Citigroup Valuation!

Dear Reader,


Here I am going to make an attempt to value Citigroup Inc, the New York based global bank.

Currently, Citigroup is valued by the public markets at 164 billion USD. Is Citigroup fairly valued?

No. I think Citigroup is undervalued by circa 20% in current market conditions. Relative to its US peers JPMorgan Chase, Wells Fargo and Bank of America, Citigroup's Price-to-Book ratio at 0.93 is either at twice or at least with 40% discount.

Yes, Citigroup undertook huge restructuring after the 2008 Great Recession and in 2017 Citigroup recorded a loss of 8.048 billion USD. But in 2018 Citigroup recorded 16.672 billion USD in profit and Citigroup currently trades at 9.82 Price/Earnings multiple. At its current valuation Citigroup is a classical value stock. One explanation for the low market multiples of Citigroup may be that its revenue grew only slightly since 2016 full year and as of 2018 Citigroup's revenue is still significantly below its full year 2015 level.

So, in short, Citigroup, in my humble opinion, should be valued at around 200 billion USD by public markets to reflect its real intrinsic value. One contrary view is that a new recession is coming. And yes, global banks will suffer as their nonperforming loans will increase and they will start making write offs. But, still, Citigroup is in a good position to weather the coming storm and Citigroup's stock should outperform its US and global banking conglomerates peers if a new economic recession comes soon.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Saudi Aramco Valuation!

Dear Reader,


Saudi Aramco or Saudi Arabian Oil Company, the worlds largest petroleum producer is about to stage an Initial Public Offering.

Initially, Saudi Aramco was striving for a 2 trillion USD valuation, but the Saudi government has tempered its expectations to about 1.7 trillion USD currently.

So what is the intrinsic value of Saudi Aramco? My estimate is that Saudi Aramco is worth about 1.6 trillion USD. Why? Saudi Aramco made a 111 bln. USD profit on 355.9 billion USD of revenue in 2018. Global oil majors like Exxon Mobil and Chevron trade on 20 and 17 times Price to Earnings ratio. So if we apply a Price/Earnings ratio of 15 to Saudi Aramco this would give approximately a 1.6 trln. USD value.

Here it must not be forgotten that Saudi Aramco is essentially a bet on the price of oil. Personally, I think that due to geopolitical soft conflicts the price of oil is bound to rise, no matter the increasing supply from mainly shale oil producers. So, actually, a 1.6 trillion USD valuation for Saudi Aramco may even prove conservative in the next 3-5 years. Yes, I know there is the political risk in Saudi Arabia, but the political risk did not prevent the worlds most profitable company Saudi Aramco to earn 111 billion USD in 2018 alone.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Spotify Valuation!

Dear Reader,


Here I am going to attempt to value the music streaming service Spotify Technology SA.

Spotify offers two ways to stream music. A paid option and a free option with advertisements. Currently Spotify is valued at 26.50 bln. USD. Does this valuation reflect Spotify's intrinsic value?

No, I think long-term Spotify is undervalued. I expect Spotify's valuation to grow to 70 bln. USD in 5 years, barring a severe economic shock, which could lead to a global economic depression. Why? The size of the music streaming market is projected to grow to 45.3 bln. USD in 2026. The digital advertising market, however, is poised to reach 426 bln. USD in 2023. Spotify is active in both segments and I expect it to benefit significantly from the larger size of the internet advertising market. Users, at least the vast majority of them, like free services like Google, Facebook etc. Spotify also offers a free music service. Spotify is a leader in music streaming and I expect even more users to join its free service. What is more, Spotify's revenue is growing by around 30% year on year for the last four reported quarters and this growth, considering that already Spotify is bringing in billions of USD a year in revenues, is staggering. Yes, I know that there is also YouTube, but Spotify is a proven innovator and leader and I expect Spotify to continue harnessing its lead in the music streaming market.

As said, I expect Spotify's valuation to grow to 70 bln. USD in 5 years mainly driven by its free, advertisement based service.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich

Can A Sustainable (IT) Business Be Built Without Making Profit?

Dear Reader,


Many technology stocks that recently listed on public US stock markets do not make a profit. Examples are Uber, Lyft, Snap Inc., the maker of the Snapchat application, are just some of numerous examples.

Will they survive without making profit? No, I do not think they will survive in the long-term if they do not break even, be it with a slight profit margin.

Yes, people will point to Amazon.com, Inc. They remained unprofitable for a long time. But eventually Amazon did break even and is earning a profit which covers its expenses and a large chunk remains and stays with the company.

The situation now resembles a lot the Dot Com Boom in 2000. Many technology companies back then went public without revenues even. And they all went bust like pets.com or whatever. Yes, the Dot Com Boom and subsequent bust gave us Alphabet Inc.(Google) and Amazon, but both companies are now profitable. Now, the newest technology companies are making huge revenues but they are notoriously unprofitable. Fitbit, Groupon, Zynga, GoPro are examples which market capitalization dove enormously due to not fulfilling both growth and profit expectations. Profit is good. Just look at Facebook, which has a high net profit margin and  billions of USD in yearly profit.

No, I do not believe you can build a sustainable business without being profitable. An advantage of information technology companies is that they are scalable. If they grow revenue quickly enough, which is inherently possible due to their business model of one internet site for all users, and partially control costs they will become profitable. But no one knows how long the growth period will continue, so these companies should not invest too much in future growth without controlling costs. Otherwise, sooner or later their market capitalization will tend to 0(zero).

If they do not make profit, their investors will rely on the "greater fool theory". Or, basically finding a greater fool to whom to sell their shares with a nice profit. This is not sustainable for long term investors like pension funds, endowments and foundations or even mutual funds. If it continues like this, it will all end in tears. Yes, I know some people will get rich, but it will be a zero sum game, which will not advance society and is not OK in the long-term.

So as a person who values companies, I do put a hefty premium on companies which grow quickly, but also make a profit. Every reasonable pension fund, endowment, foundation, mutual fund or hedge fund manager does also.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich