Saturday, December 26, 2015

It's been a while! Blog and Life Updates

Hello members of Teach Me To Invest,

First and foremost, my apologies as I have not posted anything on the blog for quite some time. I have been super busy (in a good way) with work projects that excite me, motivate me, and which I will be sharing more about very soon here on the blog.

I am still trying to figure out the direction I want to take with Teach Me To Invest. This blog is my "baby" and my first attempt at sharing everything I know (and continue to learn) about the world of investing with beginners and those who wish to get started. If you have followed this blog for some time, you know this is one of my huge passions and so, I'd like to continue contributing to the blog. If you have any recommendations and/or ideas of what you'd like to see here, feel free to send me an email: In the meantime, I'll keep brainstorming and look to come up with some cool ideas.

In terms of my stock portfolio, I have a blog post coming up regarding which stocks I purchased during 2015 and their returns. Stay tuned for that! I feel this year I made some awesome selections and have added some incredible companies to my stock portfolio so I cant wait to share that with all of you. Stay tuned. I'm also contributing to some financial publications so I look forward to sharing links to my analyst reports on here as well!

Wishing everyone an awesome holiday season! Looking forward to being more consistent with my posts on here so I need some accountability from you guys. Happy Holidays! 

Cheers to profits,

Saturday, July 18, 2015

Poscasts that are worth your time: Personal Finance, Investing, and Entrepreneurship

I’ve been a fan of personal development audio books for a very long time. However, I’d say it wasn’t until around ~2011 that I discovered podcasts and, with that, a whole new dimension of educational and motivating audio tools.

Fast forward 2015, this year, I have become a 'super fan' of podcasts. Although I’ve given many a try, I only listen to a very selected few, becoming a very loyal and committed listener. 

Whether the podcast is daily, weekly, or something in between -- all I can tell you is that I’ve listened to nearly all episodes of the ones I am about to share with you and always look forward to more. They provide me with so much value and I always come away with nugget(s) of wisdom. I rarely ever feel like I wasted my time.

Without further ‘ado, here are the top podcasts in my life right now (and which I would highly recommend):

Personal Finance

‘So Money’ Farnoosh Torabi

I've been a fan of Farnoosh ever since she had a show called “Bank of Mom and Dad” back in 2009. I then kind of followed her career and would watch her episodes on Yahoo! Finance where she hosted a series called “Financially Fit” (if I remember correctly).

She launched ‘So Money’ at the beginning of this year and I absolutely love the show. It comes on daily, Sunday-Monday (on weekends she answers questions from listeners). The guest she brings to the show are all entrepreneurs (about 80-90% of them) making an awesome living for themselves.

Although the questions to the guest are focused around the topic of personal finance, it also leaves room for them to talk about successes, failures, advise, and everything in between. The show is super inspirational {her very first guest was Tony Robbins!) I don’t know how else to explain it. I don’t miss an episode. Check it out. 


Motley Fool -- Market Foolery, Motley Fool Money, Industry Focus, Rule Breaker Investing

Is no surprise that I am a huge fan of the Motley Fool and have been for nearly a decade. I first came across The Fool via their articles on Yahoo! Finance and as soon as I discovered they had a podcast (circa 2011/2012 or so) I was hooked. 

My #1 go-to podcast has always been Market Foolery for quite some time now. What I like about the show is that they ‘digest’ daily events (Mon-Thurs) that happen in the world of individual stocks in simple and straight forward ways that anyone can understand. Anyone passionate about investing (or looking to learn) would love this show. 

Motley Fool Money is a similar version of Market Foolery but is a longer podcast (~50 mins or so) in addition to talking about current events from the whole week, they usually also have a ‘bonus’ interview with a guest. 

Industry Focus is a daily podcast and everyday they talk about a different industry – Financials, Energy, Health Care, Consumer Goods – my favorite episodes are usually financials and consumer goods. 

