Stock Analysis

Roku Incorporated (NASDAQ: ROKU)

February 13th, 2020
Xavier Loor

RWIBrokers.com is in no way associated with Roku Inc. and its associates. This report provides a baseline for investment decision making purposes and should not be solely used when making final decisions. For more information regarding the services provided by RWIBrokers.com you may contact our helpdesk at clientservices@rwibrokers.com or through the phone number indicated on our website.

Company Overview

Roku is an American company that specializes in the manufacturing of devices that provide a wide range of streaming and television channels. Roku’s stock was first made public through NASDAQ on September 29th, 2017 at an IPO price of USD $14 and at an opening price of USD $26.54.

Historical Stock Value

Roku’s stock shows that between 2017 and 2018 the stock experienced gradual increases and decreases in value which resulted in the stock having nearly the same value as its initial opening price near the end of 2019 or almost no growth since the date of the initial public offering. In 2019, the stock experienced massive growth, reaching a peak price of USD $169.86 before falling and closing at a year-end price of USD $133.89, a 404.48% increase from its initial opening price.

Figure 1: Roku’s Stock Graph (February 12th, 2020)

Overall, Figure 2 shows that Roku’s stock has experience large amounts of growth in every month where the price changes have been positive. The stock’s price fell heavily in September due to a poor future outlook at the time after the 3rd Quarter earnings were released. The decreases in value in the other months are relatively smaller than the monthly increases which resulted in an upwards trend between these last 12 months.

Financial Analysis

Roku’s recent annual reports (Refer to Figure 3) show that the total revenues are increasing at a faster rate than the cost of revenue, an indication of increasing efficiency in its production. However, its operating expenses were shown to be increasing at faster rate than its revenues, therefore showing that Roku lacks efficiency in that area.

Figure 4 shows that Roku has nearly outpaced its 2018 total revenue earnings in its first 3 Quarters of the 2019 period but has incurred larger net losses due to larger operating expenses. This could be partially blamed on Roku’s international expansion efforts.

The combined Quarters has a Gross Margin and Operating Margin of 46.48% and -6.64% respectively. This is a slight improvement from 2018’s Gross Margin of 44.73% but the Operating Margin is nearly 5 times worse from 2018’s value of -1.79%.

Implications and Verdict

Overall, there are many positive factors that point to Roku’s stock value increasing in the future term:

• The growing streaming market with a compounded annual growth rate of 20.4% per year starting in 2020 (estimated value of USD $184 Billion by 2027);[1]
• Reduced competition for viewers as a result of obsolesce of cable television;
• Roku’s access to large streaming services such a Netflix and the recently released Disney+ as well as direct access to some cable networks;
• The recent coronavirus outbreak forcing more people to stay home and stream content/use the internet to pass the time;[2]
• The stock hasn’t fully recovered from the drop when it reached it’s all time high value, the stock must grow 22% for it to reach that same peak;
• Roku’s focus on revenue after its acquisition of DataXu, a company that helps marketers plan and buy video ad campaigns.[3]

The most important factor that will determine Roku’s stock price for the near future will be its 4^th Quarter earnings report which will be released on February 13^th, 2020 after the stock market closes. The stock will likely rise if Roku releases an earnings report that beats analyst expectations especially in the case where the coronavirus is beneficial to Roku’s revenue. But one must be weary in the case where negative news (such as poor future outlook) may come along with the report and instead cause the stock price to drop no matter the result of the earnings report.

It is recommended that for risk-takers who believes that the stock will rise after the earnings report is released, a call option should be purchased today. Risk-averse investors who have the same beliefs should consider purchasing the stock itself to mitigate any potential losses.

Stock Analysis

Beyond Meat (NASDAQ: BYND)

January 15th, 2020
Updated: January 21st, 2020
Xavier Loor

RWIBrokers.com is in no way associated with Beyond Meat or its affiliates. This report provides a baseline for investment decision making purposes and should not be solely used when making final decisions. For more information regarding the services provided by RWIBrokers.com you may contact our helpdesk at clientservices@rwibrokers.com or through the phone number indicated on our website.

