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Sector: Technology Media and Telecommunications
Tencent
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 07 Jan 2025We maintain our Outperform recommendation on Tencent post its decent 3Q24 results; Revenues remained resilient on a pick of its gaming/social networking segment; EBITDA margin was higher on a better revenue mix, monetization and cost efficiencies; cash flow notably improved and Total debt/EBITDA trended lower despite the increased shareholder rewards. We expect the company’s debt metrics to further improve in FY25. We continue viewing Tencent $ bonds as core holdings in China and Asia IG credits; we like its 30,31 for investors looking to add duration as it offers a 15-20 bp of spread pick up against US A Tech and China SOEs. We prefer Tencent over Baidu/JD, which are rated 1-3 notches lower but trade only marginally wider/tighter.
Business Description
AS OF 07 Jan 2025- Founded in November 1998, Tencent is a leading provider of Internet value added services in China. Since its establishment, Tencent has ventured into instant messaging, social networking, online payments, digital entertainment, and PC and smartphone gaming. Most recently, it has also forayed into high-tech areas such as artificial intelligence, and cloud computing.
- Tencent's leading Internet platforms in China include Weixin/WeChat (online messaging), QQ Instant Messenger (online messaging), Tencent Games (gaming), Tencent Video/Weixin Video Accounts (video platforms), WeChat Pay (payments), and Tencent Cloud. The combined monthly average users (MAU) of Weixin and Wechat reached 1.38 bn as of 30 Sep 2024.
- In 3Q24, 49% of revenues came from Value Added Services (which consist of Domestic Games, International Games, and Social Networks), 32% came from FinTech and Business Services (e.g. commercial payments and cloud), 18% from Online Advertising and 1% from Others.
- Tencent is currently primarily listed on the Hong Kong Stock Exchange, with a market capitalization of HKD 3.9 tn as of 10 Dec 2024.
Risk & Catalysts
AS OF 07 Jan 2025While Chinese regulators have adopted a more friendly stance towards tech companies, any regulatory clampdowns abroad and domestically (e.g. antitrust rules, data security, personal information protection laws) may affect Tencent’s business. Tencent’s gaming, music streaming, and online payment units are among those that have come under regulatory scrutiny in the past.
Tencent uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers, which poses regulatory risks. Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 07 Jan 2025| RMB bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 25.2% | 27.0% | 31.4% | 29.8% | 26.3% |
| Net Debt to Book Cap | 4.0% | 6.0% | 8.5% | 1.0% | 0.5% |
| Debt/Total Equity | 33.7% | 36.9% | 45.9% | 42.5% | 35.7% |
| Debt/Total Assets | 19.7% | 20.1% | 22.8% | 23.5% | 20.3% |
| Gross Leverage | 1.4x | 1.7x | 1.9x | 1.6x | 1.3x |
| Net Leverage | 0.2x | 0.4x | 0.5x | 0.1x | 0.0x |
| Interest Coverage | 24.8x | 24.7x | 19.0x | 19.9x | 22.2x |
| EBITDA Margin | 38.3% | 34.9% | 34.3% | 38.9% | 41.9% |
CreditSight View Comment
AS OF 07 Jan 2025We maintain our Outperform recommendation on Tencent. Revenues in 3Q24 remained resilient on a pick of its gaming/social networking segment; EBITDA margin was higher on a better revenue mix, monetization and cost efficiencies; cash flow notably improved and Total debt/EBITDA trended lower despite the increased shareholder rewards. We expect the company’s debt metrics to further improve in FY25. We continue viewing Tencent $ bonds as core holdings in China and Asia IG credits; we like its 30,31 for a 15-30 bp spread pick up against US A Tech and China A SOEs. We prefer Tencent to Baidu/JD, which is rated 1-2 notches lower, but trade only marginally wider. We also view Tencent as a more defensive play compared to BBB-rated China tech given the low beta of its $ bonds.
