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  • Cuban buys into Netflix, sees a takeover candidate [View news story]
    You know what they say about parting fools with their money.....

    Why he's comparing the valuation to Twitter I haven't the slightest idea. Maybe because they're both businesses with horrible economics, trading at valuations that imply outrageous profitability and growth? Using the valuation of one company that's clearly in a bubble to justify the valuation of another company that became a little less bubbly as of yesterday is a complete failure of common sense 101.

    Yea....half of Yahoo, with 1000x less free cash flow. You're right Mark, that doesn't make sense.
    Oct 17, 2014. 01:58 PM | 5 Likes Like |Link to Comment
  • Buffett/Munger look to next 50 years for Berkshire [View news story]
    Looking forward to it
    Dec 12, 2014. 03:46 PM | 3 Likes Like |Link to Comment
  • The iPhone 6 May Have A Longer Upgrade Cycle - If So, Expect Unit Sales To Fall [View article]
    Good article - you're exactly right. All the arrogant commenters here are ignoring every possible downside and predicting endless growth for a $700B company that will likely hit its peak this coming quarter. Upgrade cycles will lengthen and Apple will have nothing to replace the revenue lost from iPhone sales, which account for over half its profits.

    While its cushioned by a huge cash horde, if Apple's stock price continues to rise into and after this next earnings report, I'd actually consider going short the name. After the iPhone 6 release there's nothing in the pipeline to move the needle on sales and I can't imagine it going any higher than another 15-20%. This year will be the year Apple peaks and goes flat or downwards for a long long time.
    Dec 3, 2014. 11:55 AM | 3 Likes Like |Link to Comment
  • Netflix: Asking Key Questions For 2014 [View article]
    Sorry to be so forward, but your use of the price to sales ratio is flat out wrong. As a commenter in another thread has mentioned: the P/S ratio is the same thing as the Profit Margin (E/S) multiplied by the P/E ratio. Not sure where you're getting this mystical "25-40%" growth for netflix...looks to be around 22% (which, as you know, is very hard to maintain).

    How about we take a look at 2010, 2011 when they were making good money and use that as a best case scenario for their profit margin. I say best case because everyone knows DVDs (which used to be a higher proportion of the business) are higher margin than streaming (if you don't know why you really shouldn't be writing about NFLX). Looks like their profit margin in 2010 was ~7%. What kind of P/E would you give a company growing at 22%? For a PEG ratio of 1 it would be 22, but let's use 25 just for fun. Nevermind that if NFLX actually tried to make 7% margins by raising prices its growth would slow and thus wouldn't be deserving of a high P/E. Nevermind that as NFLX raises prices the price of content will continue to rise along with them.

    But let's ignore all that. Let's pretend that NFLX can raise prices, get back to its glory day margins, and still grow 25% for years to come. What kind of P/S would this yield?

    .07 x 25 = 1.75. Multiply this by $4B in revenues (a number I'm using just to be even nicer) and you get a $7B dollar company....less than half the price it's currently trading at. You can use P/S if you want, but don't try to escape the arithmetic that follows from it. Another issue is your focus on earnings when clearly the company isn't cash flow positive. If all those earnings need to be continually reinvested back into the business to maintain its competitive position (the definition of the situation NFLX finds itself in), it isn't free cash flow. EPS means nothing. In the end, NFLX really has nothing proprietary or "moat-like" except a house hold name. They don't own or create 95% of their content and they don't own cable/satellite infrastructure that they could earn a good margin on. Anyone who got in earlier this year is sitting on some very nice profits, but I suggest they take them before reality sets in.
    Nov 18, 2013. 07:48 PM | 3 Likes Like |Link to Comment
  • Apple beats estimates, guides in-line [View news story]
    Exactly...stock prices are determined by years and years of future earnings, not one quarter of unusually good ones. This quarter will likely never be repeated over the next few years as the upgrade cycle lengthens and people stop buying a new phone every year. Apple's too big to double again, hence the only 5% gain on a huge beat.
    Jan 27, 2015. 08:30 PM | 2 Likes Like |Link to Comment
  • eBay: Short-Term Earnings Weakness Offers A Price With A Significant Margin Of Safety [View article]
    I don't really have a plan right now to be honest. Most likely I'll hold both until I see some material overvaluation in either company. So if PayPal is spun off and reaches an absurd price (multiple of 40x or something) I'd probably sell. Same with the remaining eBay - if it drops in price, but drops to a level I still find to be optimistic given its future prospects, I'd look to swap those shares for another company's.
    Oct 23, 2014. 09:15 AM | 2 Likes Like |Link to Comment
  • eBay: Cheap, But Legitimate Governance And Competition Concerns [View article]
    Good article, thanks. But I do disagree with your assessment of their cash repatriation. Bringing back cash and paying taxes on it doesn't "destroy" anything. Investors should already be (key word "should") discounting the taxes they'll need to pay on it, unless they think management can just keep coming up with multibillion foreign acquisitions to pursue (thus avoiding taxes on it).

