Slack Valuation!

Dear Reader,

Here I am going to present my view on the valuation of Slack Technologies, Inc., the owner of the corporate messaging app Slack, which made a direct listing on the New York Stock Exchange trading under the stock ticker WORK.

In short, I believe Slack is worth currently or will be  worth in 1-3 years around 10 billion USD  or a bit more than half its current market capitalization of 18.92 billion USD. This implies a fair stock market price of Slack of around 18 USD.

Why? Slack will go down the route of other firms like Snap, Box, Dropbox, Twitter, Spotify some of which listed at more than 20 times Price/Sales(Market Capitalization/Last Year's Revenue). Some of the corporations mentioned above like Snap, the owner of Snapchat, listed at around 40 times Price/Sales. Actually, Slack is trading at a price sales ratio of 41.63. Slack is simply grossly overvalued in the short term. Year on Year Slack's yearly revenue grew by 82% from 220.544 million USD in fiscal 2018 to 400.552 million USD in fiscal 2019. Slack's last quarter's year on year growth actually slowed to 67%. Even if Slack goes on to grow revenue at 20% for the next 10 years, revenue will be somewhere around 2.5 billion USD in 2029. If we assume net profit margin of 20% Slack under those assumptions would have made 500 million USD in net profits in fiscal 2030. If we assume Price/Earnings ratio of 30, which is high in 2029 Slack would be worth 15 billion USD under the above assumptions, which is roughly 25% below the current market capitalization of Slack.

In short, Slack is twice overvalued. Currently, analysts project Slack's total addressable market at 28 billion USD in some years. Slack is going to verify its current valuation, if it truly revolutionizes corporate communications and gets into other corporate stables like the Microsoft Office Software. I put the probability of such a scenario at 10%. Much more possible is that Slack is going to grow into its valuation in 10 years or so if it grows at a healthy 20% year on year revenue. If we truly enter a new genuine dot com bubble, Slack valuation, of course, could go through the roof. But the stock price developments of GoPro, GroupOn, Zynga, Fitbit, DDD, Twitter, Snap, Box, Dropbox show this market is capable of pricking small bubbles in its froth without actually imploding.

I forecast the same will happen to Slack. Slack's market capitalization will fall to around 10 billion USD in 1-3 years and then depending on the company revenue growth and net profit generating ability its market capitalization in 5-10 years could actually start to near its current market capitalization of 18.92 billion USD.

Of course, in the short run, driven by pure speculation Slack's market capitalization could shoot up to even more unfounded values.

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.)!

Kind regards,

Petar Posledovich

Amazon. What Are Possible Future Growth Drivers?

Dear Reader,


Amazon's current market capitalization is 941 bln. USD. Amazon's main driver of future growth in both revenue and market capitalization as assumed by Wall Street research analysts and almost everybody else is its cloud business Amazon Web Services(AWS). AWS is the Cloud Application Services or Software As A Service(SAAS) platform of Amazon.

According to Gartner the global SAAS market reached 80 billion USD in 2018 and is expected to expand to 94.8 and 143.7 billion USD in 2019 and 2022 respectively. Amazon.com Inc. clocked in almost 25.7 billion USD from AWS in 2018 which gives it roughly a 32% of the cloud SAAS market. Amazon made 7.3 billion USD in profit on 25.7 billion in net sales in AWS which makes for a 28.4% net profit margin. Given that Gartner forecasts that SAAS business will grow at around 15% on average for the next four years it is reasonable to assume a Price/Earnings multiple of 30 on AWS, which gives Amazon's AWS business valuation of about 220 billion USD currently. Amazon's main business of online products sales made 207 billion USD in revenue in 2018 growing by roughly 25% in 2018 compared with 2017. Amazon online selling business, however, is notoriously not very profitable. The North America business made around 7.2 billion USD, while its international online merchandising business incurred a loss of 2.1 bln. USD. So, all in all, Amazon's main business of online selling makes about 5 billion USD a year in profit. Given that is growing by 25%, we could place a multiple of Price/Earnings of 50, so Amazon's main business is worth about 250 billion USD. So sum of the parts analysis of Amazon's two main businesses of online sales valued at 250 bln. USD and AWS valued at 220 billion USD gives probable value of Amazon.com Inc. of 470 billion USD.


