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Tag: Operating Margins

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Buying Netflix (NFLX): A Bet on Operating Margins and Revenue Growth

There are some fears of the lack of transparency for the next quarters till analysts and investors get used to not seeing subscriber numbers, but operating margins are improving further, revenues are guided to 14% mid-point growth and earnings should increase 25% per year in the next 3. The stock is down 13% from its all-time high.

Netflix Q1-2024

Beats all around, and has better guidance as well.

GAAP EPS of $5.28 beats by $0.76.

Revenue of $9.37B (+14.8% Y/Y) beats by $90M.

Global streaming paid memberships: +9.33M to 269.6M. UP 165 YoY, Q1 is seasonally low, and in Q1-23, the YoY growth was inly 4.9% so this is quite impressive.

Q2 Guidance: Revenue of $9.49B vs. $9.28B consensus, 16% growth, 21% F/X neutral growth.

EPS of $4.68 vs. $4.54 consensus.

For the full year 2024, we expect healthy revenue growth of 13% to 15%, based on F/X rates at the end of Q1’24. 

We now expect an FY24 operating margin of 25%, based on F/X rates as of January 1, 2024, up from our prior forecast of 24%. 

It’s dropped 3% after hours, (of course,)

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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.

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Technology

Synopsys, Inc (SNPS) at $558: A Hold on High Valuation Despite Strong Fundamentals

source

Chip Design. (Electronic Design Automation) Pick and Shovels semi and AI play.

I had looked at this company a couple of weeks ago and just checked my notes – “Where’s the growth for a P/E of 42 and a P/S ratio of 13?”

Yeah, it’s a 15% earnings grower, so that’s a PEG (Price Earning to Growth) of 3 and a 12% revenue grower, that sales multiple is also too rich.

It’s a solid company – no doubt, but likely paying a steep price for the ANSYS (ANSS)  acquisition, hoping for ambitious synergy targets, which often don’t happen. That said, its chip design simulation business is strong and with the AI buzz can get a boost – that’s why I was surprised to see only 12% revenue growth estimates. Operating margins of both companies are very high at 32% and 28% – that’s a big plus.

There’s another competitor in this space Cadence (CDNS) which is also very profitable at 30% operating margins – same problem – 50X earnings with 17% growth..and 17.6X sales!

I do want to keep this company under the radar for sure and let’s see what the next call reveals.

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Cybersecurity

Fortinet: A Strong Buy in the Cybersecurity Sector

source

Fortinet: (FTNT) Cybersecurity $61-$61.50 BUY, One year target $75. Long Term 20% return 3-4 years. 

Market leader in the growing cybersecurity industry, increasing revenues at 19% and earnings at 22%, which makes it a good bargain at 34x forward earnings and 7x forward sales. Besides, it is GAAP profitable with terrific operating margins, which always carries a premium.

Cybersecurity is a growing industry due to increasing AI advancements and vulnerability to threats, with several tailwinds. Fortinet has already recovered its 25% second-quarter, post-earnings price drop due to lower revenue growth guidance, which was mostly due to indigestion from heady pandemic growth. It should resume high growth after a few quarters.