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reitdude42 19 posts  |  Last Activity: Oct 20, 2014 1:19 PM Member since: May 1, 2009
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  • reitdude42 reitdude42 Oct 20, 2014 1:19 PM Flag

    Seriously? What does the equity market cap have to do with valuation?

    On a 2015 P/E basis:

    BABA trades at 38x GAAP
    FB trades at 38x GAAP
    TWTR trades at 137x non-GAAP (earnings are adjusted bc they still lose money having lost $277M ytd)

    If we were to even value TWTR at 2x the P/E of these two companies or 76x which is in-line with the TSLA's and LNKD's than the warranted share price for TWTR is $28.

    And remember despite growing revenues at 124% y-o-y in 2Q to $312M, expenses grew 159% to $462M. That means that TWTR spends $1.50 ($462/$312) to earn $1 in revenues ($312/$312).

    And you're willing to pump a stock that not only loses money at an expense rate of 1.5x greater than revenues but is valued at over 3.5x higher than BABA and FB on a P/E basis?

    Good luck with that.

  • Reply to

    Netfilx results do not bode well for Twitter

    by reitdude42 Oct 16, 2014 5:37 PM
    reitdude42 reitdude42 Oct 17, 2014 11:22 PM Flag

    I appreciate the input! Thanks

  • Reply to

    Netfilx results do not bode well for Twitter

    by reitdude42 Oct 16, 2014 5:37 PM
    reitdude42 reitdude42 Oct 17, 2014 10:37 PM Flag

    I'm looking for a couple more weak earnings reports in the tech sector specifically next week...its been the trend with NFLX, EBAY and GOOGL. That, combined with ongoing Ebola, geopolitical and global slow down concerns may get us the capitulation that we've been looking for...

    I'll cover my entire position sub $44, if it gets there...otherwise, I'll cover half going into earnings for risk management.

    What else are you looking at, bbq?

  • Reply to

    Netfilx results do not bode well for Twitter

    by reitdude42 Oct 16, 2014 5:37 PM
    reitdude42 reitdude42 Oct 17, 2014 8:23 PM Flag

    Hey bbq...I think that 2Q was a little inflated with the start of the World Cup so its hard to do a proper comparison. i'm very curious to see how 3Q comes in given that the World Cup ended in the beginning of the quarter....

    I think that someone on Seeking Alpha tried to examine 2Q results ex-World Cup...might be worth a read...

    But it does make you think that's why I'm not 100% confident either way...

  • Reply to

    Netfilx results do not bode well for Twitter

    by reitdude42 Oct 16, 2014 5:37 PM
    reitdude42 reitdude42 Oct 17, 2014 6:10 PM Flag

    Honestly, I believe that they will in fact miss on at least two of the above items. However, I've never seen a company manage their stock price so effectively with such "timely" press releases. So I wouldn't be surprised that despite some misses, they announce some acquisition on the earnings date to deflect attention away from earnings (they raised over $1.8B last month through convertible debt offerings) and try to talk up the vast future revenue potential that it'll provide to the jubilation of those idiotic Wall Street analysts...

    Also, I've never seen such "timely" upgrades or buy reiterations. Recall, the morning before the large offering UBS upgrades them. The debt offering is announced after close of market. The stock falls after hours. Then the very next day Canaccord Genuity initiates with a buy. That's just way too fishy!

    Then as the markets begin to sell off amid broad investor nervousness and uncertainty, JP Morgan upgrades them last week!? A +130x non-GAAP P/E valued company that has lost $277M in the first two quarters of 2014 and is up over 77% since the end of May? Come on....

    Wait it gets even better...

    Earlier this week, the vampire squids themselves, Goldman Sachs, reiterates their buy on TWTR following tremendous overall market weakness.

    Not on Apple that trades at 13x GAAP P/E or Google at 17x (GAAP) or Facebook at 37x (GAAP) or even Tesla at 71x (non-GAAP) but Twitter which trades at an astronomical 132x (non-GAAP)! This despite needing $1.50 in expenses to earn $1 of revenues in 2Q. No mention of that anywhere! Everyone talks about 2Q revenues growing 124% yoy but no one highlights that expenses increased 159%! Why is that?

    I have a short position in them but I wouldn't recommend it given these issues. I know that it sounds "conspiracy"-esque but I just don't trust anything related to the shady people involved in this company. I may look to reduce/eliminate my short should the market tank prior to earnings...

