Fundamentals and Business Related Activities

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    All the members kindly read this article to understand how underrated & undervalued BCG is, Pubmatic is a much smaller company (half the size of BCG) but its commanding a valuations of 2 billion dollars 10X its sales by that yardstick BCG’s valuations should be at least 4-5 billion dollars (Rs. 28000-37000 Crores).

    So just understand & imagine the under valuations of BCG.

    Registered Boarder

    I don’t know what opinions everyone has on Zomato getting listed but for me it’s a major event that will encourage other high-tech and startup companies to come to the markets. I’m not talking about valuations but the psychology and perception. When people see more high-tech companies, they will understand the importance of investing (heavily) in technology, product development etc which will benefit companies like BCG. People living in stone age would understand more about product development than many self-proclaimed experts. I’m seeing some comments about cumulative profits of 2000crs and not paying dividend etc but I never see those people talk about the importance of investing in technology and product development. BCG’s business is not like selling paan in a paan shop. BCG is in an industry that is very competitive (cut-throat actually). Today’s technology won’t be sufficient (or relevant) tomorrow and on top of there are working capital challenges too. Every year the profits are re-invested for many purposes – product development, survival, growth. Every subsidiary of BCG will have its own cash flow requirements. Self-proclaimed experts don’t bother to understand all these because they think all the companies have same business model. They won’t bother to check the whole industry before commenting. If they don’t understand something they’ll call it fraud.

    Ever company (sometimes the whole industry) has its own challenges, for BCG it is the large working capital requirements or the receivable issue; for metals, oil and petroleum, and other commodities, it’s the cyclical nature of the business/industry. Few years they’ll have great sales/profits and for few years they’ll struggle. We can check the stock price history of cyclicals, the graph will be like mountains. Except for a very few companies all the graphs will be like mountains. Even if you hold them for 10years, sometimes there won’t be much returns (excluding dividends and buybacks) and people should be very careful at what price they enter and they should sell at the right price and time, they should follow the market carefully. They can’t take buy and forget approach in those stocks. Good or great companies’ stocks will also struggle. For example, Vedanta, 10 years back the stock price was Rs.300 and now also it is the same price. It went below 150 in 2013 and went close to 300 in 2014 and again fell below 80 in 2016 and went above 300 in 2018 and again fell below 70 in 2019-20 and now its back again above 300 levels. NALCO, Hindalco, SAIL, GAIL, IOCL, ONGC, TATA Chemicals, Rallis India, TATA steel etc etc. Some graphs will be like smaller hills and some will be big mountains.

    Registered Boarder

    Coming back to the ad-tech industry, Facebook reported its second quarter earnings few days back and it was a great quarter and the company had explosive growth rates but still the stock fell. Why?

    The answer is it’s because of the changes happening in the industry. Privacy is a hot topic these days. As everyone knows, recently Apple changed it’s privacy policy and that impacted ad-tech companies, advertisers and publishers. Even a giant like Facebook is worried about that and the management has said that the changes will start to impact their business from the 3rd quarter (for Facebook, FY is Jan-Dec). In the past Facebook and Apple had a fight on this topic.

    This is what Facebook said :

    We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter. This is factored into our outlook.

    What does it mean for a small company like BCG? Should the company invest or not invest in upgrading technology, products etc? Without re-investing all the profits back into the business, the company can have good free cash flows for maybe a year or two but what happens later? As a result of not investing in the business, the company will go kaput and there’ll be nothing left for the shareholders. Most of the Ad-tech companies are doing good only from 2020 (mostly because of the pandemic) but before that almost all the small companies struggled (I have written about this in many of my previous posts). Should BCG end up like that? Re-investing all the profits may not result in great growth rates all the time but survival of the business also counts. BCG had great 1st and 4th quarters but not so good 2 and 3rd. In the past, BCG had great growth rates (2010-16 period).

    BCG does not have a war chest like Google or Facebook or Amazon. Google has more than $136B cash (which is close to the market cap of TCS). Facebook has more than $70B. How will a company like BCG survive in this industry without making proper investments in technology? BCG should work closely with all the parties (publishers, advertises and other ad-tech companies) to stay competitive in this cut-throat industry. BCG could navigate many challenges in the past because it invested in technology, upgraded its products and worked closely with all the relevant parties. BCG pays publishers in less than 30 days and advertisers pay BCG after 3 months. Apple’s privacy changes, Google’s cookie changes and in the past the industry shifting to programmatic advertising and many more challenges will come in the future and BCG has to be ready to face those challenges.

    Registered Boarder

    Recently BCG (Brightcom) became a certified Google MCM partner and before that it became a registered vendor of IAB Europe Transparency and Consent Framework. Then it’s a member of TAG – Trustworthy Accountability Group and many others. Clients will come to BCG if it’s part of these groups. It’s like getting validity from third parties. To be part of those groups, you have to invest heavily and you have to be compatible with their technology. With ads people do many scams and you have to maintain a system where you can detect them. How will you get to know which is legit and which is a scam? Don’t you need tools for that and are those tools easy to build? Don’t they need investments?

    Millions of people get scammed because of dubious and misleading ads. What if those ads go through BCG’s network, will advertisers do business with BCG?

    People talk about high receivables of BCG but fail to mention the low payables. They don’t mention the receivables of other ad-tech companies. TTD’s revenue for 2020 was $836M and accounts receivable (AR) was $1,584M (or $1.584B). That’s almost twice the revenues. In 2019, the revenue was $661M and AR was $1,166M (or$1.166B). Revenue increased 26% but AR increased almost 36%. TTD’s accounts payable for 2020 was $1,348 (1.348B) and for 2019 it was $868M. Payables are more than revenues. BCG payables are very low. Magnite and Pubmatic’s cases are similar to TTD. They have more payables so they’ll have more cash on hand.

    Zomato has raised close to Rs.25,000crs. Many times investors have ploughed in money and using that money Zomato is growing it’s business whereas BCG is using it’s own money since many years and it is able to survive and grow it’s business and pay off debt close to Rs.300crs (in the past BCG had raised $100M but that was 11years back and that too not all that $100M at once). As mentioned above, BCG had good growth rates during 2010-16 but after that the growth rates are sluggish. It’s because Zomato invested heavily that it could compete well. Even Uber Eats and FoodPanda couldn’t compete with Zomato and Swiggy and Uber Eats’ India business was sold to Zomato and Ola which bought Foodpanda’s India business closed it after 1 or 2 years.

    Registered Boarder

    Talking about LOC, some people think its like getting lollipop from a candy shop. The management has to look at different things before taking on any debt. There’s no use in taking loans if all the cash is used to pay interest instead of using it for growth. BCG can get LOC easily but when the rating is low, the interest rates will be high. If getting LOC results in more profits then obviously the company has to pay more taxes. BCG pays Rs.180-200crs taxes every year and with an increase in profits taxes may increase to 250-300crs. Once you make profits, you have to pay taxes in cash even if you have cash flow problems. You pay interest in cash after taking loans.

    For business line of credit, in the US, interest charge is between 7-25%. For low rated companies it’ll be very high and for high rated companies it’ll be less.)

    This is not justifying or defending the company for not getting the LOC. This is common sense. Like everyone I also want to see great growth rates in revenues and profits as early as possible but taking LOC should be advantageous to everything. Loans should be taken at the appropriate time and not just because you want a loan. What if you take loans and you can’t pay them later and as a result lose business because all the payments will be dedicated to paying off the loan? There’s a big list of companies which have done that and which have lost business. It’s funny how people don’t consider all these things and just look for binary answers. They just want “yes” or “no” to everything and they don’t try to analyze the situation. If no LOC then the management is fraud and they are trapping people. The management will try to negotiate for a better deal. Banks or lenders are not teddy bears, they won’t give you loans as per your liking and they’ll demand more from you. Just like you even they want to impress their shareholders.