Recommendation Reviewed: January 07, 2025
Recommendation Changed: August 18, 2022
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Search topics about wealth insights and investments.Alibaba
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 06 Jan 2025We maintain our Outperform recommendation on Alibaba post its F2Q25 results; the improving topline growth and take rate of its domestic eCommerce segment was a highlight though the widening losses at its international eCommerce and logistics arm, Cainiao, which are still at a ramp-up stage weighed on overall EBITDA margin and cash flow; shareholder rewards continued burning cash, but was expected and manageable. We expect Alibaba’s debt metrics to be stable over the next 6-12 month, on an acceleration of topline growth, stabilizing EBITDA margin, and healthy FOCF, which can cover its shareholder rewards. We continue viewing Alibaba as a core holding in China and Asia IG credits; and for investors looking to add duration in Asia credits, we recommend Alibaba’s 31 and its new 30.
Business Description
AS OF 10 Dec 2024- Founded in 1999, Alibaba is the largest retail commerce company in the world based on gross merchandise volume (GMV) as of 31 March 2023.
- The company's business segments comprise Taobao & Tmall Group (38% of F2Q25 revenue; China e-commerce incl. Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com), International Digital Commerce (12%; incl. Lazada, AliExpress, Trendyol and Daraz), Cloud Intelligence Group (11%; incl. AliCloud, AI), logistic provider Cainiao (10%), Local Consumer Services (7%; incl. Ele.me, Amap), and Digital Media and Entertainment (3%, incl. Youku & Alibaba Pictures) and Others (20%; incl. Freshippo, Fliggy, Alibaba Health, Intelligent Information Platform, SunArt, DingTalk).
- Taobao/Tmall is Alibaba's core business and the main EBITA & cash generation unit of the group. Alibaba's annual active consumer exceeded 1 bn in June-2022.
- Alibaba had a market capitalization of RMB 1.6 tn as of 10 December 2024.
Risk & Catalysts
AS OF 10 Dec 2024While Chinese policymakers have adopted an increasingly friendly stance towards tech platforms, regulatory clampdown (e.g. anti-monopoly guidelines, data security laws, personal information protection laws) may still affect Alibaba as it increases compliance cost. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Intensifying competition amongst eCommerce platforms may result in slower topline growth and weaker EBITDA margins.
Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 10 Dec 2024| CNY BN | FY21 | FY22 | FY23 | FY24 | LTM F2Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.1% | 11.6% | 12.6% | 13.3% | 16.1% |
| Debt/Total Equity | 13.8% | 13.1% | 14.4% | 15.3% | 19.1% |
| Debt/Total Assets | 8.8% | 8.3% | 9.2% | 9.7% | 11.5% |
| Gross Leverage | 0.8x | 0.9x | 0.9x | 0.9x | 1.1x |
| Interest Coverage | 39.9x | 32.2x | 29.6x | 24.0x | 20.8x |
| EBITDA Margin | 24.9% | 18.5% | 20.2% | 20.3% | 19.3% |
CreditSight View Comment
AS OF 02 Jan 2025We maintain our Outperform recommendation on Alibaba (A1/A+/A+) post its F2Q25 results; the improving topline growth and take rate of its domestic eCommerce segment was a highlight though the widening losses at its international eCommerce and logistics arm, Cainiao, which are still at a ramp-up stage weighed on overall EBITDA margin and cash flow; shareholder rewards continued burning cash, but was expected and manageable. We expect Alibaba’s debt metrics to be stable over the next 6-12 month, on an acceleration of topline growth, stabilizing EBITDA margin, and healthy FOCF, which can cover its shareholder rewards. We continue viewing Alibaba as a core holding in China and Asia IG credits; and for investors looking to add duration in Asia credits, we recommend Alibaba’s 31 and its new 30.
Recommendation Reviewed: January 02, 2025
Recommendation Changed: August 05, 2022
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Globe Telecom
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 14 Nov 2024Globe’s FY23 earnings and 9M24 earnings grew modestly, but leverage metrics have not yet improved due to a weak broadband business, sticky dividends, and still-historically high capex (even if lower YoY).
