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$ADSK drops ahead of earnings report
  • Deutsche Bank analyst Bhavin Shah cut his rating to hold from buy. Price target to $225 from $275.
  • Stifel Nicolaus analyst Adam Borg kept his rating at buy. Price target to $230 from $285.
  • Both cited "mixed" results from conversations with "platinum-level" partners.

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What is the bull and bear case for Zoom Video Communications $ZM?
Bull case:

  • Valuation appears reasonable with the stock trading at pre pandemic levels even though $ZM managed to increase sales by 558% from FY’2020 to FY’2022. EV/EBITDA is c. 18x and EV/Sales is 5.3.

  • Net dollar expansion rate of enterprise customers per latest quarter was 130%, which shows that large customers are spending more with Zoom every year.

  • The Company is highly profitable with operating margin and free cash flow margin for FY’2022 of 26% and 36% respectively.

  • Leader in meeting solutions and UCaaS (Gartner Magic Quadrant). Top ratings in G2 reviews and leader in G2 Grid for UCaaS and video conferencing.

  • Hybrid/work from home is here to stay.

  • Management executed very well during the pandemic scaling the company and coping with demand as well as dealing with security issues which arose at the start of the pandemic.

  • Organic growth and continuous development of products as well as entrance into new markets in the last years is a sign that management is delivering (Zoom phone, contact center, zoom rooms, zoom events).

  • Managed to build a brand and stand out as leader despite the fierce competition from giants like Microsoft, Google, Cisco.

  • Founder leading the business with skin in the game.

  • Video conferencing allowed the company to land into large number of enterprise customers. The opportunity now is to expand within those customers and cross sell additional products (zoom phone, zoom rooms, etc.). Expanding within a customer increases switching cost.

  • Company has plenty of financial resources with $5.4B of cash and marketable securities and no debt on its balance sheet.

What are the main risks for Zoom?

  • Intense Competition in the space. Competitors with more financial resources ($MSFT, $GOOG, $CSCO).

  • As of Q4, 33% of revenue was from customers with less than 10 employees. Potentially, those customers could churn over time as employees return back to office.

  • Video conferencing might be seen as a complementary product like Microsoft Teams with Office 365, thus Zoom could lose customers to competitors. For the time being this does not seem to be the case as Zoom has continuously been adding new enterprise customers.

We will monitor those risks and we look forward to tomorrow’s earnings release.
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Booking Holdings $BKNG Investment thesis
We have initiated a position in Booking Holdings $BKNG. Below is a summary of our investment thesis with the most important factor being its valuation:

  • After being hit by the pandemic during 2020-2021, the online market for travelling and accommodation is recovering. According to Business Wire, Global Online Travel Market Size is projected to be US$ 1,464 Billion by 2027, from US$ 801Billion in 2021 (CAGR of 10.6%).

  • Online travel agencies (OTA) like Booking will be one of the beneficiaries of of this trend. Early signs of recovery appeared with GBVs of major OTAs surging to all-time highs due to increase in nights booked and increase in Average Daily Rates (ADRs). For example, Booking had Q1’2022 GBV of $27.3B, up 129% Y/Y and up 7% from Q1 2019. Airbnb had GBV of $17.2B, up 67% Y/Y and up 73% from Q1 2019.

  • Booking is a leader in OTA market. For example, its market share in Europe in 2019 was 67.7% according to Statista. Global wise it generated the highest revenue in US$ billion for 2019 and 2020. Also the large number of hotel listings on Booking creates a network effect and acts as a barrier for new entrants in OTA. For instance, in 2021, 590 million room nights were booked across Booking Holdings. This is below the pre-pandemic 2019 figure of 844 million which is explained by the fact that the market has not fully recovered.

  • Heavy share buybacks over the span of the last 10 years. Total shares have been reduced from 49.9M in 2012 to 41.1M in 2021. This approximates to $23B of share buybacks compared to cash generated from operations (over the same period) of approximately $32B. Around 70% of the cash generated from operations were returned to shareholders, without disrupting the business from growing.

  • Optionality: Other than accommodation/lodging choices, Booking offers the option to book a flight, to rent a car, to book a visit to an attraction or activity and to book an airport taxi transfer. Needless to say, but you can also use your Genius discount on certain items.