Finally, there is a brand new podcast they recently launched: Rule Breaker Investing with host Dave Gardner (one of the Fool founders). Have you ever wished you would have bought shares in Amazon, Apple, and  Google soon after they became publicly traded? Well, this is the podcast for you. It is quickly becoming a favorite. Talking about this awesome podcast wouldn’t do It justice. Please set aside 10-15 minutes of your time this weekend and listen for yourself.


Entrepreneur on Fire – John Lee Dumas

I came across this podcast at some point last summer when I was living in Washington, DC. I became a fan almost immediately. The show comes on daily and provides us with a daily dose of motivation. The host interviews very successful entrepreneurs (people making over 6 figures in very creative ways) and gets inside their heads to make them share all- pretty much no question is off limits. I love John's interviewing style and positive attitude with interviewers. He also takes the time to talk about his own experiences and opinions on various topics. 

He immediately asks guess HOW they make their money and is not afraid to get ‘intrusive’ (for lack of a better word). Gotta’ love it. This is yet another super inspirational podcast. Unless all ~900+ of his guest are lying about how they make a living, I have concluded that if all those people can do it, I am no exception.


And that’s all folks. Those are the podcasts I listen to regularly and I have to admit I have gotten and continue to get GREAT value from the content. They all cover topics I am passionate about –Investing and Entrepreneurship being at the top of the list.

Its been a while since I wanted to share this post with everyone. Glad I finally got around to doing so. I encourage you to download a few (or all) of the podcast, listen for yourself, and let me know what you think!

Have a healthy and productive weekend. 

Cheers to profits,

Wednesday, July 1, 2015

A Closer Look at a Watch List Stock: L Brands (NYSE: LB)

Some time ago I heard a saying that made absolutely perfect sense- when you enter in to a business you can be an employee, a consumer, or a part owner. When that business sells goods at considerably high price points (at least for the average consumer) and loyal customers still make the purchases without blinking, being a part owner becomes an extremely attractive proposition. 
L Brands has been on my watch list for about a year. I decided to dig deeper in to this company for more information and here is what I found. 
The Business
The name of this company may not look familiar at first glance but is actually the parent company of wildly popular retailers including Victoria Secret, PINK, Bath & Body Works, Henri Bendel, and La Senza (Canada-based Lingerie Company).

As specified in their annual report, the company's competitive advantage comes from:
-Strong brand recognition
-A very loyal customer base
-Frequent and innovative launches of products and apparel (including perfume, lingerie, sportswear, and other fashion items sold specifically at the Victoria Secret and PINK divisions).
As of January 2015; L Brands had a total of 2,685 stores including licensing agreements and franchises within the U.S and around the world.

Something that is very notable about this company is its management. CEO Leslie H. Wexner has actually been Chief Executive Officer of Victoria Secret since he founded the company in 1963 and has been chairman of the Board of Directors since 1975. Mr. Wexner is now 77 years of age. Next in tenure is also Chief Executive Officer and president, Sharen Turney, 58, who has held her position since July of 2006. This talks to the level of commitment at the helm and management that stays the course, tied to the success of the company and its continuous growth and success over time.
The most profitable segment in this company is Victoria Secret followed by Bath & Body Works.

Fiscal Year 2014
For full year 2014, the company achieved the following:
  • 1. Net sales of $11.454 Billion (an increase of $681 million in comparison to 2013)

  • 2. Comparative store sales across all stores in North America increased 4% year over year

  • 3. Operating Income increased from 16.2% in fiscal 2013 to 17.1% in 2014, this was as a result of growth across all segments

  • 4. Earnings per share increased by 15% to $3.50

  • 5. Capital expenditures of $715 million which included $553 million for opening new stores, remodeling, improving existing stores.
Specifically for the Victoria Secret division- Net sales increased $323 million to $7.207 billion. Comparable store sales increased 3%. Significant boost in net sales results include net sales increase of 6% within PINK stores as well as strong performance in core lingerie and sportswear driven apparel. Results were offset partially by a decrease in sales of beauty products due to exit of the makeup category.