  • Reply to

    Netfilx results do not bode well for Twitter

    by reitdude42 Oct 16, 2014 5:37 PM
    reitdude42 reitdude42 Oct 17, 2014 4:24 PM Flag

    One other issue for Twitter and other companies with international exposure to contend with in 3Q is that the higher US dollar will impact the repatriation of foreign earnings.

    The Euro fell from around $1.35/euro to ~$1.25/euro or a fall of almost 7.5% during the third quarter, the pound fell ~6% in the same period. Advertising revenues earned in these currencies were worth less in US dollars in the quarter. The increase in the US dollar relative to other foreign countries was even more pronounced.

    Despite earning the bulk of its revenues from US users ($3.87 vs. $0.79 international), the low foreign rate combined with an overwhelming non-US engagement rate reduces the company average to $1.60 per user:

    *Of 271 million monthly active users (MAUs) in 2Q, only 60 million (22%) were in the U.S...
    *Of the 173 billion timeline views in 2Q, only 47 billion (27%) were in the U.S...

    So not only did the World Cup end in the beginning of 3Q limiting foreign engagement but the rising US dollar will also put further pressure on the foreign monetization rate.

  • Netfilx reported 3Q results last night and despite beating on EPS and revenues, subscriber growth came in at 3M compared to 3.9M expected leading to a 20% sell off in the stock today.

    Twitter reports 3Q results on October 27th and has to beat analyst expectations on:

    1) revenues
    2) EPS
    3) monthly active users
    4) timeline views
    5) advertising revenue per 1000 timeline views

    This is a very difficult hurdle for any company...let alone one that is outrageously valued and has shown very inconsistent results since 4Q13.

    The revenue estimate for 3Q is over $350M. Compare that to 2Q revenues that came in at $312M and that was with the start of the World Cup! If the majority of the World Cup users leave the site after the tournament, how are revenues expected to surpass those from 2Q?

    Remember, its not the amount of ads on your Twitter feed, its the number of clicks on those ads or user engagement that determine advertising revenues.

    So if Twitter misses expectations on any of of those 5 metrics than the stock has the potential of sell off greater than what Netfilx experienced due to its excessive valuation.

    Prior to earnings, Netflix was trading at GAAP P/E of 70x. It is a profitable company that sold off almost 20% despite beating on revenues and EPS.

    Think about that.

    Now consider that Twitter trades at a non-GAAP P/E of 130x (earnings are adjusted bc they've yet to show a profit) and has lost a combined $277M in the first two quarters of 2014. How much do you think that it will sell off should it miss any one of those expectations?

    And also remember 2Q results. Revenues were up 124% to $312M. Everyone talked about how amazing that was, right? Not really since expenses were up 159% to $462M. Said differently, Twitter spent $1.48 in expenses ($462/312) to earn $1 in revenues! That's no way to run a business and when you least expect it, those Wall Street analyst clowns will eventually pick up on this...

    Too risky to invest prior to earnings, long or short...

  • Reply to

    Gotta Love TWitter At This Price

    by cubicle_99 Oct 16, 2014 4:03 PM
    reitdude42 reitdude42 Oct 16, 2014 5:03 PM Flag

    Friend,

    GOOGL trades at a forward GAAP P/E of 17x.

    Twitter trades at a forward non-GAAP P/E of 130x. The reason that its non-GAAP is bc analysts are forced to adjust their earnings for non-cash though recurring items in order to get to a positive net income measure.

    I can repeat this for P/S, FCF multipe, PEG...etc. and it would be the same conclusion. Twitter is expensive relative to every other tech company save perhaps YELP.

  • reitdude42 reitdude42 Oct 2, 2014 10:38 AM Flag

    Nonsense. It's a linking source to real news outlets.

    Do you realize that based on a $50B market cap or +$82 share price, on 2015 NON-GAAP (read: unprofitable) earnings of $0.37 per share, that's a P/E multiple of +220x?

    The only companies that can realistically afford that absurd market cap are AAPL and GOOGL. AAPL trades at 14x 2015 GAAP earnings and GOOGL at 18x. These are profitable companies.

    The approx. implied cost of equity for these companies are:

    AAPL = 7%, GOOGL = 5.5% and TWTR = 0.4%!

    0.4%!

    AAPL would theoretically sell shares at a cost of 7% to gain a return of 0.4%.

    Sure. And you're the Queen of Spain.

    It would be among the dumbest actions in corporate history. Do you think that AAPL institutional shareholders would ever ratify this, your majesty?

