GPM's Core Portfolio Insight: First Republic ($FRC)
Jim Herbert founded First Republic Bank ($FRC) in 1985 in San Francisco. At the time, it had one office and less than 10 employees. Jim had a core belief that he could build a successful business by differentiating its client services, while taking care of employees and communities, and operating in a safe and sound manner. Just over 35 years later, First Republic has 94 offices, 6,452 employees, and total bank assets of $197.9 billion, as of June 30, 2022. Jim recently started a new role as FRC's Executive Chairman, while Mike Roffler took over the CEO role. Mike has been a part of FRC for over a decade, most recently as the bank's CFO.  
To begin with, First Republic focuses on extraordinary service in private banking, which includes residential, personal, and commercial real estate lending, along with checking, savings, and CDs. FRC does not engage in complex or exotic financial products. In management's investor presentations, there is always a slide included that shows a list of business activities NOT undertaken. Operating in a safe and sound manner has led to stable and consistent returns on average common equity, with returns 80% less volatile than the KBW Nasdaq Bank Index.  
First Republic's client satisfaction exceeds that of other leading service brands. For example, FRC's Net Promoter Score (NPS) is higher than Ritz Carlton, Apple, Airbnb, and the U.S. Banking Industry average. How does FRC grow faster today as a larger company than it did when it was much smaller? Satisfied clients, strong referrals, and low attrition created a compounding effect on organic growth throughout the years.  
Next, FRC has a long track record of success. Average annual net charge-offs have been 1/10th those of the top 50 U.S. Banks. FRC had no losses in San Francisco/Silicon Valley during the dot-com crash of 2000-2002. Since its founding in 1985, the bank has only $345 million of losses on $421 billion of originations, equating to only 8 basis points of cumulative losses. FRC's loan mix is consistent from 20 years ago, with 81% of loans collateralized by real estate. Since 1985, 90% of all loans were originated by bankers still with First Republic. FRC is on its 11th consecutive year of dividend increases.  
Finally, First Republic has growth opportunities in private wealth management, investments in its service model & technology, the next generation of clients, and new geographies. Private wealth management makes up 15.6% of total revenue today, up from 5.5% in 2010. It is a strong growing franchise (a 22% compounded annual growth rate since 2016), with $246.8 billion of assets under management as of June 30, 2022. For attracting the next generation of clients, FRC has lending programs like Household Debt Refinance, which consolidates consumer debt into a single monthly payment, and Professional Loan Program, which gives employees a way to invest with/in their firms. Lastly, on geographies, First Republic expanded into Palm Beach, FL in 2013, Jackson, WY in 2018, and Seattle, WA in 2022. These geographies are in addition to areas already served, including San Francisco, NYC, Los Angeles, and Boston.  
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Grodno's future ($GRN.WA)
The president of Grodno $GRN.WA plans to reach a market share of 20% in the Polish electrical engineering distribution market in the following years from currently 10%.
Sales of heat pumps will be noticeable in Grodnos revenues in fall, in the last quarter and next year. The heat pump market in Poland amounted in 2021 approx. 80 thousand, in 2022 it is estimated at 200 thousand, and in 2023 at 360 thousand.
The full interview with Andrzej Jurczak:
Grodno chce notować stabilny wzrost sprzedaży i zwiększyć udział w polskim rynku dystrybucji elektr...
Grodno w najbliższych kwartałach chce notować stabilny dwucyfrowy wzrost sprzedaży, a w kolejnych latach, m.in. dzięki procesom konsolidacji, mieć 20 proc. udział w polskim rynku dystrybucji elektrot...
My $FIGS trades
Figs were the most voted for stock on Brian and Brian's YouTube page as of August 6. This was the first time they let their YouTube following decide which stock they would invest in next in their Commonstock portfolio.
I don't know much about Figs besides that's a new and trendy scrubs for healthcare workers that really took off during COVID. I wouldn't typically invest in a company like this myself because I think it is too early to tell if this is going to be a new fashion trend here to stay or a fad. I'm not sure about the moat but time will tell!
