Mstar Stock note PG&E

Stock Analyst Notes PG&E by Morningstar Equity Analysts | 8/19/2019 10:30:00 AM

We are reaffirming our $14.50 fair value estimate for  PG&E PCG after bankruptcy court judge Dennis Montali made two rulings late Friday that will be critical in determining PG&E's postbankruptcy value. We are reaffirming our no-moat, stable moat trend, and very high uncertainty ratings. Montali's order to let the 2017 Tubbs fire victims pursue their jury trial against PG&E could be the more impactful of the two rulings. California fire investigators determined that PG&E's equipment did not spark the fire, which killed 22 people and destroyed 5,643 structures. However, victims are challengi ng that report. PG&E's $17.5 billion of fire charges taken to date could go substantially higher if the utility is found liable for Tubbs. The jury decision also could be a key factor the court uses to set an estimation value for all PG&E fire liabilities. That estimation value will determine how much new capital PG&E will have to raise to exit bankruptcy. This will determine the amount of shareholder dilution. Separately, Montali ruled that PG&E can present the first official bankruptcy exit plan, rejecting unofficial proposals from bondholders and insurers. We valued the bondholders' plan at $7 per share and the insurers' plan at $21 per share, as we detailed in an Aug. 12 note. For the entire note, click here. Travis Miller

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Mstar AMZN

As Amazon's Business Evolves, Its Dynamic Long-Term Cash Flow Story Becomes More Apparent

R.J. Hottovy

Sector Strategist

Business Strategy and Outlook | by R.J. Hottovy Updated Jul 31, 2019

Amazon's disruption of the retail industry is well documented, but the company continues to find ways to evolve its business model. Its operational efficiency, network effect, and a brand intangible asset built on customer service provide its marketplaces with sustainable competitive advantages that few, if any, traditional retailers can match. The combination of competitive pricing, unparalleled logistics capabilities and speed, and high-level customer service makes Amazon an increasingly vital distribution channel for consumer brands. Even with more retailers looking to expand online, we believe Amazon will maintain its consumer proposition through Prime expedited shipping, an expanding digital content library, and new partnerships from its Whole Foods acquisition. Aided by more than 450 million estimated global active users, more than 130 million global Prime members, and fulfillment infrastructure, technology, and content investments, Amazon owns one of the wider economic moats in the consumer sector and is likely to reshape retail, digital media, enterprise software, and other categories for years to come.

Key top-line metrics--including active users (a 12% compound annual growth rate the past five years), total physical and digital units sold (23% CAGR), and third-party units sold (30% CAGR)--continue to outpace global e-commerce trends, suggesting that Amazon is gaining share while fortifying its network effect. On top of its impressive growth, Amazon is building a more visible margin expansion story despite investment requirements for new fulfillment infrastructure/capacity, content deals, AmazonFresh, hardware such as the Echo/Alexa-enabled products, new delivery technologies, and physical store expansion. While some capital decisions haven't always yielded strong returns, we're optimistic that Amazon can grow to and sustain 9%-10% operating margins by 2023 based on Prime adoption and new pricing tiers, new subscription services across multiple categories, AWS segment margins around 35%, fulfillment center scale, new third-party seller services, expanded advertising offerings, and Alexa technology licensing arrangements.

Economic Moat | by R.J. Hottovy Updated Jul 31, 2019

The traditional brick-and-mortar retail industry is undergoing a rapid transformation, particularly in commoditized categories. With nonexistent customer switching costs and intense competition, we've already seen Circuit City, Linens 'n Things, Borders, and RadioShack exit the retail landscape, while Barnes & Noble, Sears, office superstores, and a host of other retailers struggle to reverse deteriorating fundamentals. Market consolidation among mass merchants like Walmart and Costco has played a role in this trend, as have direct-to-consumer investments by key manufacturers. However, we view Amazon as the most disruptive force affecting the retail category over the past several decades. Its operational efficiency, network effect, and laser focus on customer service provide its marketplaces with sustainable competitive advantages that traditional retailers cannot match; this should yield additional market share gains in the years to come. Despite ongoing fulfillment, technology (hardware devices, Alexa, and AWS), and content investments, we expect Amazon can generate economic returns ahead of our cost of capital assumption over an extended horizon, supporting our wide moat rating.

One of Amazon's key advantages is its operational efficiency of its fulfillment and distribution network, which satisfies consumer demand for free and expedited shipping (including plans to expand one-day delivery for U.S. Prime members during 2019). This allows Amazon to generate strong cash flow, which in turn can be reinvested in advertising, customer service, and website enhancements that keep its marketplace robust and customer loyalty strong. In fact, we believe Amazon's brand has come to represent low prices, a wide selection, convenience, and superior customer service--a rare combination among retailers.

Amazon also benefits from a network effect, as low prices, an expansive breadth of products, and a user-friendly interface attract millions of customers, which in return attract merchants of all kinds to Amazon.com, including third-party sellers on Amazon's Marketplace platform (which represented more than 50% of total units sold in 2018) and wholesalers/manufacturers selling directly to Amazon. According to our research, the percentage of traffic to Amazon derived from search has fallen in recent years at a time when other online retailers have become more dependent on search. We think this indicates that Amazon is increasingly becoming the starting point for online purchases, akin to a mall anchor tenant. Additionally, customer reviews, product recommendations, and wish lists increase in relevance as more consumers and products are added to the Amazon platform, enhancing its network effect.

Amazon's $13.7 billion acquisition of Whole Foods in 2017 marks its most significant push into the grocery category but likely left some investors scratching their heads after more than two decades of building an e-commerce empire without physical stores. While we had expected the company to further test its other grocery concepts before going all in with physical stores, we do see several reasons this acquisition is more than just a push into the grocery category and can enhance Amazon's wide moat. First, there is already a high degree of overlap between Amazon Prime members and Whole Foods shoppers, with opportunities to migrate Prime members to the Fresh member tier (which presently runs $14.99 per month in addition to annual Prime membership fees, though we suspect changes to Fresh will continue as Whole Foods is further integrated). Second, Amazon adds instant credibility in fresh produce and proteins through Whole Foods' supplier base, something that had been slow to materialize with Amazon's grocery efforts to this point. On top of the company becoming a reputable player in fresh food, we expect that many Whole Foods suppliers will explore Amazon as a potential distribution channel, at least those not already using Amazon's marketplaces. Third, Amazon has a new vehicle to meaningful expand and accelerate its private-label offerings, including its own packaged food and household product private labels such as Happy Belly, Bloom Street, Mama Bear, and Wickedly Prime as well as the opportunity to sell Whole Foods' 365 label to existing Prime customers. Finally, Whole Foods' physical locations offer an opportunity to showcase new Amazon products and technologies.