We believe credit metrics may improve only slightly in FY24 as modest EBITDA growth, lower YoY capex, and PHP 11 bn of residual tower sales closures through 2H24 are negated by potentially higher dividend payouts.
While we acknowledge the competitive pressures by new entrant DITO, we think the impact is mitigated by Globe’s still-dominant mobile market position and DITO’s slowing expansion (given its weak financials and the costly capex involved).
Weakness in the broadband business could decelerate and improve from 3Q24 onwards.
Business Description
AS OF 14 Nov 2024- Globe is a leading telecom operator in the Philippines, competing alongside its main rival PLDT in a duopoly setting.
- Globe provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- Globe operates through 2 main business segments – “Mobile Services” and “Fixed Line and Home Broadband Services”.
- Its “Mobile Services” segment offers mobile voice, mobile SMS and mobile data services to retail customers in the Philippines. These services are marketed under the “Globe Postpaid”, “Globe Prepaid” and “TM” brands.
- Its “Fixed Line and Home Broadband Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- Globe commercially launched 5G services on a small-scale basis in Jun-2019. It currently maintains 5G coverage of 96% of the National Capital Region, with over 2,000 5G sites nationwide.
- Globe maintains dominant market shares in the mobile data, voice and SMS space (FY22 revenue market share [RMS] of 52% vs PLDT 40%), but loses out to PLDT in the home broadband space (FY22 RMS of 28%-30% vs PLDT 48%-50%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 14 Nov 2024Globe faces mounting competitive pressures from new mobile entrant DITO and incumbent broadband competitor PLDT.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share and restrain recoveries in average revenues per user (ARPU).
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows. That said, capex should meaningfully decline ahead in line with management guidance (FY24E capex ~22% YoY lower than FY23A capex).
Consistent dividend payouts could worsen Globe’s already negative free cash flows; Globe recently raised the upper end of its dividend policy from 75% to 90% of net income, suggesting an increased skew to shareholder-friendly actions.
Key Metric
AS OF 14 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 69.4% | 67.5% | 69.7% | 69.1% | 69.5% |
| Net Debt to Book Cap | 63.0% | 63.7% | 66.6% | 66.0% | 65.4% |
| Debt/Total Equity | 227.2% | 208.1% | 230.5% | 223.2% | 227.4% |
| Debt/Total Assets | 56.7% | 57.1% | 60.3% | 58.1% | 61.1% |
| Gross Leverage | 3.3x | 3.9x | 4.3x | 4.3x | 4.3x |
| Net Leverage | 3.0x | 3.7x | 4.1x | 4.1x | 4.1x |
| Interest Coverage | 7.6x | 5.9x | 4.6x | 4.6x | 4.3x |
| EBITDA Margin | 46.7% | 46.7% | 47.7% | 48.2% | 49.0% |
CreditSight View Comment
AS OF 14 Nov 2024We have a Market perform recommendation on Globe. Globe 2030 trades slightly tight to PLDT 2031 and ICTSI 2031, while Globe 2035 and c.2026 trade more fairly. We expect Globe to improve its net leverage by only slightly in FY24 as lower capex and residual ~PHP 11 bn of tower sales closures are offset by a continued weak broadband business and sticky dividends. Stiff competition in both the mobile and broadband spaces is a key concern too. Globe also recently revised its dividend policy to 60%-90% of PAT from 60%-75% previously, suggesting an increased skew towards shareholder-friendly actions.
Recommendation Reviewed: November 14, 2024
Recommendation Changed: June 18, 2024
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 13 Nov 2024PLDT’s FY23 and 1H24 results were stable as expected; we see a modestly improving FY24 credit outlook aided by resilient EBITDA growth and residual PHP 14 bn of tower sales, which could offset persisting high capex and dividends.