In our newsletter this week:
- Inflation seems to be trending down
- Supply chains are healing
- Slight uptick in delinquencies
- Tech sales cycles are lengthening
Companies covered include: $NET $TWLO $PRT $C $NE $STOR $FLR $W $FRO $RCI $RDFN $ST $NOW $F $UAA $MCH $D $BOSS $T $BLK $BP $A $RCII $CAR $UA $GNRC $SBUX $AMD $MOG.A $DISH $AM $WE $GNR $AMH $TW $CO $ABNB $OP $WERN $XP $BL $BK $DASH $COLD $MAR $FROG $OPEN $X $WM $LYFT $PRTS $U $XPO $CHGG $GPI $SB $AB $L $RC $MA $S $FR $MCHP $SOFI $TSLA $DIS $BKN $M $MC $SO $BKNG $AMK $O $FL $STWD $G $MO $TS $B $GP $GS $QRVO
Apple Inc. (Ticker: $AAPL) - Brief Breakdown
For the full article check it out here.
Company Description and Qualitative Analysis
Apple Inc. $AAPL is an American multinational technology company that specializes in consumer electronics, computer software and online services. Apple designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. Apple famously offers the iPhone, Mac line of computers, iPad, Apple watch, AirPods, Apple TV, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories. Apple even has Apple Arcade as a game subscription service, Apple Music, Apple News+, and much more. Apple was the world’s largest technology company by revenue in 2020 (totaling $327 billion) and as of 2021 is the world’s fourth-largest PC vendor by unit in sales as well as the fourth-largest smartphone manufacturer. Apple is a tech giant. There are more than 117 million iPhone users in the United States, accounting for 47% of the total smartphone market. On top of mobile phones, Apple has a 7.4% share of the PC industry. If AirPods were a standalone company, it would have a market valuation of more than $175B, making it the 32nd largest company in the United States. Although Apple started as a computer company, it has gradually transformed and diversified via strong commitments to R&D and innovation. Apple has become dominant in multiple sectors, even creating a tablet sector which previously did not exist. Apple has been able to accomplish this growth despite a history of relatively unstable leadership. Apple is a global tech giant that continues to grow and widen their moat. Apple is the largest customer of Taiwan Semiconductors which may have issues detailed below in production of chips for Apple products.
At the time of this writing (8/7/2022), AAPL is trading at $165.35 with a market cap of $2.66T and a 52-week range of $129.04 - $182.94. Apple reported a record revenue of $83.0B (+2% year over year), earnings per diluted share of $1.20, and $23 billion of operating cash flow. Return of equity (ROE: Net Income / Total Equity *100) of Apple Inc. is 152.97%, the price to earnings ratio (P/E) is 27.33, and net margin (net income / revenue) is 25.71%. You can view AAPL’s 2022 Q3 earnings here and their 2021 Annual Report here.
Here are three points to support the bullish thesis:
- Data Storage: Apple has seemingly cut every single app and website off from data mining from Apple customers. This is a HUGE development in the marketing market. Now Apple has the capability to use that data similarly to all other applications that have been using it but they are the only player in town. Data has been gold for companies recently and I see that trend continuing. Now that Apple has all that data, I look for them to begin to monetize it if that haven’t started already.
- Stickiness: Apple not only has a large repertoire of device types (phones, computers, etc.), but they’ve also mastered device interconnectivity. Via iCloud technology, device synchronization is relatively straightforward with Apple products. On top of product integration, Apple has nailed UI/UX. Their products are very easy to use, even for new customers. Device interconnectivity and user-friendliness are two characteristics of Apple products that make them incredibly “sticky” with customers. Once users have started using Apple products - and sending their data to iCloud - it becomes difficult to justify switching to a different brand. Having “sticky” products is great for Apple and bad for their competitors.
- Ability to shift into new markets: Apple has the ability to expand into new markets by leveraging user data. While most major tech companies monetize user data via advertising, Apple has an opportunity to leverage this data in other ways. For example, many of Apple’s mobile devices, including their phones and watches, capture human health data (heart rate, step counts, etc.). Such health data could be used within healthcare (e.g., remote health screenings for people in remote areas) and insurance settings. The built-in sensor suite of the iPhone includes accelerometers, gyroscopes, and GPS, all of which provide access to a wealth of user data. If Apple can strategically utilize this data - and do so in ways that do not cause mistrust in their customers - they may be able to create new revenue streams.
Here are three points to support the bearish thesis:
- Lack of Change: Similarly to other giants like Facebook and Amazon, Apple has become all too familiar with lawsuits. Apple currently has an antitrust trial with Epic Games, the creator of Fortnite, which claims that Apple has built a monopoly over iPhone and iPad games by requiring all apps to be downloaded through its Apple App Store. Epic Games claims in the lawsuit that Apple extracts unfairly high fees from developers which can be up to 30% of all transactions and the App Store requires developers to use Apple’s payment system. Because Apple is a large company, it will continually have companies and people suing them and unfortunately that is the reality of having a large corporation. Hopefully Apple can have a favorable outcome, but if not this could mean changes to AAPL’s margins which could lead to less revenue.