We like Amazon's ability to compete in digital media, given its sizable customer base, the symbiotic hardware/software ecosystem of its Kindle, Fire TV, Dash, and Echo products, and intriguing licensing possibilities with Amazon's Echo and other Alexa-enabled voice-recognition products. We still view the Kindle suite of products as customer-acquisition tools that add multiple layers of upside to our base-case assumptions, including additional Prime memberships and engagement levels, accelerating digital media sales, and a positive halo effect on general merchandise sales. We believe Amazon will continue to develop into a formidable player in digital media, given its vast content offerings, inroads into new verticals (including video games), and ability to sell hardware as a loss leader.

We believe Amazon Web Services has similarly developed cost advantage, intangible asset, and network effect moat sources. Amazon's public cloud computing offerings possess more than 3 times the computing capacity in use than the next 10 largest providers combined (based on our estimates), providing the company with scale advantages and often making it the preferred name for corporations looking to reduce information technology expenditures. We expect AWS to generate $36 billion in revenue during 2019, and we forecast average annual revenue growth of 30% over the next five years. With recent investments in additional capacity and other innovations, we expect AWS to become an increasingly positive gross margin contributor--the segment posted a 28.4% segment operating margin in 2018, and we believe it can deliver mid-30s operating margins over a longer horizon--because of its highly scalable nature and other mission-critical services outside of cloud storage, as well as a network of third-party software providers selling on AWS Marketplace.

Fair Value and Profit Drivers | by R.J. Hottovy Updated Jul 31, 2019

Our fair value estimate is $2,300 per share following Amazon's second-quarter update, as we believe the emergent avenues of growth such as advertising, subscription services, international retail, and Alexa (and the future licensing opportunities it presents) will negate Prime one-day shipping investments. In Amazon's case, we do not believe traditional price/earnings and enterprise value/EBITDA metrics are meaningful, given the impact that technology, content, and infrastructure investments are expected to have on near-term margins. Still, we believe Amazon warrants a premium valuation based on its wide economic moat, meaningful avenues for growth, and longer-term margin expansion potential.

Amazon's competitive position and compelling value proposition should lead to additional share gains in 2019, putting full-year revenue growth around 19%. Our model assumes average annual revenue growth of around 16% for the five years ending 2023 due to contribution from physical retail formats, greater engagement among Amazon Prime members, and increased third-party sales from its suppliers, digital content sales, international expansion, and nascent growth channels like advertising and technology licensing. With respect to Amazon's sales mix, we forecast online retail revenue to grow 9% annually over the next five years--below our forecast of low-double-digit global industry growth over the same period, but partly a byproduct of Amazon's shift to a third-party marketplace--with smaller segments like physical stores, third-party seller services, subscription services, AWS, and advertising growing 6% (on a pro forma basis), 19%, 27%, 30%, and 31%, respectively, over the same period.

We forecast that gross margins will reach 43% over the next five years, compared with 40.2% in 2018. Amazon's growing clout with suppliers and advertisers, the higher proportion of third-party units in the sales mix, AWS' increased presence, and new advertising service offerings should allow for higher gross margins. We also forecast operating margin expansion through increasing expense leverage (particularly in the marketing and general & administrative expense line items), contribution from AWS, and accelerating third-party unit sales. Our model calls for Amazon to reach 9%-10% GAAP operating margins over the next five years, based on its strong competitive positions in AWS and North American e-commerce, as well as early indications of success in certain international markets.

Risk and Uncertainty | by R.J. Hottovy Updated Jul 31, 2019

Despite its leading position in a North American and European e-commerce industry with secular tailwinds, Amazon faces several potential risks. Impairment to Amazon's low-price positioning, whether real or perceived, could have an adverse impact on fundamentals. Amazon must maintain its value proposition and logistics efficiency to drive site traffic while competing with other merchants for market share. This includes managing the Amazon Prime fees--including increases to the base U.S. annual membership fee from $119--but we believe the convenience of the platform's fulfillment capabilities, expanded digital content offerings, and new subscription and streaming offerings will continue to drive new Prime membership growth and keep churn to a minimum. Other execution risks include exposure to volatile discretionary spending patterns and expansion into peripheral business lines and physical stores (including the integration of Whole Foods), which could distract management or lead to poor capital-allocation decisions. International growth brings unique regulatory challenges, as foreign governing bodies are constantly amending online commerce laws, often to the benefit of local players.

On top of execution risk, we see three other sources of potential risk: (1) regulatory, including the treat of increased shipping fees from the U.S. Postal Service or other regulated carriers, higher taxes, or antitrust investigations by the Justice Department; (2) direct and indirect competition from other retailers or technology firms; and (3) intangible asset impairment, including data breaches or concerns over inappropriate data usage or consumer fatigue. On the other hand, we see sources of upside risks from more diversified and specialized AWS offerings, expanded Fulfilment by Amazon capabilities, the rollout of AmazonFresh across additional urban centers, new potential pricing tiers or add-on features for Amazon Prime memberships, and expanding advertising to new channels.

Stewardship | by R.J. Hottovy Updated Jul 31, 2019

Chairman and CEO Jeff Bezos founded Amazon.com in 1994. We view Amazon's management team as Exemplary in terms of corporate stewardship. Bezos owns about 15% of the shares (and voting rights for 20%), takes no equity compensation or bonus pay, and collects a paltry salary. Although the board is small, it is elected every year, receives no cash compensation, avoids insider relationships, and hasn't implemented antitakeover provisions. The company also provides a fair amount of supplementary financial data in its financial reports. Our only complaint is that specific disclosures have not increased as the company has expanded into new areas, including digital downloads, the Kindle suite of products, and user/Prime membership data (though to its credit, management broke out AWS as a separate business unit in the first quarter of 2015 and disclosed that the company surpassed 100 million Prime memberships globally in 2017).

