The tech stocks were too expensive before. High expectation and high CAGR of them cause the small bubble. Now, after the more than 20% dip, it is time to briefly evaluate their investment value.
I always strongly bull FB. The core logic of the main business of FB does not change.
- People need social media and instant message and the market is slowly growing.
- Ironically, most legislations benefit the monopoly of Facebook. For example, GDPR regulates the data exchange between companies, which reduce the accuracy of the digital ad. However, the revenue of most internet or tech companies come from the digital ad. In order to keep the effect, the clients will incline more budget to big companies which have more accurate User Portrait. The Matthew Effect will continue.
- The bad reputation of FB only causes the negligible effect in revenue. The interesting thing is that people do not know WhatsApp and Instagram belong FB.
In the visible future, the increasing monetization of the social digital ad, short-video, and story will consistently drive the revenue. Management claimed the CAGR will be consistent in 2019 Q2 at 25%. The expense rate (both market and operating) will decrease in the future. Conservatively estimated, the net income of FB has 0% increase in 2019 FY and has 25% CAGR through 2020 FY to 2023 FY. Conservatively estimated, the net income of FB is 20b in 2018 FY. In 2023 FY, the net income of FB is 48.8b. FB is given 15-30 pe. In a bull market, FB is easy to achieve 25pe. Thus, FB can achieve 1220b in 2023, which is a 27.7% annual ROI (FB is 359b Dec 23). Open the position under 139.2 will be a good deal. (ROI more than 25%)
Global Smartphone market is becoming overcompetitive. The users of iPhone may stay 0% CRGR in the future.
Because of the software ecosystem (iMessage, iCloud, Facetime, apple music, and so on) and the unique User Experience of Apple products, Apple’s customers have extreme loyalty to Apple’s product. In the next couple of years, to increase the ARPU of both software and hardware and increase the operating margin are the only two possible way to keep the growth of revenue. The CAGR of revenue and the amount of added revenue depends on customer loyalty. Thus, there is a celling for Apple’s revenue.
Apple is able to give 10-20pe as a company has consistently huge free cash flow. Base on Y chart, the apple is possible to give more than 15pe in the bull market. Roughly and conservatively calculated (if I have time, I will write an article talk about it), the net income of Apple should not less than 70b in 2021 FY. The market cap of Apple should be 1050b (Dec 23 Apple is 715.3b). My buy point is under 120. With the more than 4% dividend ((more than 2.92) /120), buy Apple at 120 (569.4b) is possible to achieve more than 25% annual ROI in three years.
I want to buy Amazon, but I do not know how to calculate its intrinsic value .
The business model of Netflix determines its net income barely equal to free cash flow.
- The entertainment content is naturally non-monopoly because of the inconsistent and various taste of the audience.
- The streaming media has no moat to stop the outside cash entrances, which will reduce the Gross Profit Margin of Netflix (until gross profit margin is not attractable to New money)
- The actors, the directors, and so on has the pricing power, but the Netflix does not own them.
I will not buy this company.
There are too complex to analyze google for me. However, there is some trend and thought.
- Google does not have the gene of to Business, which cause they cannot take cloud market share even they have the most advanced technology of cloud.
- The excellent asset of google, youtube, Waymo, cloud, and AI, may look profitable and potential, but they all have their own problem (inefficient monetization, unclearly prospect).
- Google is not centralized enough to entirely transfer new businesses (like FB trans from pc to mobile, Alibaba trans from E-commerce to retail infrastructure supplier, Amazon all in the cloud, Apple trans from pc to i-product). They all need “autarchic” leaders. Let’s be more clear, if Larry Page personally leads and put Cloud in the first place, I will buy Google at the current price.
I will not buy Google now.
They all have, except Netflix, the big market cap which means need more capital to increase the price. Some of them move away from the internist value too far and some struggle in the moral issues. Those sign display that the tech stocks are not like 2000 tech stocks anymore, which just have .com. The tech stocks are the braces of the market and the tech companies are the braces of the economy. The market cap is also supported by the real net income. Even more, they also monopoly the future business, (cloud, data, AI) which may lead them to another rapid growth cycle. Therefore, investing the FAANG and Microsoft is a wise choice, but the time choice is the profession problem. In my opinion, generally, they are not cheap enough. If you fear the black swan, buy the QQQ or, conservatively, SPY.
By the way, I feel Nvidia is closing to a good price soon, this company has good business and good people.
Disclosure: I long FB.
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