So why does the market price Amazon at 941 bln. USD, roughly twice my simple valuation of  470 bln. USD? One reason is that Gartner estimates the whole cloud market at 182.4 billion in 2018 as you can see from the table below.

	2018	2019	2020	2021	2022
Cloud Business Process Services (BPaaS)	45.8	49.3	53.1	57.0	61.1
Cloud Application Infrastructure Services (PaaS)	15.6	19.0	23.0	27.5	31.8
Cloud Application Services (SaaS)	80.0	94.8	110.5	126.7	143.7
Cloud Management and Security Services	10.5	12.2	14.1	16.0	17.9
Cloud System Infrastructure Services (IaaS)	30.5	38.9	49.1	61.9	76.6
Total Market	182.4	214.3	249.8	289.1	331.2

Apparently the market thinks that Amazon.com Inc. could win a larger market share of the other types of cloud services or alternatively win an even larger market share of its current domain SAAS.
Another reason for Amazon's high market capitalization is that market participants seem to believe that Amazon could develop other verticals. Amazon recently has had success doing online advertising which brought in around 10 billion USD in 2018. Emarketer puts the size of the global advertising market at 283 bln. and 517.5 bln. USD in 2018 and 2023 respectively as evidenced by the following link:

https://www.emarketer.com/content/global-digital-ad-spending-2019

Amazon.com Inc. nearly doubled its Q4 2018 online advertising revenue to 3.4 bln. USD compared to Q4 2017. Online advertising could turn out to be the new main driver of Amazon's stock.

I think the intrinsic worth of Amazon.com Inc. is 640 billion USD or around 32% discount to its current 941 billion market capitalization.

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.)!

Kind regards,

Petar Posledovich

Apple and Its China Troubles!

Dear Reader,


Apple Inc. is currently valued by the US stock market at nearly 887 bln. USD. About 20% percent of Apple's revenues come from China. President Trump and America are apparently engaged in a trade war fight with China. Apple was valued not long ago at more than 1 trillion USD. For the first quarter of 2019 smartphone sale declined 2.7% year on year global according to Gartner.

What  does this double hit - America's trade war with China and declining smartphone sales speak about Apple's future business prospects? Actually, in my opinion Apple Inc. is fairly valued at the moment. The previous valuation of more than 1 trln. USD reflected too much future growth, which mainly hinged on China. But now that President Trump and the US administration is waging a trade war with China, the expected future growth in China for Apple is not likely to materialize. On the contrary. In the quarter ending December 2018 Apple reported a drop of 5 bln. USD in China sales, which represents a fall of 27% year on year. According to Apple's CEO Tim Cook "things have improved" in  January 2019.

But since then the trade skirmish between USA and China has only intensified. So Apple's China sales are not likely to recover to previous levels any time soon. What is more, the smartphone market is now saturated and is even shrinking especially in the high end segment where Apple is active. Apple, of course, is saying that it is trying to become a services company which would increase its multiples. But the problem is that hardware markets are usually much larger than services markets. And even if Apple bites off a large share of the apps sales markets and music streaming market, that kind of revenue will not be very big. Yes, if its smartphone share of the global market stays the same and Apple expands its services market share, the company will definitely be worth more. But the evidence clearly shows that Apple's smartphone revenue is shrinking, although the company does not any longer break down sales of smartphone, PCs and tablet units.

In short, Apple is fairly valued at the moment. If the trade war between China and USA gets resolved in an amicable manner, Apple smartphone sales could recover somewhat. My view on the trade war, however, is that it is going to hurt both USA and China's economies, with China's economy suffering disproportionately more.

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.)!

Kind regards,

Petar Posledovich

Beyond Meat Valuation!