Amazon has made several investments in sustaining its moatworthy business models, including its global fulfillment infrastructure, a vast portfolio of audio and video content, and Amazon Web Services capacity. However, charges tied to the Fire Phone in 2014 and operating losses internationally underscore the importance of Amazon being selective with its capital-allocation decisions. We believe the lack of consumer interest in the Fire Phone was a wakeup call for management's future capital decisions, as the company runs the risk of losing key personnel without stronger returns on invested capital, owing to the equity component of many employees' compensation structure. However, we're comfortable with this risk, based on recent capital discipline and investments that have been more directly aligned with the core commerce marketplace and AWS platforms.

Mstar Synopsys, Splunk, Zayo, L Brands, Nordstrom

Stock Analyst Notes Synopsys, Splunk, Zayo, L Brands, Nordstrom by Morningstar Equity Analysts | 8/22/2019 10:30:00 AM  Synopsys SNPS reported a good third-quarter result and consequently raised its full-year outlook. The improved outlook even comes despite some impact from the U.S.-China trade spat. The result illustrates a global design market that continues to flourish, and which is being driven by trends associated with artificial intelligence, 5G, Internet of Things, and cloud computing. Synopsys mentioned it was seeing competitive displacements within its electronic design automation, or EDA, business with Fusion Compiler spearheading the competitive wins at some large semiconductor companies. On the intellectual property, or IP, side, the third quarter was a record one for the firm and the company signed its single largest IP order ever during the period. In addition, AI accelerators and hyperscale data centers drove substantial growth for IP. With a leading position in many IP markets, we see the IP business as being a healthy growth pillar for the firm. While we account for Synopsys' improved outlook, it has little bearing on our valuation, and we maintain our $107 fair value for this narrow-moat company. We believe Synopsys currently trades at premium and would seek a wider margin of safety before investing new capital in the name. For the quarter, revenue grew 9.4% year over year to $853 million. Semiconductor & system design was bolstered by good demand from clients and the timing of customer IP product deals. For the entire note, click here. Andrew Lange  Splunk SPLK reported a busy quarter with the $1.05 billion acquisition of SignalFx, an increase in revenue guidance, improved pricing transparency (which we applaud), but headwinds to cash flow for fiscal 2020, all in the first full quarter for new CFO Jason Childs. Shares traded up nearly 10% in early afterhours trading after the company increased guidance but gave back all of the gains when management disclosed a $550 million reduction in guidance for operating cash flow for the year due to changes in the firm's upfront cash collection policies. We believe that the changes are largely positive, particularly with regard to pricing, and positions Splunk as the go-to partner for enterprises looking to make use of their increasingly important machine data . We are maintaining our fair value estimate of $154 for narrow-moat Splunk and believe there is upside with shares trading near $130, especially as we view the cash flow headwinds as only a near-term issue. Splunk announced the acquisition of application performance monitoring company SignalFx. SignalFx, was founded in 2013 and provides real-time monitoring for cloud infrastructure and applications. We believe it is a good fit alongside Splunk's current offerings and will allow companies to monitor their cloud/application performance in an effort to help optimize resources. In the quarter, Splunk reported $516.6 million in revenue, an increase of 33% year over year. For the entire note, click here. John Barrett  Zayo ZAYO concluded fiscal 2019 with revenue and profits in line with our expectations, but our fair value estimate continues to be exclusively based on our expectation that the firm will complete its transaction to be taken private in the first half of 2020 for $35 per share. We expect to increase our $33 fair value estimate by $1, as we continue to adjust for the time value of money. With the firm trading around $34, we see no opportunities for investors in Zayo. Our stand-alone fair value estimate would be $31, but we are pricing in a 100% probability that the transaction closes. The $650 million in revenue in the quarter met our expectation and was down 1%, year over year, matching the average decline for the first three quarters of 2019. The adjust ed EBITDA margin of 49.4% was virtually flat year over year and sequentially, but EPS was up over 40% year over year because of a substantial tax benefit. Zayo did not hold an earnings call and reduced the granularity of disclosure into its business segments, but zColo, its data center business, outpaced our revenue forecast while the networks segments declined slightly more than we projected. Still the networks segments drive 100% of the firm's net income. Though we were never particularly optimistic about Zayo's prospects, we found this year's performance, especially in the networks segments, disappointing. For the entire note, click here. Matthew Dolgin, CFA Narrow-moat  L Brands LB delivered another mixed quarter, with Victoria's Secret posting a weak same-store sales decline of 9%. Some of this softness was to clear non-go-forward inventory, as new management merchandise will surface in the channel in August. Supporting this thesis was the magnitude of merchandise margin declines that led to an operating margin of 1% at the segment, a low water mark this decade. While Bath and Body comps also decelerated from its high-single-digit cadence over the last four quarters to 4% at stores, we believe this metric is strong enough to signal brand equity relative to the generally weak mall performance from the department stores this past quarter. Bath and Body operating margin also declined (down 50 basis points to 17%), but we remain unconcerned about the full-year opportunity, given that the fourth-quarter operating profit has surpassed the first three quarters combined and newness in product could moderate the level of discounting. We don't plan any material changes to our $42 fair value estimate, as L Brands' full-year outlook calling for low-single-digit comps, $2.30-$2.60 in earnings per share, and $750 million in free cash flow were in line with our estimates of 1%, $2.50, and $760 million, respectively. Our long-term outlook includes Victoria's Secret operating margins normalizing around 7% and flat comps, assuming a slow turnaround in the brand ensues. For the entire note, click here. Jaime M. Katz, CFA Narrow-moat  Nordstrom JWN joined other North American department stores in reporting weak sales in 2019's second quarter. Nordstrom's 6.5% sales decline in its full-price segment in the quarter missed our forecast of a 4.0% decline despite July's annual Anniversary Sale. Nordstrom's sales were impacted by sell-outs of some popular items and slow sales of others. We think many retailers resorted to significant markdowns to move slow-selling inventory (especially women's apparel) in the second quarter. Nordstrom's off-price business reported a 1.9% sales decline in the second quarter. While this result matched our forecast, it is nonetheless disappointing considering the segment's history of growth. Nordstrom scaled back on flash sales in the quarter, a key driver of traffic for the off-price business, but intends to increase their frequency in the second half of the year. Despite the full-price sales miss, Nordstrom's EPS of $0.90 in the quarter beat our estimate of $0.77 on good expense control. Nordstrom reported selling, general, and administrative expenses as a percentage of sales of 31.2%, 70 basis points better than our forecast. Nordstrom reported improved economics from its Anniversary Sale despite the soft sales. We think the firm's inventory, down 6.4% year-over-year, is in good shape heading into 2019's second half but are cautious on customer traffic trends. For the entire note, click here. David Swartz

Disney from Mstar

Analyst Note | by Neil Macker Updated Aug 07, 2019

Disney posted a weak fiscal 2019 third quarter as both revenue and operating income fell short of consensus expectations. The firm consolidated both Fox Entertainment assets and Hulu in the quarter as it prepares for the transformational leap into direct to consumer with the launch of Disney+ in November. Management maintained its aggressive positioning in the DTC space by announcing a $12.99 bundle of Disney+, the ad-supported tier of Hulu, and ESPN+. We maintain our wide moat rating and our fair value estimate of $130.

