Application & Systems Software
Viral opportunity: mobile payment use will ramp up dramatically
(17 Apr 2020) Let's face it: people don't want to touch anything while out in public any longer. All of the daily tactile actions we would once take without thinking twice about, we now consciously consider. Investors should constantly be asking themselves, "How might the situation before us affect our portfolio, and what needs to be done, if anything?" Take the rise in the use of smartphones to make payments. What was once a novelty at places like Starbucks (SBUX) is rapidly becoming the primary way we transact business. We take our goods to the register, hold our phones or smart watches by a scanner, and voilà, payment made—with zero touch outside of our own devices. Remember how the checkbooks at the grocery store counter suddenly gave way to a debit card swipe? The same migration from physical debit cards to payment apps in our phone is now taking place, and the pandemic is accelerating the movement. Investors could consider companies such as PayPal (PYPL $108, owns Venmo), Square (SQ $58, point-of-sale software), Amazon (AMZN $2,420, Amazon Pay), and Apple (AAPL $287, Apple Pay) as potential ways to take advantage of this movement. Better yet, why not hedge your bets with IPAY ($38.63), the ETFMG Prime Mobile Payments ETF. This fund invests in 38 companies engaged in the development and deployment of software, hardware, architecture, and infrastructure for the payment processing and services industry.
(17 Apr 2020) Let's face it: people don't want to touch anything while out in public any longer. All of the daily tactile actions we would once take without thinking twice about, we now consciously consider. Investors should constantly be asking themselves, "How might the situation before us affect our portfolio, and what needs to be done, if anything?" Take the rise in the use of smartphones to make payments. What was once a novelty at places like Starbucks (SBUX) is rapidly becoming the primary way we transact business. We take our goods to the register, hold our phones or smart watches by a scanner, and voilà, payment made—with zero touch outside of our own devices. Remember how the checkbooks at the grocery store counter suddenly gave way to a debit card swipe? The same migration from physical debit cards to payment apps in our phone is now taking place, and the pandemic is accelerating the movement. Investors could consider companies such as PayPal (PYPL $108, owns Venmo), Square (SQ $58, point-of-sale software), Amazon (AMZN $2,420, Amazon Pay), and Apple (AAPL $287, Apple Pay) as potential ways to take advantage of this movement. Better yet, why not hedge your bets with IPAY ($38.63), the ETFMG Prime Mobile Payments ETF. This fund invests in 38 companies engaged in the development and deployment of software, hardware, architecture, and infrastructure for the payment processing and services industry.
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INTU
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Intuit to buy Credit Karma for $7.1 billion. (27 Feb 2020) Many Americans may not recognize the name Intuit (INTU $236-$280-$307), but odds are pretty good they have used one of the company's online financial services, such as TurboTax, QuickBooks, or budgeting platform Mint. In its most recent move to shore up its fintech services, the company just announced that it will buy personal finance portal Credit Karma for $7.1 billion in cash and stock. News of the deal was music to the ears of Credit Karma's 700 employees, who will receive around $300 million worth of INTU restricted stock, to be paid out over four years. That company provides free credit scores to consumers, in addition to credit monitoring and tax preparation and filing services. The deal will close in the second half of the year. Intuit's P/E ratio of 45 may seem a bit rich, but it is in line with other firms in the software applications industry. For example, Adobe (ADBE), perhaps our favorite firm in the industry, has a P/E ratio of 59. Additionally, Intuit's financials look great: solidly growing revenues, an operating margin of 27%, and a relatively low debt load. Shares are down 9% on the market pullback, but will the coronavirus stop anyone from filing their taxes or balancing their books?
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MSFT
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Another quarter, another set of blowout numbers from Microsoft. (30 Jan 2020) When Satya Nadella took the helm from the "animated" (we are being kind) Steve Ballmer at Microsoft (MSFT $102-$168-$168) in 2014, shares of the pioneer software company were trading for around $36, and the company had a market cap of $300 billion. That is approximately when we added the company to the Penn Global Leaders Club. We were decidedly not fans of Ballmer, but we loved the strategic vision Nadella was laying out for the firm. Since he took over, Microsoft has risen 360% versus an 88% rise in the S&P 500. With its $1.3 trillion market cap, the company comes in just behind Apple (AAPL) as the world's largest publicly-traded company. Based on the firm's just-released earnings report, expect that trajectory to continue. Microsoft generated revenues of $36.9 billion versus expectations for $35.7 billion; earnings per share came in at $1.51, well ahead of the $1.32 the Street was expecting. Most impressive was the company's Azure cloud segment—the segment Amazon (AMZN) is suing the government over, which posted a remarkable 62% jump in year-over-year sales. Perhaps even more amazing, the company's seemingly archaic Windows division notched a 26% spike in Y/Y sales thanks to strong demand for Windows 10. Finally, the Office 365 software subscription service (we are one of 120 million monthly active users) continues to bring in an enormous monthly income stream to the company. We are as bullish on Microsoft now as we were when Nadella took over. After Bill Gates left as the company's first CEO, Microsoft could have easily rested on its laurels (as we would argue it did under the goofy Ballmer) and made a slow descent into irrelevance. Instead, true leadership took over in 2014 and re-imagined what the company could be and do for an ever-increasing number of customers. Leadership made the difference.