A potential stake sale of the data center business could drive further deleveraging.
While the spillover of a PHP 33 bn capex overrun to FY24-FY25 could weigh on free cash flows, we draw mild comfort that it was likely not due to fraud but rather a management misstep.
Business Description
AS OF 13 Nov 2024- PLDT is a leading telecom operator in the Philippines, competing alongside its main rival Globe Telecom in a predominant duopoly.
- PLDT provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- PLDT operates through 2 main business segments – “Wireless Services” and “Fixed Line Services”.
- Its “Wireless” segment offers mobile voice, mobile SMS, mobile data and mobile broadband services to retail customers in the Philippines. These services are marketed under the “Smart Postpaid”, “Smart Prepaid”, "Sun Postpaid" and “TNT Prepaid” brands.
- Its “Fixed Line Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- PLDT commercially launched 5G services on a small-scale basis in Jul-2020. It currently has over 3,000 5G sites nationwide.
- PLDT maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 47% vs Globe 52%), the fixed line voice space (FY21 RMS of 90% vs Globe 10%), and the home broadband space (FY21 RMS of 45% vs Globe 31%).
- PLDT is backed by three established corporate groups, namely First Pacific (~15% stake), NTT Corporation (~12% stake) and JG Summit Holdings (~7% stake).
Risk & Catalysts
AS OF 13 Nov 2024Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at PLDT’s market share and restrain recoveries in average revenues per user (ARPU).
PLDT incurs significant capex that has restrained improvements in its leverage metrics and free cash flows. This is worsened by a recent capex overrun that has induced mild corporate governance uncertainties (though these have eased in recent months).
Consistently high dividend payouts could worsen PLDT’s already negative free cash flows.
PLDT is exposed to $/PHP depreciation risks ($300 mn 2050 bond is fully unhedged).
Key Metric
AS OF 13 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 68.3% | 71.9% | 73.3% | 72.9% | 74.1% |
| Net Debt to Book Cap | 62.3% | 65.7% | 69.3% | 68.0% | 71.3% |
| Debt/Total Equity | 215.2% | 256.2% | 273.9% | 269.6% | 286.2% |
| Debt/Total Assets | 43.8% | 46.8% | 49.6% | 50.0% | 52.1% |
| Gross Leverage | 2.8x | 2.9x | 2.9x | 3.0x | 3.0x |
| Net Leverage | 2.6x | 2.7x | 2.8x | 2.8x | 2.9x |
| Interest Coverage | 8.1x | 7.4x | 6.5x | 6.9x | 6.2x |
| EBITDA Margin | 50.7% | 48.7% | 49.1% | 52.2% | 51.8% |
CreditSight View Comment
AS OF 13 Nov 2024We have a Market perform recommendation on PLDT. PLDT 2031 trades fairly to Globe 2030, Axiata 2030, and Bharti 2031. We do not like the PLDT 2050 that provides a low spread pickup of just 13 bp wider versus the PLDT 2030. We are comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and tower sales (PHP 15.3 bn to close in FY24), cushioning high capex and dividends. A minority stake sale of its data center business is also credit positive. Corporate governance fears have also eased post its capex overrun in end-2022. We are watchful of strong competition in the mobile space due to DITO’s ramp up.
Recommendation Reviewed: November 13, 2024
Recommendation Changed: May 31, 2022
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.T-Mobile US
- Sector: Technology Media and Telecommunications
- Sub Sector: Telecommunications
- Region: US
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Fundamental View
AS OF 19 Aug 2024We expect T-Mobile will maintain its position as the industry leader in postpaid phone net additions, service revenue, EBITDA and FCF growth in 2024. We think the company has significant subscriber runway remaining in the suburban/rural and enterprise markets.
Adjusted net leverage (2.5x at 2Q24) is nearly half a turn lower than AT&T and Verizon. Relatively strong EBITDA growth and a modest dividend commitment results in greater financial flexibility than peers.
