by Todd Shaver | Dec 18, 2017 | 1pm News Flash
Synaptics
(SYNA - $41)
Company Description: Synaptics is the leading worldwide developer and supplier of custom-designed human interface semiconductor product solutions that enable people to interact more easily and intuitively with a wide variety of mobile computing, communications, entertainment, and other electronic devices. Synaptics currently generates revenue from the markets for smartphones, tablets, personal computer products, primarily notebook computers, and other select electronic devices, including devices in automobiles, with customized human interface solutions. Every solution Synaptics delivers either contains or consists of touch-, display driver- or fingerprint authentication-based semiconductor solutions, which includes chip, customer-specific firmware, and software.
The Big Opportunity: The Internet of Things (IoT) is the biggest thing happening in all of Tech. First, we had notebook PCs getting everybody connected, and then came the smartphone. Now, we are moving towards all things being connected to the internet, such as your car, your refrigerator, your thermostat, and so on. This means there are boundless opportunities for Synaptics to deliver solutions for all of the Consumer IoT related devices. The numbers are staggering. The company is working with major brands like Amazon, Microsoft, Sony, Dish, Google, LG, Lenovo, Panasonic, Toshiba, and Fujitsu, to name a few. The company already has #1 market share in the following areas, display processing for virtual reality, notebook PC touchpad, mobile, and imaging for fax.
Operations: Synaptics’ intellectual property portfolio, engineering know-how, systems engineering experience, technological expertise, and experience in providing human interface product solutions to major OEMs of electronic devices position the company to be a key technological enabler for multiple consumer electronic devices targeted to meet the growing mobile product applications markets, which include all discrete touch controller products, display driver products, touch and display driver integration products, and fingerprint authentication-based products. Based on these strengths, Synaptics is pursuing opportunities created by the growth of mobile computing communications, mobile product applications, and entertainment devices. Mobile product applications include smartphones, tablets, large touchscreen applications, as well as a variety of mobile, handheld, wireless, and entertainment devices.
Synaptics’ array of human interface product solutions for mobile product applications are designed to enrich the interface on smartphones, tablets, and peripherals, allowing the user to access their devices or applications through fingerprint recognition, to view the screen on their devices, and to more easily use or navigate complex menu systems on their devices. Synaptics’ believes its existing technologies, range of product solutions, and emphasis on ease of use, small size, low power consumption, advanced functionality, secure access, durability, reliability, and simplified security enable the company to serve multiple aspects of the markets for mobile product applications and other electronic devices.
Industry Outlook: Industry projections for the smartphone market for the 2017-2018 show a growth rate of approximately 5%, reflecting the trend towards greater functionality in smartphone products to meet and address the expanded needs and expectations of the consumer-oriented market. These products require a simple, durable, and intuitive human interface product solution to access their device or application, including authenticating the user through fingerprint recognition, and enabling the user to view and navigate efficiently through menus and scrolling through information contained in the host device.
Recent Financial Trends: In the first quarter, the company completed two major acquisitions during the period, as the entry into the fast growing consumer IoT market is off to a strong start. Contributions from this new platform are expected to approach a quarter of Synaptics' total revenue in the coming quarter, while also driving increased customer diversification over time. The company continues to execute well across multiple product platforms and remains on track to deliver on key milestones for the mobile market. Considering backlog of $340 million entering the December quarter, subsequent bookings, customer forecasts and product sell-in, and the resulting expected product mix, the company anticipates revenue for the second quarter of fiscal 2018 (which is the last quarter of this calendar year) to be in the range of $410 to $450 million. The revenue mix from mobile, consumer IoT and PC products is to be approximately 62%, 24% and 14%, respectively. Cash at September 30th was $200 million. In the first quarter of fiscal 2018, the company used $400 million for acquisitions and about $100 million to repurchase 1.7 million shares of its common stock, partially offset by net debt proceeds of $300 million and $40 million of cash from operations. Debt stands at $400 million so the mix of cash and debt is good.
BMR Take: We like this company because (i) the more large touch screen devices that get sold in the technology sector the more revenue Synaptics will make; (ii) the fingerprint sensor business is booming but essentially just getting started and Synaptics is a key player; and (iii) the company’s operations are only just beginning to penetrate opportunities like geographic expansion in China and product expansion in the touch-enabled notebook market.
