Flat, even worse, decreasing earning – is the thing that investors never want to see. Warren Buffett called the firm characteristic to preserve earning as an economic moat – or, formally in business school terms: durable competitive advantage.
Competitive Nature
Losing steam of the earning could be stem from several situations. It could be due to lower sales prices – like Amgen or other drugmakers when they lose their patent. It could be due to lower volume sold like Nokia and Blackberry RIM when iPhone and Android come in. Or both, as Xerox business gets disrupted by Japanese copiers. As Darwin says, it is survival for the fittest.
Like Darwin, Americans saw so many businesses collapsed – and they will see it again and again. Our post under the competitive advantage category helps the investor to recognize the business advantage of the company – how strong it is and, how long it could retain the customer. The first thing you need to know about your investment is they still exist today and tomorrow – not extinct in the midst of the business wilderness.
Valuation
Competitive advantage is one of the most crucial aspects of your valuation. All calculation basis – whether it is earning, operating cash flow, or even free cash flow is merely a product. It is management, strategy, policy, demographic, so many factors that affect these groups of financial numbers. Understanding this – and your calculation won’t be too difficult.
Final Word
So many investing blogs and channels out there – some of them are really exceptional. But few, just a few, cover the competitive advantage in detail. We are here, to bridge that gap.
Howard Schultz, the CEO of Starbucks, has successfully transformed the coffeemaker into “the third place between your home and your work”. Could this business edge be replicated or competed? This is the central theme of our competitive analysis of Starbucks. We break down its financial report and marketing strategy to find the answer.
How a customer interacts with the product dictates its success. Source: freepik
From the customer perspective, Disney is representative of a perfect User Experience. It tells a magical story in movies, then actualizes it in the real world through the Theme Park. Our competitive analysis UX (User Experience) tries to identify another company with a similar edge.
The key point of the fundamental analysis of Starbucks
Reckless buyback is the factor why we do not buy Starbucks.
We are happy when Howard Schultz takes the Starbucks helmet and decides to suspend that buyback program.
But when he said that the suspension is just a pause (Schultz wants to resume the repurchase program) We worry that this pause is just lip service to calm the Starbucks worker.
Revenue and earnings have surpassed the pre-COVID level. It is a good sign.
Starbucks has a decent competitive advantage in its brand. It creates a unique user experience – also a story. Something that almost no other ” restaurant” could replicate. Even with its mediocre coffee.
Intel’s market cap is 148 Billion (end of July 2022) with 19.8 Billion earnings in 2021. It means that you need 7 years to break even. Too long for a company with no growth prospect like Intel.
Even when the CHIP program is passed and executed, it will not boost Intel’s earnings significantly.
It is not difficult to say that we don’t recommend investing in Intel. But it doesn’t mean that the stock price will not rise in the future.
Like the management says, maybe this is the bottom. But we don’t know how long Intel will be in this pit. But smart investors still could exploit this situation.
Amazon Web Services (AWS) offers an intuitively easy User Interface, flexibility, affordability along with more features. But this isn’t enough to prevent its customer to use the competitor Microsoft Azure (or even Google Cloud) as a secondary cloud provider (as backup). This circumstance allows customers to migrate completely to AWS rivals.
Amazon is busy building economies of scope as a competitive advantage like its acquisition of Medical One, a telecare company, instead of creating or strengthening its cloud ecosystem.
In the long run, we believe the market share of AWS could be slightly eroded gradually by more intense competition due to a lack of switching costs. We think Amazon should take care of this issue seriously, especially when the cloud is its most prolific segment.
We believe Intel will get benefit from a government program that plans to fund 50 billion for the chips industry.
In the normal old days, the vertically integrated that become Intel’s business model could serve as a decent competitive advantage. In modern days when the chips get smaller and much smaller, that competitive edge fades too.
The chip monopoly with AMD should be a good thing, but this is technology. It needs to be stronger, faster, and better every year. AMD and Intel do not compete with each other. People and media bring them into the ring.
Even if Intel could beat AMD, the ARM architecture poses a threat to x86 which Intel excels in.
Intel looks cheap in the short term. It has strong connections with laptop vendors, government, and technology. But in the long run, the fierce competition – internal with AMD along with external threats like Qualcomm in the form of ARM – is waiting.
Our takeaways for Disney Stock Analysis 2022, begin with the pros:
Sticky customer, kids watch Disney again and again. Come to its park every holiday.
Theme Park shows significant improvement. We believe this year it will achieve its pre-COVID performance. Another good news is Disney keeps enhancing its places. Elaborate later.
Though till now Disney+ still burning cash to run its business, the ad-supported content will be the game changer (unlike Netflix). Disney’s content is specific, family-friendly, and targeted. It is good for a third party to access Disney viewers. We will elaborate on this later.
Disney stock price is at COVID level (July 2022)
Cons:
Disney runs an expensive business that needs a high amount of capital. Theme Park requires massive investment, even their digital content needs regular reinforcement like the Fox acquisition in 2017. Unfortunately, Disney’s balance sheet isn’t as spectacular as its magical story to handle all of that needs easily.
Management fails our expectations. Under though situation – the COVID – they prioritize themselves and leave shareholders.
Lack of tailwind. The key driver for growth is increasing Disneyland ticket or subscriber fees. Reaching more people is more difficult. Disney is simply not a fast grower company.
Ok, now going to the elaboration section. You can skip this post if you don’t want to go into further detail.
Oh, don’t worry – we keep this post updated regularly.
Analysis of Netflix Stock is focused on answering this question: It loses 200 million subscribers in the first quarter of 2022. The streaming giant plan to launch an ad-supported program to cut the expense and offer lower subscription fees for the customer. Will this decision help company to regain or at least retain its customer?
If we inspect carefully the number of subscribers lost, actually Netflix is just fine. The streaming giant only lost 200 thousand subscribers from a total of 221 million. It is a tiny fraction, less than 0.1%. It is no big deal. Netflix said that number comes from 700 thousand losses due to Russian things. If we neglect Russia – Ukraine number, Netflix has an additional 500 thousand subscribers. Not bad. Far from it. Case closed. So, why we are here? To address a more important issue: Netflix’s Competitive Advantage.
In the last sequel of the Tesla episode, we know that Tesla has an impenetrable economic moat and promising earning power. But, with a sky-high valuation, is it worth buying? Our stock analysis of Tesla tries to shed the light.
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