  • reitdude42 reitdude42 Sep 29, 2014 5:33 PM Flag

    Sure. And unicorns fart rainbows.

    Some 20-something programmer at FB wrote an algorithm on a $900 laptop creating FB's "follow" feature that effectively replicated TWTR's entire business model. And you think that FB will offer TWTR $40B for theirs? Particularly when they just purchased WhatsApp with their +600 million users for $19B.

    Year-to-date, TWTR has lost $277M, they pay themselves 50% of their revenues as stock-based compensation expense and trade at astronomical valuations. Since earnings estimates are reported on a non-GAAP basis for TWTR because they're unprofitable, a comparison with FB can't be done unless we make some adjustments and calculate free cash flow (FCF).

    2Q FCF from Yahoo Finance: TWTR = $37M or ~$150M annualized, FB = $872M or ~$3.5B

    Current market cap: TWTR = $31.5B, FB = $205B

    FCF multiple: TWTR = $31.5B / $150M = 210x, FB = $205B / $3.5B = 59x

    TWTR is 3.5x more expensive than FB on a FCF multiple basis!

    According to consensus estimates, 2015 revenue growth is expected to be 67% for TWTR and 34% FB or 2x. So why is the market forcing you to pay 3.5x on FCF?!?

    Let's do something fun and apply its revenue growth rate multiple vs. FB to FB's FCF multiple in order to arrive at an appropriate relative valuation for TWTR:

    2x FB FCF multiple = 59 x 2 = ~120x.

    TWTR warranted stock price = $150M x 120 = $18B / 660M shares = $27

    $27! TWTR is worth $27. So if FB were to buy TWTR in unicorn and rainbow land, it would be for a ~50% discount to the current price!

    (And I won't even get into how 2Q revenues for TWTR increased ~125%....yet expenses surged ~160%...why further spoil people's takeout dreams...)

  • Reply to

    Interesting days ahead

    by bbqpitking Sep 23, 2014 5:43 PM
    reitdude42 reitdude42 Sep 23, 2014 11:15 PM Flag

    I agree, bbq. There's a definite short-term concern for equities given recent weakness in Eurozone manufacturing and services sectors as well as escalating airstrikes in the Middle East. Longer term, market pundits remain optimistic given the strengthening U.S economy. So there is a definite floor to any approaching sell-off...the lows of August may be tested as you point out but that would imply a drop to sub $44 for TWTR and I don't think that it goes that low...though you never know with this stock?!?

    That said, I'm surprised that Twitter is doing as well as it is given its frothy valuation and its strong relative performance since early August. Other tech high flyers such as Telsa, Zillow and LNKD have been on a downward trajectory since mid last week. Should be an interesting rest of the week....

  • Reply to

    Who has their foot on TWTRs neck?

    by jpaulgettytoo Sep 23, 2014 1:03 PM
    reitdude42 reitdude42 Sep 23, 2014 6:00 PM Flag

    Goodness...what on earth would either MSFT or GE want with a +$30B, unprofitable social media company? It has nothing to do with their core businesses...

  • Reply to

    Who has their foot on TWTRs neck?

    by jpaulgettytoo Sep 23, 2014 1:03 PM
    reitdude42 reitdude42 Sep 23, 2014 1:50 PM Flag

    Takeover? Not a chance. It's a $32B company. It would take at least $40B to buy it out. There are few companies with that kind of capital to purchase Twitter. Moreover, it is still highly unprofitable having lost $277 million in 1H2014. And its stock based compensation expenses are running at 50% of revenues compared to FB at ~11%.

    Most importantly, it trades at a Price-to-non-GAAP earnings ratio of ~140x. (We can't calculate a normal GAAP P/E ratio bc its earnings are still negative). At the 140x multiple, it has an approx. implied cost of equity of 0.7%. Compare that to Apple that trades at a GAAP P/E of 14x or an approx. implied cost of equity of 7%. Why would AAPL management buy TWTR to yield a 0.7% return when it could buy back its own shares and earn 10x the return?

    Higher growth rate? Ok. But TWTR's rate of revenue growth is expected to decline from 105% in 2014 to 67% in 2015, a decline of 36% as revenue comps get tougher. AAPL - on the other hand - will grow from an expected rate of 5% in 2014 to 11% in 2015, a rate of increase of 120%.

    Anyway, for any public company to buy TWTR where its trading today would be not only one of the most foolish corporate actions in history but it would NEVER be ratified by the purchasers shareholders.

    Let's instead focus on what TWTR should purchase in order to growth revenues even more.