Revenue for the third quarter was up 33% year over year to $20.2 billion, reflecting the Fox acquisition. The media networks segment grew 21% year over year as affiliate fee revenue was up 20% in the quarter as the 16% growth from Fox and 8% from higher rates more than offset the 2.5% decline in subscribers and the 1% negative impact of the new revenue recognition standard. Advertising revenue at broadcast networks was down over 4% as higher pricing was more than offset by lower impressions due to ratings. Ad revenue at the cable networks improved by 29% due to the Fox consolidation (18%), higher rates (6%), and more impressions (5%) as there were two more NBA Finals games this quarter.

The parks, experiences & consumer products segment remains a key growth driver with 7% year-over-year growth. Versus last year, total domestic attendance fell 3% but per capita spending grew by 10% and per room spending improved by 3%. Part of attendance decline was attributed to lower annual pass visits at Disneyland as the opening of new Star Wars land may have scared off some more regular customers. Revenue at the studio improved 33% as the slate in the quarter overcame a difficult comp at the box office and the Fox studio assets and slate were added in. Segment operating margin for the firm fell to 19.6% from 27.5% as the revenue growth was more than offset by the increased programming costs, continued investment in DTC, and consolidation of the Hulu losses.

Business Strategy and Outlook | by Neil Macker Updated Apr 13, 2019

We believe Disney is successfully transforming its business to deal with the ongoing evolution within the media industry.

ESPN remains the crown jewel of Disney's media networks segment, which now includes the recently acquired Fox cable entertainment channels like FX. ESPN dominates domestic sports television with its 24-hour programming on its growing number of networks. It profits from the highest affiliate fees per subscriber of any cable channel and generates revenue from advertisers interested in reaching adult males ages 18-49, a key demographic. The Disney Channel also benefits from attractive economics, as its programming consists of internally generated hits with Disney's vast library of feature films and animated characters. We expect the unique content on ESPN and Disney Channel will provide the firm with a softer landing than its peers as viewing transfers to an over-the-top world over the next decade.

Disney's other components rely on the world-class Disney brand, sought after by children and trusted by parents. Over the past decade, Disney has demonstrated its ability to monetize its characters and franchises across multiple platforms--movies, home video, merchandising, theme parks, and even musicals. This stable of animated franchises will continue to grow as more popular movies get released by the animated studio and Pixar. Disney has arranged the Marvel universe to create a series of interconnected films and product tie-ins. With the acquisition of Lucasfilm, the firm has positioned the Star Wars franchise in the same manner. Disney's theme parks and resorts are almost impossible to replicate, especially considering the tie-ins with its franchises and other business lines.

The firm's DTC efforts, Hulu, ESPN+, and Disney+, will benefit from the new content being created at Disney and Fox television and film studios as well as the deep libraries at the studios. We expect that Disney+ will leverage this content to again create a large, valuable subscriber base.

Economic Moat | by Neil Macker Updated Apr 13, 2019

We assign Walt Disney a wide economic moat rating. Its media networks segment and collection of Disney-branded businesses have demonstrated strong pricing power in the past decade. We believe that the addition of the entertainment assets from Twenty-first Century Fox should help the firm continue to generate excess returns on capital despite operating in the increasingly competitive media marketplace.

One of our guiding premises in media is that the value of content continues to increase even as the distribution markets mutate. Despite changes in distribution, pay-television penetration remains at above 75% of U.S. households. Even without a pay-television subscription, most cord-cutters still consume video content, and many use antennas to capture signals, providing content creators with an additional avenue to generate revenue from these viewers. Over-the-top providers like Netflix and Amazon Prime are creating their own content and other large media firms like Disney and WarnerMedia are going direct to consumer. However, these services require deep libraries to gain and retain subscribers and many of them are looking for third-party content to supplement their own original content. Given the ongoing demand for content, we believe content creation is not a zero-sum game, as high-quality content will always find an outlet.

The ESPN network is the dominant player in U.S. sports entertainment. Its position and brand strength empower it to charge the highest subscriber fees of any cable network, which in turn generate sustainable profits. ESPN uses these profits to reinforce its position by acquiring long-term sports programming rights, including the NFL, the NBA, and college football and basketball. The ESPN brand has been extended to create sister channels (ESPN2, ESPN Classic, and SEC Network), the pre-eminent sports news website (ESPN.com), and an OTT streaming service (ESPN+). While the decline in subscribers at traditional distributors has negatively affected revenue for ESPN, the channel is a core network for every major OTT pay-television distributor despite its high fees. Given the importance of live sports to the pay-television bundle, we expect that the main ESPN channels will remain key components of any pay-television offering.

Disney also owns ABC, one of four major U.S. national broadcast networks and affiliated TV stations in eight markets (including six of the top 10 markets). While network ratings have declined over the past decade, the broadcast networks are the only outlet to reach almost all of the 120 million households in the U.S. Network ratings still outpace cable ratings and provide advertisers with one of the only remaining methods for quickly reaching a large number of consumers at once.

The media network component also includes the Disney Channel, one of two dominant cable networks for children, which allows Disney to introduce and extend its strong content portfolio. With the purchase of the Fox entertainment assets, Disney has enhanced its pay-television network lineup by adding multiple channels with strong appeal to adults. FX and FXX have created a platform for critically acclaimed original scripted shows, most of which are generated and owned by the Fox television studios, which Disney now owns.

