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Fundamental Analysis of 3 Tech stocks - YouTube
Channel: unknown
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so according to me there are three
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fundamental issues with the business of
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pcs as of now hi everyone welcome to
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today's video so let me start today's
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video by talking about the reality of
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the stock markets as of now
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it has become a game of snake and ladder
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every time you make a little bit of
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profit feds come in central banks come
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in and they increase the interest rate
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and all your profits go away it's a
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scary situation so of course this leaves
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you with two options one you will say
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that hey stock markets very risky right
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now very volatile i am not going to
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invest please don't do that simply
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because of the fact that the inflation
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is so high that if you stop investing
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for the next seven years 40 of your
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wealth will go away that is what the
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study tells us second and more sensible
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option that you start identifying assets
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that are coming down to sensible
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valuations you start taking some
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positions in it in the short term you
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might still suffer some notional losses
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but this is the only way of making money
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in the stock market in the long term
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this is precisely what even smart
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investors like mr warren buffett are
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also doing he has started buying
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equities in bulk so he has recently
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started purchasing apple stocks if you
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want i will make a separate video on
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that so on today's video i am going to
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discuss three specific tech monopoly
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stocks both in india and the us
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these stocks have fallen a lot
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it might appear that it is a great time
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to enter this talk so that is the
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precise conversation that we are going
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to have today so should we be entering
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should we not be entering so i am going
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to do a technical and fundamental
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analysis of these stocks so let us get
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the discussion started and let us first
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and foremost talk about netflix because
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the stock has come down by roughly 70
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from its top this is no joke netflix is
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a major stock when it comes to the ott
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platforms it's one of the most loved
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platforms so do say people also enjoy
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watching shows like squid games and i
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don't know probably watch movies like
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twilight or something but yeah bottom
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line is that it's a very loved platform
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and it has fallen by roughly 70 so i'm
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getting a lot of messages should we go
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ahead and buy this stock okay so let us
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do a very quick analysis on that so
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netflix has approximately lost 70
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percent of its value and there are a
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series of reasons that are being
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outlined for the same so let me
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bifurcate apparent reasons from
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non-apparent reasons and you should be
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more considerate about non-apparent
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reasons so let us first talk about the
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obvious reasons here so so first and
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foremost people are saying that nick so
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netflix has recently lost 200 000
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subscribers this is true is it really a
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worrisome sign the answer is no because
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netflix has approximately 220 million
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subscribers out of which if 200 000
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subscribers go away it's not end of the
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world for something like netflix which
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is good news second reason for the fall
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that people are pointing to is that
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netflix password sharing problem has
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gone haywire and people have been
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sharing passwords with each other and
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that is the same problem that was there
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in russia and netflix lost a lot of
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business okay we have been doing it for
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years when i say we please don't include
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me in it i can't say yes or no to it on
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public platform otherwise netflix might
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sue me but i hope you get the picture in
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india people have been doing it for
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years now it doesn't matter so these are
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general general things that you might be
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witnessing about netflix and honestly
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this is not a good reason not to invest
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in netflix but am i going to invest in
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netflix the answer is no and it has got
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nothing to do with these two factors
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that i currently outline now i will help
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you understand the real story as to why
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buying netflix stock even now is still
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problematic despite a 70 fall in the
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stock price so first and foremost you
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need to understand the fact that netflix
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actually undertakes a lot of expense in
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terms of producing content now this is
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something which is completely opposite
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to youtube so let us quickly compare the
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business model of both these firms from
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a content generation perspective
