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Issue // April 11, 2023
UPDATE
🌤️ Good Morning, and Happy Tuesday
Sunday was Easter, and we're hoping you could spend time with your family for the weekend. Perhaps you even participated in a highly competitive Easter egg hunt. If not, here's one from us: 🥚🍫
This is also our first issue with a decent design overhaul after we moved over to a new program. We primarily focused on making our text easier to read with spacing and color, but one exciting change is that we now have an official website with all of our newsletters archived for you to refer back to. Check it out: markit.beehiiv.com.
If you like these changes and are happy to see our older issues uploaded on our site, share them with a friend or family member. It's the best way to help us out!
WEEK IN REVIEW
📈 Market Performance
Danielinblue, designed by HASSELL (architects)[1], CC BY-SA 4.0, via Wikimedia Commons
The market was closed on Friday, which seemingly led to some volatility. We noted in our Cash Flows Quickly issue that mornings are when most of the action happens because orders pile up over the weekend. Adding a Friday or Monday to the weekend can prompt the market to recoil slightly on the next open day.
The S&P opened 0.75% lower Monday morning compared to its Thursday close. However, that dip largely reversed by the end of the day. Save for a few drops around mid-morning and lunch, the index performed well yesterday.
✂️ Slice and Dice
Last week, the Chinese E-commerce and tech giant Alibaba (ticker: BABA) announced that it would be splitting into six smaller entities, each to go public. We explored the topic of a company going public in the MARK IT. Explained section of our issue Chat & Chat.
This move is significant as Alibaba is listed on the New York Stock Exchange and is traded in the US. After the announcement, BABA shares jumped up 14%. The move, which would supposedly help the six smaller companies operate better, is happening as the Chinese government is looking to open up more to tech companies. (Source: CNBC)
WEEKLY WATCHLIST
💻 All Online
Daniel Foster, via flickr
Continuing the conversation about e-commerce, our stock pick for this week is a company that operates at the center of the online business and shopping world. We're willing to bet that you have this app on your phone right now.
STOCK #1
PayPal (PYPL)
Manick888, CC BY-SA 4.0, via Wikimedia Commons
PayPal is the largest online payment system, processing over 19 billion payments in 2021 alone. With so much activity on the platform and a consistent user base, PayPal will likely continue being one of the leaders in digital transactions. (Source: WebFX)
PayPal shares saw two peaks near the $300 mark in 2021. Since then, however, the stock value has declined after cooling off since the COVID-era inflationary period. As of Monday's market close, the stock price is $74.52.
While the stock price has decreased in the past two years, cash flows have stayed stable. We discuss more about this below.
PYPL (6-month), via Google Finance
✅ Increasing cash flows: Over the past five years, we've seen free cash flow to PayPal increase slightly year after year. While the growth isn't drastic, consistency seems to be present.
🛑 No dividend: If you're looking for stocks to add to a dividend portfolio, investing in PayPal probably isn't for you.
✅ Undervalued according to DCF: Based on our discounted cash flow calculation, a single PYPL stock is between 20-25% undervalued. This number falls within the margin of safety most value investors look for.
✅ Low debt: Of the total Enterprise Value (EV) of PayPal, debt is approximately 11% (10.42B) compared to a market cap of 89% (84.31B).
MARK IT. EXPLAINED
💵 How a Company Gains Market Share
A company rarely starts making money out of nowhere. It needs a consistent income source; that usually comes from the target market(s) it focuses on through its product(s) or business model. Companies and corporations focus on understanding the markets they sell to or advertise in, which can build more revenue and profit later. They aim to build up market share as they grow but also try to maintain their existing market share so investors or shareholders don't incur losses. Market share is vital because it helps indicate success and future profitability in the area of expertise. (Source: Investopedia)
One example of a prominent company coming out of seemingly nowhere and grabbing e-commerce market share is Amazon! Let’s look at their early strategies when they wanted to grow as a company and in their market share. Amazon focused on a marketing mix of the 4 Ps - Product, Price, Place, and Promotion. It used to sell books online but expanded to millions of products to stay relevant to the customers and continue online traffic. (Source: Simplilearn)
Amazon used competitive pricing to maintain a low price while giving customers millions of choices. Amazon’s business model allowed it to change its products daily, making it difficult for competitors to go toe-to-toe with Amazon. Moreover, its growth can also be attributed to advertising, as the company built its brand through sales, discounts, ads, affiliate sites, and other ways to reach people who could be potential customers. Taking a step back and looking at Amazon’s growth over the years and Amazon's focus on consumers with its offerings, it's clear how the company was able to secure such a vast market share in e-commerce.
ONE MORE THING
🤝 Keep in Touch
This week's issue was edited and published by Abbas Akhtar. Our MARK IT. Explained section was written by contributing editor Rahul Kannam.
For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar
Also, we want to hear your feedback! Send any comments or suggestions to [email protected]
Thanks again for reading!