- Supply Chain Disruption with Taiwan Semiconductors: COVID-19 presented a lot of challenges, but one of the biggest challenges was the disruption to the supply chains out of China and Taiwan. Apple has said that they believe to have an influx of chips from Taiwan Semiconductors, but it seems unlikely this will last as the China and Taiwan conflict begins to persist. This is an extremely big issue because not only has there been a Chinese data hack (detailed below) there is now a potential of China slowing the supply chain. The take down of Apple would not just be bad for products but also Apple employs thousands of people and this could affect the US economy more than people may think.
- China Data Hack: Currently Apple is attempting to get into the Chinese market, but it has led to difficulties. Apple was preparing to store the personal data of its Chinese customers on computer servers run by a state-owned Chinese firm. Tim Cook has attempted to say that the data is safe, but Apple's data center in Guiyang has largely ceded control to the Chinese government. Chinese state employees physically manage the computers and Apple has abandoned the encryption technology it uses elsewhere after China has not allowed it. This sentiment has worried many that data is not safe with the Chinese government. Hopefully Apple can work this out to keep the privacy of their customers out of the Chinese government’s hands.
For the full article check it out here.
Palantir bulls this is a safe space… how we feeling?
Welcome to Inflation Week
Good morning CommonStock! Stock futures are rising in the pre-market, led by tech…
We have the CPI and PPI reports to shed more light on inflation, but those aren’t until Wednesday and Thursday, respectively.
More on today’s state of play here:
coffee table book ideas
Which coffee table book sounds the best?
10 VotesPoll ends on: 08/09/22
My main focus is how the algorithm compares to FICO. Default speration risk improved from 12x to 16x. If $UPST continues to to sell a superior credit product, the revenue and earnings will follow
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On the call the CEO mentioned that there are already a lot of others who are serving the higher credit worthy categories—
It looks like most of the improvement here is for the lower credit worthy categories.
Would you be worried if Upstart’s niche ends up being lower credit worthy borrowers?
Nvidia Misses on Earnings
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Turns out ad-tech isn't dead.
- Revenue (beat) - $63M (+27% YoY)
- Non-GAAP EPS (beat) - $0.23
- Net dollar-based retention rate - 130% (notably lower than Q2 2021)
- Adjusted EBITDA - $23M (37% margin unchanged from a year ago)
- Net cash from operating activities down slightly ($20.5M vs $21.1M Q2 2021)
- Cash - $183M (no debt)
- 79% growth in impressions (48% reduction in cost of revenue per million impression since Q2 2020)
- 150% growth in CTV revenue
- SPO activity up to 30% of total activity (compared to 24% a year ago)
Pubmatic did lower guidance slightly, but FY is still somewhat in-line. Here's the projected outlook per geography:
- European demand softening somewhat
- APAC unchanged, still low ad spend
- Americas spending kind of soft but stable
Results were good and guidance was fairly positive as well. My thinking is that $PUBM could still see growing headwinds IF the global economic conditions worsen. Whatever the case, pretty good resilience here.
What Is The Curve Telling Us
The 5y is trading more expensive to the curve. This should signal the potential for a rate cutting cycle that will start to be seen soon. Looking at the curve (2s5s) it has continued to flatten and is now inverted by about 50bps. We have also started to see the 5s10s flatten rapidly and that is inverted as well. This has happened as the 5y has become more and more expensive relative to the curve. The market is saying that rates do not have room for more and more raises. Thus more evidence of the expected Fed pivot.
Video version of the Sunday Scaries Stock Talk podcast with David Migneault
My portfolio: Evolution AB $EVVTY ($EVO.ST)
The next company of my portfolio i will shortly present is Evolution AB.
- develops, produces, markets and licenses fully integrated B2B Online Casino solutions to gaming operators
- has developed into a leading B2B provider with 500+ operators among its customers like DraftKings ($DKNG), Penn National ($PENN), Leo Vegas ($LEO), Rush Street ($RSI), Betsson ($BETS), and many more
- employs about 10,000+ people in studios across Europe and in North America
- has built a platform with high operational efficiency and scalability
- has been named Live Casino Supplier of the Year 10 times out of 10 possible at the EGR B2B Awards thanks to it's innovative games and fantastic management
- The games of Evolution are the most popular in every Live Casino which leads to the need for an operator to also offer Evolutions games, otherwise, the player would change the operator. Evolution's games and their broad network of studios build a high moat
- Revenue CAGR (18-21) of 44 % and Net Income CAGR of 64 % and an EBITDA-Margin of 69 %
- Long way of growth as Live Casino is the fastest growing Casino segment and Online Gambling will be regulated in more and more countries / states
- NTM EV/EBITDA of 17 and NTM P/E of 21
This is a quick overview of what Evolution is doing. If you're interesting I will share more about what "What moves this stock" tomorrow. Stay tuned!