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now this is the production spend or the
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content generation spent of netflix you
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can see that every year this number
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keeps on going up up and up
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this is crazy and this keeps on going up
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and there is no economies of scale now
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what do i mean by economies of scale
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here for example if netflix recently
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produced it undertook a lot of expense
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in terms of content generation for it
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now if let's assume it creates like a
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bhojpuri version of squid games like
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teeter battery games or whatever it will
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still have to undertake a lot of expense
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in terms of producing that content
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netflix or any content platform has not
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been able to figure out what type of
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content will work versus not so they
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need to run a series of experiments in
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terms of producing that content figuring
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out the product market fit and there is
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never an economies of scale that is
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generated in terms of content now
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unfortunately for netflix it is in a
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model where it first has to generate
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content and people get attracted to that
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content and join the platform so it's a
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content led play on the flip side if you
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compare it to the business model of
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youtube the content that is generated
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for youtube it's free youtube does not
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pay content creators to generate content
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almost to none of them or to a very
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small percentage of them so this content
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generation game for netflix is very very
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costly affair and it keeps on going up
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and up and up because it keeps on
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getting harder and harder to keep on
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creating curious and intriguing content
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for users that they will come to pay and
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watch now you might say that akshatin
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award then from that example even disney
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might be a bad play yes you might be
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right but here is the difference between
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disney and netflix now here is the
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revenue streams of disney disney makes
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and here is a split for you it makes a
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lot of money from park experiences
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products media and entertainment linear
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networks direct to consumers and a
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series of different different areas and
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angles so its revenue streams are
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extremely diversified how does netflix
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make money just by selling you
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membership and even that you share it
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with your friends further so you are
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hurting netflix's revenue there so the
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point that i'm trying to tell you is
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that the second biggest problem in
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netflix's business model is that it is
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not a diversified business i had made a
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video earlier comparing disney and
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netflix and i categorically said that if
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i were to invest i will invest in disney
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over netflix and this was one of the
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reasons why that going forward as the
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markets evolve as more and more creator
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economy shapes up nft economies shape up
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something like disney is much well
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equipped in terms of leveraging that
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market and making more money from it
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netflix unfortunately is not at that
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stage because it mostly releases a
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series of shows etc which can't be
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turned into a brand value game but on
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the flip side something like disney
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which owns a series of mascots a series
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of brands for example mickey donald duck
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etc etc they can turn them into
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licensing and digital assets so because
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netflix can only depend on one source of
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income so they have to maximize it so
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these are the membership plans of
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several ott platforms in u.s and canada
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and you can clearly see that netflix
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comes out literally at the top which is
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not a great sign as you increase the
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price you push people to share their
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passwords and what and it becomes like a
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problem to compete with other brands so
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now comes the third point which is the
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increased competition and this graph
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indicates this entire aspect beautifully
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so this shows the comparison of netflix
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versus disney that netflix started in
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2012 and disney hot star started in 2020
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and within a year year and a half of
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launch disney hotstar reached at
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approximately 100 million subscriber
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base and netflix in total was only able
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to reach around 210 million subscriber
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base this categorically shows that the
[447]
competition in the ott space is heating
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up quite aggressively and unfortunately
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netflix seems to be losing that race so
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to cut the long story short will i be
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investing in netflix the answer is no
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because the business model itself looks
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very dicey it is not clear how they are
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going to win in this competition stock