  • Valuation: Analysts expectations for 2026 EBITDA average at $10.1 billion, whereas in our valuation we use an EBITDA of $8.9 billion. Assuming a multiple EV/EBITDA of 18 (in line with 2015-2019 average) we reach an Enterprise Value of $160.6 billion (difference is due to rounding) compared to today’s EV of $80.8 billion. Potential IRR on EV terms is around 16.5%.
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Thanks🙏. Yes we are planning to release a head to head analysis for $BKNG and $ABNB . To be clear we are not saying that $BKNG is better business than $ABNB. We just feel more comfortable with the valuation of $BKNG
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Buy now, pay later. Is this a bubble?
We came across the article on the link below and we wonder what could be the impact on firms like $AFRM $SQ $PYPL $AFTPY, if any.
Few notable extracts from the article:
“4 in 5 U.S. consumers use BNPL on everything from clothing to cleaning supplies, according to Experian, and most shoppers said buy now, pay later could replace their traditional payment method”
“When people start buying household goods on credit, that signals a problem.” Marshall Lux
“BNPL’s rapid growth is driven primarily by younger consumers, with two-thirds of BNPL borrowers considered subprime” Lux noted
“42% of consumers who’ve taken out a buy now, pay later loan have made a late payment on one of those loans, LendingTree found.”
“The financial watchdog said it is particularly concerned about how these programs impact consumer debt accumulation, as well as what consumer protection laws apply and how the payment providers harvest data”
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$ADSK Deep Dive
Analysts are expecting Autodesk to grow revenues to $7.29 billion by fiscal 2026, CAGR of 13.5%. Expectations seem reasonable given that management targets double digit revenue growth up to FY’26. Management guidance for non-GAAP operating margin in FY’23 is 37% with its mid-term goal (FY’24 to FY’26) in the range of 38%-40%. Assuming that non-GAAP operating margin for FY’26 is 40% and deducting the share-based compensation of 11.4% (three-year average), the EBITDA margin for fiscal 2026 is 28.6%. The resulting EBITDA margin of 28.6% appears reasonable taking into consideration the current EBITDA margin of its peers (Dassault, Nemetschek and PTC).
Assigning an EV/EBITDA multiple of 25 to the resulting EBITDA of $2.08 billion implies an Enterprise Value of $52.1 billion in FY’2026 and an IRR of 4.7% based on the current share price, ignoring any buyback yield.
There is a lot to like about Autodesk, however in our opinion the current share price does not provide potential for outsized returns. We will not be buyers here, but we will follow the business closely and we might initiate a position if there is further drawdown from current levels. We understand that the share price might go higher from here and we might miss a potential compounder, however we believe that the current price does not provide sufficient margin of safety.
If you want to read more about $ADSK , refer to the link below. Please subscribe to our substack for more deep dives, earnings previews and company snapshots.
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What do you think of $ATVI?
Is this really an arbitrage merger play or can the deal just fail, taking the share price back to mid $60 levels?

It is worth noting that in the recent quarter Activision fell short of analyst expectations, net bookings declined from $2.07b to $1.48b and MAUs declined from 435m to 372m.
Arbitrage Merger Play?
8 VotesPoll ended on: 05/03/22
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Our analysis on Q1 2022 $PYPL earnings
A fair quarter with some ups (Braintree, Venmo, BNPL) and downs (take rates, margins, new guidance). Of course, one should not ignore the suspension of transactional services in Russia.

Read our analysis in the below substack link. If you like this post, feel free to subscribe.

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Sanity check on $PYPL valuation
🔹 Assuming the Company generates FCF of $5B for 2022 (guidance), growing at a 3% level and with a discount rate of 9%, it yields an enterprise value of $83.3B. Note that in 2021 a FCF of $5.4B was generated.
🔹Adding cash and cash equivalents, plus investments of 15.1B and deducting $9.2B of Debt results to an equity value of $89.2B.
🔹That is $12.9B (or 12.6%) below the current market cap.

💭Remarks: Is the 12.6% value assigned to growth opportunities enough or does the market ignore these?
Thanks for sharing this. Can you elaborate on your decision to apply a 9% discount rate?
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