    Why everyone keeps wanting these tech companies (CSCO, MSFT, AAPL etc...) to hold massive amounts of cash overseas earning a pathetic 2% in interest is beyond me....shareholders of these companies would have been substantially better off if they just paid taxes to repatriate their earnings and then paid it out in the form of a dividend or buyback. If you don't believe me, throw some hypothetical examples in excel and see for yourself. The fact that the management of EBAY is doing this now, when it's stock has been going down, (and thus closer to undervalued territory) should delight shareholders. Of course, many will take the exact opposite approach and rant about management "destroying" some imaginary value that never existed to begin with.

    Anyway thanks for the article and best of luck.

    Disclosure: Long EBAY at $50 and adding substantially more at $45
    Jun 11, 2014. 04:53 PM | 2 Likes Like |Link to Comment
  • Apple Stays Rotten [View article]
    Wow, you'd think you insulted someone's mother or something..
    Good article David. I'm not sure I completely agree with the way your model works, but I understand the reasoning behind ROIC and your basic premise. Put more simply, Apple's margins are headed down to a more "normal" level as competition catches up and product differentiation becomes increasingly difficult. It's basic economics. I'm only 22 and even I realize this simple fact. It's happened time and time again with electronics (PC's, "dumb" phones, Printers etc...) and yet people invested in AAPL keep wanting to think this time is different. Wonder how that mentality has worked out in the past?

    The worst part is, even if this time is different, what return are AAPL "investors" really expecting to get at this price? 30-50%? 100%? You can get that return in a lot of other stocks. Hell, you could've gotten 100% with HPQ earlier this year. BUT NO WAIT AAPL IS GONNA BE A $2 TRILLION DOLLAR COMPANY!!!111! Yea. Because that makes a lot of sense. The risk involved in AAPL right now isn't horrific, but there's nothing special about the company on the reward side. There was a time to buy AAPL. It was 5 years ago. You missed it. Now get over it.
    Sep 23, 2013. 11:51 AM | 2 Likes Like |Link to Comment
  • eBay Layoffs Will Lead To Attractive Upside Despite Slowing Growth [View article]
    ‎The poster below said it best...The stock market isn't an arena for your social crusade, go wage it elsewhere. I invest in profitable enterprises hoping to get more out of it than I put in. Nothing moral or immoral in any of that. These can include, but aren't limited to, tobacco companies, coal companies or even (the horror) an online market place that pays it's outgoing executives with millions of dollars, just like oh I don't know, just about every other public entity in existence.

    Am I thrilled that he's getting that $23m? No, as a shareholder I'd prefer it be reinvested into the business or paid out to investors. But $23m is so minuscule as to not matter at all in a business that does $18B in revenue. You seem to have a bone to pick with eBay - great, have at it. But do it in a way that actually adds value, rather than just senselessly gripe about how unfair eBay is to you and other sellers. It gets old real fast.
    Jan 26, 2015. 05:09 PM | 1 Like Like |Link to Comment
  • Outerwall: Despite Gains, Still A Bargain [View article]
    I agree that the company is cheap, even with the recent runup, but I'd be careful about assuming that the OUTR can just continue in perpetuity. This is a space that's constantly changing, and I think the future of DVD's, coinstar, kiosks etc.. is a little cloudier than you're admitting in this article. I might limit your time period to say 15-20 years, assume FCF trails off towards the end, lower the discount rate to account for that, and see where your calculations get you. Not saying the company's going bankrupt anytime soon, just don't think it's a business you can count on to be around 20+ years from now. Personally still long OUTR, but viewing the future cautiously...
    Jan 13, 2015. 09:53 AM | 1 Like Like |Link to Comment
  • eBay: Short-Term Earnings Weakness Offers A Price With A Significant Margin Of Safety [View article]
    Yea, I'll admit to being a little lazy there. I probably should have input a range of growth and PE estimates to better display the possible variations in future valuation.

    On the other hand, I don't think a multiple of 20 for a business growing "only" 10-12% annually for the foreseeable future is too aggressive, given that MA and V are doing just that. So even if the Payment segment's growth falls in half over the next 5 years, which I don't consider very likely, I could still see it commanding a multiple of say 18-22 (assuming this deceleration doesn't continue unabated). This also isn't accounting for the excess cash the business would be piling up in the meantime....