Company Overview

Beyond Meat is an American producer that specializes in plant-based meat substitutes. Founded in 2009, the company’s vegan products include synthetic chicken, pork, and beef, which became initially became available across the United States in 2012. Currently, Beyond Meat has product placements in over 35,000 locations including grocery stores, hotels, restaurants, and universities. Beyond Meat has also established partnerships with multiple restaurant brands such as Dunkin’, A&W, Tim Horton’s, and Subway. The company also has McDonald’s currently testing its product, “The Beyond Sandwich” in multiple locations across Ontario, Canada.

Beyond Meat’s stock was first made public through NASDAQ on May 3rd, 2019 at an IPO price of USD $25 and at an opening price of USD $66.75. It is currently one of the few plant-based meat production companies and vegan-focused companies overall to have their shares publicly traded in a U.S. stock exchange.

Industry Analysis

Although Beyond Meat is part of the food industry, it is more identifiable as being part of the vegan food subindustry and as such will be the main focus in the analysis.

The global vegan industry is estimated to be valued at approximately USD $13.37 billion in 2019 with forecasts predicting an annual growth rate of 9.1% over the next 7 years (USD $24.3 billion by 2026). The growth of the market has been attributed due to the following:

– Increased awareness of health benefits of plant-based products, and alternatives to meats and other animal byproducts such as milk;
– Growing negative reception of animal cruelty in meat production;
– Growing concerns towards greenhouse gasses produced by the meat industry that contribute negatively towards the global environment;
– Multiple celebrity endorsements towards the benefits of a vegan lifestyle. Examples of celebrities who identify themselves as vegan include talk show host Ellen DeGeneres, tennis athlete Serena Williams, musician Madonna, and former U.S, President Bill Clinton;
– Large food producers and restaurant chains such as McDonald’s and Burger King attempting to capture market share in this industry by adding vegan items to their menus.

Some of the key players in the industry include Beyond Meat, Impossible Foods, VBites, and Archer Daniels Midland Company.

Historical Stock Price

Between May and December of 2019, Beyond Meat’s stock price had endured aggressive fluctuations, once having reached an all-time high price (USD $234.9) only 3 months after its initial public offering. The stock has since fallen and currently moves between $75-$125 price range (See Figure 1 and Figure 2).

Figure 1: Beyond Meat’s Stock Graph (January 15th, 2020)

Figure 2: Beyond Meat’s stock price changes for each month since its initial public offering
Month Period (2019) ATVI Opening Price (Start of Month) ATVI Closing Price (End of Month) Price Change (USD $) Price Change (%)

The data shows that in the last 7 months, the stock experienced 3 consecutive months of value increases followed by 4 consecutive months of value decreases. The large fluctuations in prices cancelled each other out which resulted in the average returns of the stock equaling USD $1.1 or 1.56% per month.

In the first half of January, 2020 the stock price rose drastically as a result of a potential partnership with McDonald’s, peaking at a month high of USD $117 per share before falling to its current price. As of January 15th, 2020, the current value sits at USD $108 per share a 42.85% increase from January’s opening value and a 73.99% increase from the stock’s initial opening value in May, 2019.

Financial Analysis

Beyond Meat’s recent annual reports (Refer to Figure 4) show that the total revenues are increasing at a faster rate than the cost of revenue and operating expenses, an indication of increasing efficiency in its production and improvements in operations.

Figure 3: Beyond Meat Partial Annual Income Statement (All USD $ values in thousands)

In the first three quarters of Beyond Meat’s 2019 fiscal year, the company has already outpaced its fiscal 2018 revenue despite not having reported their 2019 final quarter results as of yet. (See Figure 4).

The combined Quarters of 2019 has a Gross Margin and Operating Margin of 33.24% and 2% respectively, a large improvement from last fiscal year’s values of 19.99% and -30.1%.

Implications/Verdict

Despite Beyond Meat’s financials showing improvements such as growing revenues, decreasing net losses, and improved margins, it is not enough to justify the high price of its shares, making them seem grossly overvalued. In late-2019 the stock’s value continuously diminished in spite of growing financial improvements, signifying that the company’s financials have less influence on the stock than once perceived.

