Tag: US Market

We are pleased with Facebook’s continuing enhancement of its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content, which support the firm’s network effect moat source on the user and advertiser sides, increasing overall ad inventory. Facebook is also investing in innovation for the long-run, including Metaverse, which we view as the next stage of growth and development in virtual reality. While Metaverse is likely to require more interoperability between many platforms and may slowly erode Facebook’s walled garden, the firm’s current network effect moat source should maintain more users on the Facebook side of the Metaverse.

Management guided for significant deceleration in revenue growth during the second half of this year, which we had already modeled in. Total revenue of $29.1 billion was up 55.6% year over year due to higher ad prices and an increase in users. Facebook benefited from ongoing strong demand for direct response and the resurgence of brand advertising. Monthly active users increased 7% and 2% year over year and from last quarter, respectively, to nearly 2.9 billion. Engagement remained at around 66% as daily active users increased to 1.9 billion (also up 7% from last year and 2% sequentially).

Strong Revenue Growth

Strong revenue growth during the quarter created operating leverage for Facebook resulting in 42.5% operating margin, compared with 31.9% last year. Management expects yearover- year revenue growth during the second half to “decelerate significantly.” The firm provided a bit more color by stating that the slowdown will be modest when comparing the second quarter 2021 with the same period in 2019 (revenue up 72.2%). The firm still expects full-year operating expense between $70 billion and $73 billion and capital expenditures of $19 billion-$21 billion.

Metaverse to take hold and attract billions of users, the virtual world needs to be more interoperable, like the physical world where users can easily experience many different environments and interact with different individuals and groups. Allowing interoperability may represent a risk to the network effect of platforms like Facebook. However, in our view, given Facebook’s 2.9 billion users and strong network effect moat source, the firm’s Horizon will be a step ahead of competitors in attracting users and quickly building the virtual environments, which should attract more users, content creators, businesses, and advertisers.

Company Profile

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

(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.

Our fair value increase reflects Colfax’s strong results, an improved near-term outlook, and time value of money, partially offset by the implementation of a probability-weighted change in the U.S. statutory tax rate in our model.

Colfax delivered stellar 59% year-over-year revenue growth, as sales rebounded strongly from last year’s depressed levels due to initial pressure from the coronavirus outbreak. Colfax’s revenue was also up 9% from prepandemic levels in the second quarter of 2019, with improvement in both segments. On an organic sales-per-day basis, second-quarter sales increased 44% year over year in fabrication technology and 54% year over year in the medical technology segment.

Colfax continues to grow its reconstructive business through M&A, aiming to grow the platform to $1 billion in revenue within the next five years. The company announced the acquisition of Mathys Bettlach for roughly $285 million. Mathys is a Swiss-based orthopedics company whose portfolio includes products for artificial joint replacement and synthetic bone replacement. Colfax expects the business to generate roughly $150 million in sales and $15- $20 million in EBITDA in 2022.

Company Profile
Colfax is a diversified technology firm that produces welding equipment and medical devices. Following the sale of its air and gas handling business in 2019, Colfax’s remaining portfolio is organized into two segments: fabrication technology and medical technology. Fabrication technology is a leading manufacturer of equipment and consumables used in welding, cutting, and joining applications, mostly marketed under the ESAB brand name. The medical technology segment makes medical devices, including orthopedic braces, reconstructive implants, and other products used for rehabilitation, physical therapy, and pain management. The company generated roughly $3.1 billion in revenue in 2020.

(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.

Sustained strength abroad led us to revisit our international unit growth assumptions, pushing us to the low end of management’s 6%-8% guidance over the next few years (6.4%) and raising our fair value estimate to $410 per share from $386. However, we view the market’s reaction as overblown, with the shares trading up 14.5% at the time of writing against our 6.2% fair value estimate lift. The shares currently trade about 30% ahead of our fair value estimate.

In our view, the most impactful earnings discussion pertained to labor market pressure, with management indicating that restaurant margins (24.5%, up 60 basis points sequentially) were largely attributable to understaffing, as even the largest operators are struggling to attract workers in a historically tight hiring environment. The restaurant workforce remains about 10% smaller than its pre-pandemic level, and operators have increasingly leaned on wage hikes, benefits, signing bonuses, and operational efficiencies to fully staff stores. While we expect the best-capitalized operators with strong restaurant margins (like Domino’s) to best weather the storm, we forecast midterm labor costs 150 basis points higher than 2019 (normalized) levels, at 30.5% of restaurant sales.

The firm’s attention to car-side carryout looks strategically sound, with Domino’s using the channel to compete with quick-service drive-thrus without having to pursue more expensive real estate. The channel offers incremental sales, pushes the firm’s digital mix higher, and requires minimal involvement at the point of sale, alleviating pressure.

Company’s Future Outlook

It is expected that Domino’s to benefit from a shift toward lower cost fulfillment channels like the carryout business (and car side carryout) while continuing to automate noncore tasks like closing tills, managing inventory, and benefiting from optimized labor spending via predictive scheduling. Nonetheless, we remain encouraged by the firm’s long-term upside, with our revised forecast calling for 9.5% average system sales growth, 6% unit growth, and 11.5% EPS growth over the next five years.

Company Profile

Domino’s Pizza is a restaurant operator and franchiser with more than 17,800 stores across 90 countries. The firm generates revenue through the sales of pizza, wings, salads, and sandwiches at company-owned stores, royalty and marketing contributions from franchise-operated stores, and its network of 26 dough manufacturing and supply chain facilities, which centralize purchasing, preparation, and last-mile delivery for more than 6,800 units in the U.S. and Canada. With roughly $16 billion in 2020 system sales, Domino’s is the largest player in the global pizza market, ahead of Pizza Hut, Papa John’s, and Little Caesars.

(Source: Factset)

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.

Passenger revenue increased 105.8% from the previous quarter, the largest increase we’ve seen from U.S. network carrier this quarter, on a 44.4% increase in capacity, a 29.5% increase in load factors to 77.0% and a 10% increase in yield. These metrics remain 24.6%, 11.1%, and 11.4% below 2019 levels, respectively.

Management said business travel improved from roughly 20% of 2019 levels in March to 45% of 2019 levels in June and that much of the increase in demand was from travel within the West Coast. American has not traditionally had much of a presence in business travel on the West Coast, which suggests that the code sharing alliance that American initiated with Alaska Airlines is expanding American’s relevant market.

Company’s Future Outlook

There may be further upside to American’s share gains within business travel, as the firm initiated a code-sharing agreement with JetBlue, which has substantial share in the Northeast. Management said it expects 2022 CASM to be flat relative to 2019 levels, which is not as aggressive a target as peers have guided to. Since American is a domestically oriented airline and the domestic market has recovered faster than the international market, it is expected that the efficiency gains from restructuring should fall to the bottom line faster for American than for more internationally focused airlines as a larger proportion of the network would be in place in 2022.

Company profile

American Airlines is the world’s largest airline by scheduled revenue passenger miles. The firm’s major hubs are Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. After completing a major fleet renewal, the company has the youngest fleet of U.S. legacy carriers.

(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.