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price might fall further it might rise
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further but to be honest i don't see
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something like netflix competing quite
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aggressively 10 years 15 years 20 years
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down the line with something like disney
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or other ott platforms that are out so
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with that said let us move to an indian
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monopoly stock or one of india's largest
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tech companies which is tata consultancy
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services tcs and let's analyze that
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stock so if you take a look at the
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technical indicators for tcs you will
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see that the stock has fallen from its
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peak by roughly 15 percent this is not a
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small fall for a stock like pcs because
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tcs is not a front end tech it is not
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like amazon it is not like google it
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does not have the same growth rate
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compared to these companies so 15 fall
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for a company like tcs is a big fall
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that is point one and that is the reason
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why people are saying that you know what
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probably a great time to buy tcs because
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the stock price has fallen and it might
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not fall further so let us analyze that
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viewpoint as to why the stock has fallen
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in the first place and there are a few
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reasons that have been given first and
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foremost take a look at this particular
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chart it categorically shows the growth
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rate of the company which is not very
[530]
encouraging it puts three-year sales
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growth at roughly nine percent five
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years at ten percent for a tech company
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or a semi-tech company these are not
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good growth rates per se this is point
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of problem number one second key reason
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for the fall of tcs has been that there
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has been a broad base correction for
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tech stocks in the us now us is
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predominantly a tick driven market take
[552]
stocks there have fallen entire u.s
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stock market has fallen quite
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aggressively and as a result take stocks
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all across the globe including in india
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something like tcs vipro etc have also
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fallen so this is the second reason for
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the fall and a very apparent reason for
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the fall third and final reason that
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people are saying why tcs talk has
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fallen is that hey there is like
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manpower issue and there is like profit
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margin preservation issue that going
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forward tcs will have a hard time in
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terms of preserving its margin now this
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has been outlined in the form of high
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iteration through this article these are
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all valid reasons and these are some
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concerning reasons as well so if we look
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deeper and if we try to uncover the
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story behind the curtains what is it
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that we can figure out so according to
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me there are three fundamental issues
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with the business of pcs as of now so
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first and foremost there is very high
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iteration problem that we are witnessing
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a company like infosys is witnessing
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approximately 27 iteration rate this is
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one of the highest that it has ever
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witnessed other it companies are also
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witnessing super high iteration rate and
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this is a major cause of concern for
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businesses like tcs
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why because tcs is not in tech business
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fundamentally speaking it is according
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to me in a manpower management business
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what they simply do is that they will
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pick up engineering graduates from tier
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2 tier 3 colleges sometimes tier 1
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colleges also pay them a basic package
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make them do slightly higher order work
[638]
and turn like civil engineers and to
[640]
computer science engineers and
[642]
mechanical engineers into computer
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science engineers bottom line is that
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this model worked really well up to a
[647]
point but now with better opportunities
[650]
in the market with more startups coming
[652]
up they are scouting for talent there is
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a talent war going on there startups are
[656]
paying more money so a lot of engineers
[658]
after getting their basic training at
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tcs they leave the jobs for better
[662]
opportunities in terms of higher perks
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and higher salaries now the problem with
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companies like tcs is that this tier 2
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tier 3 pool is switching to startups and
[671]
other jobs that are paying them better
[672]
so the option for tcs is that either to
[675]
pay them higher salaries if they do that
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then the profit margins get crushed
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second is that they go and hire better
[682]
people and try to get more work out of
[684]
them but unfortunately the it companies
[686]
in india have built their brand
[687]
positioning in such a way that they are
[689]
unable to recruit top talent in this
[691]
space so this is a talent war that is
[693]
going on with companies like tcs wipro
[696]
etc and new age startups that are
[698]
willing to pay higher salaries in order
[700]
to attract trained talent the second key
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problem that a company like tcs is
[704]
facing is in terms of executing projects
[707]
take a look at this particular chart it
[709]
categorically shows that customers in
[710]
the us or europe they want holistic
[713]
solutions they don't need very
[714]
rudimentary solutions anymore that model
[717]
has been done away with so customers
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expect cloud oriented solutions cyber
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security solutions and a range of
[723]
integrated solutions and tcs will have
[726]
to amp up its game this is not only
[728]
relevant to a company like tcx but this
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is relevant for almost all the it
[732]
companies that they have to offer a
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series of suits in terms of executing
[737]
these type of complex projects can they
