Is ARM IPO Overhyped?

Contributed by: The Big Fat Whale

It has been a while since an IPO has rocked the financial markets. The ARM IPO has been the highlight since its launch last week at the price of $51. At a PE of over 100, is it worth a look at or is it simply overhyped? Let's take a closer look.

Giving some backdrop, Softbank took ARM private in 2016 at a valuation of 32 billion US dollars. Based on their listing IPO price of $51, it gives it a valuation of $54.5 billion dollars. Softbank still owns 90% of the company after this share offering.

The demand has been overwhelming with the IPO shares being ten times oversubscribed but it could be due to only 10% of the company being up for grabs. The first day gain was around 25% with the price touching $64.

 

ARM Business Model

ARM was established in 1990, Arm began as a joint venture between Acorn Computers, Apple Computer, and VLSI Technology. ARM was publicly listed on the London Stock Exchange and the Nasdaq Stock Market from 1998 until 2016 when ARM was taken private by SoftBank Group, our controlling shareholder.

"Our open and flexible business model provides access to high-quality CPU products for a wide range of potential customer types and end markets. We license our products to semiconductor companies, OEMs, and other organizations to design their chips. Our customers license our products for a fee, which gives them access to our designs and enables them to create Arm-based chips. Once a chip has been designed and manufactured with our products, we receive a per-unit royalty on substantially all chips shipped. The royalty has typically been based on a percentage of the ASP of the chip or a fixed fee per unit, and it typically increases as more Arm products are included in the chip. Our business model enables the widest range of customers to access Arm products through an agreement best suited to their particular business needs"

Source: ARM IPO Prospectus

Think of ARM as the architect or designer behind the brain of your smartphone or tablet. They create the blueprint for a type of computer chip called a "processor." This processor is like the brain of your device, handling all the calculations and tasks it needs to perform.

ARM doesn't actually make the physical chips; instead, they license their designs to other companies (like Apple, Samsung, or Qualcomm) who then manufacture the actual chips based on ARM's designs. So they will earn licensing fees for each chip that was produced.

ARM is constantly compared to Nvidia as the two forefront stocks to benefit immensely from the development of the Artificial Intelligence Industry. From what we have read, ARM is more focused on the Central Processing Unit (CPU) whereas Nvidia is focused more on the Graphic Processing Units.

Here are the differences between the two products:

• CPU: CPUs are essential for general computing tasks, running operating systems, office applications, and tasks that require precise calculations and control. They are the primary computing component in most computers.
• GPU: GPUs are essential for graphics-intensive applications, including gaming, video editing, 3D modelling, and scientific simulations. They are also increasingly used for AI and machine learning tasks due to their parallel processing capabilities.

In summary, while both the CPU and GPU are vital components of a computer, they serve different purposes and excel in specific types of tasks. CPUs are versatile and handle general computing tasks, while GPUs are specialized for graphics processing and parallel computing tasks. Many modern computers and devices use both CPUs and GPUs to optimize performance and efficiency for a wide range of applications.

A Publication By The Big Fat Whale

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Is it Time to buy Sea Ltd after a 90% Plunge?

Contributed by: The Big Fat Whale

There has been lots of talk about Sea among investors, especially so, with the almost 90% plunge from its peak at around $350. At its peak with a valuation north of 200 billion US dollars in late 2021, SEA dwarfs the valuation of all 3 Singapore banks combined. 

It has been a tough journey for SEA, as their valuations have taken a hit of close to 90%. With such an attention-grabbing drop, it led to us examine if SEA's current valuation is worth a look at.  SEA was highlighted in our recently published book, where it came to our attention when it was just trading at $10, but it has been a rollercoaster ride since then.

There have been many reports on SEA where they went in-depth on their business model, so we will just highlight their 3 main business which is namely: Ecommerce-Shopee, Digital Entertainment- Gaming(Garena) and Digital Financial Services- Maribank, SeaMoney etc. We will be focusing more on their outlook given what we have read so far and based on our analysis of their financial ratios.

