Peloton Interactive Valuation!

Dear Reader,


Here I am going to make an attempt to derive the intrinsic value of Peloton Interactive, Inc - an American exercise equipment and a media company that this week listed in an IPO on Nasdaq.

The market currently values Peloton Interactive at 7.011 bln. USD. Is this valuation justified?
I think it is a little high.

I estimate Peloton Interactive is worth around 5 billion USD. Why? Because Peloton Interactive is simply not profitable to justify a valuation of Price-to-Sales ratio of 7.66.

Peloton Interactive achieved 915 mln. USD revenue in its last fiscal year, which compares to 435.1 mln. USD - last fiscal year's Peloton Interactive's revenue, which amounts to 110% revenue growth. That spectacular revenue growth came at a high cost, though. Peloton Interactive's fiscal year loss grew significantly from 47.9 mln. USD in fiscal year 2018 to 195.6 mln. USD in fiscal year 2019, which basically means Peloton Interactive is losing almost 1.2 USD on every 1 USD in revenue it makes.

Simply because of the large losses Peloton Interactive is not worth its current 7.011 bln. USD valuation. I would say currently Peloton Interactive is worth around 5 billion USD. This, of course, is based on its performance of up to date and in the near future. If in the next 2-3 years Peloton Interactive continues to grow revenue by around 50% year on year and gets closer to profitability or even becomes profitable, then Peloton Interactive may well be worth much more than my current estimate of 5 billion USD.

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

WeWork Valuation!

Dear Reader,


The startup office rental company WeWork is about to debut on public stock markets with an Initial Public Offering.

What is actually WeWork worth?

WeWork realized 1.8 billion USD in revenues and made a net loss of 1.9 billion in 2018. According to media reports WeWork should price its IPO somewhere at 20 billion USD valuation. What is WeWork's intrinsic valuation?

I think WeWork is worth around 12 billion USD in the next 1 year. Simply, the loss of 1.9 billion USD is too big. Furthermore, there are corporate governance problems like the company paying millions to its founder and employing his wife and another family member. The upside for WeWork is that its revenue more than doubled from 886 mln. USD in 2017 to 1.8 billion USD in 2019. Actually, if WeWork continues growing so fast I am not so pessimistic as some analysts who say the company is worth 0(zero). If you scale a company fast enough there comes a time when revenue just exceeds costs at a breakeven point and after that the company becomes a money printing machine.

If WeWork continues to grow revenue with let's say 30% a year in the next three years, I think WeWork's valuation could easily reach 25 billions USD in 3 years time, if it improves its operating margin.


Here, I would like to make a note on valuations. Valuations are not static. At one point in time a company is worth something, at another point of time a whole different sum of money. Actions of governments on competition, regulation could dramatically alter the value of companies overnight. Human action could do the same.


So valuations are dynamic and depend on numerous ever-changing factors.

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 Apple Really Turn Into a Services Company?

Dear Reader,


Apple is trying hard to reinvent itself as a service company. This is easy to understand, since iPhone sales account for more than 60% of Apple's revenue. And iPhone sales are falling. Apple even stopped publishing its iPhone, iPad and iMac unit sales, since apparently, especially iPhone unit sales, Apple hardware unit sales are falling.

This is a logical development, because the market for smartphones is globally already saturated and smartphone unit sales have already started falling. It is logical to assume that global smartphone sales will continue to rise with approximately the level of world GDP growth, which should hover around 3% in recent years.

So Apple is trying hard to convince its investors it can turn itself into a service company driven by App Store application sales. Apple currently receives approximately around 35 billion USD  a year from application sales revenue. One of the benefits of turning into a service company is that service companies usually trade at higher valuation multiples like Price/Earnings, Price/Sales, Price/Book value. Another obvious reason is the higher expected growth of the services market Apple is targeting.

So can Apple reinvent itself into a service company? I would say partially yes. I think the key to Apple becoming a service company is not so obvious - it is the iPad. Apple needs to make the iPad ubiquitous. iPad's larger screed could prompt more consumers to download and pay for applications from the App Store from which Apple gets a 30% cut. An important further step is to make the iMac able to run App Store applications seamlessly. This would again make consumers more likely to pay for higher margin and higher added value applications.

So, I would bet Apple's service revenue would grow to about 80 billion USD in 7 to 10 years. For the last fiscal year Apple made 265.6 bln. USD in revenue. I would say in 7 to 10 years Apple would make about 320 billion. USD in revenue. So 80 billion USD in service revenue would make about 25% of Apple's revenue in 7 to 10 years, according to my assumptions. Apple's market valuation should prove much more resilient than Facebook, Google and Amazon's in the ensuing global economic recession. What is more, services are more profitable. And Apple would not need always to make the huge effort to come up with a new blockbuster hardware model or innovation every year. It will instead enjoy the much more stable and predictable revenue from services sales.

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

The Price of Oil. A Demand Story?

Dear Reader,


The price of oil hovers around 54.50 USD for West Texas Intermediate Crude Oil and 58.53 USD for Brent oil.

Is oil undervalued? Yes. I think world energy demand, even though economic growth is slowing, supports prices of around 70 USD for WTI and 75 USD for North Sea Brent oil.