T-Mobile benefits from the strongest spectrum position in the industry, including an average of 181 MHz in the 2.5 GHz band, which results in better 5G network coverage than AT&T and Verizon.
Business Description
AS OF 19 Aug 2024- TMUS is the one of the top 3 U.S. wireless carriers and is owned ~50% by Deutsche Telekom (DT). On April 1, 2020, TMUS and S completed an all-stock merger, valuing S at an EV of approximately $59.7 bn.
- TMUS ended 2Q24 with ~126 mn customers, including 101 mn postpaid and 25 mn prepaid.
- TMUS reaches 330+mn POPs with its Extended Range 5G network (using the 600 MHz spectrum) and reaches 300mn customers with its Ultra Capacity 5G.
Risk & Catalysts
AS OF 19 Aug 2024With T-Mobile’s credit rating now comfortably in the mid-BBB area and leverage in the vicinity of the group’s mid-2x target area, we expect the company’s capital allocation to shift toward share buybacks.
The company has not shied away from acquisitions. T-Mobile recently acquired Mint Mobile and announced deals for US Cellular and two FTTH JVs (Lumos and MetroNet). So far, M&A has not had much impact on T-Mobile’s credit metrics, but further moves into FTTH may be received poorly by investors.
Converged wireless/broadband offers from cable operators raises the risk of pricing pressure in the mature consumer wireless market.
Key Metric
AS OF 19 Aug 2024| FY20 | FY21 | FY22 | FY23 | LTM 2Q24 | |
|---|---|---|---|---|---|
| Revenue | 68,397 | 80,118 | 79,571 | 78,558 | 79,096 |
| Organic Revenue Growth | 5.8% | 7.3% | (0.7%) | (1.3%) | 74.6% |
| EBITDA | 24,557 | 26,924 | 27,821 | 29,428 | 30,529 |
| Adj. EBITDA Growth | 4.3% | (64.0%) | 33.9% | 5.8% | 7.2% |
| Adj. EBITDA Margin | 35.9% | 33.6% | 35.0% | 37.5% | 38.6% |
| CapEx % of Sales | 16.1% | 15.4% | 17.6% | 12.5% | 12.3% |
| Total Debt | 76,660 | 79,574 | 78,425 | 83,586 | 83,676 |
| Net Debt | 66,275 | 72,943 | 73,918 | 78,451 | 77,259 |
| Gross Leverage | 3.5x | 3.4x | 3.0x | 2.9x | 2.8x |
| Net Leverage | 2.7x | 2.7x | 2.7x | 2.7x | 2.5x |
| Interest Coverage | 9.0x | 7.2x | 8.0x | 8.3x | 4.9x |
| FCF as % of Debt | 14.1% | 13.7% | 13.2% | 19.2% | 8.8% |
CreditSight View Comment
AS OF 20 Dec 2024We expect TMUS will once again lead the Big 3 in major KPIs in 2025, including ~5% EBITDA growth. We view earnings/growth visibility as higher than peers, with the outlook supported by its leading 5G mid-band coverage (over 300 million PoPs with ~200 MHz) and historical under-penetration in rural and enterprise markets. T-Mobile also boasts the lowest leverage (~2.3x) and strongest FCF/debt ratio amongst the Wireless Big 3, while its rising FCF generation and comparatively low dividend commitment provide flexibility for selective M&A. Despite the rising focus on convergence, we believe TMUS will stick with its off-balance sheet strategy for FTTH JVs and view the risk of a transformational broadband acquisition (ILEC or cable) as extremely low.
Recommendation Reviewed: December 20, 2024
Recommendation Changed: March 18, 2021
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Meta Platforms
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Technology
- Country: US
- Bond: META 4.95 33
- Indicative Yield-to-Maturity (YTM): 4.95%
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Fundamental View
AS OF 30 Dec 2024Meta has extremely strong credit metrics of 0.3x gross leverage (pro forma for $10.5 bn bond deal) and $40 bn net cash. We are encouraged by Meta’s strong advertising growth relative to peers. However, Meta is going through a heavy investment cycle for both AI and the metaverse.