Beyond Meat’s stock value is volatile as it is highly susceptible to sudden fluctuations that resulted from news sources. For example: in the mid-January, 2020 celebrity endorsements by rapper Snoop Dogg and television personality Kim Kardashian combined with the fact that Beyond Meat became the sole contender for the deal with McDonald’s (Impossible Meats dropped out in early January), caused the price to rise from $83 to over $117 (+41%) in a matter of days. Therefore, Beyond Meat is heavily reliant on positive reception to grow its stock price; a confirmation of a worldwide deal with McDonald’s would mean lucrative gains to the investors. However, the reverse is also true; any negative reports such as McDonald’s canceling their current partnership or issues with meeting demand can spell disaster for the stock’s price. Furthermore, the barriers to entry in the vegan market is low and will result in more competitors in the near future, especially those that have larger portfolios to mitigate risks/losses from the beginning phases of competing in the market.

Overall, the conclusion is that Beyond Meat’s stock is overvalued and very volatile; active investors should proceed with caution when dealing with it. The current rate at which the stock is growing can easily be reversed by a negative report, especially if the deal with McDonald’s doesn’t fall through. With multiple reports of analysts now downgrading the stock due to concerns of overvaluation, the stock will likely remain strong in the short term especially when they release their annual financial report in February. Investors who are risk takers should consider purchasing put options with at least a 1-year expiration date after the earnings report has been released.

For passive investors, it is not recommended to purchase the stock at its current price, especially considering the factors such as future competitors and sensitivity to news reports. Instead, passive investors should consider the ETF (exchange traded fund), US Vegan Climate ETF (VEGN) where it currently has holdings in companies that have no involvement with animal products (Tesla, Apple, Microsoft, and Beyond Meat are some of its holdings). The ETF was first made available in September, 2019 for $25.24 which has since grown over 10% (as of January, 2020) and will likely continue to grow with the current market conditions.

UPDATE

As of January 21st, Beyond Meat’s stock is valued at over $129, a 20% increase from the last value reported ($108) due to Starbuck’s announcement on adding plant-based items on their menu.

Work Cited

Acumen Research & Consulting. (2019, June). Vegan Food Market Size: US$ 24.3 Billion by 2026. Retrieved January 2020, from Market Watch: https://www.marketwatch.com/press-release/vegan-food-market-size-us-243-billion-by-2026-2019-06-18
Beyond Meat. (2020). Beyond Meat Main Page. Retrieved January 2020, from Beyond Meat: https://www.beyondmeat.com/
Google. (2020, January). Beyond Meat Inc. Stock Quote. Retrieved January 2020, from Google: https://www.google.ca/search?sxsrf=ACYBGNSfU6riJCM4uWlzSV14z1G5KNci7A%3A1579117960175&source=hp&ei=iG0fXo_oBYvl5gL14JvIAw&q=beyond+meat+stock&oq=beyond+me&gs_l=psy-ab.1.0.35i39i285i70i250j35i39l2j0l5j0i131l2.295229.296409..296951…2.0..0.100.743.7j1……0….1..gws-wiz…..10..35i362i39j35i39i285.ZmsXXAKBles
Market Watch. (2020). US Vegan Climate ETF. Retrieved January 2020, from Market Watch: https://www.marketwatch.com/investing/fund/vegn
Taylor, K., & Hanbury, M. (2020, January). McDonald’s is Testing Its Beyond Meat Burger at More Locations. Retrieved January 2020, from Business Insider: https://www.businessinsider.com/beyond-meat-is-testing-beyond-meat-burger-at-more-locations-2020-1
Yahoo Finance. (2020). Beyond Meat Inc. Fincials. Retrieved January 2020, from Yahoo: https://finance.yahoo.com/quote/BYND/financials?p=BYND

Stock Analysis

Activision Blizzard, Incorporated (NASDAQ: ATVI)

January 5th, 2020
Xavier Loor

RWIBrokers.com is in no way associated with Activision Blizzard and its subsidiaries. This report provides a baseline for investment decision making purposes and should not be solely used when making final decisions. For more information regarding the services provided by RWIBrokers.com you may contact our helpdesk at clientservices@rwibrokers.com or through the phone number indicated on our website.

Company Overview

Activision Blizzard is an American holding company that owns and operates multiple businesses within the video game industry. The subsidiaries of the company are involved in several activities such as video game production and development, esports organization, and motion picture production. Activision Blizzard was responsible for the releases of some of the most popular, award-winning video game franchises such as World of Warcraft, Call of Duty, Diablo, and Overwatch.

Activision Blizzard is currently the largest video game company in the Americas and Europe in terms of revenue. Its stock was first made public through NASDAQ on October, 1993 at a price of USD $0.83 and was listed on the S&P 500 stock market index since August of 2015.

