1.3 billion in cash, marketable securities, and restricted cash compared with $479 million in debt. The debt is a convertible bond issue that we believe will be converted rather than repaid. HubSpot generated a 6% free cash flow margin in 2020 and in the low double digits in 2018 and 2019, which improve steadily over the next five years. We are confident that HubSpot can satisfy its obligations while continuing to fund normal operations. HubSpot does not pay a dividend and has not repurchased shares, nor do we expect it to do so within the next several years. The company regularly makes small acquisitions and strategic investments.

Bulls Say’s

  • HubSpot has made a splash in the SMB market with its freemium model, easier implementation, and simple and feature-rich software.
  • HubSpot does not have to beat out Salesforce or Microsoft, but by offering a credible solution to the midmarket, we think it can grow rapidly in an underserved niche.
  • HubSpot’s record of introducing new solutions in adjacent areas, upselling existing customers, and moving customers up the stack as they grow has driven strong revenue growth thus far and seems likely to continue over the next several years.

Company Profile 

HubSpot provides a cloud-based marketing, sales, and customer service software platform referred to as the growth platform. The applications are available ala carte or packaged together. HubSpot’s mission is to help companies grow better and has expanded from its initial focus on inbound marketing to embrace marketing, sales, and service more broadly. The company was founded in 2006, completed its initial public offering in 2014, and is headquartered in Cambridge, Massachusetts.

(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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Mandiant Focusing on Cybersecurity Services and Threat Intelligence

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security assessments and updates, managed security, and training. Its software-as-a-service solutions include continuous security validation, managed defense, threat intelligence and automated defense. We expect robust demand for Mandiant’s services and subscriptions due to a persistent cybersecurity talent dearth and cybercriminals continually evolving their threats, causing organizations to look for assistance from experts.

By selling off its products division in October 2021, we believe Mandiant is making the prudent decision to focus on its world-class incident response, threat intelligence, and security validation offerings, as we think strong competition from other leading cybersecurity players’ holistic security platforms and spry best-of-breed upstarts hindered its legacy products’ success. In our view, being independent of its former product division could enhance its technology partner relationships and improve threat intelligence and enhanced customer engagements.

Financial Strength 

Mandiant is in mediocre financial shape, with an improving free cash flow profile and its cash balance outweighing its convertible note obligations. Mandiant sold its FireEye products division for $1.2 billion in October 2021, the sale was helpful to fuel internal investments and potential shareholder returns. The company has never paid, nor has any intention to pay, a dividend. Its share count rose from 142 million shares in 2014 to 229 million in 2020, but we expect share dilution to temper in the next few years. As part of selling its products division, Mandiant announced a $500 million share repurchase program. Besides the acquisitions of Verodin for $250 million in 2019, iSight Partners for $275 million in 2016, and Mandiant (when the company was FireEye) for over $1 billion in 2013, which were partly funded with cash, most of FireEye’s funds have been used for operating expenses. FireEy has made some small acquisitions, which we presume will continue. We expect cash deployment to remain focused on operating costs, but for the firm to drive operating leverage as it matures.

Bulls Say

  • With a skills gap in cybersecurity, customers may prefer to outsource security to Mandiant’s managed services. 
  • Mandiant’s security experts provide a unique selling proposition for breach response and security posture assessments, and the expertise could become relied upon by customers.
  • Heightened threat environments and digital transformations may make organizations uneasy regarding security, driving up demand for Mandiant’s security posture validation.

Company Profile

Mandiant (formally FireEye,) is a pure-play cybersecurity firm that focuses on incident response, threat intelligence, automated response, and managed security. Mandiant’s security experts can be used on demand or customers can outsource their security to Mandiant. The California-based company sells security solutions worldwide, and sold its FireEye products division in October 2021.

 (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.