We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta has legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp.
Business Description
AS OF 13 Aug 2024- Meta Platforms is the largest social networking company in the world. Meta generates substantially all of its revenue from advertising which includes Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
- In 2Q24, Family of Apps was 99% of revenue (98.1% from advertising and 0.9% from other) and Reality Labs was 1% of revenue. Reality Labs generated $16.7 bn in operating losses during LTM 2Q24 as the company is investing heavily in the metaverse.
- There are 3.27 bn Family Daily Active People (DAP) as of 2Q24, and the Family Average Revenue per Person (ARPP) was $11.89 quarterly in 2Q24. While US & Canada have the lowest number of users, they generate higher revenue than other regions given significantly higher ARPU. Revenue was 43% from US & Canada, 24% from Europe, 20% from Asia Pacific, and 13% from Rest of World in 2Q24.
- Meta is headquartered in Menlo Park, California. Employee headcount was 70.8k at 2Q24.
Risk & Catalysts
AS OF 13 Aug 2024- In December 2020, the FTC filed a lawsuit against Meta targeting its acquisitions of Instagram and Whatsapp. If Meta is forced to unwind prior acquisitions, this would be a credit negative given reduced scale and diversification.
- Meta’s business model relies almost entirely on user-generated content. As such, there are risks related to customer privacy (e.g., Cambridge Analytica data scandal in 2018) and regulatory changes (e.g., Section 230 protections).
- In April 2024, the US signed into law a bill requiring a sale or ban of TikTok, although we expect legal challenges. If a ban is implemented, this would positively impact Meta and others with competing short-form video products.
- In October 2022, activist Altimeter Capital wrote a letter to Zuck and Board although it was on the friendly-side of activism and some suggestions have already been implemented.
Key Metric
AS OF 13 Aug 2024| $ mn | 2020 | 2021 | 2022 | 2023 | LTM 2Q24 |
|---|---|---|---|---|---|
| Revenue YoY % | 21.6% | 37.2% | (1.1%) | 15.7% | 24.3% |
| EBITDA | 46,069 | 63,882 | 49,622 | 71,955 | 86,932 |
| EBITDA Margin | 53.6% | 54.2% | 42.6% | 53.3% | 58.0% |
| CapEx % of Sales | 18.3% | 16.3% | 27.5% | 20.8% | 19.9% |
| Sh. Ret. % of CFO-CapEx | 27% | 116% | 152% | 46% | 69% |
| Net Debt | (61,954) | (47,998) | (30,815) | (47,018) | (39,691) |
| Gross Leverage | 0.0x | 0.0x | 0.2x | 0.3x | 0.2x |
| EV / EBITDA | 15.8x | 14.0x | 5.8x | 12.3x | 14.7x |
CreditSight View Comment
AS OF 30 Dec 2024Meta has extremely strong credit metrics of 0.3x gross leverage and $42 bn net cash. We are encouraged by Meta’s strong advertising growth relative to peers in 2023 and YTD 2024, and its technical innovation across its products and AI initiatives. We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments in AI and the metaverse. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta does have legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp. However, not all event risk is negative as Meta would be the primary beneficiary from a potential TikTok ban.
Recommendation Reviewed: December 30, 2024
Recommendation Changed: April 18, 2024
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Amazon.com
- Sector: ConsumerTechnology Media and Telecommunications
- Sub Sector: Retail/GrocersTechnology
- Region: US
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Fundamental View
AS OF 11 Aug 2023- We continue to have confidence in CEO Andy Jassy and the company’s long-term business for both AWS and consumer. The 2Q23 results support our view as AWS growth is stabilizing and the North America consumer segment significantly improved its GAAP operating profit. AWS customers are shifting from workload optimizations to new workload deployments, and we expect AWS to remain a profitable growth driver for the foreseeable future.