The smartest guys in the room.
I’m not talking about the popular book that deconstructs the collapse of Enron.
I’m talking about top private equity firm Thoma Bravo which has embarked on an acquisition spree.
What can we learn from its moves? 👇
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Thomas Bravo is like Blackrock but for software. It's cool what they're doing in the tech space. It wouldn't be a surprise if their investment deals go very well.
"The Coming War Over Taiwan"
It's pretty incredible how rapidly China's demographics are shifting. Over the next decade 70 million people will leave the workforce and it will gain 120 million senior citizens. Found this image of population forecasts through 2100.
The WSJ article linked thinks that China has hit its peak power (most estimates I run across these days think China's population will start declining this year - 8 years sooner than previously thought). He points out that when countries begin to decline (hard not to lose power when your population is shrinking rapidly) that is often when they.
The author is clearly very pro a military build-up / assistance policy - he's basically lobbying for massive support for Taiwan and increased US military assets in the region.
He thinks the US would see a 5-10% GDP hit if we were cut off from China and lost access to semiconductors (90% of cutting edge logic comes out of Taiwan) - and China would shrink 25-35%. I don't think anyone can accurately predict GDP shrinkage from hypothetical wars in the future, but for perspective in 2008/2009 global GDP dropped less than 3%.
To me, what would be far worse than the initial recession hit - is the literal decade (or two?) plus it would take to rejig international supply chains. It truly would be a mutually assured destruction scenario, which I think everyone understands. Not only do we get semiconductors from Taiwan, I've seen estimates as high as 50% of products on Amazon come from China, and I've read that 90% of computers are assembled in China (including for Dell, HP, etc).
This makes me optimistic that this is sabre raddling by people interested in seeing military spending increase.
Link to WSJ article: https://www.wsj.com/articles/the-coming-war-over-taiwan-11659614417
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Before Pelosi's visit, 20 planes on ADIZ was seen as high. After Pelosi's visit, over 60 planes is becoming the new norm (with the few days we have).
While public market investors in technology and SaaS companies are still licking their wounds and reeling from losses, private equity giant Thoma Bravo with more than $114 billion in AUM has thrown caution to the wind and embarked on an acquisition spree, picking up companies like Ping Identity, an enterprise identity management company in a deal worth $2.8 billion.
It’s a bold strategy, and picking up fallen angels that are struggling in the public markets and bringing technical and operational expertise to the table could prove fruitful, but at the same time private equity is in a precarious position.
The PE industry was a huge beneficiary of rising valuation multiples and lower financing rates for leveraged buyouts over the last decade. With interest rates up and multiples collapsing, both those tailwinds are gone.
Here’s a few of the ways this could play out:
Fat Cat Investing's "Real Estate Rumble" July Update
Good morning my fellow 'stockians!
I've been really busy and haven't been posting much but it's time for another Real Estate Rumble update!
Today is August 7th and I've incremented the 'investment period' for my tracked real estate investments by one month, and updated the sheet with all available current numbers.
Some investments have not yet posted earned dividends, but those numbers should be available throughout the month and will be updated as available.
Currently Landa is leading the pack with a whopping 77.61% return with 'appreciation' factored in; however removing 'appreciation' brings it down to a more realistic 8.41%.
The "Fat Cat Investing M1 REIT Pie" is doing well but is a distant third at 23.38%.
For a look at all 6 investments being tracked, and their current performance, check out Fat Cat Investing's Real Estate Rumble.
Links to each program are available on the spreadsheet for anyone interested!
Any and all feedback is appreciated!
Rates Differential vs USD/JPY
US - JP 12x15 forward rates differentials vs USD/JPY. Rates differentials look to be ticking up again, over the last year this has pushed yen lower. An uptick (if correlation holds) could signal more downside for the yen. The BoJ buying JGBs over 25bps and trying to control the curve has been a big player in this move that we are seeing. However, what is more concerning is the impacts of importing inflation at home, as the currency weakens. So far the BoJ does not seem concerned with this.
Net $ Value: all
RankAssetPrice1w change% bought
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