 

Sea Financials

Stock/Price	P/E	P/B	Price/CashFlow	Price/Sales	Debt to Equity	Interest Coverage	Current Ratio	Return on Investment
Sea/37.5	86	3.5	29	1.66	74%	11	1.8	2.46%

Looking at the financial ratios of SEA, it does not seem to be a real bargain from a value investing point of view. P/E of 86 and even the price to cash flow of 28 don't look like a bargain at this juncture. However, they could just be turning around as Shopee was bleeding in the initial stages but has since managed to churn out a profit on an EBITDA basis. Do note that they were on a huge cost-cutting exercise recently which could have led to the profits in the ecommerce division.

This gives us hope that the trend will persist and with the network effect of their platform, better profitability days are ahead. Sea has been profitable on a net income basis over the last 3 quarters.

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https://thebigfatwhale.com/time-to-buy-sea-after-share-plunge-of-90/

Fiverr – Investing in the King of Platform for Freelancers

Contributed by: The Big Fat Whale

It has been a treasure-hunting time for battered growth stocks. After our previous article on Teladoc, this time round we would like to touch on Fiverr. We are trying to shortlist companies that have a proof of concept, a runway for sustainable growth and a sound business model.

Fiverr is a platform that connects freelancers with business owners looking for services in various digital projects, including website design, content writing, and voice-overs. In recent times, even artificial intelligence and data analytics is added to their portfolio of services. Their main competitor would be Upwork and Freelancer.com.

 

Growth of the Freelance Market

According to a report by Growth Market Reports, the online market was valued at USD 5.1 billion in 2022 and is expected to reach USD 18.3 billion, expanding at a CAGR of 15.1% by the end of 2031.

The market growth is attributed to the rising adoption of freelance platforms by established companies around the world increasing the talent pool for businesses and providing secured jobs and payments to freelancers.

Source: Fiverr Investor Deck

There is a huge addressable market for freelance services of 247 billion US dollars just in the US and we have not touched the other parts of the world yet which Fiverr have a foothold on. To put things in perspective, Fiverr's revenue for 2022 is just 337 million US dollars.

 

What is Going Well?

With the world moving more into an open work concept where freelancers and remote working could be part of the human resource set-up. Adding on, the migration of traditional freelancing activity to the online world is just in its infancy with a good growth runway.  The prospect of Fiverr's business model as a platform marketplace for freelancers and employers looks sustainable and viable.

Source: Fiverr Investor Deck

Also, Fiverr has one of the most recognisable brands in the freelance marketplace. Their bigger competitors are Upwork and Freelancer.com. Their growth metrics such as active buyers and spend per buyer have also been on a good upward trajectory. The average spend is 262 dollars which is lower than their main competitors as Fiverr clients are usually acquiring a one-off service rather than on a long-term project basis.

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https://thebigfatwhale.com/fiverr-investing-in-the-king-of-platform-for-freelancers/

Is Teladoc a Buy Now?- Revisiting Investment Thesis

Contributed by: The Big Fat Whale

With the growth stocks being in a slum, it is a time for value-oriented investors to go through the rampage and see if there are any potential multi-baggers to be found.  We love to search in out-of-favour sectors and themes, as the margin of safety would be more prevalent.

Previously, we published our research on Teladoc which is almost 1.5 years ago, our closing thoughts were that it was in a sunrise industry with a bright outlook, but despite them falling 60% from $300 to $125, we have our reservations and preferred to stay on the sidelines. We advise you to go through our previous article so as to have a better comprehension of the issues we will be touching on in this article.

Source: Investing.com

It has since fallen by another 80%, from $125 to its current level of $25. The dramatic fall has attracted our attention and we decided to revisit it to see if there could be a change to our initial thesis of staying on the sidelines.

Click Here for the Full Article:

https://thebigfatwhale.com/is-teladoc-a-buy/

The Warren Buffet of UK- Terry Smith

Contributed By: The Big Fat Whale

Terry Smith is known as the Warren Buffet of the UK and his fund have posted stellar returns of close to 18% per annum since inception in 2011. Like Buffet, he is into investing in good quality companies at a reasonable price. However, unlike Buffet, he never invests in oil and gas companies and also the banks. We got to know about him when we read his book on his investment philosophy.