    Registered Boarder

    Lycos-DAUM, Dividends, Impairment and other topics.

    Lycos is like a phone (let’s say iPhone 4) that was released 10-11 years ago. That time with that phone you could do many things and it was very useful for many purposes but how many people still use iPhone 4? Apple will release the new iPhone 13 in the coming days/weeks. People will line up in queues to get the new phone but they won’t be interested to buy iPhone 4 even at a discount. Shouldn’t BCG try to build a technology that is like iPhone 13? Should it go back to iPhone 4? (I’m not talking about BCG building a phone – it’s just a figure of speech, I know some people will take it literally and say that I’m telling BCG to start making phones). I have great respect for Lycos and BCG is what it is today because of Lycos but economically and business wise getting it back urgently doesn’t make much sense. When there are new opportunities, the company should focus on that and can think of getting back Lycos later. Lycos is nothing to DAUM/Kakao. DAUM which is Kakao now, has plans to take it’s subs Kakao bank (KB) and KakaoPay (KP) public and seeking to raise $2.2B from KB and $1.4B from KP. Kakao is investing heavily in new-age tech and it holds many futuristic businesses. I don’t think Lycos will add much to it’s business.

    Lycos was the main reason for BCG falling and for the extreme negative perception but that was way too exaggerated by many people who never bother to understand the situation properly. They thought since BCG back then named Lycos lost Lycos, it must be end of the world for BCG and BCG would lose everything but how much did BCG lose because of DAUM case? DAUM got back Lycos and what leverage does it have now? Can it go to courts again after getting back Lycos? Obviously legal matters should be done and dusted but that should also be done at the right time. Does it make sense to put money to get back Lycos when there’s a new acquisition coming or when you want to start a new division (audio ads)?

    I don’t know what price iPhone 4 was when it was released back then so let us assume it as Rs.36,000. How much would you have paid for it in 2016-17? Will you pay Rs.36,000 now? I don’t think many people would be interested to buy it at 10% of the price also. Lycos should be treated similarly but obviously it won’t be available for very less. Companies and phones can’t be valued like that. My point was to make it easy to understand using examples. Being a layman myself, I try to put many things in layman terms so that everyone can understand things easily.

    Some people say that the CEO/management is trapping investors by saying DAUM case is almost done etc. But are they trapping investors like me and others who are not at all worried about that which happened 5 years back? Majority of the investors don’t care or worry about DAUM. Like me many investors are more interested in the new-age business than getting back Lycos. I give more importance to “Brightcom” than Lycos. Lycos should be brought back because of many reasons and the biggest reason is to have better perception about the company.

    Registered Boarder

    On impairment, since BCG builds its own products, develops its own software etc, there’ll be changes in the technology (disruptions actually). The technology that is useful today won’t be useful after many years. You have to update your technology as time goes on. Same like the above example of iPhone 4 and iPhone 13. Which among those will be useful at present (or in the future)? Since iPhone 13 is not yet released, I’ll compare with iPhone 12.

    Will the iPhone 4 be as good as the iPhone 12? Will it be compatible with the newer versions of many apps? Are the camera specs as good as the latest one? Is the processor as good as the new one? Can you do multitasks with the old one like you can do with the newer one? iPhone 4’s was 512MB RAM, 8/16GB storage, rear camera 5MP (megapixels) and front camera 0.3MP, iOS 6.1.3, Display 3.50 inch (640×960), one-core processor. iPhone 12 pro has 3 rear camera 36MP, front is 12MP, Storage is 64GB, OS is iOS 14, A14 Bionic processor and display 6.10 inch (1170×2532). Which is better specs wise and which is better for 2021?

