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Cloud Service Providers Stocks

 A Cloud Storage Titan Struggling to Stay Relevant

Dropbox (DBX) $21.25 – I’m Neutral On This Company

Dropbox has been quite the underperformer, in the last 5 years the stock has lost 7%, and 8% in the past year.

Sales growth has really slowed down from 8-10% to only 3-4% expected for the next 3 years and that’s why there’s no appreciation for the stock. Its a fairly profitable company 15-16% operating margins and cash flow of 30+% because of the high stock-based compensation. Earnings growth is also tepid with just 6-8% expected for the next three years. These are two big reasons why there isn’t much scope for Dropbox to grow.

Dropbox is proving to be less sticky than originally thought. As churn rates have increased over the past year, many investors are re-evaluating the stickiness and value of Dropbox’s subscription revenue base.

Deep competition- Dropbox has always been in an eternal tug-of-war with competitors Google Drive (which has an advantage in pricing and integration with consumer email accounts) and Box, Inc. (BOX), which is better known for its enterprise-grade features and security.

Confidence in Dropbox faltered even more after the company reported rather dismal Q1 results – Analysts have an average hold rating.

Box (BOX), which is about 40% the size of Dropbox, not surprisingly, has a better growth profile with 6-7% revenue growth and 11-12% earnings growth expected in the next 3-4 years. It has a similar valuation multiple, so it’s not like that the markets have given it too much of a premium. 

The main thing is that growth will likely be in the low to mid-single digits in this industry, so can’t expect too much in terms of return from either. 

The one thing Dropbox/Box could do is to put their cash to better use (both generate in excess of 30% cash margins) and buyback shares, the valuations are low enough, which would help them and also help investors. For now, its neutral – don’t see much scope for expansion.

Categories
Stocks

Tesla Surges 14% on FSD Approval in China: Key Win for EV Giant Amidst Rising Competition

Tesla (TSLA) $193 up 14%

Good news for Tesla – Musk’s China visit seems to have paid off. The markets and the street love it and it’s great for those of you who had the patience to hold on to it. 

One of the key reasons for the approval seems to be the collaboration with Baidu, plus China was very keen for a win. Nonetheless, this is good for the market. Two heavyweights Apple and Tesla are seeing support.

Read on from Barron’s today.

https://www.barrons.com/articles/tesla-stock-price-news-china-elon-musk-8476fa2e?mod=BRNS_ENG_NAS_EML_BULLETIN_AUTO_NAH

Tesla Stock Soars on FSD Approval in China. 

3 Reasons the News Is a Big Deal.

According to Barrons “The win does a few things for Tesla. For starters, better driver-assistance products can mean more demand for Tesla vehicles in China. Second, it demonstrates the company can navigate complicated government regulations related to driver-assistance technology. And third, it shows that Tesla has increasing confidence in the quality of its self-driving car technology.”

“We expect this announcement to lead to a near-term uptick in FSD attach rates—which we currently model at about 10%—and improve the offering longer-term,” wrote Baird analyst Ben Kallo in a Monday report. Attach rates refer to how many people buying Tesla vehicles also buy FSD. “We also view this announcement as a potential pathway for Tesla to follow for entering new markets.”

“While the long-term valuation story at Tesla hinges on FSD and autonomous, a key missing piece in that puzzle is Tesla making FSD available in China which is now a done deal,” added Ives. “This is a key moment for Musk as well as Beijing at a time that Tesla has faced massive domestic EV competition in China along with softer demand.”

To help win Chinese approval for FSD, Musk needed to assuage regulators’ concerns about data security risks. To that end, he agreed to use navigation and mapping functions provided by Chinese firm Baidu BIDU 5.77%, the Journal said.

Baidu’s American depositary receipts, or ADRs, were up 4.1% in early trading at $104.65 apiece.

Categories
Technology

Rivian (RIVN) Analysis: Navigating Challenges Ahead of Earnings Call

source:rivians

Rivian – (RIVN) $16.15 HOLD. Going to wait till 2/21 Earnings call to make a better judgment, too many conflicting signals to take a position.

Several weaknesses abound

Economies of scale – With about 57,,000 vehicles sold annually (double the previous year), it needs at least double that to break even or drastically increase prices, which is impossible, given that Tesla has decreased prices. 

Inventory appears to be piling up.

GM and Ford have called out weakening EV demand and slowed production.

Amazon didn’t pick up as much last year.

Highly capital intensive – the chances of dilution and/or debt piling up are high.

On the other hand…it’s not curtains yet..

Amazon has a goal of deploying 100,000 EV trucks by 2030, and this is a huge under penetrated market.

Seems as though their potential competition is also weak and fading away. Lordstown (another EV pickup) and Arrival (another ”last mile” EV delivery van) faltered. 

There is likely to be consolidation in this space amongst non Tesla start ups. Tesla itself faces difficulties and could buy up their competitors to fill out the gaps in their global lineup.

Reduction in Lithium input costs and other critical metals needed for the batteries, which made up a large share of the production costs and as these savings could start to show up in the manufacturing lines.

The valuation is not terrible, but I would like to see some progress against the current demand headwinds before taking a call.

Categories
Technology

Tesla: Why I’m Buying on Declines Between $160 and $190 Despite Margin Pressures and Competition

source:tesla

Tesla (TSLA) Buy on declines $160-190

I own Tesla and have been holding it patiently.

Tesla has operating margin compression from 16% to 9% and there is no way they can continue to grow without sacrificing margins, otherwise, they get saddled with excess production capacity and inventory – which are equally bad problems. There’s far more competition, Chinese demand is lower, and suddenly you’re looking at it as an auto company with all its associated auto industry problems and a lower multiple.

I guess the main question is how much of it is already in the price – Tesla has dropped 33% from its 52 week high of $300, and rebounding from $182.

Earnings – Priced at 59x with 24% growth, about 10% overpriced.

Sales – 5.5X sales with 18% growth – also overpriced, because it doesn’t have the tech operating margins anymore and even in the best case will go to 15-16% of sales.

That said – it is far ahead in innovation and scale and very likely remain so in spite of the Musk personality and the various chemicals that go with it.