Vtrade Proposes PagSeguro Digital Ltd (NYSE: PAGS) For Long Term Investment

PagSeguro Digital Ltd (NYSE: PAGS)

COMPANY PROFILE

Founded In – 2006 | Current Market-Cap – USD 9.97B

PagSeguro Digital Ltd is a provider of financial technology solution company. The Company is focused primarily on micro-merchants, small companies and medium-sized companies in Brazil.

The Company offers multiple digital payment solutions, free digital accounts, and withdrawing account balances. Its end-to-end digital ecosystem enables its customers accept payments and manage their businesses.

It offers safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account.

Its digital account offers more than 30 cash-in methods and six cash-out options including its PagSeguro prepaid card, all using proprietary technology platform and backed by the trusted PagSeguro and UOL brands.

Its digital ecosystem also features other digital financial services, business management tools and functionalities for its clients.

Company launched its IPO in the NYSE on 24^th Jan 2018.

Stock performance since IPO:

IPO Date	24-Jan-2018
IPO Value	4.7B
IPO Range	17.50 - $50.50
IPO Debut Price	28.20
High Made (29-Mar-2018)	39.97
Low Made (02-Aug-2018)	24.57
Last Trading Close (22-Oct-2018)	31.74

PAGS seems to be a good Long-Term Investment Stock for following reasons:

·       PAGS is the biggest payment processing company in Brazil. It derives its revenue from three sources: Payment processing (48% of revenue): PAGS charges on average 3.2% fee on the total payment volume. It is a high-margin segment. Sale of POS (19% of revenue): PAGS sells POS with a loss but later makes profit on payment processing. Factoring (32% of revenue): PAGS offers merchants early repayment of their receivables and charges them 42% p.a. It is a huge margins segment.

·       PAGS is growing primarily through addressing smaller merchants in Brazil that previously could not use traditional acquirers like Redecard and Cielo, due to their prohibitively high costs. Due to PAGS's relatively low market share and their focus on expanding the market to smaller merchants, PAGS grew revenues over 120% in CY17 and 89% year over year in Q118. Their largest competitor Cielo saw their revenues shrink by about 1% Y/Y in the same quarter.

·       PAGS also has a potentially attractive platform for incremental growth opportunities, such as small business lending. While overall GDP growth in Brazil has been relatively weak recently, PAGS is nonetheless a very attractive play on the growth in digital payments in South America's largest economy.

·       PAGS can charge 42% p.a. on early receivable repayments because, in Brazil, the cost for overdraft credit is 331% p.a. PAGS has very little credit risk because its counter party is not the merchant but the big Brazilian banks.

·       PAGS has historically targeted micro and SME businesses because this segment was under-served in Brazil. Banks and card processing companies concentrated on enterprise customers. The micro merchants did not even accept card payment prior to signing up with PAGS. At the year-end, PAGS had 2.7M active merchants out of 11M SMEs.

·       PAGS operates in a big market where it can grow just by gaining market share. Last year, total payment volume (TPV) in Brazil was R$5.1 trillion. The SME TPV was R$1.8 trillion, as PAGS had just 2.1% of SME TPV and 0.75% of total TPV, in future it has a great room for growth.

EARNINGS & YEAR-ON-YEAR PERFORMANCE

In 2018 - Q2 EPS of R$0.79 beats the consensus estimate by R$0.06 and Revenue of R$974.5M beats the consensus by R$68.84M.

R$16.9 billion in total payment volume (TPV), up 106.8% compared with 2Q17. Active merchants in the last 12 months at close of period of 3.5 million, up 68.7% compared with 2Q17, with growth of 1.4 million net new merchants;

R$1,001.8 million in total net revenue up 79.8% compared to 2Q17, or 74.9% after NonGAAP adjustments to 2Q18. R$974.5 million in Non-GAAP total net revenue in 2Q18. R$227.6 million in net income, up 176.8% compared with 2Q17, or 194.5% after NonGAAP adjustments to 2Q18.

R$242.1 million in Non-GAAP net income in 2Q18. Net Margin of 22.7%, up 7.9 percentage points compared with 2Q17 or up 10.0 percentage points after Non-GAAP adjustments to 2Q18. Non-GAAP Net Margin of 24.8% in 2Q18.

Disclaimer:

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.

Vtrade Proposes to BUY Facebook Inc. (NASDAQ: FB)

Facebook Inc.

NASDAQ: FB

COMPANY DESCRIPTION

Founded in – 2004 | Current Market Cap – 26.30 Billion USD

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its products include Facebook Website and mobile application that enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, a community for sharing visual stories through photos, videos, and direct messages; Messenger, a messaging application to communicate with other people, groups, and businesses across various platforms and devices; and WhatsApp, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allows people to enter an immersive and an interactive environment to train, learn, play games, consume content, and connect with others. As of December 31, 2017, it had approximately 1.40 billion daily active users. Facebook, Inc. headquartered in Menlo Park, California.

RECOMMENDATION

We rate Facebook, Inc. a BUY at USD 150 for a target of USD 177 in two months.

Below are the basic reasons to recommend this stock as a BUY.

·       Facebook has witnessed significant traction in online and mobile advertising spending in a short span of time. In 2017, Mobile ad revenues grew 56% over 2016. The increase in mobile advertisement stems from the fact that mobile ads have far more ad recall value than other mediums. Since marketers are moving to mobile to target customers, Facebook is enthusiastically monetizing this shift.