    Now what if Apple didn’t start making new and better iPhones and stuck to iPhone 4? Will there be customers for that now? As technology changes, companies should upgrade too. What if BCG had a 2010 version of a product even now and what if that software was not compatible with clients’ business. Can anyone expect clients to do business with BCG even with BCG not upgrading it’s products? Obviously the answer is no and the clients would go to BCG’s competitors who have newer versions. What happens to the old iPhone 4 that you had for many years? How much will you get for that now? For exchange you may get some money but what about for software products? Will anyone buy a Windows XP or the Windows 10? For the sake of simplicity I gave iPhone as an example. You can’t exchange a software product for a newer one and you have to write that off. We all will have old clothes that we give away for free. Will we ask money for those old clothes? Some people will throw away the old clothes. Does that mean those clothes didn’t have any use or value in the past? The same with many appliances, cars, bikes etc. They will be very useful for us for many years but after that they won’t be of much use. There’ll be depreciation and amortizations but sometimes you’ll have to write off many things.

    (I’m not comparing BCG and Apple’s business and I’m not saying BCG is as good as Apple, I’m just doing this to explain the situation in a simple way).

    Registered Boarder

    Let me share some articles about impairment or write offs that have happened in the ad-tech industry.

    (Adding too many links will make the message as spam so I‘ve just copy pasted the links, you can copy them and read them)

    Verizon took $4.6B impairment charge for its ad-tech business. It spent close to $9B to acquire AOL and Yahoo. $4.6B is not a small amount. Verizon is one of the largest companies in the world.

    Similar to Verizon, Telstra which is an Australian company (13th by market cap in Australia) took a impairment charge of $273M in it’s ad-tech business. Denstu took $1.37B impairment charge in 2020. Few years back Magnite (back then Rubicon) wrote off assets worth $100M.

    Giants like these have impaired assets worth billions of dollars. Assets or software products which will be very useful now won’t be useful in the future. This is a very dynamic industry and updating technology as per changes is very important. You can’t compare to a random industry and say they didn’t write off so you should also not write off. That’s silly and it’s being ignorant.

    On dividends, is it prudent to pay more dividends when you want to acquire a new company and when you have cash flow problems? Some people say the company’s numbers will be legit only if 25% of the profits will be paid as dividends. This is the most silliest argument ever. Comparing IT companies with BCG is the funniest thing I’ve seen. Both businesses are completely different. Just because you think BCG as an IT company, doesn’t make it an IT company. People have to check properly and then write something. IT companies throw off free cash which will be used for paying dividend. They may not have to spend money on technology, developing products or for working capital needs. People should check industry specific companies to compare many things. How many ad-tech companies pay dividend? As mentioned above, even if you can’t grow using profits, you have to spend your profits for maintaining the business or for survival of the business. Won’t there be any headwinds for any company? If doing ad-tech business is so easy then why aren’t everyone doing it?

    People should not buy stocks of companies like BCG if they want more dividends. There are many other companies that pay more dividends and they can invest in those. BCG will pay dividend but that won’t be as good as you get with other companies. I’ve not invested in BCG to get dividends and I won’t care if they don’t pay dividends.

    Registered Boarder

    Now talking about stock price and valuation, I’ve seen people giving crazy targets. One or two UCs and people will say BCG should trade above 500 or 1000 or some say even 1500. For 1500, BCG’s valuation will be over 1lakh crore and P/E ratio will be over 200 which is crazy. Just because AFFLE and TTD command higher P/E multiples doesn’t mean even BCG has to have a similar multiple. There are many factors that decide how much valuation a company will have. Both AFFLE and TTD are relatively newer companies and they command higher multiples which BCG won’t get. Both have good past image which BCG is not having. Just because a stock is undervalued doesn’t mean right away it’ll become fairly valued. There’ll be corrections too. The stock has gone up 7 times with minor breaks and there’ll be cooling off period. If not for the bonus and acquisition news, the stock wouldn’t have gone up like this in such a short amount of time.