Strategic Moves: Discontinuing make up line
In March of 2014; the company announced plans to discontinue the make-up line along with some low-selling categories within apparel. 
The goal of eliminating such divisions is to allow L Brands to zero-in to boosting sales of their more profitable businesses and products including swim and sports apparel, loungewear, and fragrances. As per CEO, Ms. Turney, those businesses together with the core lingerie business and Pink Brand are the fastest growing and most profitable categories within the company.
Despite the elimination of said categories, the Victoria Secret division still ended fiscal 2014 with net sales increase of 6% due to the performance of PINK, core lingerie, and sportswear- driven by a compelling assortment of merchandise that incorporated new and fashionable product offerings which succeeded in attracting consumers and hence, increasing same store sales. In store execution and improved operations also contributed to the results.
Valuation and Financials
L brands currently trades at 22.8x forward earnings with a 5 yr MA of 18.5x. Current P/E stands at 22.87. Compared to its closest competitors, L Brands may seem a bit on the pricier side. Below are valuation numbers for Gap Inc. (NYSE: GPS) and Hanes Brands Inc (NYSE: HBI)
Direct Competitor Comparison
Market Cap:
Operating Margin :
Net Income :
*Information adapted from data on Yahoo! Finance and Morningstar.
Important to keep in mind that companies like Victoria Secret's have a type of branding that is incredibly strong. Theoretically, in some consumer's mind- especially those of very loyal customers, there may not be an exact replacement or substitution. For Bath and Body works its closest competitor is The Body Shop, however, that company is not publicly traded.
As of January 31st 2015; L brands had about 1.6 billion of cash on hand and 4.7 billion of long term debt, majority of which are promissory notes at fixed interest rates, as per the annual report for fiscal 2014. Although debt may appear high, looking back year over year, debt has remained fairly consistent with no significant spikes, which is something to note. The company also specifies their capital expenditures are increasing as part of their strategies for expansion and growth (explained below).
Company has an annual dividend yield of 2.30% ($2.00 per share).

Strategies for Growth
Many probably ask themselves- can a company like L Brands with its multiple divisions maintain their strong branding position for many years to come? This is a valid question that all prospective and existing long term investors should in fact explore.
To answer some of investors questions in regards to long term profitability, L brands outlines clear and concise strategies for sustaining their popularity and continuous growth going forward. Plans of action include:
1. Growing the business in North America- Specifically for Victoria Secret, the plan for full fiscal 2015 is to increase square footage of stores in N.A by about of about 5% through expansions of existing stores and the opening of approximately 26 net new Victoria Secret stores (21 in U.S, 5 in Canada). For Bath & Body Works; the plan is to increase square footage of stores in N.A. by about 3% and the opening of 24 net new Bath & Body Works stores (14 in the U.S and 10 in Canada). Company is also making investments to improve e-commerce venues- which all stores have. The online channel for, specifically, continues to exhibit significant growth year over year.
2. Extending Core Brand Internationally- L Brands see a lot of opportunity at the international level and has actually assigned dedicated teams for the task which have taken a methodical "test and learn" approach to expansion outside of the U.S. International expansion began with the acquisition of La Senza back in 2007. L brands also continues to expand their partnering agreements with small-format stores around the world as well as at airports and other various locations. This allows for the exposure of the Victoria Secret name, and branding of most profitable segments, to continue strengthening worldwide.
3. Focus on the business fundamentals including efficient and disciplined management of inventory, expenses, and capital- The Company has dedicated strategic efforts to improving efficiency within operations all across the board and for all brands within its umbrella. Focusing on the fundamentals includes a special attention to the customer and their preferences, paying close attention to core merchandise categories, inventory management, speed and agility, and store selling and execution.

Final Thoughts {Would invest in this company?}
After taking a closer look at this company as an investor rather than a consumer, I do see some promising long term benefits of owning the stock.

I was just thinking about this-- a $350 shopping spree at this store (which is what a lot of people easily spend there) can buy approximately 3-4 shares at today's prices (currently trades at ~$85.87 per share). It may not sound like much but taking in to consideration stock price appreciation plus dividend reinvestment over time, this can be a nice addition to a portfolio.

