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Category: Ad Tech

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Amazon Is A Good Bargain At $202

AWS

I’ve been adding Amazon (AMZN) to my portfolio in the past week; it is a bargain at $202, having dropped almost 20% from its high of $242.

Amazon has 4 businesses.

Amazon Web Services

AWS is a cloud services behemoth and market leader with $ 108 Bn in 2024 sales, and still growing at 19%. That is remarkable growth for a market leader of that size with two other 800-pound Gorillas, Alphabet and Microsoft, chasing it. It generated operating profits of $39 Bn last year, a growth of 66% with an operating profit margin of 37%. This is Amazon’s most profitable segment and the growth engine, which powers everything.

Advertising

Amazon includes its advertising revenues in the online retail sales segment, but its advertising revenue last year was estimated between $ 56 Bn to $ 64 Bn in 2024, growing around 20% a year. This is also a high operating margin business, generating over 20% in operating profits.

Prime Subscriptions

Amazon doesn’t disclose its Prime subscriber numbers, but we estimate about 200Mn subscribers, including 180Mn in the US in 2024, generating over $40Bn in revenue.

This is another sustainable, sticky, and high-margin business, I’d value it at about 9x sales or $360 Bn.

I used a 9-10x multiple for the high-growth, high-profit margin, and sustainable businesses.

Online and physical retail sales in the US and abroad

These include third-party sales. Physical sales revenues are minuscule compared to total retail sales; loss leaders to expand reach and for analytic purposes, including in the online retail business. Amazon had a whopping $ 431 Bn in 2024. While online domestic and international sales are a drag, growing slower in single digits, they’re not significantly slower than Walmart’s sales growth and margins.

Amazon Segment Sales: Sources Amazon

Based on the Sum of the Parts schedule above, we’re getting the online and physical retail operations of $431 Bn at a market cap of just $170 Bn. The multiple of 0.4 is much lower than Walmart’s multiple of 0.74, or 40%.

Amazon has been spending heavily on Capex for AI to gear AWS and expand its web service offerings. In this arms race, they are scheduled to spend $100 Bn in 2025 to maintain and possibly expand their leadership.

We haven’t even valued all their investments and partnerships under AI development. That can be very valuable in the future.

I’d continue to buy the stock on declines.

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Ad Tech Stocks Technology

Roblox (RBLX) $58, A Solid But Overpriced Company

Roblox (RBLX) is a market leader for gaming apps and the short report from The Hindenburg. alleging irregularities in engagement metrics had a negligible impact on its share price.

In October 2024, Roblox shares dropped 9% after Hindenburg’s short thesis but quickly recovered, closing only 2% lower, highlighting investor resilience. The stock, which was coasting in the low forties then, has gained almost 50% since then to $58 today.

I believe it is a solid company. Although it is overpriced, it is worth considering as an investment if the price drops below $50.

Positives

Market Leader: Roblox is the number one grossing app for the iPad across the App Store, and regularly among the top 10 apps for the iPhone, across categories, according to data collected by Refinitiv. 

Not gaming the market: Roblox also showed strong App Store momentum across some of the biggest gaming markets in the world, including North America, Europe, and SEA. I believe these gross numbers are extremely difficult if not impossible to fudge, instead it supports Roblox’s strong commercial value and future prospects.

Good quarterly numbers and guidance: Roblox’s booking in Q2 grew around 22% YoY, to $955Mn, and it guided to $1-$1.025Bn for Q3.

Partnering with Shopify: The commercial integration partnership with Shopify also helps Roblox further build out its virtual market, with better monetization opportunities.

Wall Street likes it: Ken Gawrelski, an analyst from Wells Fargo, maintained a Buy rating on Roblox, raising the price target to $58.00. He observes that the company’s strong engagement trends continue to outperform expectations, with a significant increase in concurrent users and app downloads, indicating robust user growth. These factors contribute to a raised third-quarter total bookings growth forecast, which is now expected to surpass the company’s guidance and the consensus estimates. 

Great monetization tools: Roblox’s expansion of monetization tools, and strength in in-game spending is a significant competitive advantage for driving long-term developer and user engagement on the platform. Shopify and other initiatives are expected to enable developers to better monetize their offerings. 

The trend is their friend: The strategic shift towards direct response advertising, including new partnerships and live commerce testing, indicates that Roblox can make the most of the new opportunities in digital advertising. 

These initiatives give me confidence in the company’s sustainable long-term revenue growth.

Negatives

Hindenburg’s biggest grouse was the possibility of fudging and overstating user growth and engagement numbers, which though denied strongly by the company and discarded by analysts could create doubts about the valuation in the future.

Revenue growth forecasts for the next 3 years is around 16-18% and with the stock selling at 7.5x sales, it is expensive and a quarterly miss could lead to a large drop. Even the positive Wells Fargo analyst had a price target of $58, we’re already crossed that level.

It is loss-making on a GAAP basis with heavy stock-based compensation, which likely sets a cap on its valuation. That said cash flow is strong – around 19% of revenue.

Overall, Hindenburg didn’t make an impact, Roblox is performing well but I would be very careful about the price and get it lower to make a meaningful return.

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Ad Tech Stocks

Applovin (APP) – What An Impressive Quarter!

Source:AppLovin.com

Applovin (APP) – What An Impressive Quarter! Shares +28% to $216! HOLDING NOW, Way Too Rich For Me.

I first bought and recommended AppLovin on July 5th, at $84, here’s a link to the first article on Seeking Alpha, and I continue to hold 70% after taking profits of around $150.

But hats off for an amazing quarter, Applovin’s Q3 GAAP EPS of $1.25 beats by $0.32 – This looks like some serious sandbagging.

Revenue of $1.2B (+38.8% Y/Y) beats by $70M. We forget that AppLovin is a $5Bn revenue company, and with these growth rates in a competitive Ad-Tech market, it is seriously behaving like a $1Bn start-up!

What is AppLovin’s secret sauce?: It introduced the new version of its AI-backed ad mediation platform AXON in q1-2023, and the results have been astounding since then. Advertising mediation platforms depend on the strength of the black box that matches targeted customers with relevant ads in real-time, with the best return on investment for the advertiser. It isn’t called performance marketing without reason. You’re only as good as the value that you executed immediately for the publisher or advertiser, which is vastly different from brand building. Clearly AXON has performed for its advertising clients, and this quarter’s outperformance was proof that AXON is the real deal.

From the CEO’s letter to shareholders:

“Our AXON models continue to improve through self-learning and, more importantly, this quarter, from technology enhancements by our engineering team. As we continue to improve our models our advertising partners are able to successfully spend at a greater scale. We’re proud to be a catalyst for reinvigorating growth in our industry.”

In Q3, AppLovin had these amazing metrics:

  • Revenue of $1.20 billion 39% YoY growth
  • Net income of $434 million 300% YoY growth at a net margin of 36%
  • Adjusted EBITDA of $722 million (+72% YoY) at an Adjusted EBITDA margin of 60%.
  • Net cash from operating activities of $551 million (+177% YoY)
  • Free Cash Flow of $545 million (+182% YoY).

Financial Guidance Summary 4Q – 24

Total Revenue $1,240 to $1,260 million – Previously $1,180 – At the midpoint that’s a very impressive upward revision of 6%.

Adjusted EBITDA $740 to $760 million

Adjusted EBITDA Margin 60%

AppLovin is sharing this wealth with its shareholders having bought back a total of 5.0 million shares for a total cost of $437Mn, last quarter. The board also authorized an incremental $2.0 billion for buybacks, increasing the total aggregate remaining authorization to $2.3 billion.