    Just to run those numbers (because now you've got me interested), if PayPal's growth falls from 20% to 10% over the next five years (like so: 20%, 18%, 16%, 14%, 10%) and then is expected to continue growing 10% and given a 20 multiple, we get $2.45B x 20 = $49B of equity value. Throw in all the cash the business generated (assuming it didn't acquire smaller players to jack up its slowing growth) and you could probably get close to $60B. Agree with your overall point about being cautious when assigning earnings multiples to uncertain future results though. Just wanted to throw some numbers around.
    Oct 28, 2014. 05:10 PM | 1 Like Like |Link to Comment
  • The Case Against TravelCenters Of America [View article]
    The EV to operating cash flow multiple doesn't matter if all that cash needs to be spent maintaining the business....In their cash flow statement they break out cash spent on acquisitions vs. capex for centers they already own. They spent $109.9M acquiring other businesses and an additional $164.2M on total capital expenditures. This $164.2 is then broken up into cash spent upgrading new centers vs maintaining existing centers, as the CEO mentioned in the conference call above. Capex spent on existing centers was ~$120M (basically maintenance capex), so even if you take your $90M of Dep + NI and then add to that the $77M they received from sales of capex improvements to HPT, AND ignore the other negative items in op. cash flow, you still only end up with 77 + 90 - 120 = $47M in FCF, as a BEST case scenario. Which equates to what, an 8x multiple for a highly levered, slow growing company that constantly dilutes shareholders and could have its razor thin margins wiped out instantly if oil prices rise (sure oil is falling now, but what if that reverses)? I really don't see the appeal.
    Oct 22, 2014. 05:32 PM | 1 Like Like |Link to Comment
  • eBay: Short-Term Earnings Weakness Offers A Price With A Significant Margin Of Safety [View article]
    I haven't been able to find the exact terms of the spinoff (don't think they've been released yet), but typically existing shareholders receive shares of the new company being spun off. Thus, eBay shareholders will also become shareholders of PayPal. Meanwhile, eBay stock will probably tank after the spinoff (because PayPal is no longer encapsulated in the value of the company). My thesis is that the gain in value from PayPal being spun off will exceed the value lost by eBay stock. Here's some reading on it.....
    Oct 21, 2014. 01:47 PM | 1 Like Like |Link to Comment
  • Valuing C.H. Robinson In A Maturing 3PL Environment [View article]
    Agree with a lot of your overall conclusions, although I definitely didn't put as much work into all the fancy formulas or regression analysis as you did. Around $51, where I scooped this one up (got pretty lucky and bought around the bottom), it just seemed almost impossible to lose money given the growth management was targeting (although I took that with a grain of salt), and the manner in which they return capital to shareholders (big buybacks earlier in the year).

    I looked at it similarly with the P/E approach, and even with low-mid single digit revenue growth, as long as margins didn't erode too much, 12% a year in returns (including dividends) seemed conservative. Here we are though 30+% later and I'm thinking of taking some off the table. Competitive threats and the lower margins associated with them are clearly a concern for management and I don't know if they'll be able to maintain the growth needed to justify 20+ multiples forever. Great company though, and in an interesting business. Seeing any more cheaply-priced companies in this expensive market?
    Sep 23, 2014. 09:53 AM | 1 Like Like |Link to Comment
  • Why iPhone 6 Won't Reverse Apple's Market Share Decline [View article]
    It's always fun to read comments from people who own Apple but clearly haven't thought through any of their rationale for owning it (disclosure no position in AAPL). I'm not even going to comment on your claim about no one considering Android phones better than iPhones, because honestly no one in the real world cares except the people who post on these message for iPhone saturation and your claim about growth in South America being you even look at income statements? How fast is Apple growing currently? Answer: 5%. Wow. What an amazing company. I totally want to own a company growing in the single digits, and who has half of their revenue coming from the iPhone which is being commoditized as we speak. I definitely don't see any risk at all in that scenario.

    But wait, bigger screens will make everyone switch to Apple!1!!1! Right. Because I forgot everyone has the ability to predict what smartphone people are going to want 2 years from now. The leaders of the cellphone market 7 years ago (Blackberry and Nokia) never experienced an enormous loss of customers to a competitor in a short amount of time, and everyone saw it coming in time to dump their stock and avoid losses. I'll say it here: Apple's stock price will NEVER double from this point forward....think through the implications of that....what's your maximum return? 30% plus a dividend over the course of a few years, and while taking on a pretty substantial amount of risk? Yea....I can't believe I don't own Apple, what a fantastic steal!
    Jun 21, 2014. 06:11 PM | 1 Like Like |Link to Comment