Facebook - Another PR Disaster

Another Public Relations Disaster

The recent internal allegation against Facebook (FB) is not the company’s first public relations debacle, nor will it be the last. Facebook has a long history of public relations fiascos with Cambridge Analytica, widespread advertising boycott, various data breaches, and the most recent issues exposing internal memos that allege the company put profits before safety on its platforms. The stock has been battered and bruised, falling from $384 to $325 after these bombshell allegations and testimony on capital hill. The stock is now down 15% from its 52-week high heading into earnings. This double-digit decline places Facebook in inexpensive valuation territory relative to its technology peers, one of the cheapest high-growth stocks. Let’s not be remiss here and acknowledge the fact that these public relations issues can linger for long periods, and the regulatory implications may be significant. However, Facebook’s valuation is very appealing at this juncture.

Social Media Goliath

Facebook continues to demonstrate its ever-expanding and massive moat in the social media space. Facebook’s core social media platform, in combination with its other properties such as Instagram and WhatsApp, continues to grow while expanding margins and unlocking revenue verticals. Despite being faced with several public relations challenges over the past couple of years (i.e., Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, anti-competitive testimonies, and the recent internal release of sensitive information suggesting profits supersede safety), Facebook has triumphed to all-times after each event. Facebook had to contend with scaled back advertising spending amid the COVID-19 pandemic in conjunction with the public relations issues. Facebook continues to grow across all business segments, with its user base continuing to expand slowly. Facebook’s moat is undeniable, and any meaningful sell-off like the recent public relations-induced weakness could provide an entry point for the long-term investor. The stock is off 15% from its all-time highs, and the stock is inexpensive relative to its technology cohort. Continue reading "Facebook - Another PR Disaster"

American Express: A Compelling Buy

American Express (AXP) blurs the line between a traditional credit card company and effecting traditional banking services such as personal and business loans and savings accounts. This business model blend makes American Express a dual-threat as it can ride the wave of improved consumer spending coming out of the pandemic as witnessed by its blow-out second-quarter earnings and rising interest rates as the Federal Reserve steps off its accommodative easing policies. American Express has recently dropped over 10% from its 52-week high after target price hikes and upgrades across a broad range of analysts. Couple this with inexpensive valuation metrics, and the fundamental and technical investment case comes together nicely. American Express sits in the sweet spot of an improved consumer and a potential rising interest rate environment.

Latest Earnings and Growth

The recent earnings report by American Express demonstrated its strength and potential growth moving forward as the pandemic continues to subside. Analysts across the board upgraded the stock and increased the price targets because of these stellar earnings. Earnings blew past analysts' estimates, driven by a recovery in global consumer spending, specifically on travel. Consumer spending logged double-digit growth in the second quarter. The U.S. consumer has "rocketed ahead on travel," per CFO Jeff Campbell, with spending related to travel and entertainment on its cards within the United States reaching 98% of pre-pandemic levels. On global travel and entertainment spending, he said it had recovered to nearly 70% of 2019 levels, two quarters earlier than previously expected. Strong demand for premium, fee-based products helped drive the addition of U.S. Platinum card members to record levels, per CEO Stephen Squeri. The company sold 2.4 million new proprietary cards in the quarter, while spending on goods and services on its cards grew 16% on a currency-adjusted basis. Net income rose to $2.28 billion, or $2.80 per share, for the quarter ended June 30 from $257 million, or 29 cents per share, a year earlier. Analysts had expected $1.67 per share, according to Refinitiv IBES data. Excluding interest expense, American Express’ total revenue rose 33% to around $10.24 billion. Continue reading "American Express: A Compelling Buy"

Facebook Is Inexpensive

Facebook (FB) continues to demonstrate its ever-expanding and massive moat in the social media space. Facebook’s core social media platform, in combination with its other properties such as Instagram and WhatsApp, continue to grow while expanding margins and unlocking revenue verticals. Despite being faced with several public relations challenges over the past couple of years (i.e., Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, and anti-competitive testimonies), Facebook has triumphed to all-times as of late. Facebook had to contend with scaled back advertising spending amid the COVID-19 pandemic in conjunction with the public relation issues. Facebook continues to grow across all business segments, with its user base continuing to expand slowly. Facebook’s moat is undeniable, and any meaningful sell-off like the recent Fed-induced systemic weakness could provide an entry point for the long-term investor. Although near all-time highs, Facebook is inexpensive relative to its technology cohort.

