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Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

What You Should Know About MMORPGs

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The Valuentum analyst team talks about the Chinese gaming industry and the financials of Tencent (TCEHY) and Netease (NTES), in particular. Both generate strong free cash flow and have solid balance sheets, but there are myriad risks to consider, too. ~5 mins. Podcast no longer available. Transcript as follows. Chris Araos: Welcome to Valuentum’s podcast. This is Christopher Araos, and joining us today is Brian Nelson and Kris Rosemann. Today, we’re going to talk about the MMORPG landscape in China. Brian? Brian Nelson, CFA: Thanks for that Chris. I think just to give a little bit of background MMORPG stands for massively multiplayer online role-playing (PC-client) games. Wow, that’s a mouthful. These are very, very popular games across the globe … Read more

Seeking to De-risk the Newsletter Portfolios

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There’s never a good reason to panic in investing, but the 276-point slide in the Dow Jones Industrial Average (DIA) January 4, the worst start to a year since the credit crisis in 2008, reminded us why we hold more than a 30% cash position in both newsletter portfolios at the moment: with a US stock market still near all-time highs, we like having ample capital available to scoop up bargains as stocks inevitably give back some of their gains. The question for us is not whether the broader US stock market will decline from here but whether such a decline will be 10%, 20% or more. After all, the S&P 500 (SPY) has essentially tripled from the March 2009 … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Baidu’s Internet Presence in China Is Phenomenal

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By Brian Nelson, CFA With a population of over 1.3 billion people, more than 4 times the population of the US, China is flush with opportunities. We at Valuentum think one of the greatest long-term investment opportunities in the country has to do with ongoing Internet penetration, specifically related to search engine use and technology. Baidu (BIDU) is at the forefront of increased Internet penetration in China, and its recent results have showed fantastic sales expansion. For example, the firm noted that total revenue advanced nearly 60% in its most recently-reported first quarter from the corresponding period in 2013. For me, the relationship with Baidu goes back almost ten years when I worked at a buyside firm that was lucky to … Read more

Baidu Dollars Likely Shifting to Alibaba Near Term; Raising Our Fair Value of Yahoo

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Valuentum previewed the valuation of Chinese e-commerce giant Alibaba in October 2013. Today, we’ve updated our analysis of the company in the table below and have raised our intrinsic value estimate to approximately $100 billion from $75 billion previously. This revision has had a relatively large per-share upward re-valuation of the shares of 24%-owner Yahoo (YHOO) in its 16-page report. Softbank, which owns more than 35% of Alibaba, will also see a more optimistic slant towards its own valuation in coming periods. Our updated valuation details of Alibaba are shown below. The previous table had a typo regarding the long-term growth rate of the perpetuity calculation, which has been corrected in the table above. Though we think our forecasts are … Read more

Sign of the Times: Facebook Soars, Yahoo Sours

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On January 29, Facebook (FB) kept the fundamental momentum going in its operations. The social media giant announced impressive fourth-quarter results, revealing that revenue jumped 63% (see image below) thanks to a 76% increase in revenue from advertising. Facebook indicated that mobile advertising revenue now represents more than half of advertising revenue compared to less than 25% in the same period a year ago. Income from operations nearly doubled in the period, to $1.13 billion, as the firm’s GAAP operating margin leapt 11 percentage points, to 44%. GAAP net income advanced to $523 million, compared to $64 million in the fourth quarter of 2012. Diluted earnings per share came in at $0.20 per share in the quarter, up from $0.03 … Read more

SEC Proposes Barring the Chinese Units of the Big 4 Accounting Firms for 6 Months; A Washington-Beijing Scuffle; Neither Firm-Specific, Nor Is It “New” News

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On Thursday, Reuters reported that SEC Administrative Law Judge Cameron Elliot believes “Chinese units of the global ‘Big Four’ accounting firms (KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst and Young) should be suspended from auditing U.S.-listed companies for six months in an escalation in a long-running dispute over regulators’ access to documents.” Though the accounting firms have indicated that they intend to appeal against the ruling, the article did unnerve investors in many US-listed Chinese stocks, including Baidu (BIDU), which notes Ernst & Young Hua Ming LLP as its principal external auditor. This is not “new” news. Baidu goes to great lengths to highlight this scenario as a risk in its 20-F on page 32, with potential de-listing (not bankruptcy or … Read more

Get To Know Yahoo!’s Management; We Value Alibaba at $75 Billion

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The only question that comes to mind after looking at the below slide is: What turnaround? Image Source: Yahoo GAAP revenue down 5%. Revenue ex-TAC down 1%. Adjusted EBITDA down 19%. Income from operations down 39%. Non-GAAP operating income down 27%. Net earnings down 91%. EPS attributable to Yahoo down 89%. Non-GAAP EPS down 13%. Free cash flow down 73%. Cash and marketable securities down 66%. It’s flat-out puzzling that CEO Marissa Mayer included the following statement in the third-quarter press release: “I’m very pleased with our execution, especially as we’ve continued to invest in and strengthen our core business.” We understand the importance of staying positive, but her statement is quite a stretch considering actual financial performance at the core Yahoo business.  The only line item in … Read more

Plenty of Growth Ahead for Chinese Internet Companies

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The Chinese Internet space has been a fantastic growth story through the course of 2013. Shares of Best Ideas Newsletter portfolio holding Baidu (click ticker for report: ), Qihoo (QIHU), Sohu.com (click ticker for report: ), and Tencent (click ticker for report: ) are all up at least 50% year-to-date. What do all of these companies have in common? They all have exposure to China’s rapidly-growing Internet usage as well as the country’s Internet search market. Search growth in China is phenomenal. Image Source: China Internet Watch In the second quarter of 2013, the value of the Chinese search market surged approximately 35% year-over-year (shown above), lapping a very robust growth rate well above 50% during the same period of 2012. Chinese search … Read more