I really like their strategic plans of action which includes expanding and strengthening the most popular brands at an international level. I also liked that the company identified less-profitable divisions and decided to eliminate them in order to focus in the parts of the company that make it profitable.
Going forward I'll be keeping an eye on continuous growth in same store sales and whether the increase in square footage and number of stores across the U.S is in fact profitable over time. I would zero in on sales, profits, and gross margins year over year. 
Another thing I am curious about is L Brands succession plans- CEO Wexner, which has been there from the beginning, is in his late 70s.

I am not ready to buy shares as of yet and would likely wait for a market pull back of sorts before I make the plunge. The price is about 10% under its 52-week high and, although the dividend yield is at a nice 2.30%, I am a little weary of the 97% dividend payout ratio and would like to look a bit more in to this.

It was very interesting to examine this company as an investor rather than a consumer and look forward to keeping an eye on developments.

If the company makes the plunge from my watch list in to my actual investment portfolio, I will be sure to you all informed.

What are your thoughts?

Thanks for reading and cheers to profits!

*I have no shares in any of the companies mentioned in this report. 

Wednesday, June 10, 2015

Recent Buy: Facebook (NASDAQ: FB)

One of my investing strategies, as discussed in my previous post, is to invest in companies that have a strong competitive advantage and very minimal (if any) competition within their respective industries. I also like to look at companies with a strong network effect. As per Investopedia:
"[network effect] a phenomenon whereby a good or service becomes more valuable when more people use it."

There is no doubt that Facebook (NASDAQ: FB) has become a phenomenon all around the world. I still remember when I was first introduced to Facebook in 2004 while still in college. I would have never guessed in my wildest dreams that the website would become as valuable as it has.  
When the company first introduced its IPO in May of 2012 I was very skeptical and decided to stay away. Despite the website's popularity, I was unable to see a clear picture of how exactly this "free website" would make money for investors. I failed to recognize (back then) the potential that came from driving revenue from advertisers, marketers, developers, and from the users themselves.
I took some time to do my own research and analysis and decided to start a small position in this company about a month ago. Below are some of the factors that I found most notable and promising and why I've become a shareholder.

I. Significant growth in revenue year over year
I'll start by talking about top line growth, or revenue, for the most recent quarter (first quarter of 2015), which came in at $3.54 billion, a very healthy 42%year over year increase in comparison to the $2.50 billion reported during first quarter 2014. Diving in to a more specific breakdown; revenue from advertising (which is Facebook's main driver of revenueincreased 46% year over year. Mobile advertising revenue (in simpler terms, revenue from people using Facebook from their smart phones) represented a staggering 73% of the total advertising revenue, an increase of 59% on a year over year basis.
The increase in revenue is not an outlier. Facebook has been reporting healthy revenue increases year over year since becoming publicly traded:

QuarterRevenueYear over Year Increase
Second Quarter 20121.18 Billion32%
Second Quarter 20131.25 Billion53%
Second Quarter 20142.91 Billion61%
First Quarter 20153.54 Billion42%
*Data obtained from FB investor relations website, financial press releases.

II. Exciting uphill trends in Facebook's Daily & Monthly Active Users
If you were wondering whether the above noted data makes any sense; it may be good to look in to how daily active users coming from mobile are increasing quarter after quarter. Facebook reported that DAU (number of people using Facebook daily) increase by 17% year over year to 936 million people. Monthly active users increased 13% year over year to 1.4 billion.

When we look at mobile active users is when things really get interesting. If you take a closer look at FB quarterly reports, you may notice the company didn't officially start reporting number of Mobile Daily Active Users until 2nd quarter 2014 (the metric was originally embedded within daily active users numbers and reported on a monthly basis). I can only deduct that this metric has become too important to ignore and thus, it has earned its own special category in Facebook's earnings reports.
For first quarter 2015; Mobile daily active users came in at 798 million on average, an increase of 31% year over year. Mobile monthly active users came in at 1.25 billion, also increasing by 24% on a year over year basis.

