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Written Post: http://stockpickinginsights.com/alphabet-growth-potential-3-main-sources

00:00 Intro

00:18 Alphabet growth from industry shifts

02:34 Shifts from physical to cloud

07:31 Alphabet growth from Youtube

10:19 Unmeasurable sources of revenue

11:36 Conclusion

Today we're analysing Alphabet growth sources, particularly the three that are measurable and most significant.

To end, and summing up the sources of revenue we talked about, there's at least 130B$ of new revenue for Alphabet coming in until 2030, a 6% CAGR for Alphabet growth in revenue. Is it probably higher? Yes due to the conservative estimates and unmeasurable sources of revenue.

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Written Post: http://stockpickinginsights.com/alphabets-qualitative-factors/

00:00 Intro

00:19 Alphabet's qualitative premises

01:45 Business model

03:45 Alphabet's qualitative advantages

07:41 Youtube purchase in 2006

08:49 Great business management

12:12 Free products with indirect benefits

15:08 Alphabet's qualitative hurdles

19:04 Conclusion

Alphabet's qualitative factors share a considerate part with one of its advertising competitors, Facebook. What makes this company so successful for so long? We're laying it out today.

Alphabet's qualitative factors make it a great company indeed, at the right price. Their biggest competitive advantages are network effects and talent attraction. Great talent then leads to great products and innovation.

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Written Post: http://stockpickinginsights.com/facebooks-growth-potential/

00:00 Intro

00:14 Facebook's ad engine

02:00 Where does Facebook's growth in revenue come from?

02:36 First branch: Growth from users

04:43 MAU and Total Addressable Market

07:50 Inflation and user spending

08:40 Second branch: Facebook's growth from relevance

11:37 Third branch: Advertisers

14:41 Forecasting Facebook's growth

15:13 1. How many new users do you expect?

18:07 2. How much market share will Facebook grab from offline advertising?

20:45 3. What multiple will the business be worth in 10 years?

21:47 4. How much does ad relevance contribute to Facebook's growth?

23:20 Conclusion

This is my attempt at forecasting Facebook's growth in the next 10 years, and therefore it is a quantitative analysis. If you'd like to check the qualitative analysis, click here.

All of the factors above excluding the 4th result in Facebook's top line doubling in 10 years, a 7.2% CAGR. If we assume ad relevance will contribute to 10% of the growth, it becomes a 8% CAGR. I also don't see net margins contracting, so I expect this 8% CAGR to bleed down to Net Income and consequently stock price (capital gains). This growth is net of inflation, due to the business model being spending friendly as explained before.

But considering that EV/NI will contract at a -2% CAGR over 10 years (31x to 25x), it leaves us at a 5-6% pretax CAGR at the current price of 320$/share.

There's a ton of talk about AR/VR, and also a lot of investment. I value it at 0 for now and focus on the core. The same goes for payment revenues. We get those two for free.

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Written post: http://stockpickinginsights.com/qualitative-analysis-of-facebook/

As we did with Inditex, let's start with the basic premises around this business:

It is a great business with competitive advantages. I'd say they are durable too, unless other disruptive platforms steal their lunch or they cannibalize themselves by destroying their brand image.

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Written post: http://stockpickinginsights.com/per-share-values-disadvantages/

If you owned 100% of the business (paying enterprise value for every share outstanding) per share values wouldn’t even matter as you own every one of them. Also, buying back shares wouldn’t even be a capital allocation option. That is why I sweat when a company excessively buys back shares, I’d rather see them investing in their operations or, if they really have to distribute it and EV Multiples are too high, do it with a dividend.

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Use cost of opportunity instead of CAPM.

Written post: http://stockpickinginsights.com/cost-of-issuing-shares-capm-alternative/

When a company issues shares, they likely need the money for their operations. But why not get a loan instead? Sometimes they can’t. Sometimes they consider share issuing to be less expensive.

If you use beta in company valuations, CAPM may make sense for you. If not, use opportunity costs instead.

As a thumb rule, I’d rather consider that an increase of shares outstanding of x% will approximately decrease my share of all future gains in x%, divided by my investing period to get an annualized rate.

So if Facebook issues 10% of all shares outstanding and I expected a 8% Enterprise Value 10Y CAGR, I can now roughly expect a 8 – 10%/10 = 7% CAGR instead.

My stock picking checklist, to help you cover your blindsides.

Written post: http://stockpickinginsights.com/do-you-have-a-checklist/

I started building my checklist a long time ago, and from time to time I add some new questions to it. I use it in the final stage of analysing a company, it helps to mitigate unchecked aspects of a business and consequently make better investment decisions.

Here it is, all of them are yes or no questions. You can also get it in a pdf by clicking here.

Be wary of averages in your investing process, track record checking and news!

Written post: http://stockpickinginsights.com/average-returns-mean-nothing/

I invite you to take a look at the table below and see the difference between average growth and actual CAGR. This is critical in the quantitative analysis of a company, for example when analysing sales growth.

Averages are not all bad. I use averages when softening net income, for example. It is a conservative measure I use when I make my valutaions.

Careful when using PE Ratio, doesn't account for the company's debt

Written post: http://stockpickinginsights.com/market-cap-enterprise-value/

I recommend you to use Enterprise Value because it accounts for the company’s debt. This means I use EV Ratio instead of PE Ratio in any analysis. You can think of EV Ratio as a debt adjusted PE Ratio.

What you know gives you unique insights, but makes you biased.

Written post: http://stockpickinginsights.com/investing-in-what-you-use/

The takeaway is: what you use is a great place to fetch ideas. All the single companies (except holdings) I’ve invested in have products that I’ve been using before buying. Be careful with your own biases, we are rational as much as we are human.