- We anticipate the North America segment to see continued profitability improvements driven by operating leverage, cost reductions, and productivity gains including the regionalization of its fulfillment network. Gross leverage declined by nearly 2 ticks to 0.8x or 1.6x on a lease-adjusted basis. Also, Amazon’s equity cushion is ~$1.4 tn.
Business Description
AS OF 11 Aug 2023- Amazon is an e-commerce company which sells a wide range of its own products and those of 3rd party sellers. Amazon offers fulfillment services for 3rd party sellers (FBA) and sells cloud computing services (AWS). In 2Q23, 3rd party units were 60% of total paid units, and FBA units are a majority of 3rd party units.
- In LTM 2Q23, NA segment was 62% of sales, International was 22% of sales, and AWS was 16% of sales.
- Amazon disclosed it surpassed 200 mn Prime members in April 2021. The annual membership was increased in February 2022 from $119 to $139 in the US, although fees vary by country. In mid-2019, Amazon Prime began to transition from 2-day to 1-day shipping. Amazon Prime also offers Prime Video, streaming music, and other benefits.
- In 2006, Amazon launched AWS which remains the leader in cloud computing (IaaS/PaaS). Amazon sells its own devices (e-reader, smart speaker, streaming media player, etc.).
Risk & Catalysts
AS OF 11 Aug 2023- We think Amazon has moderate event risk as its large size (~$1.4 tn market cap) provides a buffer against the regulatory risks.
- Amazon has taken steps to improve profitability including multiple rounds of layoffs which could preempt activist investor campaigns that have become more common lately for Big Tech including GOOGL and META.
- Amazon continues to face regulatory scrutiny. The FTC is finalizing a lawsuit alleging AMZN disadvantages third-party merchants who do not use its services. The biggest risk would be a breakup, although we view that as unlikely.
- Amazon’s $14 bn acquisition of Whole Foods has shown its proclivity for large M&A, although the regulatory environment could make large deals challenging e.g., FTC scrutiny on its $8.5 bn MGM acquisition.
- Amazon repurchased $6.0 bn shares in 1H22, which were the first buybacks in 10 years, although the company has not repurchased any shares since then.
Key Metric
AS OF 11 Aug 2023| $ mn | 2019 | 2020 | 2021 | 2022 | LTM 2Q23 |
|---|---|---|---|---|---|
| Revenue YoY % | 20.5% | 37.6% | 21.7% | 9.4% | 10.7% |
| EBITDA | 43,394 | 57,284 | 71,994 | 74,593 | 87,648 |
| EBITDA Margin | 15.5% | 14.8% | 15.3% | 14.5% | 16.3% |
| CapEx % of Sales | 4.5% | 9.1% | 11.8% | 11.3% | 10.0% |
| Sh. Ret. % of CFO-CapEx | 0% | 0% | 0% | (52%) | 0% |
| Net Debt | (30,201) | (50,497) | (44,771) | 7,316 | 7,902 |
| Gross Leverage | 0.6x | 0.6x | 0.7x | 1.0x | 0.8x |
| EV / EBITDA | 20.8x | 28.3x | 23.3x | 11.7x | 15.6x |
CreditSight View Comment
AS OF 21 Dec 2023We continue to have confidence in CEO Andy Jassy and the long-term business for both AWS and consumer. The 3Q23 results support our view as AWS growth has stabilized, AWS and North America both had record profits, and International nearly reached breakeven profitability. We expect AWS to remain a profitable growth driver for the foreseeable future, and the North America segment to see improved profitability driven by operating leverage, cost reductions, and productivity gains including the regionalization of its fulfillment network. We estimate gross leverage declined sharply to 0.6x or 1.4x on a lease-adjusted basis. We think Amazon should be able to address the FTC’s concerns with behavioral remedies and fines, and we view a breakup as unlikely.
Recommendation Reviewed: December 21, 2023
Recommendation Changed: December 21, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group