Archive for June, 2016

Spotting Trends: The Growth of Fintech

By: ispeculatornew | Date posted: 06.27.2016 (8:35 pm)

The financial services industry has always tried to embrace new technologies in order to offer additional convenience to customers and operate more efficiently. But in recent years with the rise of cloud-based apps and mobile technology, there has been a new wave of technological innovation that is driving growth and launching promising new businesses in the financial services sector: this is the rise of fintech. The fintech industry has become one of the most exciting industries for investors and technology enthusiasts because the rise of new financial technologies is making it possible for banks and financial firms to offer new levels of convenience, efficiency, cost savings and even the ability to develop entirely new financial products that were never possible before. Fintech startups are finding new ways to process payments, collect donations, and loan money – and they’re doing it with online software and an emphasis on speed, convenience and mobile technology.

Here are a few of the reasons why the fintech industry is worthy of its recent buzz:

The Financial Services Industry is Ripe for Disruption

The financial services sector is often thought of as being a slow-moving, heavily regulated industry that is full of big, entrenched players, making it slow to change. However, the truth is, financial services is one of the industries that is most prepared for disruption by innovative outsiders. According to a survey of Inc. 500 CEOs, financial services was rated #2 of the top five sectors that are ripe for disruption (#1 was health care). The established big banks should not be too smug and complacent – many small companies are looking for new ways to deliver financial services more efficiently and in a way that better serves customers, and customers are starting to notice that there are excellent online tools available to process payments and manage other banking tasks.

Fintech Cuts Costs

A recent article from The Economist found that online lenders (some of the most prominent fintech startups) tend to have a much lower cost structure than traditional banks. For example, online lenders typically have business expenses that are only about 2 percent of their average outstanding loan balance, compared to 5-7 percent for traditional bank lenders. Fintech firms are typically able to reduce costs because they often operate online, without the costs and bureaucracy of a traditional bank’s network of brick-and-mortar branch locations. Lower costs make it possible for online lenders to issue loans more affordably, or serve a broader base of customers who might not have been able to get loans from a traditional bank.

Consumers are Ready for Fintech

People love their smartphones, and mobile apps have quickly become the everyday assistants of billions of people all over the world. People are using their smartphones and mobile devices to research products, shop online, and exchange confidential information about health care, insurance and many other aspects of their personal and financial lives – so why should financial services be any different? Consumers (and small business owners) are more comfortable than ever with online banking, mobile technologies for financial services, and other key trends in the shift to mobile marketing. This presents a huge opportunity to fintech firms.

For example, an article from the Financial Times found that transaction volume at traditional brick-and-mortar bank branches has decreased by one third in the past six years, as consumers are starting to do more of their routine banking business via online and mobile banking. The Adobe 2015 Mobile Consumer report found that 75 percent of Millennials and Gen Xers want to do online banking each month, more than 20 percent of Millennials (and 14 percent of Gen Xers) say that they want to apply for banking products online, and more than half of U.S. and U.K. mobile consumers would like to use mobile-only banking services.

The rise of fintech is keeping with several other key trends: the rise of mobile technology, the innovation of online software apps, and the growing appetite of consumers for more online and mobile banking. Anyone who is interested in seeing the latest opportunities for business growth and the evolution of the consumer economy should pay attention to the continuing rise of the fintech sector.

New Trade: Salesforce ($CRM) & Short Zillow ($Z)

By: ispeculatornew | Date posted: 06.21.2016 (3:46 am)

Today I am opening my 15th trade of the year between between 2 names that have been part of a lot of M&A activity and rumors. Things have been going well so far this year and as is always the case, you can see past 2016 (and previous years) trades here:

http://www.intelligentspeculator.net/livetrades

Let’s start off by looking at the numbers:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
ZZillow Group Inc34.76N/A73.0745.0297.823.86N/AN/AN/A76.34N/A
CRMsalesforce.com Inc81.22N/A61.082.6824.074.768.241.310.0830.74N/A