Industry Analysis

The global video game industry is currently valued at an estimated USD $150 billion in 2019 with forecasts predicting an annual growth rate of 9% over the next 4 years (USD $211.7 billion by 2023). The growth of the market has been attributed due to the following:

 Growing purchases for downloadable content for existing and future video games;
 Growing popularity of esports from both competitor and viewer standpoints;
 Increased viewership towards video game streams;
 Growing player base in the mobile gaming market;
 Increased revenue streams from downloadable content purchases;
 Implementations and improvements to concepts such as virtual reality and cross platform play;
 Continuous video game console innovations, developments, and upgrades;
 Increased costs of game development and higher intensity in the competitive landscape.

Some of the key players in the worldwide industry include Sony Entertainment, Microsoft, Nintendo, Ubisoft, Activision Blizzard, and Electronic Arts.

Historical Stock Value (2015-2019)

Between the years of 2015 to 2019, ATVI’s shares grew, on average, USD $8.104 or 25.75% per year (See Figure 1 and Figure 2).

Figure 1: Activision Blizzard’s Stock Graph (January 3rd, 2020)

Trend Analysis

Since 2015, ATVI’s stock exhibits a pattern where its value grows for a number months before suffering a drop. The periods that these drops occur tend to be shorter than the periods of growth resulting in a general trend that shows a steady increase in stock price over the last 5 years (See Figure 3).

Figure 3: ATVI’s stock graph with trend lines that mark the substantial increases and decreases in price. The blue line shows the rising trend over the last 5 years.

Figure 4: ATVI’s stock chart with trend lines that connect each major trough (lowest points).

Activision Blizzard’s annual revenue and net income in the 2018 fiscal year was reported to be all-time highs of USD $7.5 billion and USD $1.8 billion respectively (annual report was released in February, 2019). Compared to the previous year’s report, revenues grew approximately 6.88% while net income grew a massive 564.11%. The boost in net income was largely attributed to the company’s reduction in general administration and selling expenses as well as the reduction of taxes. The company’s production became more efficient considering the revenue’s growth rate was 10 times larger than the cost of revenue’s growth rate (See Figure 5).

Figure 5: Activision Blizzard Partial Income Statement (All USD $ values in thousands)

Recent financial reports indicate that revenues and net income for the 2019 annual statement will be lower than 2018’s report, being approximately USD $6.35 billion and USD $1.59 billion (-15% and -12.2%) but forecasts speculate a recovery where the 2020 fiscal year revenues will be USD $6.87 billion (+8.3%).

Implications/Verdict

In 2019, the company teased new entries to the Diablo (latest entry released in 2012) and Overwatch (first and only entry released in 2014) series but has not revealed a release date for either games. This, combined with new consoles that are expected to be released in late 2020 (Sony’s Playstation 5 and Microsoft’s Xbox Series X) and forecasts for value increases in the video game industry, paves the way for the stock to benefit. It should be noted that Activision Blizzard’s stock grew substantially during the years of 2005 and 2013 due to the release of new video game consoles. Therefore, it is possible that the release of the new consoles may have a more critical impact towards the stock’s value than once thought.

The company currently possesses a strong financial position. Although it is very likely that the company’s annual; revenue and net income will be lower in the 2019 fiscal year, the net income will still be much larger than 2017’s amount. As such, the stock should not be highly affected negatively by the upcoming 2019 annual report as earnings remain strong going into the 2020 fiscal year. An important note to consider is that during the 2017 fiscal year, the stock prices were slightly higher (peaking at USD $78 per share after the 2017 annual report was released in April, 2018) than they are currently despite the fact that net income was much lower during that year. The higher net income in the coming fiscal year gives a promising outlook that Activision can at least surpass the USD $65-$70 mark by the end of 2020.

Considering that the stock is currently more than 30% below its highest peak value, there is still potential for it to continue growing for the next few years. With an opening price of USD $59.42 per share in 2020, should the stock continue to follow the upward trend, it is possible for it to reach a potential 52-week high price between USD $67.52 (+$8.104 or +13.63%) and USD $74.72 (+$15.30 or +25.75%) per share.

All the factors stated indicate that Activision Blizzard’s stock is a buy at its current price as it should likely rise in 2020 and possibly early 2021 as well. Long-term holding of this stock should yield future benefits.