Advertising Boycotts Falter

Facebook faced a very public onslaught of companies joining an advertising boycott across its social media platforms. However, its latest earnings reports suggest that this effort may have been largely symbolic and effectively inconsequential to its revenue and growth numbers. The advertising boycott had grown to roughly a thousand groups and multinational companies. This presented a unique challenge in which the company remediated and diverted more spending to compliance/security aspects which had already swelled post-Cambridge Analytica, and other platform vulnerabilities were exposed. The magnitude of this boycott seems to have been an inconsequential influence on the stock price. This public relations challenge was managed and posed minimal risk to the company’s valuation moving forward. Continue reading "Facebook Is Inexpensive"

Tug-of-War: Disney Streaming vs. COVID-19

Clearly, COVID-19 has been very damaging with an unquantifiable impact across Disney’s (DIS) business segments. Disney has had to shutter all of its worldwide Parks and Resorts. ESPN has been hit with the cancellation of virtually all sports worldwide. Advertising revenue coming through its media properties has been hit as companies scale back ad spending. All of its movie studio productions have been halted, and movie releases postponed. Despite these headwinds, Disney’s streaming initiatives have been major growth catalysts for the company. Disney+ has racked up over 50 million paid subscribers in just five months, Hulu has 30 million paid subscribers, and ESPN+ has 7.9 million paid subscribers. Disney+ has been wildly successful via unleashing all of its content (Marvel, Star Wars, Disney, and Pixar) in what has become a formidable competitor in the ever-expanding streaming wars domestically and internationally. Hence the tug-of-war on Wall Street between the COVID-19 induced negative impact and the success of its streaming initiatives in terms of valuation. The stock is selling at a steep discount of ~30% from its highs of $151 per share. At these reduced COVID-19 levels, Disney is a compelling buy as its legacy business segments get back on track in conjunction with these successful streaming initiatives.

COVID-19 Perspective

As economies around the world reopen and certainty washes over the COVID-19 landscape, Disney’s business segments will regain their health. Parks will reopen as seen with Disney Shanghai, movie productions will resume, movie theaters and resorts will reopen, and sports will inevitably play-on. The resumption of all of these activities will feed into Disney’s legacy businesses. Disney continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Parks and Resorts continue to be a growth avenue with tremendous pricing power. Disney is going all-in on the streaming front and acquired full ownership of Hulu, and the company is launched its Disney branded streaming service with great success. I feel Continue reading "Tug-of-War: Disney Streaming vs. COVID-19"

Disney Delivers 26.5M Disney+ Subscribers

Disney (DIS) just delivered a stellar quarter beating on both the top and bottom lines while continuing to roll out its growth initiatives via streaming. Disney’s growth rotation is still in the early stages with the remediation of its ESPN property and flurry of growth initiatives to meet the demands of the modern-day media consumption trends. In the backdrop, the company continues to dominate the box office year after year with a long pipeline of blockbusters in the queue. Additionally, its Parks and Resorts continue to be a growth avenue with tremendous pricing power albeit the coronavirus will damper its Shanghai and Hong Kong operations. Disney is going all-in on the streaming front and acquired full ownership of Hulu and the company is launched its Disney branded streaming service. Disney Plus launched on November 12th with all of its content (Marvel, Star Wars, Disney and Pixar) which will be a formidable competitor in the ever-expanding streaming wars both domestically and internationally. As a result of its strong Q1 numbers, Disney has hit near all-time highs of ~$150 per share. I’ve been behind Disney for a long time, especially through this transition back to growth when the stock traded below $100 and I still feel that the company offers a compelling long-term investment opportunity given its growth catalysts that will continue to bear fruit over the coming years.

Disney Plus, Hulu, ESPN Plus and Q4 Earnings

Disney’s Q1 earnings easily beat analysts’ expectations with strong gains in its streaming platforms such as ESPN Plus, Hulu and Disney Plus. Disney beat on both the top-line revenue and bottom-line profit. EPS came in at $1.53, beating by $0.09 per share and revenue came in at $20.86 billion, beating by $50 million. Revenue grew by 36% year-over-year and for the fiscal year.
Disney Plus subscribers came in at 26.5 million, well ahead of expectations that were ~20 million. ESPN Plus subscribers came in at 6.6 million and Hulu subscribers came in at 30.4 million. Hulu saw a 33% year-over-year growth in subscribers.

Disney’s business across the board came in strong, posting growth in every category. Continue reading "Disney Delivers 26.5M Disney+ Subscribers"