    Individuals have to take their own decisions and should rely on their own research and analysis before buying or selling any share – especially a small cap like BCG. They should not get carried away looking at crazy targets that many people give. If they want to rely on others then they should invest in mutual funds or large cap stocks or FDs or bonds. There are risks in investing in any stock and the risk will be bigger with small cap stocks. You can’t buy when there’s a UC and can’t sell when there’s an LC. Operators control prices of stocks like BCG which people should be aware of. They should determine their own targets and not rely on others.

    Just like people who hype the stock, there’ll be people who will be hell bent on trying to influence others to sell their shares. They would’ve sold their shares at a lower price and will try very hard to bring unwanted negativity. They will make silly things look like some big problem. They’ll recommend shares where banks, institutions have sold shares and the company which still hasn’t published it’s Q4 results. They talk about BCG diluting shares too much but they try to hype a company that’s issuing 5cr more shares which currently has only 10cr shares. Isn’t that too much dilution? They have problems if BCG does that but no problem if other companies do something similar? Without knowing properly, they say FPIs who are subscribing to BCG’s shares are traders but fail to talk about the people who are subscribing to that company’s shares. There’s no proper information on people who are subscribing to the other company’s issuance. I don’t know much about that company and it’s business and I don’t know why those banks and institutions sold their shares but people said that BCG’s CEO gives excuses saying FIIs dumped shares but they won’t talk about dumping that happened in the other company. Without proper understanding I won’t comment anything but here I’m talking about the hypocrisy. I’m not telling anyone not to invest in that or any other stock, that’s always individuals’ choice. Before investing people should do all the research and analysis.

    People should be aware of other people who give targets. Suppose a share is trading at 100 and people give target of 150, that means they will start dumping (smaller quantities at the beginning) from 125 and by 140 or 145 they’ll completely sell their shares. I’m not saying everywhere that’s the case and everyone does that but people should be aware of that.

    Registered Boarder

    Coming to BCG, instead of blaming others, if people have any problem with the company or the CEO/management, they should always give complaint to SEBI or other concerned authorities. They should talk to the management directly (in conference calls or AGM or visit the company) and clear any doubts they have. Don’t depend on what others say or do and always take your own decisions and do it in a legal way. Just few weeks back when the price was below 10, people were saying they’ll complain to the authorities about many things (about PW issuance, numbers etc) but the same people are hyping the stock now. How will you take them seriously? Or is it that the numbers were fake when the price was below 10 and suddenly became legit as the price went up? What happened to asking SEBI for a forensic audit?

    Just like all the stocks there are opportunities and risks in investing in BCG too. Everyone has to be aware of that. There are opportunities and risks both in business and valuation/market wise. People should understand the company’s business and should always compare with real peers and not with random companies that are mentioned in some website or that people talk about. People should be aware of the changes happening in the industry too. This is a dynamic industry and things change quickly and people have to follow that regularly. Then they should be aware of the market conditions/factors too. Right now we have a bull market and all the stocks are going up. In 2016-18 period also stocks went up and later many small and medium cap stocks fell. Some of the very good companies’ stocks also fell because of the overall sentiment. Then again COVID crash happened. No one can predict when something will happen and before investing, people should be ready for both bull and bear markets.

    Registered Boarder

    Thanks Logan guru ji for the much awaited timely advise.. 🙏 Regards..

    Registered Boarder
    Registered Boarder

    Top Supply Side Ad Platforms Startups

    Brightcom offers video supply side platform for publishers to monetize their digital ad inventory and advertisers to reach their target audience across display, mobile, and video. Brightcom’s proprietary technology platform, Compass enables publishers to maximize yield by monetizing their media across all their devices utilizing solutions like real-time bidding, tag integration, header bidding and other hybrid solutions.

    Nice words mentioned about Brightcom and in the introduction they have mentioned “Globally there are 179 Supply Side Ad Platforms companies, and here is the list of the 10 most interesting ones”

    I don’t know much about Tracxn but looks like they track everything related to technology, and startups which will be useful for venture capitalists, private equity investors, large corporations etc.