III. The Future of Mobile: Why is growth in Mobile revenue important?
A 2013 study by International Data Corporation (IDC), found that 79% of the population keeps their smartphone at arms length for about 22 hours per day. The data shows that eventually, about one out of four people will have their phones at arms length 100% of the time. In terms of what are exactly people doing with their phones- 16% of the time is spent on phone calls while 84% is spent on other activities including browsing the web, email, social applications, watching videos or playing games.
The same study showed that after checking their email, people spent most of their time on their Facebook application. As per the IDC, while 78% of the time is spent on email, 70% is spent on Facebook for those people with a smartphone.
It is expected that by 2018; mobile data traffic will increase at an annual growth rate of 61%.

IV. The Future of Marketing and Advertising
The marketing budget of mayor corporations allocates only a very small percentage to Facebook advertising representing tremendous amount of opportunity for further revenue growth as companies catch up to rapidly changing times in advertising techniques that may be more efficient, strategic and may provide a more significant return on investment.
research study conducted by Mondo entitled: "The Future of Digital Marketing", released in January of this year, showed that 80% of companies plan to increase their digital marketing budgets within the subsequent 12-18 months. The demand for hiring the best talent within this niche is reinforced by the findings which indicated that the top skills companies are looking to hire for this year includes digital/social (54%), content creation (44%), big data/analytics (33%) and mobile strategy (30%). The way things are moving in this industry, I can only see these number continue to ascend in the years going forward.

V. Other factors to consider

  • Where is the Money going? Research & Development
The hefty increase in cost and expenses reported by the company in the most recent quarter may scare many. There is no denying that Facebook competes within a fiercely competitive technology industry and it's ability to maintain its competitive advantage significantly depends in it remaining relevant and innovative. Hence, it should come to no surprise that the company spends heavily in hiring talent that is able to develop new products and/or maintain an infrastructure that is constantly providing value for the customers Facebook serves including users, marketers and developers.
The company reported a 88% increase in R&D expenses year over year from 2013 to 2014. Same was attributed to the following: "The increase was primarily due to an increase of $724 million in share-based compensation expense compared to 2013, and an increase in other payroll and benefits expense resulting from a 48% growth in employee headcount from December 31, 2013 to December 31, 2014 in engineering and other technical functions. Share-based compensation expense also increased due to the acquisitions we completed in 2014."
Facebook relies heavily in human capital and thus, these type of expenses do not scare me and should not deter you either. Without solid talent, the company would be unlikely to continue growing to its utmost potential.

  • Valuation
The stock's current valuation may come across as too rich for many. Company trades at a P/E of 80x earnings, forward P/E of 32.4x earnings and the stock price is at about 4% from its 52-week high. For comparison purposes, the S&P 500 current P/E is at a ballpark of 18.5x earnings. In terms of companies in a 'similar' industry (because, lets face it, there is really nothing like Facebook) Google's (NASDAQ: GOOG/GOOGL) currently trades with P/E of 26.5X earnings and forward P/E of 16.5.

Final thoughts 
Based on extensive amount of research, it is my opinion that Facebook presents solid upwards potential, especially for long term investors. The company is well positioned when it comes to mobile usage and what they can offer advertisers. The face of marketing is changing drastically and when corporations fully catch up, Facebook will be there to benefit.
Although the company's costs are increasing rapidly, the continuous strategic investments in research and development is something that is indispensable to ensure the company remains competitive, continues to grow, and remains a leader within its industry.
As with any company, no success is ever guaranteed and no one has a crystal ball about what the future may bring. I'll continue keeping an eye on trends including daily active users across the board, revenue growth, and how the company spends their money- either through strategic acquisitions and/or continuous improvement of the company's infrastructure to better serve all different segments in which Facebook is involved. As long as my original thesis for this company stays the same, I may continue adding to my position during pull back and/or market corrections.

Tell me, what are YOUR thoughts on Facebook as an investment?


