The Most Obvious Buy In The Market Right Now

Hey everyone and welcome back to another video for today. Now, whenever we talk about the most obvious buys in the market, of course, those are always extremely obvious after the fact. But whenever we look at undervalued names, hated names right now, we always get a lot of push back. It also doesn't help when we have negative headlines coming out. It doesn't help when the stock keeps going lower and lower. But if we've done the research, if our assumptions [snorts] are correct, if we believe that the story makes absolute sense and the price that you're paying today is a fair price, then yes, being right after the fact will feel extremely good. Now, I'll give you two examples in this video. One, which I still believe is such an obvious name to own right now, although many people will say, "You're completely wrong. I own this position. I've added more more recently." The other one I've owned as well, but I did not add more recently because I still want to see how the story plays out. One is called Netflix. The other one of course is called a meta. Now the difference between a meta and a Netflix is of course one valuation wise and uh the growth story. Growth from an investment standpoint and growth from pure revenue standpoint as well. Now both of these companies have faced major headlines recently. Meta Capex the trial Netflix acquisitions maybe growth slowing down. But more recently we actually had another headline with regards to Netflix and that's the following thing. They're reportedly Mulling opening its app to other streaming services. Recent discussions are set to be on bring Peacock and Fox one to uh the platform. The strategic read turns on whether Netflix is positioning as a gatekeeper capturing a share of partner subscription economics or whether the talks reflect defensive bundling as standalone services seek reach they cannot build alone. For smaller partners, carriage on a dominant app has historically traded margin for scale. For a host, it adds engagement and ad inventory without content spent. And that's the big difference here. Is this going to be Netflix saying, "Look, we just want to have way more content on the platform without having to spend an insane amount to create that content. If we have to share revenue, we have to make certain agreements, maybe it's worth it for us." Because for us, it's more important to make sure that engagement continues to go up. For us, it's more important to see that maybe we can grow our advertising business even more. Now, what's also important here is that Netflix should make absolutely sure that they do not ruin the Netflix experience. Netflix is probably one of the most userfriendly streaming platforms out there. And so, if I compare it to an Amazon Prime, you have a huge catalog there, but Amazon's Prime UI is is really not that great. It's not that userfriendly. Oh, you want to watch that movie? Sucks for you because that movie is not owned by Amazon Prime. you have to buy or rent it. And so I'd love to see certain agreements put in place, but something that does not ruin the Netflix experience. I think it does make sense that Netflix wants to open up and make sure that you know what, okay, other players exist, but what if we become the platform, the distribution place? We will still have of course the core Netflix content and platform, but what if we start adding, for example, this Fox one or even others on the platform? I think it could be a win-win situation, but it really depends on how this is going to be uh built out. Now, right now, with regards to Netflix, of course, stock-wise, it's down 34%, year to date, it's down 11.5%. It's not that expensive, right? trading PE 25 times forward 23 times very profitable business not that expensive at all but of course it is not growing 20% plus now if I go and have a look at the DCF here we can see that the probability weighted price sits only around 10% higher from where we're at right now and how do I reach that well I'm very very conservative with the expected growth rates base case for me is still 50% then bare and bull is split in half 25 for the base case revenue 13% growth this year then 12 11 10% until year five of course those numbers could be more aggressive but I rather just put them in the uh bull case here with regards to EBIT margin the base reaches 35% the bull 40 and the bear 32%. I do think that as the advertising business grows more and more those numbers are definitely reachable. Could they do more? Yes, they could, which is probably why I'm still quite defensive on adding more and more to my existing position because maybe I do want to see some acceleration in growth. But right now, yes, by definition, we are still undervalued. Of course, if I put more emphasis on the bull case, that number goes up. But right now, it's 50% base and then 25 bull, 25 bare, which means stock should be trading closer to 90%. You can always give it an an extra premium or so. Reduce the whack. You can do whatever you want when you create a DCF, but you need to be realistic. And yes, it is undervalued right now. It's also a name that in my opinion does benefit from AI and especially from the cost of AI coming down and Netflix is definitely going to benefit from it. Now, is it the most obvious buy right now? I think it was quite obvious at $70 or so. And yes, it is undervalued today in a market that maybe is very very expensive. This one is a more stable choice. Now, if we go and have a look at my favorite one here, which of course is Meta. Stock is still down 11.6% year to date and over the past 12 months, it's actually down 23.1%. Meta is very cheap. Meta is undervalued. Meta is cheaper than a Netflix. It's growing faster than a Netflix in my eyes. It is an obvious buy right now. Although, yes, we've been seeing this for quite a while this year and yet the stock is still down 11.6%. But yes, I do think that the Meta is the perfect example of when this stock will go back to above $600, $700, make its way to $800. That's when people say, "Oh, of course it was obvious." Yeah, just like Google one year ago, one and a half year ago was obvious at 120, $130, $150. Yes, it was very obvious back then, but not many people wanted to go ahead and do the obvious thing. I think with Meta and especially now that we already have a settlement in place, which we're going to talk about that, it became even more obvious. Stock was up yesterday, it's back down. doesn't make any sense to me because they actually won. And so this is what they said. Our agreement with bipartisan attorney general