The studio side of Disney has been strengthened via the Fox acquisition, particularly on the television production side. The Fox television studios currently produce or co-produce 70% of the prime-time slate on Fox. The Fox studios have placed a number of their programs on other broadcast and cable networks, including Modern Family on ABC and Homeland on Showtime. The critical acclaim of its studio-produced content, along with the studio's willingness to sell shows to the right distributor, created a virtuous cycle in which the creators of its hit shows had an incentive to launch new shows with the studio, as strong ratings attract other creators to the platform. We believe this cycle will be enhanced by the addition of more in-house platforms, including Hulu and Disney+.

While the addition of Fox Searchlight should help Disney garner more Oscar nominations, the film side of the firm is already running full bore, as Disney was the top-grossing studio in the U.S. for the last three years, with over $3 billion in box office receipts in 2016 and 2018. As recently as 2010, the firm's success at the box office depended heavily on Pixar. However, Disney now has six studios (Marvel, Pixar, Lucasfilm, Disney Animation, Disney Live Action, and 20th Century Fox) with the ability to generate blockbuster films annually. With the addition of Fox, Disney now owns 12 of the top 20 films in terms of worldwide box office grosses, with nine of the movies released in last five years.

Disney has mastered the process of monetizing its world-renowned characters and franchises across multiple platforms. The company has moved beyond the historical view of a brand that children recognize and parents trust by acquiring and creating new franchises and intellectual property. Recent success with the Pixar and Marvel franchises has helped to create new opportunities with adults who may have outgrown their attraction to the company's traditional characters. The acquisition of Lucasfilm added another avenue to remain engaged with children and adults. Disney uses the success of its filmed entertainment not only to drive Disney+ subscriptions, but also to create new experiences at its parks and resorts, merchandising, TV programming, and even Broadway shows. Each new franchise deepens the Disney library, which will continue to generate value over the years.

Fair Value and Profit Drivers | by Neil Macker Updated Apr 13, 2019

Our fair value estimate for Disney is $130, which reflects the impact of the acquired Fox assets. This estimate implies a price of approximately 18 times our fiscal 2019 earnings per share forecast and an enterprise value of roughly 12 times estimated fiscal 2019 adjusted EBITDA. We expect average annual top-line growth of about 10% through fiscal 2023 with annual organic growth of 5% and 4% for the Disney and Fox assets, respectively.

We project average annual sales growth from the media networks to be 3% (4% for affiliate fees and flat for advertising), as the loss of subscribers at ESPN and other pay TV channels will be offset by per-sub affiliate fee increases domestically and international growth. We also expect new bundles to provide a boost to the segment. We project 5% average annual sales growth during the next five years for the new parks, experiences, and consumer products segment. Investments that required heavy capital expenditures over the past few years are now bearing fruit, including the launch of Shanghai Disneyland in fiscal 2016. We forecast operating margin for the segment to exceed 25% by fiscal 2023.

We have modeled 4% average annual growth for the studio segment due to the strong slate of Marvel movies over the next few years and the growth in television, subscription VOD, and other distribution outlets as Disney+ ramps up. Disney is now reporting revenue on a gross basis, meaning the growth in studio revenue from Disney+ will be eliminated on a consolidated basis.

We estimate 22% annual growth for the new DTC and international segment as we are modeling strong subscriber growth for Disney+. We expect the service to hit 55 million paid subscribers by the end of fiscal 2023. This growth assumes a strong international rollout and continued low prices for the service in the U.S and internationally. We do not project that the segment will be profitable by the end of our five-year projection.

We project Disney's overall operating margin will improve to 24% in fiscal 2023 from 23% in fiscal 2019 as the losses at the DTC segment are offset by margin improvements at the studio and parks segments.

Risk and Uncertainty | by Neil Macker Updated Apr 13, 2019

Disney's results could suffer if the company cannot adapt to the changing media landscape. Basic pay-television service rates have continued to increase, which could cause consumers to cancel their subscriptions or reduce their level of service. ESPN garners the highest affiliate fees of any basic cable channel, and a decrease in pay-TV penetration would slow revenue growth. The cost of sports rights may continue to skyrocket, putting pressure on margins. The company's ad-supported broadcast networks, along with the theme parks and consumer products, will suffer if the economy weakens. Making movies is a hit-or-miss business, which could result in big swings in profitability for the filmed entertainment segment.

Stewardship | by Neil Macker Updated Apr 13, 2019

While we rate Disney's stewardship of shareholder capital as Standard, we believe the current management team is in the upper end of the tier of its direct peers. Chairman and CEO Bob Iger began his tenure as CEO in October 2005 and chairman in March 2012 and is now scheduled to serve until June 2021 due to the acquisition of the Fox entertainment assets. The resignation of COO Tom Staggs in April 2016, formerly viewed as the successor to Iger, had thrown the previous orderly succession plan out the window. While we had believed that the board would look outside the company for the next CEO, Disney reorganized the firm in March 2018 and effectively created another internal two-man race to succeed Iger. The two contestants are Kevin Mayer, former chief strategy officer and now head of the newly created direct-to-consumer and international segment, and Bob Chapek, the head of the combined parks & resorts and consumer products segment. We believe that Meyer is the current frontrunner due to both his role in acquiring many of the firm's highly valued assets such as Pixar, Marvel Lucasfilm, and the Fox deal as well as his new position which places him at the forefront of helping the firm navigate the evolving media landscape.

After the loss of former CFO Jay Rasulo in 2015, the company drew on its deep executive bench to promote Christine McCarthy to CFO. McCarthy has a long tenure with the firm and significant experience in the finance function at Disney as the firm's treasurer.

Under Iger, Disney has embraced new technology and reinvigorated its commitment to high-quality content. He understood the importance of animation to the company early in his tenure, purchasing computer animation studio Pixar in 2006 and then resurrecting Disney's own studio. Iger also purchased two major content creators (Marvel and Lucasfilm) that expanded the demographics served by the company. Beyond Pixar, the company has made significant investment in new technology/distribution including buying Club Penguin (an MMO for children), Maker Studios (a network of YouTube channels), and its investment in BAMTech (a leader in online live-streaming). The Fox acquisition transforms the company by adding additional studios, international assets, and direct to consumer platforms. We believe Iger will remain on the lookout for M&A opportunities, specifically in new digital media, but we project that the deals will be on the smaller end of the spectrum.