$CRMLong Salesforce ($CRM)

Salesforce is certainly an interesting company to follow. First off, as a SAAS company, traditional ratios such as price/earnings and even profitability numbers are not as useful. Why? Because Salesforce has a very significant portion of its cost upfront. There are several good readings that explain this but here is a short summary. If you are able to land a client for $50 of cost of sales, and can expect to make a $20 profit for 5 years, it’s a no-brainer right? It is, but the problem is that the first year, that client will show up as a losing money client. The more clients you land, the bigger the losses. That is until you start having more clients in those later years which bring in enough profits to compensate. All of that being said, I do think CRM trades at a higher valuation than I’d like but I think it is a good play in this context. It does have significant risk of being acquired, is a leader in its field and when compared to Zillow, I do feel like it’s valuation is attractive.

 

CRM_chart

 

Next earnings: August 17th 2016

$ZShort Zillow (Z)

Zillow is an interesting company and certainly has has a nice run in the past few weeks/months but it does have its fair share of haters as well including well known short seller Citron research. The company continues to grow at a very steady rate and has a nice niche. In some ways, I don’t love the idea of shorting Z but I do think its valuation is rich right now and that the risk vs. reward on this trade is worth it.

Z_chart

Next earnings: August 2nd 2016

Disclaimer: This trade on CRM-Z will be done on today’s opening,

New Trade: Paypal ($PYPL) & Short IAC Interactive ($IAC)

By: ispeculatornew | Date posted: 06.14.2016 (3:00 am)

Today I am opening my 14th trade of the year between between 2 of the older players on my list. Things have been going well so far this year and as is always the case, you can see past 2016 (and previous years) trades here:

http://www.intelligentspeculator.net/livetrades

Let’s start off by looking at the numbers:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaEarningsMkt CapRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
IACIAC/InterActiveCorp53.3159.9312.83-9.293.94.225.691.077/25/2016 $4,313,765,104.09 38.9513.047.02
PYPLPayPal Holdings Inc36.5433.420.861.5715.244.0611.26N/A7/27/2016 $44,566,220,398.51 7.57N/AN/A

Paypal is fairly new as a separate company but still worth looking at my usual chart:

 

IAC_PYPL_chart


Long Paypal (PYPL)

Despite a growing level of competition in the online payments space, Paypal remains the one dominant player thanks mostly to the lock-in/network effects. It also has been the one dominant global player while others such as Amazon (AMZN), Appel (AAPL), and Stripe continue to work on expanding their capabilities. I do still have my doubts about PYPL’s longer term position but it has been making some smart bets in the form of Venmo for example. The biggest argument for buying PYPL today is that relative to its valuation, it remains cheap compared to most of my board. Also, there have been rumors of a possible takeover of Paypal (PYPL) and that is certainly a nice option.

PYPL_chart

 

pypl

Next earnings: July 27th 2016

Short IAC Interactive (IAC)

In many ways, IAC has been an incredible engine of growth over the past decade. Shareholders have done well on the condition that they kept shares of units that ended up being spun off such as Expedia (EXPE), Tripadvisor (TRIP), Match Group (MTCH) but if you look at the return of the parent company alone, it has not been as impressive and I’m willing to bet that will continue by taking a new short position on it.

 

IAC_chart

Next earnings: July 25th 2016

Disclaimer: This trade on PYPL-IAC will be done on today’s opening,

Closing 1 Trade ($MTCH, $IAC)

By: ispeculatornew | Date posted: 06.13.2016 (3:00 am)

Good morning, I hope all of you had a good weekend! This morning, I will be closing a trade done on April 14th when I went long Match Group (MTCH) against IAC Interactive (IAC), two companies that were part of the same entity a few months ago. The trade has gone incredibly well and currently stands at +33%. You can see the details of our 2016 (and previous years) trading at:

http://www.intelligentspeculator.net/livetrades

You can expect 1-2 new trades this week. That’s it for now!

MTCH_IAC_chart (1)