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alter their business models i don't know
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but the existing business model it
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definitely needs to get altered now
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comes the third and final problem with a
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company like pcs this problem is very
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funny it is called as moonlighting
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problem and what it simply means is that
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there are employees at these i.t
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companies who work with these different
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clients they build relationship with
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those clients and then they end up
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becoming freelancers and taking business
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away from companies like tcs and vipro i
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am laughing a little bit but this is
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like a very complex problem for
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companies like wipro and tcs to solve
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because with the growth of freelancer
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economies this problem of freelancing is
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only going to go up from this point and
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i will be very curious to see how
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companies like tcs can actually tackle
[781]
this freelancing and moon lighting
[782]
problem let me know what is your
[784]
viewpoint on this moonlighting problem
[786]
have you seen your colleagues doing it
[787]
are you doing it don't use your real
[789]
name in the comment section but would
[791]
love to hear your response on this so is
[793]
tcs at a great buying level i am
[795]
personally not investing in it but if
[797]
you want to invest a little bit of money
[799]
it might not be a bad idea why because
[801]
tcs is still a very sensible company it
[804]
still has a very keen management good
[806]
business model good existing set of
[808]
contracts no fundamental problem at play
[810]
per se but from a slightly long term
[812]
perspective the business model looks a
[814]
little bit shaky as far as i can see so
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i'm not willing to put my money but if
[818]
you just want to buy the dip a little
[819]
bit here and right the way for a little
[822]
while it might make sense now let's move
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on to the third stock which i'm
[825]
definitely going to buy and it is amazon
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now first and foremost let me show you
[830]
to what extent amazon has fallen so if
[832]
you check from the top amazon has fallen
[834]
by roughly 35 now this is a big fall for
[838]
a company like amazon now why has the
[840]
stock price fallen one primary reason
[842]
for that was the loss of operating
[843]
income and the operating income coming
[845]
down and a lot of banks have also
[848]
revised their ratings on amazon so these
[850]
are the list of new fresh prizes issued
[853]
by several series of banks and this is
[855]
what they are saying the deutsche bank
[857]
has cut down its target from 4100 us
[859]
dollar to 35 and bunch of other banks
[862]
have also cut the target to
[864]
approximately 3500 range this is not bad
[867]
because right now amazon stock price is
[869]
trading at roughly twenty five hundred
[871]
dollars so there is a lot of gain to be
[872]
made so this is point one this is an
[875]
independent analysis done by a series of
[877]
banks now let us delve deeper and try to
[879]
see as to why amazon has fallen so first
[881]
and foremost reason was that it invested
[884]
in a company called as rivian
[886]
automobiles and that company undertook
[888]
insane amount of losses its stock price
[891]
tanked from roughly 180 to 32 dollars so
[894]
amazon undertook a lot of losses i have
[896]
been saying on my channel that please
[898]
don't invest in evs i wish jeff bezos
[900]
would have listened to my videos okay
[902]
this is just a joke don't take it too
[903]
seriously but yes that was an eevee
[905]
company which kind of got wiped out and
[907]
amazon took a lot of hit due to that
[910]
second key reason that if you check a
[912]
lot of commentaries coming out that you
[914]
know what after covet 19 people want to
[916]
go out they want to go out to malls all
[918]
this stuff so amazon is likely to suffer
[921]
and yes in the short term this makes
[923]
sense that there will be change in
[924]
customer sentiment and there will be
[926]
short-term pain because of that and i
[928]
think we have reached that stage and
[930]
amazon is taking a little bit of it due
[932]
to that now third and finally and this
[933]
is a more concrete reason that
[935]
inflationary pressures on amazon has
[937]
gone up quite aggressively if you take a
[939]
look at this that inflation related
[941]
expenses in the form of higher wages in
[943]
the form of supply chain issues has
[945]
roughly increased 2 billion of
[947]
incremental cost for amazon this is
[949]
quite a big number and as a result
[951]
amazon stock price has come down okay so
[954]
let us now delve deeper that are these
[956]
temporary problems or are these problems
[958]
going to stay forever or are there any
[960]
other fundamental issues with amazon so
[962]
i will draw your attention to a couple
[964]
of key financial terms here so one is
[966]
the operating income of amazon so here
[968]
is a chart for you and it categorically
[970]
shows the operating income from
[972]
different revenue streams for amazon for
[974]
example if you take a look at the north
[976]
america business then till q2 of 2021 it
[980]
was doing well but by q1 of 2022 the
[983]
north american business started turning
[985]
negative the operating income became
[987]
negative same goes for international but
[989]
the aws or amazon web service which is
[992]
the cash cow or the most prominent
[995]
business for amazon it has been doing
[997]
phenomenally well and it has been going
[999]
up in numbers and there has been no
[1001]
downfall in aws so this is the first key
[1004]
thing that you must remember the second
[1005]
key problem with amazon has been that in
[1007]
the last two quarters its free cash flow
[1010]
has been negative and people are
[1011]
panicking because of that if you relate
[1013]
the graph one with graph two what you
[1015]
will see is that this free cash flow has
[1017]
become negative because its core
[1019]
operations from its non-aws services and
[1023]
as a result the free cash flows have
[1025]
come down and have become negative now
[1026]
relate these two graphs to one of the
[1028]
snippets that i showed you earlier which
[1030]
was related to high inflation
[1032]
if you check high inflation this
[1034]
inflationary problem is not forever
[1036]
going to be there and when it comes to
[1038]
e-commerce business of amazon it is
[1040]
going to get hit the most due to high
[1042]
inflation so as and when the inflation
[1045]
number dies down the e-commerce business
[1048]
of amazon will get picked up and the
[1050]
stock price is likely to move up from
[1052]
that point so from a long term this is
[1054]
what i see with amazon happening number
[1056]
one the aws business of amazon will
[1058]
continue to do really well it is already
[1061]
doing fairly well as the inflation
[1062]
problem dies out it has to die out at
[1064]
some stage even the e-commerce business
[1066]
will become positive again three company
[1069]
as a whole is growing there has been no
[1071]
issues with the company's growth it is a
[1072]
monopoly business and it will continue
[1074]
to thrive
[1075]
so i am going to aggregate more of my
[1077]
position in something like amazon it is
[1079]
given the more it falls the more i am
[1081]
going to buy important point to note is
[1083]
that please don't put all your money in
[1085]
amazon in one go just because it is at
[1087]
good buying levels as of now don't do
[1090]
that because there can be a short term
[1091]
pain especially due to inflation you do
[1094]
it something like amazon can also suffer
[1096]
please don't invest all your money in
[1097]
one go but you could consider taking
[1099]
maybe 20 30 position in such a company
[1102]
it is a great business and it is likely
[1104]
to give good returns going forward in
[1105]
the future this is not a buying
[1107]
recommendation take my inputs as just
[1109]
one data point and do your further
[1111]
analysis
[1112]
but just to cut the long story short
[1114]
right now we are in a very interesting
[1116]
stage of the market that a lot of good
[1118]
stocks are available at discounts if you
[1120]
want i'll make a part 2 of this video
[1123]
let's hit the target of 15 000 likes on
[1125]
this video then i will release part 2
[1127]
especially with apple stock and then we
[1129]
will do further analysis of it but for
[1131]
the time being remember the point that a
[1133]
lot of good stocks are available in the
[1135]
market at discounted rates it does not
[1137]
mean that they will not go down further
[1140]
in the short term they very well might
[1141]
given the volatility in the market but
[1143]
in the long term good business models
[1145]
are going to win thank you so much for
[1147]
watching this video press the like
[1148]
button and i will see you tomorrow
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