AMZN

Earnings Insight — Amazon

by

Image Source: Mike Mozart Let’s cover some ground on Amazon’s (AMZN) third-quarter report, released October 27. What management said: “Alexa may be Amazon’s most loved invention yet — literally — with over 250,000 marriage proposals from customers and counting,” said Jeff Bezos, founder and CEO of Amazon. “And she’s just getting better. Because Alexa’s brain is in the cloud, we can easily and continuously add to her capabilities and make her more useful — wait until you see some of the surprises the team is working on now.” — CEO Jeff Bezos The scoop: The game has changed at Amazon. No longer is the company struggling to generate meaningful free cash flow; in fact, it is now throwing off copious … Read more

AT&T Targeting Disruption in Transformational Merger

by

Key Takeaways AT&T has agreed to acquire Time Warner for $85.4 billion in cash and stock in a deal that is expected to close by the end of 2017. Strict regulatory scrutiny can be expected. The deal has the potential to disrupt the traditional pay-TV industry while setting AT&T apart from its competitors in the wireless telecom industry, where growth has become sparse for the firm. The telecom industry is maturing, and price-slashing competition has changed the game as network differentiation has largely become a thing of the past. We’re not fans of the debt that will come with the completion of the deal, but the prospects of what the combined entities could produce are certainly interesting. We view the … Read more

This Just In: Netflix’s Stock Is Volatile!

by

Key Takeaways Netflix unit subscriber growth is not accelerating, having flattened through the first nine months of 2016 (12 million net additions). The current market capitalization of Netflix implies the company must grow consolidated operating earnings by 8-fold to be considered fairly valued. The content cost thesis is a well-traveled one, but the market is missing the vast overhead expenses (marketing, G&A) related to Netflix’s business, which punish earnings and are excluded from segment profit calculations often used in buy side valuations. Netflix’s sources of upside: pricing leverage, contribution margin improvement, a potential buyout, and new ancillary business lines: advertising, licensing, consumer products, etc. We continue to believe shares of Netflix are vastly overpriced, with a beta-driven sell-off the catalyst … Read more

I’m Proud of You

by

Image Source: Jim Makos “If you’re asking why you’re NOT getting a lot of email transaction alerts related to the newsletter portfolios, you’re finally recognizing the secret to portfolio outperformance: we don’t trade a lot, and we like to get our selections correct…the first time! Isn’t that how it’s supposed to be? Our best ideas for consideration are always included in the newsletter portfolios themselves. They’re in there.” – Brian Nelson, CFA Brian Nelson, CFA When I pat our team on the back by showcasing Valuentum’s performance, you have to know that I envision you doing as well or better. You’re a member. You mean the world to us. That’s why I’m excited about the performance Valuentum puts up. Because … Read more

Retail Weakness: Blame the Election?

by

Image Source: DonkeyHotey By Kris Rosemann The 2016 election cycle has been one characterized by unprecedented amounts of criticism and accusations, of both the personal and political variety, and it may be true that the perceived political environment from the view of the general public has not been in such a state of uncertainty for some time. Let’s not get into the details of who called whom what in last night’s Presidential debate, but some parents were reportedly not allowing their children to watch the debate out of fear that their values or outlook on democracy could be skewed. But could the uncertainty surrounding the election actually be enough to impact consumer activity at retail outlets and restaurants? Some are … Read more

The “Uninvestable” Twitter and Netflix Buoyed By Takeout Chatter

by

By Kris Rosemann and Brian Nelson, CFA At Valuentum, we like slam-dunk, no-brainer investment opportunities–like Microsoft (MSFT) in the mid-$20s before it doubled, or Visa (V) prior to its strong equity price performance in recent years, or even cigarette-maker Altria (MO) in advance of its ongoing march higher since the dawn of the release of the inaugural Best Ideas Newsletter. Our members count on us to use our knowledge of valuation to sort out “investable” stocks from “uninvestable” ones; good stocks with fundamental promise from bad ones built on fantasy outcomes. Benjamin Graham calls what we do “investing,” while he may call readers that dabble in the two highlighted stocks in this piece “speculators.” There is a difference, and it’s … Read more

Apple Handed Huge Tax Bill; We’re Not Worried

by

By Kris Rosemann The Competition Commission of the European Union has ordered Apple (AAPL) to pay up to ~$14.5 billion in back taxes plus interest to the government of Ireland after concluding that the country unjustly allowed the firm to pay an effective corporate tax rate between 0.005% in 2014 and 1% in 2003 on its European profits. The total amount deemed owed by the EU is 40 times the largest amount previously demanded in such a case. While $14.5 billion is certainly a meaningful sum of cash, if there is a company equipped to handle such a situation, it is Apple. As of the end of the third quarter of its fiscal 2016, it had ~$231.5 billion in cash, … Read more

Alert: Adding General Motors; Talking Amazon

by

Image Source: Michael Kumm General Motors may be one of the best deals on the market today, and we’ll be adding it to the portfolio of the Best Ideas Newsletter. Let’s also talk Amazon, and why shares of the giant are “uninvestable” from our perspective. By Brian Nelson, CFA Just a couple things this morning. First, we’re adding a 2% weighting of General Motors (GM) to the portfolio of the Best Ideas Newsletter. We continue to be enamored by the auto giant’s valuation opportunity, and we encourage members to read our take on the company’s investment considerations at the following, “Major Automakers: Fundamental Uncertainty But Potential Investment Opportunity…Soon (August 5, 2016).” Soon is today. Though we’re fully aware of the … Read more

Amazon Is Uninvestable

by

Image Source: Claudio Toledo By Brian Nelson, CFA Amazon is uninvestable – there we said it. Let’s learn why though. We can’t make such a blanket statement without backing it up with some serious financial analysis and valuation logic. The following is for educational purposes only and represents an excerpt from Valuentum’s Financial Statement Analysis seminar. I say this because the models included in the below exercise are not our most recent ones of the respective companies. Those models are available on a per-request basis. So reach out to us! Here’s what I want you to do: 1) Open the Amazon (AMZN) financial model excel file . Go to the ‘Model’ tab. 2) View fair value estimate of $439 in … Read more

Netflix: The Painful Slowdown Begins

by

By Brian Nelson, CFA We’re not going to say much about Netflix’s (NFLX) quarterly “miss” other than adding 1.7 million members, as it did during its second quarter 2016, wasn’t horrible. The media outlets and sell-side analysts will tell you that this came in below Netflix’s 2.5 million net new member forecast and below the 3.3 million net-add mark in the prior-year. This is no surprise to the Valuentum readership. We had been expecting significant weakness at Netflix. The stock is ~15% lower in after-hours trading. What to do now? Well, the air is slowing coming out of the Netflix bubble. The market is slowly realizing that growth in the US is grinding to a halt. On a trailing 12-month … Read more