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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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)

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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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Best Buy Co possess sound long-term strategy in spite of the fact that the future of retail is in flux

quick fulfillment across channels, and tech solutions to more problems than ever before. As a result, Best Buy’s “Building the New Blue” strategy continues to resonate, with the firm leveraging its physical footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the “one size fits all” retail model across trade areas appears antiquated. 

With more than 40% of sales coming through digital channels in calendar 2020, the firm’s recent supply chain and e-commerce investments look prescient. Next-day delivery now covers 99% of U.S. zip codes, allowing the firm to compete on more level ground against e-commerce competitors, like wide-moat Amazon-as buy-online-pick-up-in-store (BOPIS) volumes, at 40% of e-commerce sales, remain challenging for online-only stores to replicate.

Best Buy Health remains intriguing, with lower price elasticity and auspicious tailwinds from an insurer pay model. However, competition in the space remains rife, as a number of moaty firms with extensive healthcare aspirations (Google, Microsoft, Amazon, Apple, Facebook) have invested heavily in the segment, as well.

Financial Strength:

The fair value of Best Buy has been increased by the analysts from $101 to $116 reflecting a longer horizon for excess returns, the time value of money, and the impact of high-single-digit anticipated comparable store sales growth through 2021. It also implies forward price/earnings of 12.1 times and an EV/2022 EBITDA of 5.4 times.

Best Buy’s financial strength is sound, with the firm maintaining a net cash position at the end of the second quarter of fiscal 2022 and an investment-grade credit rating. With leverage well under 1 turn (0.4 debt/EBITDA at fiscal 2021 year-end), strong interest coverage (46 times at year-end 2021), and no meaningful maturities until 2028, very little financial risk is seen for the firm in the near to medium term. Access to a $1.25 billion credit facility adds a further degree of insulation.

Best Buy pays an attractive dividend, with a 2.6% yield at current market prices, and we anticipate 12.8% average growth over the next five years as the firm returns to its historical dividend payout ratio target (35%-45% of earnings).

Bulls Say:

  • With digital sales volumes projected to remain roughly double pre-COVID-19 levels, Best Buy should better compete for online volumes that it historically ceded to online-only competitors. 
  • Improving route densities should improve the margin profile of small parcel e-commerce sales, with 35% of store “hubs” now handling 70% of ship-from-store volume. 
  • The Best Buy Beta program should increase touchpoints with the firm’s best customers, increasing spending relative to pre-program behavior.

Company Profile:

With $47 billion in 2020 sales, Best Buy is the largest pure-play consumer electronics retailer in the U.S., with roughly 10% share of the aggregate market and nearly 40% share of offline sales, per our calculations, CTA industry, and Euromonitor data. The firm generates the bulk of its sales in-store, with mobile phones and tablets, computers, and appliances representing its three largest categories. Recent investments in e-commerce fulfillment, accelerated by the COVID-19 pandemic, have seen the U.S. e-commerce channel roughly double from prepandemic levels, with management estimating that it will represent a mid-30% mix of sales moving forward.

(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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TCS sees softer results than expected as it focuses on margin expansion

While in many regards there’s an uncanny resemblance between Tata and its India IT services’ competitors-Wipro and Infosys–such as in its offerings, offshore leverage mix (near 75%) or attrition rates (near 15%)-Tata stands out in regards to its scale. The company’s revenue is 1.6 times and 2.6 times greater than Infosys and Wipro, respectively, and this has its benefits.

While TCS’ best-in-industry attrition rate of 11.9% did not give the company, the extra boost needed to expand margins over this quarter as it is expected to lower in subsequent quarters and pay off in the future. It confirms that TCS is the best-of-breed Indian IT services firm. TCS’ status allows the company to attract and maintain India’s top talent, even amid fair competitors, such as moaty Infosys and Wipro.

It is estimated that TCS will grow at the compounded annual growth rate of 11%. This growth will be majorly driven by overall increased spend on IT services by enterprises as the IT landscape becomes more complex than ever and enterprises increasingly realize competitive edge in their products or services is distinguished foremost by their technological abilities.

Financial Strength:

Tata’s financial health is in very good shape. Tata had INR 356 billion in cash and cash equivalents as of March 2020 with zero debt, which has allowed Tata to feed significant payout to its shareholder base. Over fiscal 2014 through fiscal 2018, Tata’s average payout of its free cash flow to shareholders was 64%.

It is forecasted Tata’s dividend to grow to at least INR 53 per share in 2025 from INR 33 per share in 2020, which maintains the company’s 38% dividend payout ratio. It is expected that acquisitions over the next five years will continue to be moderate, at INR 350 million each year.

Analysts expect that Tata will fare in 2022 assuming revenue growth of nearly 18% as a result of a strong recovery from effects of COVID-19, followed by top-line growth of 11% in fiscal 2023 and long-term midcycle growth near 9% per year thereafter.

Bulls Say:

  • Tata should benefit from greater margin expansion than expected in our base case as more automated tech solutions decrease the variable costs associated with each incremental sale. 
  • Tata should profit from a wave of demand for more flexible IT infrastructures following the COVID-19 pandemic, as more companies seek to be prepared with the onset of similar events. 
  • As the European market becomes more comfortable with outsourcing their IT workloads offshore, Tata should expand their market share in the growing geo.

Company Profile:

Tata Consultancy Services is a leading global IT services provider, with nearly 450,000 employees. Based in Mumbai, the India IT services firm leverages its offshore outsourcing model to derive half of its revenue from North America. The company offers traditional IT services offerings: consulting, managed services, and cloud infrastructure services as well as business process outsourcing as a service, or BPaaS.

(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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Twitter to Sell MoPub for $1.05 Billion; Maintaining FVE; Shares Fairly Valued

According to the firm, MoPub generated $188 million in revenue in 2020 (5% of total revenue), which makes this sale equivalent to 5.3 times revenue. Twitter is trading at more than 7 times our 2022 revenue estimate, excluding MoPub.

Company’s Future Outlook

Twitter said it plans to focus more on providing advertising opportunities for direct response marketers in addition to small- and medium-sized businesses. We think that this deal was also partially driven by questions surrounding how Apple’s IDFA and user privacy policies will impact in-app advertising. However, Twitter had also stated that some of its app ad offerings were already integrated with Apple’s SKAdNetwork that helps track and measure ads. Without MoPub, we expect slightly lower top-line growth and less margin expansion, both of which will not have a material effect on our $58 fair value estimate for the firm.

Twitter’s initial investment in MoPub  when it purchased the company in 2013 for only $350 million. However, cash received from this transaction likely will be offset by the $809.5 million charge that Twitter will recognize in the third quarter 2021 as the firm settled a case involving some of its investors who accused the firm of misleading them by providing lofty expectations of user count and engagement at an analyst day event in 2014. The event took place when Dick Costolo was at the helm at Twitter.

Company Profile 

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

Source: (Morningstar)

General Advice Warning

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