Disclosure: LONG on FB, GOOG/GOOGL
*Never invest or cease to invest based solely on the information provided on this blog. 

Friday, June 5, 2015

How to find profitable companies: My Personal Strategy for Picking Stocks

I have always believed that investing is very personal. We each have our own individual strategies that work for us and with which we feel comfortable. Some people thrive with trading and truly enjoy the process of looking at charts, buying and selling stocks all day, with no attachment whatsoever.

Others (like myself) actually enjoy the idea of being a "part owner" of a company for a while and benefiting from that through dividends and stock price appreciation over time.

I recall a very intelligent finance professor I had in graduate school whom shared with the class that he could never be a long term investor. He said the longest he has ever held a stock in in his life was about 2 weeks and he lost so much money he went back to trading, which is something he is good at.

As you can see-- whether you are a long term or short term investor, someone just starting out, a college professor, or anything in between; what is important is to know yourself and your risk tolerance. I explained in a past post why I prefer long term investing over trading (check it out here if you missed it).

So anyways, the other day I took a close look at my portfolios and realized that nearly every single company in which I have shares (specially those stocks with the highest return on investment) have very specific factors in common. I decided to share them here and see whether we all agree or disagree on said factors. 

Also, would love to learn more about other people's strategies when it comes to choosing stocks (for the long term or short term) and what works for others. 

Here's what I look at when choosing 'winning' stocks (with some examples):

1. Leadership position within the company's respective industry (I.e:. largest market share and/or highest level of popularity/following among consumers).

For instance, Apple (AAPL) V. Android. Have you ever witnessed hundreds or thousands of people making a line weeks in advance for an Android phone? How about for an Apple devise? This is what's ironic- Android has the highest market share in hand held devices worldwide V. IOs, by a substantial amount. According to a study by the International Data Corporation published in August 2014; Apple's market share for the iOS is a mere 11.7% while android's market share is an staggering 84.7%.  

How is it that Apple (iOS) system is more popular and more profitable?The market share situation is offset in part due to the fact that Apple's products are a lot more expensive than Android. The combination of their pricing power and brand is so strong, that most individuals have no problem paying a premium for Apple and this is why it's become one of the most powerful companies and brands in the world-  "Apple charges much more for its phones than Android's maker's do, and takes a huge profit of the world's smartphone profits by doing so. Apple doesn't actually want buyers who seek the cheapest, least-profitable phones. And its customers tend not to want Android products". Source

2. Clear, specified plans on how the company will maintain their competitive advantage through ongoing innovation, growth, and further developments.

Google (GOOG), for instance, is a company that has been "morphing" slowly but surely over time. Although it remains the king of advertising, this is something that is slowly changing due to competition. Nonetheless, Google has very exciting and clear plans on how they will continue innovating the world and this is demonstrated each and every time they launch a new project to the public. New developments and upcoming launches were announced in their most recent I/O conference.

3. Several years of existence in their industry (sometimes centuries) and the ability to adapt in changing times. Companies like Johnson & Johnson (JNJ) fall in to this category. This is a company with a portfolio of hygiene and health care products that has gained the trust of consumer and is a trend that has continued generation after generation. The company has been around for 120 years and counting. 

4. Very little competition, if any- Disney (DIS), for instance, I see as a stand alone company with a very unique positioning in terms of the industries where it competes. A couple of other companies in this category include Visa (V) and Mastercard (MA), these companies have a semi-duopoly when it comes to the payment processing industry.

5. Companies that sell products of provide services that people need regardless of what may be going on in the economy or in the world.

Whether or not the world or the economy may be falling apart, we all need to brush our teeth, wash our face, wash our hair. Companies like Colgate (CL) and Procter & Gamble (PG), just to name a couple, are the type of long term investments that can help us hedge against downturns in the economy

6. Healthy financial statements (including minimal debt, if any, top line and bottom line growth year over year through a good amount of time). A good rule of thumb question to look in to- How did this company perform during the financial crisis?