    This is what is mentioned in their website :

    Tracking Innovative companies across 350+ Technology Sectors, 1000+ Emerging Themes, and Dedicated Coverage on 30+ Countries

    Designed with precision for

    Private Market Investors – VC, PE, IB, Incubators, Angel Networks, Family Offices

    Large Corporates – M&A, Innovation and Digital Transformation Teams

    Government Agencies, Industry Bodies, Universities

    Registered Boarder

    Nice to see Brightcom listed in Tracxn…thanks @Logan for sharing this

    Just a little background about Tracxn and it’s founder Abhishek Goyal.

    Tracxn is a Bengaluru based company. It creates a database of startups across the world and across emerging sectors and makes it easy for private equity investors to invest.

    Ratan Tata and Flipkart founders are investors in it

    One of the co-founder Abhishek Goyal is a techie turned investor. He is highly regarded in the startup world. During his stint as VC in Accel partners he was the one who made the first million dollar investment in Flipkart when it was running from a rented house in Koramangala. In a way he kickstarted the startup revolution in India. Apart from running Tracxn he is a Angel investor and has invested in many startups like Delhivery and others

    Registered Boarder

    The latest earnings call transcripts of Magnite & Pubmatic is given below @Logan & others kindly go through it to understand the current & future trends of digital adtech sector.

    Registered Boarder

    @jay69, I’m following these companies closely and last quarter, all the ad-tech companies have posted great results. If you remember I used to write about the results in the forum but stopped writing because of some people. They didn’t let me write anything about fundamentals and always bothered me with their nonsense comments and I lost interest to write about these topics.

    Registered Boarder

    Logan I think you should continue to post about other companies in the adtech as well as industry as a whole. With BCG growing in size after acquisition and movement of stock price it is much more necessary for us to understand industry and developments. Your posts have always been very informative and insightful.

    Registered Boarder

    With Reliance finally entering the digital adtech sector the sector will finally get lot of recognition & since Brightcom Group is one of the global players in the sector it will now get its due recognition even in India at the earliest.

    Read the complete article to get a lot of info about prospects of the digital adtech sector in India.

    Registered Boarder

    SKR talking about Jio in 2016. He was saying Jio will be making money with ads and it’s positive for DM companies like Brightcom.

    He seems to have rightly timed the acquisition of an Indian DM company which would help them grow both in Indian and International markets

    Registered Boarder

    Jio (Reliance) has so many platforms that it can take advantage of i.e. it can easily scale-up using it’s own platforms instead of having to rely on others. JioMart is relatively newer compared to the others but it’s gaining significant market share so quickly.

    In one interview of Mr.Reddy in 2012 he predicted that digital landscape in India will change dramatically and he was right. This was way before the digital transformation took place in India.

    (In 2012 we had to pay hundreds of rupees just to get few MBs of data)

    If a billionaire said it or some famous person said it then people would’ve called them visionary but unfortunately it was Mr.Reddy who said that only to pump up the stock prices. He has no talent and everything he does is to control the stock prices.

    He was even right on the smart watches. Nowadays almost everyone (even old people) wear these watches. That time also there were many companies starting that but those watches were not as famous as they are today. I can see everyone wearing those watches when they go for a walk or when they go to do exercises.

    The problem is that companies like BCG can’t scale-up things like the big companies. Amazon started its adtech business later than many companies but still it could scale-up and now it has significant market share. I think even Jio can do the same here. They have other businesses which can support the new business and even if it fails they can digest that.

    I always talk about how hard it is to run a company like BCG but many still don’t understand (I’m not talking about the forum members but about the self-proclaimed experts who don’t know the difference between an adtech company and an IT company). Big players with bigger resources can easily put you out of business if you aren’t competitive enough. You have to invest heavily in technology.

    Even now you can see people commenting 400crs profit but couldn’t pay 150cr loan or 400cr profit but can’t pay 25% dividend or they talk about buyback etc etc. Just like digital transformation, we need to see common sense transformation in many people. P/E, P/B ratio investors will never understand the importance of cash flows and the importance of investing in technology.

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