Medtronic, Baidu

Stock Analyst Notes Medtronic, Baidu by Morningstar Equity Analysts | 8/20/2019 10:30:00 AM  Medtronic MDT delivered robust fiscal first-quarter performance that generally met our expectations on the top line and slightly exceeded our bottom-line estimates, as the firm tightened its expense control. However, we don't anticipate any material changes to our fair value estimate from our incremental adjustments, and we think the shares are now fairly valued. We remain confident in Medtronic's wide economic moat, as the firm continues to introduce product improvements and new technologies. In particular, Medtronic's breadth and significant presence in key therapeutic areas allow the firm to catch up in instances when it has fallen behind on the technology front. We were most impressed by strong growth in the brain therapies, minimally invasive therapies, and coronary and structural heart units, which featured key products that delivered double-digit growth, including stent retrievers and the CoreValve transcatheter aortic valve replacement. We expect these product lines to remain in growth mode as product adoption and indication expansion fuel demand. For example, the new low-risk indication for CoreValve coupled with the most recent national coverage determination from Medicare should bolster steady demand through the midterm. The diabetes division saw challenging conditions as explosive growth in the United States slowed, but this was offset by strong demand for the 670g outside the U.S. Nonetheless, we remain fans of Medtronic's competitive position in this market. For the entire note, click here. Debbie S. Wang Wide-moat  Baidu's BIDU second-quarter revenue was CNY 26 billion, close to the higher end of the guidance of CNY 25.1 billion to CNY 26.6 billion, up 1.4% year over year and 9% quarter over quarter. Its third-quarter revenue guidance range is a year-on-year decrease of 5% to an increase of 1%, a deceleration from the second quarter. Subtracting revenues from the spin-off, Baidu's core revenue guidance is between negative 3% to positive 3% year over year for the third quarter. Baidu's core (excluding iQiyi) revenue was down 2% year over year but up 12% sequentially, due more to moving healthcare customers' landing pages to Baidu's managed page and weak macroeconomics, and to a lesser extent because of higher supply, according to man agement. Baidu made an operating loss in the first quarter but turned profitable in the second quarter. Its non-GAAP operating margin was up from 1.7% to 7.4% sequentially. The firm's non-GAAP operating margin for Baidu Core was 18% in the second quarter, a 600-basis point increase sequentially, and management guided Baidu core's non-GAAP operating margin to rise above 20% in the third quarter. DAU of the flagship Baidu app has been making strikes, reaching 200 million in mid-August, versus 188 million in June, and 174 million in March. Baidu's smart mini program MAU was 217 million in June, up 49% sequentially.  For the entire note, click here. Chelsey Tam

Mstar Uber, DXC, Dropbox, Farfetch, Avnet, Uniti, Synaptics

Stock Analyst Notes Uber, DXC, Dropbox, Farfetch, Avnet, Uniti, Synaptics by Morningstar Equity Analysts | 8/9/2019 10:30:00 AM While demand for  Uber's UBER services remains strong, the firm's second-quarter revenue came in a bit short of consensus expectations and losses were higher than expected due to the restricted stock unit expenses related to its IPO. However, in our view, there are some indications of possibly operating leverage as growth in users and rides was not accompanied by significantly higher operations, support, and marketing costs as a percentage of net revenue. Plus, excluding a one-time IPO-related award to drivers, take rates in the firm's core platform increased sequentially, which we think further displays ride share pri ce stability and a stronger online food delivery market position for Uber Eats. Management now expects net revenue growth to accelerate a bit during the remainder of 2019 driven mainly by growth in gross bookings. Based on second-quarter results, we slightly adjusted our 10-year model and are maintaining the $58 per share Uber fair value estimate. After surging more than 8% during market hours, the stock is down 6% in after-hours. This name requires some patience, but we remain confident that Uber, along with its peer, Lyft, are progressing toward profitability. We continue to recommend investing in this 4-star narrow-moat name. Ali Mogharabi  DXC Technology DXC reported a weak start to fiscal 2020 with the firm seeing currency headwinds, delays in closing deals, and greater-than-expected pressure in its traditional lines of business. Consequently, management lowered its fiscal 2020 guidance. For the year the firm now expects total revenue of $20.2 billion-$20.7 billion (down from $20.7 billion-$21.2 billion) and non-GAAP EPS of $7.00-$7.75 (down from $7.75-$8.50). DXC's result doesn't instill confidence and follows a tumultuous 12-months where industry rumors have spread about management turnover and general upheaval across the lower and upper ranks of the firm. We think the firm still has plenty of work to do to properly align its services portfolio with the growing digital transformation trends of its end markets . Its convoluted M&A history and grounding in legacy infrastructure services remain areas in need of attention. As a result, we continue to view the firm as the only no-moat IT services provider we cover. With shares falling sharply afterhours and hovering around $43 (implies a forward price to adjusted earnings ratio of 5.7 times), DXC is trading at a significant discount to our revised $88 fair value (down from $91). However, the company remains a high-risk investment. For the quarter, revenue fell 7.4% year over year to $4.9 billion (declined 4.2% in constant currency). For the entire note, click here. Andrew Lange  Dropbox DBX once again exceeded its revenue guidance, but compression in average revenue per user and a dip in profitability potentially signal longer-term issues for the company, sending shares lower afterhours. Management highlighted its transition to the new Dropbox, moving users from thinking of it as a "magic folder" for cloud storage to a "magic workplace" that changes how knowledge workers interact. We continue to believe that Dropbox is viewed by users as a commodity cloud file storage solution and that users will eventually churn to competitors like Microsoft and Google. We are maintaining our fair value estimate of $13 per share. Despite shares trading down on the report, we still do not view Dropbox's shares as attractive. Dropbox added another 400,000 paid us ers during the second quarter, bringing its total paid user base to 13.6 million. On pricing, average revenue per user decreased by less than 1% sequentially to $120.48. While ARPU is up nearly $4 year over year, our model assumes only a moderate amount of ARPU expansion over the next decade. The company pointed to currency headwinds and the timing of some large customer deals as factors behind weak ARPU. Total revenue for the quarter was $401.5 million, up 18% over the second quarter of 2018.  For the entire note, click here. John Barrett We are putting  Farfetch FTCH shares under review to assess the effect of the acquisition of New Guards Group on Farfetch's financials. We expect to publish our new fair value for shares on Aug. 12.  Jelena Sokolova, CFA Narrow-moat distributor  Avnet AVT announced mixed fourth quarter results as sales were within management's guidance range and adjusted earnings missed the low-end. Like its suppliers and peers, Avnet is the midst of difficult environment and one that we expect to continue for the next few quarters, as was captured in guidance for the upcoming period. As a result, and despite the benefit from time value of money in rolling our model, we are lowering our fair value estimate to $43 from $45. Total revenue in the second quarter was $4.7 billion roughly at the midpoint of prior guidance which represented a year over year decline of 7.5%. Both of Avnet's segments struggled during the quarter. Electronic components revenue declined by 7%, both on a year-over-year ba sis and sequentially, to $4.3 billion as growth in both Americas and Asia regions was offset by headwinds in Europe. At the end of the quarter, the book/bill in both Europe and Asia was below parity, leading to a total book/bill of 0.92. The inventory correction in the broad semiconductor market continues to impact Avnet, like its peer Arrow Electronics, and industrial and automotive demand in Europe and China remain areas of concern. Management did indicate signs of stabilization in Asia but did not go so far as to call the timing of any recovery. Farnell sales were also down during the quarter, sliding 12% year over year to $343 million. For the entire note, click here. Seth Sherwood  Uniti's UNIT second-quarter results were uneventful, falling in line with our expectations and confirming that Uniti continues pursuing its plan to grow its various infrastructure assets and leases. The reality is that the results and progress currently mean very little, as Uniti continues to collect the full amount of its Windstream lease payments while working to resolve the future of the lease within Windstream's restructuring. With Windstream currently making up nearly 85% of Uniti's EBITDA, quarterly fluctuations in the rest of its business have little impact on our fair value estimate. No news in the quarter affected our long-term view, so we are maintaining our $13 fair value estimate, which implies this very high-risk stock is undervalued. However, investors need to be awa re that our estimate is at the mercy of the Windstream resolution. We estimate the lease payments will be cut by 25% beginning in 2020, but no news has leaked that offers insight into what's most likely, and a wide range of outcomes is possible. The adjusted EBITDA margin contracted 150 basis points from last year's second quarter, and we estimate it would have contracted an additional 200 basis points but for and insurance recovery stemming from Hurricane Michael. Margin contraction is inevitable as Uniti broadens its offerings away from the triple-net leases like the one it has with Windstream. Those leases result in nearly 100% margin, so any mix shift away from those reduces companywide margin. For the entire note, click here. Matthew Dolgin, CFA  Synaptics SYNA reported mixed results, with profitability roughly on par with expectations and sales falling short of guidance. The firm announced Michael Hurlston as the new president and CEO earlier in the week and now with more stable leadership, we expect Synaptics to be on firmer footing to deliver on the market opportunities available. However, it is also clear that this will take time to be realized with macroeconomic uncertainty, trade bans, and technology transitions continuing to be difficult hazards to negotiate. We are consequently cutting our fair value estimate significantly to $40 per share from $55. Double-digit revenue declines are expected for 2020, and we reiterate our very high fair value uncertainty and no-moat ratings. Sales in the fourth quarter totaled $295 million which represented a decline of 24% year over year. PC sales were down 15% year over year and 9% sequentially to approximately $60 million. Sales into the Internet of Things segment, which includes automotive, smart-home, and other consumer electronics products, were up 21% sequentially to $76 million. While this still represented a year-over-year decline of 21%, design activity across a variety of products bodes well for growth in the end market for the fiscal year.Mobile sales declined by 29% year over year to $158 million, due to a combination of the Huawei ban and broader China headwinds. For the entire note, click here. Seth Sherwood