7. Company pays dividends- I am a huge advocate for dividends. Dividends are awesome for obvious reasons-- not only can you benefit from stock price appreciation but the company also pays you ever 3 months for holding shares. Doesn't get any better than that. I would say about 80% of the companies in my portfolio and those I manage pay dividends.

8. The leadership, management, and company's culture- I strongly believe the management team is just as important as anything else when it comes to evaluating a company. I sometimes look at factors on whether or not the founders of the company are still part of the board, how long management has been in place, the compensation package for CEO and executive board (you can find that by reading the proxy statement of any company), age of the CEO and its commitment to the company, are benefits packages tied to company's performance or irrelevant? these are just some of the factors that may be important to look in to simply to ensure that the people leading the company are equally (or more)  invested in the company's long term success as the shareholders. 

My Thoughts on Valuation: This is a more advanced topic which I will discuss in an upcoming post as I'd like to explain the basics to my investing 101 followers before I get in to more technical information. Nonetheless, my general opinion on valuation is that it is not the end all be all when it comes to choosing stocks and sometimes valuation numbers take a back seat when it comes to exploring the true value of a possible investment. For instance, if investors would have focused on valuation when companies like Amazon (AMZN) first came out, they would have missed out on the fact that the stock price has ascended over 1,000% since its IPO. Why? because there was nothing like Amazon when it first entered the market and so, 'skepticism', about future prospects yet a promising hope for the tech giant caused valuation to scare away many. This great post by NYU professor Damodaran provides some additional insights on the topic. 

Now, let this simmer in for a while-- had you invested $1,000 in AMZN back in 1996, you would have about $247,540 sitting in your portfolio today. Hence, although valuation is important, investors should be careful in letting it determine whether or not they invest on something and it depends highly on the type of company and industry we may be analyzing. 

And that's all folks! Keep in mind that the above noted points are not the end all be all in terms of metrics to look at when investing in a company. Every company is different and things can change drastically forcing us to look at other important factors. It is important to be flexible and adjust. However, these are some of the factors I look at and what has worked for me personally.

Tell me, What is your investing strategy? what factors are important to YOU?

Thanks for reading & Cheers to profits!


Disclosure: I am long on AAPL, GOOG/GOOGL, CL, PG, MA, V, DIS, JNJ.
Do not invest or cease to invest solely based on the information in this post. 

Tuesday, May 19, 2015

Recent Buy: Activision Blizzard (Nasdaq: ATVI)

I would say that until about a year ago, I often pictured gaming as an activity dominated by millennial males spending their days and/or nights staring at the their television screen, remote control in hand, fully escaping reality. However, after further observation, I have come to the conclusion that gaming actually takes on different forms covering a wide range of demographics. 
I am not a gamer by any means and to be quite honest, the way in which some people choose to spend every waking moment of their day playing games can be quite concerning. Isn't there more to life? Nonetheless, instead of judging others for how they choose to spend their time here on earth, I realized that perhaps I should just consider investing in this phenomenon, and so that's exactly what I've done.
The Gaming Industry
According to a recent study conducted by PWC on global entertainment and media,  revenue within Global mobile games is forecast to reach US $15 billion by year 2018. Rising at a compounded annual growth rate (CAGR) of 9.6% Key markets for this growth are currently the U.S, China, and Japan. The rapid increase in the ownership of smartphone is playing a pivotal role when it comes to increasing access to mobile games globally.
New innovations and developments within the console game industry, is expected to renew and strengthen the customer interest in this area. Global console game revenue is expected to reach US $31.9 billion in 2018, a CAGR of 4.9%. Digital is also set to experience solid growth- it is estimated that by 2018, digital will account for 37% of global console game revenue. An increase of 23% in comparison to 2013. 
The Company: Activision Blizzard
The business of Activision Blizzard (NASDAQ: ATVI) includes but is not limited to-developing and publishing games worldwide for video game consoles, mobile phones, hand held devices, personal computers (PCs), and tablets. The products are developed and published through retail channels or digital downloads and downloadable content to a range of gamers. It also publishes online subscription-based games in the MMORPG category (Massively Multi-player Online Role-Playing Game) as well as real-time strategy and role-playing games.