We see this company as a turnaround situation. The past three years have seen flat revenues and declining earnings. Revenues have been flat at $1.7 billion these past three years, with earnings declining from $3.20 per share in 2015, $2.10 per share in 2016 and $1.45 this year, ended June 30th. Some say that $4 per share is a possibility for the June 30th, 2018 fiscal year. We aren’t convinced yet, but we like the story and the changes the company is making, so we are adding this company to our Special Opportunities Portfolio.
The top line is on track for $1.8 to $2.0 billion next year on modest single digit growth. But the growth is just beginning and we want to get into this stock before the rest of the Street finds out about it. The high for the past year was $64 with a peak in 2015 of $100. We are placing our Target at $54 and a Sell Price of $35.
by Todd Shaver | Nov 30, 2017 | 1pm News Flash
Square (SQ: $40) has taken it on the chin lately. After hitting $49 late last week, it got smoked the first two days of this week. With revenues reaching about $2.3 billion this year up from $1.7 billion, the PS ratio (price to sales) is a still high 7, but not outlandish. And every quarter that goes by this number comes down as this growth continues.
With that said, Square is one of the first firms to announce that they are embracing the new world of bitcoin and cryptocurrencies. This gave the stock a bit of juice early last week, and then the naysayers spoke up (including crazy Jim Cramer) and the stock got hit as noted above.
The company created a buzz with a trial that enables some users of the Square Cash app to buy and sell bitcoin, but this may be too risky for investors to stomach, argued an analyst from BTIG (who?), who downgraded the stock to a sell on Monday.
We view this new entry into cryptocurrencies as a trial balloon and if it works great, but if it doesn’t their core business will continue to grow. It’s like Abraham Lincoln, who failed eight times running for public office until he was finally elected President. You have to keep trying. But we wouldn’t add much weight to this discussion at this point. Let’s just wait and see. We are still big believers with this young company that continues to grow at 30%+ per year rates.
Note that at its current price of $40 it is where it was two weeks ago when it hit an all-time high of $40, so this little blip of the last two weeks is essentially nothing in the whole scheme of things.
by Todd Shaver | Nov 17, 2017 | 1pm News Flash
November 17, 2017
Splunk (SPLK: $81,up 17%) had a strong third quarter of fiscal 2018 that saw its shares surge, with profit and revenue increasing year-over-year. The software developer reported earnings of 17 cents per share, which beat Wall Street’s consensus estimate of 14 cents. A year ago, the company earned 12 cents per share on an adjusted basis.
Splunk had solid revenues of $329 million for the period, rising 34% from $245 million in the year-ago period. Analysts were projecting revenue of $309 million. The company said it added more than 450 new enterprise customers, while total billings were $382 million, surging 38% year-over-year.
For its fourth quarter of fiscal 2018, revenue is looking to be $390 million, compared to Wall Street guidance of $383 million. Total revenue in fiscal 2019 will be approximately $1.55 billion, which is in line with analysts’ forecast.
BMR Take: All in all, a great quarter. The market loves it with the stock up huge today, reaching an almost 4-year high.
by Todd Shaver | Oct 31, 2017 | 1pm News Flash
Shopify (SHOP: $98, down 11) today posted a better-than-expected jump in revenue and improved outlook, but its shares fell as investors digested its response to a short-seller's attack.
Revenue jumped 72% as it reported adjusted profit for the first time as a public company and raised its fourth-quarter forecasts. Revenue was $171 million, above expectations for sales of $166 million. The company earned 5 cents a share, its first ever-operating profit as a public company and beating third-quarter estimates. Shopify expects revenue of $207 million this quarter.
The stock has been shorted heavily by Andrew Left of Citron. Founder and Chief Executive Officer Tobi Lutke said Shopify's external legal counsel had dismissed Left's claims as "preposterous."
Shopify said it signed up another 60,000 new merchants in the three months to Sept. 30, adding to the more than 500,000 existing customers who use its commerce software.
Shopify mostly serves small and medium-sized businesses with services including payment processing, inventory management and shipping solutions. It also is building a higher-end service for larger customers.