Dear Reader,


Beyond Meat, Inc. the vegetarian ''meat'' company is the stock of the moment up nearly six times  from its debut price on the floor of the Nasdaq stock bourse and trading at 69 times Price-to-Sales ratio and 8 billion USD valuation. Beyond Meat is loss making with a profit margin of -26.73%

Is the high valuation tag justified? What is the intrinsic value of Beyond Meat Inc.?

I think in the short run Beyond Meat is worth around 4 billion USD. In the long run, in 5 years the company may well be worth 7 billion USD.

Why? It all depends on how Beyond meat cracks the vegetarian market or the market for processed meat which is worth  1.058 trillion USD as of 2019 according to Statista. According to various sources there are 375 million vegetarians worldwide or around 5% of the world population. If we extrapolate, 5% of the 1 trillion USD processed meat market gives 50 billion USD market for burger patties made of plants and fruits, which is loosely what Beyond Meat produces. If beyond meat takes let's say 30% of this market this gives 15 billion USD of revenue. If Beyond Meat reaches this revenue run rate, a 20 billion USD valuation or 2.5 times the current price seems reasonable.

If I have to put a number on it, I would say Beyond Meat will be worth 7 billion USD in 5 years. 30% market share of the vegetarian market as a whole is tough to reach. There are many competitors now and many emerging or to emerge. Companies that have 30% or more of their market are far between - mainly technology companies like Microsoft, Intel, Cisco, Google etc. It is very tough to get more than 10% in any industry, especially mature ones like the nutrition industry.

There is of course the wild card that many meat eaters switch to Beyond Meat products because of taste, novelty, animal care and other reasons. Then the valuation of Beyond Meat could well explode to something like 20 billion or 30 billion USD. Exactly this crazy scenario is partly reflected in Beyond meat Price/Sales ratio of nearly 70.

But as I already availed, I think Beyond meat will be worth 7 billion USD in 5 years. Why? Because simply Beyond Meat revenue is growing like crazy. Beyond meat realized 88 mln. USD in revenue in 2018 compared to nearly 33 mln. USD in 2017 or 160% growth rate which is staggering from a company that is making tens of millions of United States dollars in revenue. Beyond Meat could simply grow into a valuation of 7 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.)!

Kind regards,

Petar Posledovich

Google's Future Development Possibilities! Alphabet Inc.

Dear Reader,


Alphabet Inc., the owner of the ubiquitous google search engine, is valued on the stock market at 777 bln. USD. This is still a staggering sum, but quite a bit away from its recent high. Can Alphabet Inc. reach a one trillion USD market capitalization?

Yes, it can. Why? Because its main market - internet advertising is still growing with double digits and is projected to grow with double digits until 2022, when it should reach the staggering 518 billion USD. Until then Alphabet Inc. can grow its market capitalization through organic growth by just maintaining its market share. However, the data for 2018 shows Alphabet Inc and Facebook's combined share of the internet market is not growing as in previous years. This is mainly due to Amazon. Amazon developed its internet advertising business from scratch and is now a clear number three behemoth with above 10 billion USD in yearly revenue from internet advertising.

Alphabet's other efforts - mainly in autonomous driving - the Waymo project are showing bright future potential, but in the distant future. Actually, the name of the company was changed from Google Inc. to Alphabet Inc. mainly to show that its founders Larry Page and Sergey Brin could develop other avenues of revenue. Up till now, however, their efforts have not brought much success. The Google search engine display results still account for about 67% of revenue, other 16% come from third party properties display advertising shared revenue and another 17% come from other projects. Yes, Google cloud is the  number four in the cloud as an infrastructure competition after Amazon, Microsoft and IBM, but its results and growth have not proved satisfactory, which lead to the ouster of the Google cloud former CEO.

So, yes, Alphabet Inc., the owner of the google search engine, could reach 1 trillion USD in market capitalization until 2022 based on purely internet advertising growth. But if Alphabet Inc wants to add even more value, cloud is the next frontier. Those assumption are valid, of course, as long as the overall US and global stock markets do not crash, which could temporarily lead to a 30-40% fall in Alphabet's market capitalization. Otherwise, so far there is not any credible competitor to google on the horizon.

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.)!

Kind regards,

Petar Posledovich