Most popular games owned by Activision Blizzard include: Call of Duty, Destiny, Skylanders, Guitar Hero, World of WarCraft, Diablo, HearthStone, and StarCraft.
First Quarter 2015 Results
On May 6th, 2015 the company reported earnings for first quarter of year ending March 31st 2015. The company reported quite strong year over year increases in almost every metric including the following:
  • Comprehensive net revenue (GAAP) of $1.28 Billion V. $1.11 billion reported during first quarter 2014.
  • Net revenue from digital channels (GAAP) came in at $581 million- a record result, and represented 45% of the company's total revenue for first quarter 2015. During first quarter 2014, GAAP net revenue from digital channels represented 36% of company's total revenue.
  • GAAP Earnings per Share reached a record $0.53, a 32.5% increase from the $0.40 reported during first quarter 2014.
  • As reported by CEO Bobby Kotick, for the last 12 months ending March 31st, 2015, the company has reached a user base of over 150 million users around the world, hours played increased by 12 billion, and company recorded 25%+ growth within the Activision Blizzard gamers community.
  • Another great accomplishment for the quarter was being named as one of the 100 best companies to work for in 2015 by Fortune Magazine.
  • Revenue outlook for year 2015 was increased to $4.425 billion, and earnings per share to $1.20.

Reported highlights for most popular games and divisions:
  • Destiny & Hearth Stones- Heroes of WarCraft: 50 million registered players as of quarter ending March 31st, 2015. This specific division has added nearly $1 billion in non-GAAP revenue from time of inception.
  • World of WarCraft expected declines: The Company did acknowledge that as expected, subscription for World of WarCraft now has 7.1 million subscribers (a 6.57% decrease from the 7.6 million subscribers the game had at end of first quarter 2014). However, the game still remains the number 1 subscription based MMORPG in the world.
  • Call of Duty- Advanced Warfare: This remains the number one title since its launch (six months, at time of reporting). Skylander- also the #1 console franchise and title globally during first quarter of 2015, the number one kids console franchise title globally.

*In January of this year, Call of Duty Online opened Beta in China, the world's largest gaming market. The beta is being done in partnership with Tencent (OTC: OTCPK:TCEHY). This represents a huge opportunity as ATVI continues efforts to expand around the world. 
  • Blizzard Entertainment: During first quarter of 2015, this entity reached the largest player community in its history, up a double digit percentage year to date despite no major launches during the quarter.

It can be argued that the company is not cheap. Five year MA P/E is 27.6, while current P/E stands at 19.8. However, when I look at valuation numbers I also take a look at a company's prospects for ongoing growth and expansion within their respective industry. I often find that a high valuation can be a signs of a company that is in the middle of an aggressive growth phase and numbers should justify themselves over time. 
Not only does ATVI have a portfolio of games that are leaders around the world, but is also looking to enter markets with massive potential, such as China, as mentioned. If the beta turns out successful, the company's ability to reach more customers can be immense. Same situation applies as they look to enter additional untapped markets.
As of the date of this post, the stock trades at $25.47 per share and pays an annual dividend of 0.90%, or $0.23 per share.
Final Thoughts
I started a small position in the stock about 3 weeks ago and is already up over 2%. As a long term investor, I plan to hold my shares indefinitely and keeping a close eye on the following:
  • Company continues to grow internationally and continues to maintain leadership status within the gaming industry (keeping an eye in developments within the China market and beyond).
  • Performance of leader games such as Call of Duty, and Guitar Hero (which recently made a revamped return), and new developments continue strong in terms of revenue growth and margins. In the case of World of WarCraft, I'd like to see what strategy(ies) the company implements to make up for the loss of subscribers.
  • Keeping a close eye on overall year over year metrics where it comes to income, revenue, margins, debt, growth, and ongoing plans to remain competitive within a competitive industry.

Thank you for reading.
Tell me, are you a fan of games? Which other stocks within the gaming industry do you feel are also worth a look?