BMR Take: Revenues will win out in the end. Revenues will win out in the end. Revenues will win out in the end. 72% revenue growth in the quarter. 560,000+ customers love this company. A year from now we’ll look back at Andrew Left’s huge losses on his short position, and on your own big profits in the stock.
by Todd Shaver | Oct 17, 2017 | 1pm News Flash
October 17, 2017
PayPal (PYPL: $67, $80 billion market cap) and American Express ($92, $81 billion market cap) are running together in the market cap race of the new age. This is a fight between new age vs. old age. Haha. Both are at all-time highs, with PayPal at $69 set in October, and American Express at $93 set in 2014.
We aren’t gamblers, but we have our money on PayPal. After all, PayPal was at $40 in January.
And here’s some good news: Venmo users can now shop online anywhere PayPal is accepted in the U.S.
PayPal announced its mobile payments service Venmo is now available at over 2 million online U.S retailers, allowing Venmo users to shop on the mobile web at almost everywhere PayPal is accepted today. This includes popular retailers like Lululemon, Forever21 and Foot Locker via the mobile web, the company says.
As with PayPal, eligible purchases bought using Venmo online will qualify for purchase protection, too. For example, consumers can request a full refund if they don't receive an item or if it's significantly different than described. [This is big news.]
“Offering a way to pay at millions of retailers is a major step in the evolution of Venmo,” said the Chief Operating Officer of PayPal, in a statement. “Our vision for Venmo is to not only be the go-to app for payments between friends, but also a ubiquitous digital wallet that helps consumers spend wherever and however they want to pay, regardless of device,” he added.
BMR Take: This is big news. You may have never heard of Venmo, but ask any 30-something. That’s all they use. Adding 2 million retailers to the list of companies accepting this payment method is a big deal in our book. We think this is just the tip of the iceberg for this great company and expect bigger and better things in the coming years. We added the stock at $31 early last year and our Target Price has been $66 for a while but with the stock at $67 it is time to take the next step on this fantastic ladder of growth. We hereby raise our Target to $77. We are leaving our Sell Price the same at: We would not sell PayPal.
by Todd Shaver | Aug 17, 2017 | 1pm News Flash
An Update on a Few of Our Stocks
Rough day out there as we write this. Dow down 140 and the S&P 500 down 20 or 0.8%.
Nutanix (NTNX: $22.40) is having a good day. It’s at the top today of all of the stocks we follow, up 3%. Just think what a good day it would be having if the market were up 140 points instead of down 140. This stock is a winner that just hasn’t been realized yet. But note that if it had been discovered, the stock would be at $40 or higher where is ought to be.
Firsthand Technology Value Fund has disclosed that Nutanix is one of its top five positions. The fund is a small fund - $140 million – but they have put 7% of the entire fund into Nutanix. That’s $10 million.
Nutanix is a provider of hyperconverged data center equipment that merges computing, storage, and networking capabilities in a single piece of equipment. More businesses are looking to adapt the technology, with 18% of chief information officers saying they expect to move to hyperconverged systems in the next two years, according to a survey by Goldman Sachs. Goldman added the stock to their conviction list, saying it has an estimated 50% return potential to their $31 price target.
Last quarter Nutanix said it gained 800 new customers, with 20 global companies buying more than $1 million in hardware or software. The larger deals helped push overall sales growth to 67%. The company got some big name wins in the quarter, including corporate giants such as Caterpillar, Kyocera, Société Générale and Sprint. One undisclosed customer win was a retailer with $50 billion in sales in the U.S.
The company’s leadership in the space, including the combination of hardware and software it offers, makes it a “once-in-a-decade tech infrastructure story,” wrote Goldman. They see Nutanix on a path for long-term double-digit growth, high gross margins and large operating leverage.
Despite its leadership in the space, the stock is down 15% year-to-date. “The stock drop and Nutanix’s unique position in the space, however, make it a prime acquisition target,” Goldman said.
BMR Take: We like this company. Growth in revenues always wins out in the end.
Shopify (SHOP: $95) and Twilio (TWLO: $31) are both up slightly today too, even as the market is not having a good day. That sends us a strong message of confidence.