Amazon seeking alpha

Valuating Amazon's Big Move Into Automotive Data Monetization

Aug. 7, 2019 12:12 PM ET

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16 comments 

 

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 About: Amazon.com, Inc. (AMZN), Includes: AUDVF, BMWYY, GRAB, IBM, LYFT, MSFT, OLAC, UBER, VLKAF, VWAGY

The European View

Long only, long-term horizon, dividend investing, dividend growth investing

(821 followers)

Summary

It is estimates that the overall revenue from car data monetization at a global scale could add up to USD 450 to 750 billion by 2030.

I believe that Amazon recognized this value early on and is addressing the need for a platform that meets the needs.

A very conservative calculation shows that Amazon's sales in the cloud will double solely as a result of automotive monetization.

The highly profitable cloud business is not at all affected by the antitrust concerns. This gives investors a lot of security with regard to possible interventions.

Introduction

Amazon (AMZN) is currently struggling with a lot of news about battles with competition authorities and disappointing quarterly results. I myself have spoken bearishly about the company several times. I'm still very skeptical about Amazon's dominant market position and the company's practices. For my scepticism about the economic network effects of the business model, I was often attacked by investors in the commentary section of my article. According to the quarterly figures, however, it suddenly appears as if the wind has turned.

Given that, one threat does not necessarily weigh as much as another threat. To evaluate the risk of an investment, Investors have to perform very thorough due diligence. In view of the current sentiment, I would like to point out a mega chance for Amazon that lies in the monetization of data in the automotive sector.

Amazon's Automotive Cloud

I have always explicitly excluded the cloud business from my negative scenarios in my former analyses. While other analysts are now also increasingly negative about the company and the high P/E ratio, it could be overlooked that the world continues to turn and that technical progress is also proceeding in favor of Amazon's cloud business. Hardly noticed by investors, something trend-setting has happened in Europe, which will appeal to a few companies. Amazon is one of them. In the following I will explain why this is the case. But first we should look at Amazon Automotive Cloud service. Amazon's cloud service AWS provides services for the Automotive industry to enable the digital transformation at every point of the value chain.

(Source: AWS for Automotive - Amazon Web Services)

Hardly noticed by investors, the EU member states stopped a new Wi-Fi standard for autonomous driving in the EU. The planned Wi-Fi standard was rejected by a qualified majority of 21 states. This sets the course for the 5G standard in Europe and shows that the time of talk is gradually over, and the implementation of the first 5G applications is now imminent. Amazon will benefit extremely from this, because now a political support of 5G applications is to be expected. Overall, I believe that Amazon recognized a mega trend early on and is addressing the need for a platform that meets the needs like no other company.