  • Reply to

    If twtr enters China under some kind of JV

    by fatedecides21 Sep 23, 2014 11:56 AM
    reitdude42 reitdude42 Sep 23, 2014 1:08 PM Flag

    I highly doubt that a totalitarian regime would allow a service whose platform is based on the uncensored flow of news, information and opinions to operate freely in their country.

  • Reply to

    Thinking of buying TWTR....but

    by pes1942 Sep 20, 2014 12:19 AM
    reitdude42 reitdude42 Sep 22, 2014 1:04 AM Flag

    I agree, bbq. Good luck to you.

  • Reply to

    Thinking of buying TWTR....but

    by pes1942 Sep 20, 2014 12:19 AM
    reitdude42 reitdude42 Sep 21, 2014 1:40 PM Flag

    bbq,

    Thanks for the constructive reply! I can't disagree with you at all regarding your momentum comment...the stock will move +20% post 3Q earnings, it's just - as you say - who knows which direction?!

    Twitter is priced to perfection. One mistake, one metric that goes in the wrong direction and its lights out for the longs. I don't know whether a novice investor should take that risk. That's all...I just wanted him to be aware.

    My concern is that its finished up every week for the past 6 weeks and outperformed its closest competitor Facebook by almost 25% during that time period. That's insane! A competitor, that I might add, is profitable and trading at a considerably cheaper valuation. Once this momentum stops for whatever reason (the 10 year spikes, some black swan event, a general rotation of capital away from tech...) then its stocks that are excessively valued that will be the first sold.

    A prolonged correction will come...its just a matter of time.

  • Reply to

    Thinking of buying TWTR....but

    by pes1942 Sep 20, 2014 12:19 AM
    reitdude42 reitdude42 Sep 20, 2014 3:54 PM Flag

    Here's something that no one on this board is paying any attention to when they offer their sage investment advice regarding Twitter...numbers.

    Keep in mind that momentum has a way of suddenly shifting. It may be this week or next week or the following month but it will shift and when it does, investors will be selling expensive, unprofitable companies with overwhelming short-term outperformance...like Twitter:

    1H2014 net income (GAAP):

    TWTR = -$277M (that's negative!)
    FB = $1,427M
    YHOO = $643M

    2015 P/E:

    TWTR = 143 (non-GAAP - since earnings are negative)
    FB = 39 (GAAP)
    YHOO = 32 (GAAP)

    2015 Price-to-sales:

    TWTR = 14x
    FB = 12x
    YHOO = 9x

    Performance since the most recent market lows of August 7th:

    TWTR = +30%
    FB = +6%
    YHOO = +15%

    NASDAQ = +6%

    Twitter is a great service...it's just that it's fundamentals do not support its staggering valuation.

  • Reply to

    Nonsensical buyout posts

    by reitdude42 Aug 24, 2014 11:47 PM
    reitdude42 reitdude42 Aug 25, 2014 9:38 AM Flag

    Buying a company that trades at 128x forward earnings is not a smart acquisition...particularly if as your logic dictates that "its heyday is 5-10 years ahead."

    That's called dead money.

    FB traded at over 100x earnings around its IPO price of $38 and the market rewarded it with drop to $18. However, in two quarters it was able to monetize its mobile platform rewarding shareholders with revenue growth rates averaging over 80%.

    FB currently trades at a forward P/E of 37x...perhaps GOOG should buy them instead?!?

    Dominate news media? Sure...if you have an attention deficit disorder:

    $TWTR. Great investment in 5-10 years! #mktmhm11isamoron!

  • reitdude42 by reitdude42 Aug 24, 2014 11:47 PM Flag

    Not to be a downer to some of the posters hoping for a buyout by either AAPL or GOOG but here's a little finance 101 to quickly force you back to reality:

    AAPL trades at a forward P/E of ~14x or an implied cost of equity of 1/14= 7%
    GOOG trades at a forward P/E of ~19x or an implied cost of equity of 1/19 = 5%

    For either one of these companies to issue equity at these costs in order to hypothetically "purchase"...

    TWTR that trades at a forward P/E of ~128x (an 0.8% cost of equity)

    ...would be perhaps the dumbest, most dilutive corporate action in history! No AAPL or GOOG shareholder would ever ratify this transaction.

    It makes more hypothetical sense for TWTR to issue a ton of its equity at this inflated P/E in order to purchase another company much like FB has been doing with its recent purchases (Whatsapp, Oculus)....

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