Would highly recommend everyone to read through this insightful book which is full of investment wisdom and more importantly, it gives you a good guideline on how to choose good quality companies.

These companies are currently under Fundsmith's top 10 holdings:

Their fund is positioned to have their interest align with their shareholders where there will be minimal turnover which will lead to a lower expense ratio- 0.01% in 2021. The management fee is at 1% with no performance fees embedded in the structure. The Fundsmith Fund could be a potential investment alternative once Buffet and Munger are no longer around- Terry Smith is just 68 years of age and hence there is still a long runway.

The stocks Terry choose are usually those that have a long track record - decades- and have experienced several downturns. This is necessary to validate the resilience of the business that he buys. His main focus would be on healthcare, consumer staples, consumer discretionary and technology.

Just like Berkshire, they also hold annual meetings where they discuss the fund's performance and their views of the market. For this year, it was a virtual event. They shared about the merits of investing in Amazon, Unilever and Meta. The effect of war and inflation was also covered. 

Here is the link for the full video to the annual meeting:

https://www.youtube.com/watch?v=Ha2zG4sVTeo&t=8s

In a nutshell, this is a fund that we could consider for our retirement funds. It is only available to accredited investors for those based in Singapore.

 

We hope you liked this write-up and do subscribe to our website to receive insightful articles whenever they are published.

 

Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.

 

 

 

Investment Opportunities in the Gene Editing Field

Contributed by: The Big Fat Whale

The birth of the first genetic edited twins, Lulu and Nana in November 2018, has brought the gene-editing field into the spotlight.

This was made possible by He Jiankui who was at first lauded for this achievement by China's government but after a day, they changed track as there was international attention to this controversial milestone.

The scientist was trying to rid the twins of the HIV virus, where one of the parents was a carrier. He was eventually jailed for 3 years for this feat.

Bill Gates has highly recommended the book, The Code Breaker, which follows the events leading to the invention of the CRISP gene-editing technology by Jennifer Doudna.

For this breakthrough, Jennifer Doudna and Emmanuelle Charpentier earn the esteemed Noble Prize. This technology was also utilised by He Jiankui for the birth of the gene-edited twins.

They have opened the floodgates for the launch of this field and the different applications could lead to possibilities that will allow us to cure diseases, fend off viruses, and enhance our children.

 

Gene-Editing Industry Outlook

We will look at the potential of the sector outlook through the lens of the different market research companies' insights.

The global gene editing market is expected to grow from USD 4.2 billion in 2020 to USD 13 billion by 2028, at a CAGR of 15.2% during the forecast period 2021-2028.

Source: Fior Markets

According to Emergen Research, the global gene editing market size was USD 5.20 billion in 2020 and is expected to reach USD 18.50 billion in 2028 and register a revenue CAGR of 17.2% during the forecast period, 2021-2028.

Market Dynamics:

The global gene editing market revenue growth is majorly attributed to factors such as the growing prevalence of chronic and genetic disorders globally, increasing research & development activities in the field of genomics, continuous advancements in gene therapy, and increasing applications of genome editing technologies in the pharmaceutical, biotechnological, and agricultural sectors. Technological advances in gene-editing tools, the rapid spread of the novel coronavirus worldwide, and the increasing use of CRISPR-based diagnostic tools to detect the SARS-CoV-2 virus are among the other key factors expected to drive the global market revenue growth over the forecast period.

Source: Biospace

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https://thebigfatwhale.com/investment-opportunities-in-the-gene-editing-field/

Is Meta a Buy Now?- Not at Maximum Pessimism

As chronicled by John Templeton's famous bet in the Great Depression, he put in $100 on all the stocks listed in the stock exchange, which was 104 stocks that cost him $10,000 dollars (Equivalent to $185,000 today).

His bet was on the basis that the market has reached maximum pessimism. His good foresight has proven prescient and it netted him close to a 5 times returns when he eventually liquidated all of his positions years later.

The point we are trying to highlight is that the market tends to overreact and therefore, we do not feel Meta have reached the optimal entry-level despite the huge decline in recent times. The bearish trend might just have started and it would need some time to play out.

