🤖📈 A internet provider competing with Starlink

Activision Blizzard, a large-cap stock, is being acquired by Microsoft at $95/share. The company owns valuable intellectual properties and has a competent CEO. Currently trading at approximately 16x the 2023E earnings estimate, Activision Blizzard deserves a multiple exceeding the market. A fair multiple for the company is 20x, which leads to a stock price of around $101/share. The stock price experienced a drop due to antitrust warnings from the European Union and the Competition and Markets Authority (CMA). However, on March 24th, the CMA dropped its concerns about console gaming competition being "substantially lessened." The CMA provisionally concluded that the merger would not result in a significant lessening of competition in console gaming services. The author believes the deal should proceed, and if it doesn't and the stock drops substantially, they plan to increase their position in Activision. Bobby Kotick humorously commented on the situation, saying, "If deals like this can't get through, they're not going to be Silicon Valley; they'll be death valley," in reference to the U.K.

Gogo, a company that provides internet for business jets, divested its commercial airline business in 2020 to focus on the more profitable and fast-growing private jet market. Holding a monopoly on internet connectivity for private jets in North America, Gogo expects its revenue to more than double over the next five years. In 2022, Gogo generated a 43% adjusted EBITDA margin, anticipating margin expansion to over 55% within the next seven years. While investors are concerned about Elon Musk's Starlink entering the market, Starlink faces significant barriers, high switching costs, and is focused on the commercial airline market that Gogo no longer serves.

Gogo has partnered with OneWeb to launch a satellite product that will likely outperform Starlink and expand its total addressable market. Despite facing a patent infringement lawsuit from competitor SmartSky, Gogo is expected to have a favorable outcome. With attractive reinvestment opportunities, significant insider ownership, sound execution, and an attractive stock price, Gogo is considered a high-quality business. While the SmartSky lawsuit presents a wildcard risk, the potential damages are limited, and the upside from the aviation connectivity industry's growth outweighs possible adverse court outcomes.

AstroNova Inc., the author's largest and highest conviction position, operates in two segments: Test & Measurement (T&M) and Product Identification (PID). The investment is based on expectations of airplane production increasing in the coming years. AstroNova holds a monopoly in the cockpit printer market, protected by a strict and expensive FAA approval process. These printers are preferred by pilots for their convenience and redundancy in case of technical failures and allow for physical documentation of flight records. Costing $15k-$30k, they represent a small fraction of a commercial plane's total cost. The T&M segment recently exceeded expectations and is anticipated to continue growing with commercial airplane delivery. The PID segment is fairly recession-resistant, with low customer concentration and added synergies and cross-selling opportunities due to the AstroMachine acquisition. Despite trading at a low multiple compared to other aerospace parts companies, AstroNova has low maintenance capex and potential for further upside. Applying a 10x multiple to the non-monopolistic business results in a price target of $24/share (currently $14).

Walmart's business strategy, focusing on offering essential goods at competitive prices, positions the company to succeed during potential recessions. During the 2008 recession, Walmart's sales increased by 8.7% while other retailers struggled. The company maintains a strong financial position, with controllable debt and significant cash reserves, enabling it to weather economic downturns better than many competitors. Walmart's low-price strategy, cost efficiencies, and focus on private-label brands have historically led to its outperformance during recessions.

Walmart has strengthened its competitive edge through global expansion, enhanced e-commerce capabilities, growth in its grocery segment, and streamlined operations. The company's size, scope, diversified store portfolio, and international presence provide stability during economic slumps, while its significant investments in e-commerce and emphasis on unified commerce have broadened its digital presence. Walmart's robust grocery offering, making up 60% of its revenue, offers further stability during economic downturns. Despite facing risks from a changing retail landscape, competition, and social, regulatory, economic, and policy factors, Walmart's business model, strategic approach, and strong financial position make it well-equipped to excel during a recession.

The author had previously recommended selling Tesla shares due to an overheating stock price rally, but with Tesla's recent 10% share price drop after missing Q1'23 earnings, the author now sees a buying opportunity. Tesla's aggressive lowering of product prices to spur demand could lead to eroding operating margins, but the author believes the company's valuation is attractive due to its aggressive focus on revenue growth, which may exceed consensus estimates. Tesla is currently valued at 4.0X FY 2024 revenues, with a 39% discount to the company's 1-year average P/S ratio, and has re-rating potential. While the biggest commercial risk for Tesla is eroding operating margins, the author believes an aggressive pricing strategy could drive EV demand and market share gains for the company. Despite potential margin risks, Tesla's operating margins are solid compared to the broader auto sector, and the company is still the best deal among US-based EV companies due to its size, scale, and profitability.