·       Facebook intends to capture the opportunity presented by ever-increasing video viewing on social media platforms. Earlier, the company had mentioned that video was emerging as a “megatrend” on the same lines as mobile. Online video is the most lucrative component of digital advertising. As video ads generate more revenues than its photo and text-based substitutes, Facebook is trying to incorporate more and more video-oriented content to bring in more ad dollars. The company launched Watch, a dedicated tab for video viewing, to achieve its goal.

·       Instagram has emerged as an important cash cow for Facebook after opening its ad platform to worldwide advertisers. Although no exact numbers about contribution from Instagram are shared, the growing adoption among advertisers is highly prominent. To bring more advertisers (over 2 million and counting), Facebook said it has unveiled new tools to promote posts and evaluate business performance directly within Instagram. “Stories” on Instagram has surpassed 400 million daily actives. The company is now working on adding video chat, sound tracks and a new Explore tab on Instagram soon.

·       Messenger, WhatsApp and Oculus are the other extremely prized possessions. Facebook is aggressively working on monetizing the opportunities presented by its subsidiaries. Chatbots and “conversational commerce” are likely to be the strategies for Messenger and WhatsApp. The company remains excited as it opened the Messenger app, which has over 1 billion users, to developers for creating chatbots that would enable businesses to extend customer service and other transactions. A few weeks back, management had announced that it will be opening its subsidiary platform, Messenger, to worldwide advertisers, albeit for test run purpose only. This underscores the company’s efforts to monetize the platform. The WhatsApp acquisition (2014) not only expanded the company’s mobile product lineup but also added a user base, which is predominantly young.

·       The acquisition eliminated Facebook’s fastest-growing competitor in terms of user additions. With an estimated user base of over 1.3 billion, it remains one of most important businesses. To monetize the platform, the company has dropped the subscription fees and will eventually bring “conversational commerce” to the platform. WhatsApp now boasts 1 billion daily actives. Oculus will fuel the company’s ambitious AR/VR efforts. At its Oculus Developer conference held in October last year, Facebook announced another $250 million investment to develop VR content ecosystem. It also announced some new products including Santa Cruz, a cheaper standalone VR headset with inside-out-tracking. Earlier this year, it had launched its VR headset, Rift. AI and AR/VR technology are fast emerging as lucrative business opportunities. The company has roped in Hugo Barra to spearhead its VR efforts as well as head Oculus. Plus, Facebook said it will be spending over $3 billion in the next 10 years on VR.

·       Facebook has a strong balance sheet and generates significant cash flow, which makes it an attractive stock for investors. The company has cash and cash equivalents of $42.31 billion at the end of second-quarter of 2018. Free cash flow amounted to nearly $2.8 billion. The company continues to invest in developing its platform and products. We believe that its ability to generate strong cash flows will help it to make further investments in product development and acquisitions in the future.

·       Facebook is considered to have pioneered the concept of social networking, which is why it enjoys a first mover’s advantage in this market. The company’s user base continues to grow at a significant pace driven by new features and tools that improve engagement. However, as developed regions mature, Facebook has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. The Free Basics Initiative, which involves partnerships with local telecom networks to subsidize some basic Internet services (including Facebook), so that users can get them free or at nominal rates, is expanding its presence in these emerging regions.

·       Facebook has collaborated with France-based Eutelsat Communications to launch a satellite that would beam internet in sub-Saharan African regions. It is also testing Express Wi-Fi and developing laser technology to move loads of data at super-fast speed along with Aquila, a solar-powered aircraft to beam internet from the sky. At F8 2017 conference, Facebook announced that it is working on solar-powered drones and MMW technologies. Aquila had a successful second flight. As far as connectivity speeds are concerned, Facebook said that it has broken a few records. In case of wireless transfers, the company has achieved a point-to-point data rate of 36 Gbps over 13 km with MMW technology and 80 Gbps using the optical cross-link technology. We believe these initiatives will significantly drive Facebook’s user-base in these regions in the long run.

·       Of all places, India deserves special mention in terms of user growth. The world’s second largest populated country offers tremendous potential. The number of mobile Internet users in the country, which has nearly 1.4 billion people, was 456 million in December 2017. Per IAMAI report, given the availability of cheaper smartphones, faster connectivity and affordable services, the figure is estimated to reach 478 million by June 2018. This bodes well for Facebook as most developed markets have reached maturity. With China off the radar, India can prove to be a terrific growth engine. A burgeoning well-educated middle class, increasing spending power and rapid adoption of smartphones will boost Facebook’s prospects in the country.

LAST EARNINGS

Facebook reported second-quarter 2018 earnings of $1.74 per share that missed the Consensus Estimate by a penny. However, the figure surged 32.1% from the year-ago quarter.

Revenues of $13.23 billion also lagged the Consensus Estimate of $13.40 billion. However, the figure soared 41.9% (38% at constant currency) from the year-ago quarter. Management stated that Instagram is growing more quickly than the core Facebook app. 

Geographically, Asia-Pacific was the strongest region with revenues growing 47.6% year over year, followed by Europe’s 47.3% and Rest of the World’s (RoW) 42.8%. U.S. & Canada revenues increased 37.2%.

Average Revenue per User (ARPU) growth was strongest in Europe, up 39.5% year over year, followed by the U.S. & Canada’s 33.7% growth. RoW and Asia-Pacific grew at 29% and 23%, respectively.

Disclaimer:

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.