Valuentum Exclusive Analysis for the Discerning Investor

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Jun 1, 2021

ICYMI -- Video: Exclusive 2020 -- Furthering the Financial Discipline
In this 40+ minute video jam-packed with must-watch content, Valuentum's President Brian Nelson talks about the Theory of Universal Valuation and how his work is furthering the financial discipline. Learn the pitfalls of factor investing and modern portfolio theory and how the efficient markets hypothesis holds little substance in the wake of COVID-19. He'll talk about what companies Valuentum likes and why, and which areas he's avoiding. This and more in Valuentum's 2020 Exclusive conference call.

Mar 16, 2021

Roblox Goes Public; Strong Balance Sheet and Expected Free Cash Flow
Image Source: Roblox Corporation – S-1/A SEC Filing. Roblox Corp recently went public through a direct listing on March 10, 2021. The video game platform company has an extensive growth runway with multiple avenues to further expand its business. We are impressed with its free cash flow generating abilities, pristine balance sheet, and strong growth rates of late. Roblox’s outlook for 2021 indicates its growth story is expected to continue this year in earnest. Capital appreciation seeking investors should take a deeper look at Roblox, though we caution that its co-founder, CEO, and chairman controls most of the company’s voting power.

Mar 3, 2021

French Conglomerate Bolloré Is Intriguing
Image Source: Bolloré SE – 2019 Business Report. We are intrigued by the extensive reach of Bolloré and the very diversified nature of its asset base. The French conglomerate’s ability to generate meaningful free cash flows during the initial stages of the COVID-19 pandemic highlights the resilience of its business model and cash flow profile. However, we caution that the Bolloré family will continue to exert an outsized level of influence on the trajectory of the conglomerate going forward. Nonetheless, this is one for the radar.

Nov 19, 2020

Videogaming Business Becoming More and More Attractive
Image Shown: The video game industry has been placing a much greater emphasis on growing their mobile gaming operations in recent years. Part of that strategy has involved leveraging existing IP and well-known gaming titles to appeal to a wide range of users. Image Source: Electronic Arts Inc – Second Quarter of Fiscal 2021 IR Earnings Presentation. As households have largely been “cocooning” indoors to ride out the ongoing coronavirus (‘COVID-19’) pandemic, demand for digitally provided entertainment options has grown considerably. NPD Group, an industry-tracking firm, estimates that US video game sales (software and hardware combined) will reach $13.4 billion in total in across November and December of this year. That would be up 24% from year-ago levels, and note this is only looking at the US market, which is estimated to have 244 million consumers of video game content according to NPD Group. Many of those consumers are considered casual video game players, playing mobile games on their smartphones and tablets, though NPD Group noted the number of more dedicated gamers (measured by hours played per week) is on the rise in both nominal and absolute terms. Mobile gaming options generally rely on in-game transactions, called microtransactions, to generate revenue. Usually those offerings include aesthetic upgrades or the ability to progress through the video game at a faster pace. For more conventional video game offerings--those normally played on PCs or consoles--video game companies have increasingly been successful in selling add-on content via high-margin digital packages (and in some instances, microtransactions have also been successfully implemented). Longer term, the rise of e-sports offers another revenue generating opportunity for companies in the video game and digital advertising world. Though a nascent part of the video game industry, initial levels of interest have been impressive. Beyond rising demand for video streaming services, demand for video games, a (usually) cost-effective entertainment option, has also held up incredibly well during the pandemic with several big video game publishers reporting strong financial results of late, too. Furthermore, Microsoft Corporation and Sony Corporation recently launched their next-generation consoles, the Xbox Series X and PlayStation 5, respectively. In theory, the console refresh cycle combined with growing demand for indoors entertainment options should provide the video game industry with several major growth catalysts in the coming quarters. One of the key positive attributes of the the video game publishing industry, generally speaking, is that these companies have strong balance sheets and stellar cash flow profiles (meaning a relatively modest amount of capital expenditures are required to maintain a certain level of revenues, and thus putting the firm in a position to better generate free cash flows). However, the performance of these companies can swing wildly depending on how well their blockbuster properties perform. The hit-or-miss nature of their operations has been a big reason why we haven’t added any videogame stock to the newsletter portfolios in the past, but their business models have become more and more attractive as the years have gone on. In this note, let’s get into the details of Activision Blizzard Inc, Electronic Arts Inc, and Take-Two Interactive Software Inc, while we discuss broader industry trends.

Oct 23, 2020

Our Thoughts on Intel’s Latest Earnings Report
Image Shown: An overview of Intel Corporation’s performance during the first nine months of fiscal 2020. Image Source: Intel Corporation – Third Quarter of Fiscal 2020 IR Earnings Presentation. On October 22, Intel Corp reported third quarter fiscal 2020 earnings (period ended September 26, 2020) that largely matched consensus expectations. Intel boosted its full-year outlook for fiscal 2020 on a net basis (which included an increase in its expected free cash flows this fiscal year) during its latest earnings update, though management reduced its forecast for Intel’s expected operating margins versus previous expectations. We continue to like Intel’s ability to generate sizable free cash flows, though we are concerned with its rising net debt load of late.