Opera Limited, a fast-growing software company in the web browsing business, is focused on improving profitability and has strong financials. The company is introducing generative AI features to its products, responding to the rapidly changing software world. Opera Limited is considered undervalued according to a valuation analysis and cross-check with Morningstar.

With a substantial user base and various products, the company has demonstrated a 20% revenue CAGR from 2016 until 2022 with a stable gross margin above 60%. After beating both revenue and EPS expectations in its latest quarterly earnings, management expects a 15% revenue growth and a 20% EBITDA margin for the full fiscal year 2023. The author values OPRA stock using a discounted cash flow approach, arriving at a fair market cap of $2.7 billion, almost three times higher than the current market cap. Despite significant upside potential, investing in OPRA stock is risky due to the company's dependence on maintaining and growing its user base, competition in the industry, and exposure to global economic conditions. The author recommends OPRA as a strong buy for long-term investors with a high tolerance for short-term volatility.

Snap Inc. experienced a drop in stock price despite the successful rollout of its AI chat product, with the investment thesis remaining ultra-bullish on the stock following the dip to $10. Snap has incorporated the latest technology into their platform, leading to solid growth over time. However, it has struggled to consistently grow advertising revenues compared to Meta Platforms, Inc. Snapchat+ has over 3 million paying users, generating a solid recurring revenue stream, while the newly launched chatbot service My AI contributes to higher engagement on the platform.

Although the stock is trading at a low multiple due to recent weak sales and a projected dip in Q1'23 revenue, Snap has the potential to increase revenue growth through AI and subscriptions. Currently undervalued and trading at only 3x 2023 sales targets, investors should take advantage of the current weakness in the stock and buy Snap Inc. shares.

The author previously required proof of operating traction in three key metrics for Charles Schwab, including a fall in net new purchased money market flows, stabilization of falling bank deposit account balances, and growth in core net new assets. With the latest data and commentary post Q1 FY23 results showing mixed signals, the author is more bullish than before and upgrades their stance from a 'hold' to a 'buy'. Despite the continued fall in bank deposit account balances and a small miss in stock price performance, the strong growth in core net new assets for Charles Schwab and the positive outlook for net new purchased money market flows make the author more positive on SCHW. The company's valuation has re-rated by 28.6%, with the discount to the 10-year average multiple shrinking from 40.4% to 24.6%. The author now recommends a 'buy' due to the positive outlook and potential for a 35.6% upside.

Twilio's stock is trading at a 50% discount compared to pre-pandemic levels, despite its increased focus on profitability. The company has experienced a slowdown in growth rates, with recent quarters showing 21% organic revenue growth and management retracting prior guidance for 30% medium-term growth. However, Twilio holds a strong cash position, amounting to over 25% of its current market cap. The company's guidance suggests 15% YoY revenue growth in Q1, with a target of achieving GAAP profitability by 2027. Management has also announced a $1 billion share repurchase program and reiterated their medium-term revenue growth projections. While there are risks, such as disappointing growth rates and difficulties in achieving operating leverage, the author maintains a buy rating on TWLO, considering it an undervalued growth stock.

EuroAPI is a European active pharmaceutical ingredient manufacturer and contract drug manufacturing organization that spun out of Sanofi in May 2022. The company aims to become a top 5 player in the global marketplace by 2025. EAPI has a complicated regulatory process that makes it difficult for new entrants to enter the market. The company trades at a significant discount to its peers and the value of its medium-term earnings. EAPI issued a warning for 2022 and guided revenue and EBITDA down for the year due to a temporary shutdown at its Budapest site.

The article discusses EAPI's FY 2022 results and medium-term delay, reporting in-line 7% revenue growth in 2H driven by 18.3% growth in CDMO. The company increased CapEx to increase future capacity. EAPI's 2023 EBITDA margin guidance came in below expectations at 12-14%, and the medium-term guidance of >20% EBITDA margin by 2025 was pushed out to 2026. The article discusses the valuation of EAPI compared to its peers and considers upside and downside cases for EAPI's medium-term 2026 guidance. Ultimately, the author believes it can return >80% on the stock price to ~€21 over the next 12-18 months as the company executes and the market gains confidence in its medium-term margin guidance. This is a standard spinoff special situation at a cheap price.