Many people will point to the high supply of oil coming mainly from America, Russia and Saudi Arabia. Yes, oil supply is plentiful, but OPEC + Russia recently agreed to extent oil supply cuts.

I think the major factor that supports higher prices for oil is world demand. The price of oil reached 140 USD in 2008 and the world economy is considerably bigger than in 2008. Yes, oil supply has increased, but the current oil prices look too depressed for my liking.

The demand for oil is inelastic, because oil is used for transportation of necessity goods like bread, water, potatoes, rice etc. without which people simply cannot exist. What is more, people will need to travel to work, for leisure and so on. So even if the oil price abruptly rises, there will still be demand for oil. Oil demand is not exogenous. The price influences demand and supply influences demand.

The main beneficiaries from a higher oil price will be the major oil corporations like Exxon Mobil, Chevron, BP, Shell, Total, Gazprom, Lukoil and hydraulic fracturing oil producing companies like Marathon Oil Corporation, Anadarko Petroleum, Chesapeake Energy Corporation and so on.

Russian oil companies like Gazprom and Lukoil, especially, are quite undervalued. Petroleo Brasileiro is another oil major that should benefit handsomely from higher oil prices.

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

Amazon, Microsoft and Cloud Computing!

Dear Reader,


Amazon and Microsoft are at the forefront of the cloud computing revolution. Their lofty valuations measured by Price/Earnings, Price/Sales and Price/Book Value ratios reflect mainly the expectations for growth of cloud computing priced in by market participants.

Will Amazon and Microsoft deliver? So far, both Amazon and Microsoft are doing very well. Their cloud computing revenue is growing by more than 20% year on year which makes them internet stars in terms of growth. The current value of the Software As A Service(SAAS) cloud computing market is estimated somewhere at 90 billion USD a year. The SAAS market is expected to reach 250 billion USD in 10 years. If Amazon and Microsoft keep their current market share of 30% and 15% respectively this would give them 80 billion and 40 billion in cloud computing revenue in 10 years. The cloud computing market is characterized by very high growth margins. If both Microsoft and Amazon make let's say 33% net profit margin on cloud computing this would give them net yearly profits of circa 26.7 billion USD and 13.3 billion USD respectively in 10 years. So if we apply a reasonable technology Price/Earnings multiple of 20 this would value Amazon and Microsoft's cloud computing businesses at 526 billion USD and 266 billion USD in 10 years.

Apparently the stock market is extrapolating those future values at today's market capitalizations of both Amazon and Microsoft. Currently the above calculations represent about 55% of Amazon's and 37% of Microsoft's stock market capitalization.

Will both Amazon and Microsoft grow into these valuations. I would say that Microsoft has a higher chance of living up to current market expectations. Microsoft has the Microsoft Office advantage. Microsoft Office is gradually moving to the cloud with Microsoft 365, which provides a complementary cloud computing service which enhances Microsoft's SAAS cloud computing business.

Amazon would have more difficulty living up to the current hype. Competition is growing, so Amazon will have difficulty retaining its current 30% market share of the SAAS cloud computing market. What is more, Amazon's main business of internet shopping is notoriously not very profitable.

But, as things stand, for both Amazon and Microsoft the market seems to be pricing 10 years of brisk future growth now. Much like the market did for Microsoft stock in 1999. For 16 years after 1999 investment in Microsoft's stock almost did not make any money excluding dividends. The market was adjusting to the apparent overpricing of Microsoft.

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

Is Value Investing Dead?

Dear Reader,


Since 2009 technology, biotechnology and growth stocks in general have outperformed by a wide margin value stocks like financials, energy, consumer staples and consumer discretionary.

Is value investing dead? No. Why? Because like all growth stocks cycles in the past the current growth stocks, namely technology stocks are overvalued and near their peak. Certain comparisons to the Dot Com bubble in 2001 can be drawn. Yes, now the leading growth technology stocks have revenues, while back then most of them did not. But they are trading at lofty valuations. Just look at the most valuable company in the USA - Microsoft. Microsoft is trading at near 9 times Price/Sales and Price/Earnings multiple of 28, which is basically pricing extraordinary growth. To grow in its valuation Microsoft has to grow revenue and profit at 20% for 5 to 10 years. Basically, Microsoft needs to grow like a star startup.

Many other technology companies are pricing in lofty valuations. Value investing will again become the best investing strategy when the next economic recession ensues. And that is not far off. China listed its slowest yearly GDP growth since 27 years, Italy suffered a recession recently, Germany avoided a recession just barely. European new car sales are falling  3.1% year on year up to June 2019. All signals point that we are in the middle of an economic slowdown. Only America is showing above average growth, but soon the tax cuts effect will wear out and the USA economy might still slip into recession in the next 2-3 years. I think Donald Trump will do his utmost to keep the US economy humming until he is reelected in November 2020. However, I think the US economic slowdown will have started in 2020.

Value stocks like financials, consumer staples and traditional pharmaceutical giants should do better in the coming economic malaise, albeit falling less than the overall market and especially technology stocks. But 20-30% difference in performance in a year is still a huge margin. I expect when the next recession comes value stocks will fall by 20-30%, while technology stocks could well drop 40-60% in general.

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