Oct 21, 2020

Our Thoughts on Intel’s Big Divestiture Ahead of Its Earnings Report
Image Source: Intel Corporation – Second Quarter of Fiscal 2020 IR Earnings Presentation. On October 20, Intel Corp and South Korean-based SK Hynix announced a major transaction that will reshape the global NAND flash memory market. For reference, NAND flash memory is used in smartphones, personal computers, and other digital devices. Intel will receive $9.0 billion in cash that will be paid out in two phases, assuming everything goes as planned. In return, SK Hynix is receiving “Intel NAND memory and storage business, which includes the NAND SSD business, the NAND component and wafer business, and the Dalian NAND memory manufacturing facility in China” though Intel will retain its Intel Optane business, which caters to both the data center and personal computer markets.

Oct 9, 2020

The Resilience of the US Digital Advertising Market and Alphabet
Image Shown: Shares of Alphabet Inc Class C shares, a top-weighted holding in our Best Ideas Newsletter portfolio, have performed very well over the past year. Going forward, we see room for significant capital appreciation upside as the digital advertising market has proven to be very resilient of late. To ride out the ongoing coronavirus (‘COVID-19’) pandemic, we continue to prefer large-cap tech companies with pristine balance sheets, strong cash flow profiles, and promising long-term growth outlooks. Ideally, we are searching for companies with outlooks that are supported by secular growth tailwinds, allowing for several winners in their respective end markets. Digital advertising is a prime example of a resilient high-quality market that is supported by secular growth tailwinds. Alphabet perfectly bits the bill given its ~$117.1 billion net cash position at the end of June 2020 (not including ~$13.0 billion in non-current non-marketable securities, and with no short-term debt on the books), and considering it generated over $14.0 billion in free cash flow during the first half of 2020 alone. We include Alphabet Class C shares as a top-weighted holding in our Best Ideas Newsletter portfolio, and the top end of our fair value estimate range sits at $1,795 per share of GOOG.

Sep 29, 2020

Facebook’s Promising Growth Outlook
Image Shown: Top-weighted Best Ideas Newsletter portfolio holding Facebook Inc has seen its stock price surge higher over the past year and we see room for considerably more capital appreciation upside. Facebook’s growth trajectory will depend in large part on how effective the firm is at generating more revenue per active user, especially in markets outside of the US & Canada. The emergence of a large global middle class should assist in these endeavors. We view Facebook’s growth outlook quite favorably and continue to be big fans of the social media giant. Facebook continues to be one of our favorite companies out there. Shares of Facebook are included as a top-weighted holding in our Best Ideas Newsletter portfolio. Our fair value estimate for FB sits at $284 per share, though should the firm outperform our “base case” assumptions, Facebook could carry a fair value estimate as high as $355 per share. We are enormous fans of Facebook’s net cash balance (~$58.2 billion in net cash at the end of June 2020), high quality cash flow profile (relatively modest capital expenditures are required to maintain a certain level of revenue), and incredibly promising long-term outlook that is supported by secular growth tailwinds.

Sep 22, 2020

Update on TikTok Saga
Image Shown: Shares of Oracle Corporation, a holding in our Dividend Growth Newsletter portfolio, have performed well recently as excitement grows over the company’s improving long-term growth outlook. Oracle may soon become a strategic shareholder in the rising social media star TikTok, alongside Walmart Inc and various US-based venture capital firms. Some big news emerged this past weekend involving TikTok that we wanted to bring to our members attention. We covered this story in detail in late-August and mid-September, and encourage our members to check out those articles for additional background information. In brief, TikTok is currently owned by Beijing-based ByteDance, a company that has been accused of being an extension of China’s central government (meaning a security threat to Western interests) which in turn prompted the White House to push for a sale of TikTok’s US operations or an outright shutdown/ban of the app in the US. This past weekend, President Trump stated he approved of a proposed deal that would involve Oracle Corp and Walmart taking a strategic equity stakes in a newly created firm called TikTok Global, which will likely be based in the US.

Sep 9, 2020

Our Thoughts on the Widespread Launch of 5G Services
Image Shown: The evolution of wireless networks and telecommunications technology over the years. Image Source: Intel Corporation – November 2019 State of 5G Presentation. The rollout of 5G telecommunication networks is upon us and we want to draw our members' attention to some of the key companies with meaningful exposure to this space. Many are excited about what opportunities 5G technology could enable. To ride out the ongoing coronavirus (‘COVID-19’) pandemic we prefer large-cap tech companies with pristine balance sheets, quality cash flow profiles, and firms whose growth outlooks are underpinned by secular growth tailwinds. Between Broadcom and Qualcomm, we are keeping a closer eye on Qualcomm given its more manageable net debt load and the company’s aforementioned near-term catalysts.