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NOW
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Analysts turn cautious on business software firm ServiceNow after CEO bolts for Nike; we disagree. (23 Oct 2019) ServiceNow (NOW $148-$212-$303) is a $40 billion enterprise software company which provides customized workflow digitization to companies. In other words, it will take a look at what a company does, and it will streamline and automate all aspects of workflow, from customer interaction to back office functions. To quote incoming CEO Bill McDermott, the company provides a "fully integrated platform to drive productivity." Speaking of the incoming CEO, the C-suite shuffle is the reason some analysts have turned negative on the firm. Athletic apparel company Nike (NIKE) hired away NOW CEO John Donahoe to take over for the invertebrate Mark Parker ("Yank the Betsy Ross shoes"), who will—sadly—remain at the firm as the executive chairman. (Parker: "I will lean-in to help Donahoe...." Gag.) Donohoe doesn't need Parker's help—before successfully leading ServiceNow, he was chairman of PayPal. As for the company he is leaving, we can't imagine a better leader than SAP's (SAP) Bill McDermott. Under his leadership, in fact, SAP grew from a $39 billion firm to a $160 billion applications software juggernaut. He is, in our opinion, one of the best CEOs in the industry. Ironically, NOW sits almost precisely at the size of SAP when McDermott took over that firm. We strongly disagree with the downgrades. ServiceNow offers benchmark enterprise solutions to the world's largest organizations. Its customer retention rate is a crazy-high 98%. We would place a fair value on NOW shares at $300, or about 42% higher than where they sit following the downgrades.
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SYMC
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Two weeks ago we sold Symantec on acquisition rumors, this week that deal fell apart. (15 Jul 2019) Talk about great timing. Two weeks ago, when Broadcom (AVGO) announced it would be purchasing software applications company Symantec (SYMC $17-$21-$26), the latter rocketed over 20% to a new one-year high. So we sold the position (at $25.34) in the Intrepid Trading Platform. Now, however, it appears the two sides could not come to terms with respect to price, and Symantec promptly fell by nearly the same amount. You've heard the old investment adage, "buy the rumor, sell the news," but sometimes it is smart to take profits on the rumor and eliminate the odds of the deal never coming to fruition. We remain ultra-bullish on the cybersecurity industry, but we are not ready to pick up SYMC again just yet. Too many other great companies in the space.
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ADBE
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Stellar software applications company Adobe reports record revenue. Adobe Systems (ADBE $134-$258-$259) is, in our humble opinion, one of the most dominant applications software companies in the world. Its Adobe Creative Cloud suite is the benchmark software for professionals in a number of different industries, and its subscription model (pay monthly as opposed to paying for each new upgrade) was a brilliant strategic move. Sticky revenue. Recurring income stream. Those are golden words to a CFO. And that subscription model just helped Adobe hit a new revenue record: for Q2 of 2018, the company brought in $2.2 billion, a 24% year-over-year increase. After the report, RBC Capital Markets raised their price target on shares of the San Jose firm from $268 to $288.
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PANW
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Palo Alto Networks blows past earnings estimates
(27 Feb 2018) Shares of cybersecurity firm Palo Alto Networks (PANW $107-$179-$170) punched through their 52-week high after the company reported a lights-out fiscal second quarter. Top-line revenue rose 28% from the same quarter last year, to $542.4 million, while earnings rose to $0.97 per share—a 54% pop from last year. In addition to a big tax reform windfall for the quarter, billings were up 20% on the year as the company rolled out new security solutions. Shares were trading up about 6% on the news. |
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BLCN
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Forget bitcoin ETFs, new Reality Shares ETF focuses on blockchain technology
(23 Jan 2018) If we have reiterated two themes time and time again, they are 1) bitcoin is in a giant bubble, and 2) the underlying blockchain technology used by cryptocurrencies is the real deal. To that end, Reality Shares has launched the very first exchange-traded fund focused around blockchain technology. The Reality Shares Nasdaq NexGen Economy ETF (BLCN $24-$25-$25) began trading last week around $24 per share, and is currently up 2.47% since its launch. We are not making a recommendation on the investment, but investors should be able to scour the ETF's holdings for some interesting possible picks. One aspect of the ETF's name made us twitch: it sounds an awful lot like the "New Economy" fund that was all the rage right before the great Tech Bubble Burst of 2000. |
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SQ
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Square tumbles double-digits after analyst issues “sell” rating
(28 Nov 2017) Application software company Square (SQ $12-$44-$50) dropped 12% following a downgrade from analyst house BTIG. The analyst believes the stock’s crazy rally has been greatly overdone in the midst of the bitcoin craze. Square recently began a trial letting some of its users buy and sell the digital currency on its app. Square has no P/E, as it has never turned a profit. In addition to the “sell” rating, BTIG updated its SQ price target to $30. |
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PANW
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Application & Systems Software. Cybersecurity firm Palo Alto Networks pops 15% on open. Network security equipment maker Palo Alto Networks (PANW $107-$136-$166) jumped 15% Thursday morning after investors digested the company's most recent earnings release. Revenue for the quarter grew from $346 million to $432 million, year over year—a 25% gain. On another good note, we suppose, the company only lost $49 million this past quarter, as opposed to $59 million in the same quarter last year. The growth story is there for PANW, but we prefer some other companies in the space. We hold one competitor in the Global Leaders Club and three others in the Penn New Frontier Fund.
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ADBE
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(20 Mar 2017) Adobe delivers another solid quarter. Perennial Penn strategies member Adobe Systems (ADBE $90-$127-$130) reported another stellar quarter, with revenue growing 22% from last year, to $1.68 billion, and net income growing 57%, to $398.45 million. An extremely well-run organization with a strategic plan that stresses a steady stream of annuitized income. Well done.
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