Assessment of value

The future of automotive is determined not only by robotics and artificial intelligence, but also by connecting cars with their surrounding. V2X or the communication between vehicle and everything is a form of technology that allows vehicles to communicate with moving parts of the transport system. V2X consists of several components: Vehicle-to-Vehicle (V2V), Vehicle-to-Road (V2R), Vehicle-to-Infrastructure (V2I), Vehicle-to-Network (V2N) and Vehicle-to-Person (V2P). These connections generate an extremely large amount of data. One car alone generates 4,000 GB data in one day. This flood of data must of course have a value. Since data is a relatively new appearance of intangible assets, it is not always easy to calculate the value of data. There are essentially three approaches. You can determine the value of data once according to how expensive it is to create or reacquire it. Another methodology to valuate data assets is to sum op use cases via computations (discounted cash flow, stochastic simulation etc.). Furthermore, investors can assess the value of data assets by the transaction value of data trades.

(Source: Valuation of data)

To see how valuable data will be in the automotive sector, just take a look at the technologies with which cars will be networked in the future. According to a study by McKinsey, eight different infrastructure technologies will enable car data monetization:

(Source: Key infrastructure technologies)

In accordance with the "use case" approach, it becomes clear here how many different application areas will create and use data in the automotive sector. This generates this extremely large amount of data of 4,0000 GB per day (each day, see above). This data must be managed, calculated and distributed. Furthermore, a system is required that allows the respective data subjects access to the data. Conversely, it must be ensured that unauthorized persons do not have access to the data. This is accompanied by the need for sufficient security mechanisms to protect the data against sabotage, falsification, theft and deletion. Of the key technologies, three aspects are particularly important for this area.

• Data cloud: Connected cars generate a massive amount of date. To have access to these data, Data cloud acts as the remote repository.
• Software platforms: This platforms will support the operating systems, app store, and payment systems of the car data infrastructure.
• Big data analytics: To process the large amounts of data generated by connected cars on the road in real time big data analytics is required.

Given that it is estimates that the overall revenue from car data monetization at a global scale could add up to USD 450 to 750 billion by 2030, these three areas will occupy key positions as they are at the heart of car networking. This is where all the data obtained comes together, there are entries of data and exits of data. Hence, with the coming flood of data in autonomous vehicles will come a flood of money.

(Source: The coming flood of data)

Implication for Amazon

Amazon has positioned itself with regard to the three key technologies. With the cloud, it offers not only the possibility of storing data, but also analysis. The cloud also supports deep learning, which is particularly important in the area of autonomous driving. In addition to traditional car companies like BMW (OTCPK:BMWYY) and AUDI (OTCPK:AUDVF), Lyft (LYFT), Uber (UBER), Grab (GRAB) and Ola (OLAC) are all customers. So Amazon is already there where many providers still want to go. Volkswagen (OTCPK:VWAGY; OTCPK:VLKAF), for example, is still working with Microsoft (MSFT) on its own cloud system.

In the last quarter, Amazon's cloud revenues grew 37.7 percent over the year to USD 8.38 billion (missing the analyst estimates of USD 8.5 billion slightly). What's really impressive is the margin. In the last quarter, Amazon's cloud business generated an operating income of USD 2.1 billion.

In order to make a qualitative statement about the financial opportunities, Amazon's market position is decisive. Over the last three years, Amazon's market shares have remained in the 32-33% range.

(Source: Amazon's market share in the relevant cloud market)

It should also be noted that Amazon is only active in some areas of Automotive data monetization (data cloud, software platforms and big data analytics). The expected revenue of up to 750 billion euros by 2030 will therefore cover more than these three areas. If one conservatively assumes a turnover of only 150 billion dollars per quarter in 2030, which is distributed evenly over the eight areas of data monetization described above, then the following calculation results for Amazon.

• USD 150 billion / 8 = USD 18.75 billion per data monetization segment
• USD 18.75 billion * 3 (Segments in which Amazon operates) = USD 56.3 billion
• USD 56.3 billion * 30 % (market share) = USD 16.9 billion revenue per quarter

This conservative calculation shows that Amazon's sales in the cloud business will double solely as a result of automotive monetization in the next decade. If one takes the same margin as now, then the operating profit only from the automotive cloud segment would rise to USD 4.2 billion per quarter(!). This is inconceivable from the current point of view, but shows the potential of this mega market. So if Amazon can maintain its market share, investors in the cloud business are facing golden times.

Taking regulatory risks into account for Amazon

Personally, I consider the possibility of regulatory measures against Amazon to be quite high, regardless of whether I consider them to be right and reasonable or not. Nevertheless, I have a pretty concrete approach to such threats. Given that one threat does not necessarily weigh as much as another threat, investors have to perform very thorough due diligence. The decisive factors are the business models and how these business models would react to antitrust regulation. When it comes to the investigation of the European Commission, a fine is possible. However, this fine will only be a one-time charge. A fine will considerably hurt the profit for one year, but beyond that, it will have no further effect. As far as the FTC, DoJ and German Federal Cartel Office investigations are concerned, I still believe that Amazon's business model is relatively susceptible to regulatory intervention. This is due to the fact that Amazon's success and all of today's business (except the cloud business) is built on economic network effects: The more customers make purchases on Amazon, the greater the incentive for third-party sellers to also use Amazon as a platform. This attracts even more customers and gives Amazon the power to establish new services etc. I see a danger that regulatory measures could lead users to turn away from Amazon. The same effects that led to Amazon's growth would therefore be reversed.

With regard to the cloud, however, this view should be put into perspective. As the following chart illustrates, Amazon's profit has largely been driven by its cloud business in recent years. Amazon Web Services (AWS), the leader in the highly competitive market for cloud infrastructure, accounted for more than 50 percent of the company's operating profit in the past quarter, despite contributing only 13 percent to the company's net sales.

(Source: Cloud Business Drives Amazon's Profits)

This highly profitable area is not at all affected by the antitrust concerns. This gives investors a lot of security with regard to possible interventions. Does this development justify such a high P/E ratio? I don't know. The market thinks that this is the case and the market is usually smarter than the individual investor. In any case, this analysis shows that Amazon knows how to position itself prematurely in future mega trends. It could well be that in future the cloud business will also make up the largest part of the business in terms of net sales. From this perspective, fears of regulatory intervention in the rest of the business could fade.

Investors Takeaway

The investor's key takeaway is that the time of talk is gradually over, and the implementation of the first 5G applications is now imminent. The automotive sector will have a significant share in this mega market and will make up an important part of the market volume. Amazon has already positioned itself in this mega future market and has strong partners at its side. Furthermore, the highly profitable cloud business is not at all affected by the antitrust concerns. This gives investors a lot of security with regard to possible interventions.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.