Let's first revisit some main points that led to Meta's plunge:

1. The fall in Daily Average Users (DAUs) for Facebook- an important barometer of growth.
2. Apple Privacy Policy would cost Meta 10 Billion a Year
3. 10 Billion a year to be spent on research and development for MetaVerse
4. Credible Competitor in Douyin (TikTok)

 

Source: Meta Corporate Presentation

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https://thebigfatwhale.com/is-meta-a-buy-now-not-at-maximum-pessimism/

The Future of Medical Care- Teladoc

Contributed by: The Big Fat Whale

The telehealth market is one of the most glaring in terms of growth potential that surfaced during the recent pandemic. It is coming in from a low base initially and with Covid 19 in full force, it has triggered the adoption in huge strides. The regulatory issues were also quickly expedited for a smooth transition as quarantine became a norm for many.

Source: www.grandviewresearch.com

 

From the estimates by Grandview Research, the total market potential could reach 300 billion dollars in 2028, which gives us a compounded return of 22.4%- it is a good run-way of consistent and viable growth.  That is just the North American region.

These estimates are also backed by Mckinsey forecast for a 250 billion dollars telehealth market- a 20% share of the total medical market.

 

Strong continued uptake, favourable consumer perception, and tangible investment into this space are all contributing to the continued growth of telehealth in 2021. New analysis indicates telehealth use has increased 38X from the pre-COVID-19 baseline.

Source: Mckinsey

Here is the link to the full article:

https://thebigfatwhale.com/the-future-of-medical-care-teladoc/ 

Your Gateway to Digital Payments- PayPal

Contributed By: The Big Fat Whale

The digital payment industry has been on a steady climb for many years given the e-commerce revolution. The Covid 19 situation, has further led to new users who usually would not have shopped online to come onboard. All these bode well for a good runway for further consistent growth ahead.

With the coming of the new era of Metaverse by Meta, where the future could be split between your virtual and physical world, the need for a digital wallet would be essential. The digital wallet could be used for keeping your digital currency, digital assets (NFTs) and other digital-related items.

Source: Mordor Intelligence

The transaction value of the digital payments market was USD 5.44 trillion in 2020, and it is projected to be worth USD 11.29 trillion by 2026, registering a CAGR of 11.21% from 2021 to 2026

Source: Mordor Intelligence

The global payments market is expected to grow from $466.29 billion in 2020 to $517.68 billion in 2021 at a compound annual growth rate (CAGR) of 11%. The market is expected to reach $735.39 billion in 2025 at a CAGR of 9.2%.

Source: Businesswire.com

The growth as predicted by both Modor Intelligence and Businesswire for the digital payment industry would be in the region of around 11% for the next 5 years. This is consistent growth rather than exceptional growth but one thing is for sure, it is still a sunrise sector. Hence, it is going to be a good place to look for potential investments.

Here is the full article on the Merits of Investing in PayPal:

https://thebigfatwhale.com/your-gateway-to-metaverse-paypal/

 

King of Internet of Things- Xiaomi

We could still remember the first exposure to Xiaomi was by ordering online their smartphones many years ago. They managed to create a cult branding as most of their smartphones are sold within minutes during those days. It is not surprising as they have most of the features of an iPhone but yet is trading at a fifth of their price.

 

Source: Xiaomi Homepage 

Xiaomi has since evolved from the early days and has now in their product catalogue, a mind-boggling amount of household appliances and gadgets, on top of their smartphone range. The household appliances are connected to the Mi Home and the data analytics from the usage of the products would be Xiaomi's edge compared to their competitors.

The more prominent products in their line-up will be smartphones, smartwatches, robot vacuum cleaners, smart tv, fridge, air-conditioners, laptops and washing machines. Their products are in more than 80 markets.

Xiaomi's vision is not to make huge profits from the sale of hardware as they have explicitly stated they would not surpass a net profit margin of 5%.

With their good value and quality products, they hope to link all the devices to their ecosystem, they would then be able to monetize from the strength of their ecosystem.

This strategy is similar to Gillette selling the shaver cheaply and earning huge margins from the sale of blades.

Here is the link for the full article:

https://thebigfatwhale.com/king-of-internet-of-things-xiaomi/