calling on Tik Tok and YouTube to join us in supporting teens. So there are here various things that they have to do, but I I'll start with the most obvious one. The agreement includes a payment of approximately $18 billion which can be used to fund youth online safety initiatives among other state priorities. The payment will be distributed in annual installments over a 10-year period. So, it's not one huge hit. 10-year, $1.8 billion per year. Participating states will receive approximately 70% approximately 12.7 billion of the allocated payment over the decade. And here's the thing, the remaining 30% approximately 5.3 billion will be released only after two specific conditions are met. YouTube and Tik Tok implement a 1-hour daily limit, night mode, and age assurance measures. YouTube and Tik Tok each pay an amount matching the 30% figure with half of the remaining funds tied to YouTube's payment and half tied to Tik Tok. This is of course a a beautiful play because yes, if it's only meta and the other two do not have to do anything, well, yes, it's it's going to force the users or it's going to hurt Meta because the users are going to say, you know what, too many restrictions on that app. Let me go to YouTube. Let me go to Tik Tok. Why should Meta agree to that? And so here they said, you know what? Okay, we'll pay 70% but the other 30% you'll only get from us if the other two will participate here. And so what are the changes? You remember the changes are very good. They're good for the business. They're definitely good for the health of teens. They're good for society as a whole. Daily limit. The changes, the protection, the controls will automatically apply to under 18s on Instagram and Facebook. The majority of the terms are required to remain in place for 10 years. Of course, remember someone that's 16, 17, two years down the line, they can do whatever they want. And actually, they can already do whatever they want today. There is a time limit. There is a night mode, which means a default block from apps between midnight and 6:00 a.m. This means teens will not be able to post or view their feed, stories, explore, or reals, for example. Very good. Why do you need to be on social media between midnight and 6:00 a.m.? Go sleep, relax, take care of yourself. Very good. School mode. Notifications will be muted by default between 8:00 a.m. and 300 p.m. here as [clears throat] well. Good move. Focus on your studies. Have fun with your friends. Go outside instead of checking the stories or DMs or whatever. Every single second. Regular prompts. Teens will receive prompts after every 15 minutes of continuous screen time on Facebook or Instagram. They also receive prompts when their total daily usage hits 60 minutes or 90 minutes. These prompts are designed to encourage intentional use. I have a 15 to 20 minute time on Instagram each and every day. Of course, after that, I can always say, you know what, give me another five minutes or so. Why did I put it in place? because yes, I did see and notice that I've spent too much time scrolling. Moving on here to the important one, which is autoplay control. Teens will be able to turn off autoplay so that content no longer automatically plays. Instead, they'll need to take a deliberate action like a tap or swipe to see more. Parents can choose to adjust their teens default experience to requires these settings. Hidden likes, also very important here from just a emotional standpoint. Teens won't see the numbers of likes and reactions on post. The whole like thing to me is just absolutely stupid. People comment dumb things just because they know they'll get likes for it. It's a stupid reward system, but it drives engagement, but it definitely screw up people's minds. Lastly here, age assurance. We work hard to find and remove underage accounts from our apps. And as part of our agreement, we're investing in even stronger technology to proactively catch accounts that may belong to under 13s. We're also strengthening the technology we use to identify accounts that may be between the ages of 13 and 17, so we can ensure those accounts are placed in experiences designed for teens, even if they give us an adult birthday. And a big FYI, the direct messaging features are excluded from night mode, time limit, and school mode restrictions to allow teens to stay connected with friends and family. Now, guess what? In the DMs, I wonder if you can still watch ress or not. Hopefully, they figure that one out. But all in all, these are changes that will make people hopefully a bit happier and less addicted to being on their phone every single second, every single time during the day, even when they are with their friends and family. This, in my opinion, does not hurt the Meta business, right? Teens are not really that monetizable. Let's be honest, they're also not the biggest chunk of Meta's users. And just like I said before, teens they grow up. So you cannot monetize them right now. The engagement might drop a little bit right now, but one year, 2 years, 3 years down the line, the restrictions just go away. Also, unfortunately, lazy parenting still exists. And so if parents do not want to take care of their child or the child just makes too much noise, blah blah blah, they'll probably just say, "You know what? Take my phone. Go watch a real It's unfortunate, but I've seen it happen. And so, right now, when I look at my DCF, I am not really inclined to change anything because the penalty is very, very small. It's over 10 years. The changes that are going to be made are really not going to hurt the business much if at all. And so, I do not change any of my assumptions, which means stock should be 50% higher from where we're at right now at $861. My assumptions are here as well. If you look at the base case, not that aggressive in my opinion. 26.5% revenue growth for this year. Then 2018, 15, 15, 12.6 in 2031, 10.2 2032, and then we go to the single digits. As for EIT margin, yes, I do think that we are going to peak at around 44.5% by 2030. Maybe we go higher, maybe not. But right now, these are my assumptions. And yeah, I do think that this is a very obvious buy. They're going to come out with their next model, watermelon. They're going to come out with new aentic capabilities. They're going to come out with more subscription products, which I believe the adoption rate is going to be very, very good. Business messaging app, WhatsApp business messaging, Messenger, all of that is already being monetized. not to the fullest potential, but the numbers there already looking quite good. When you have over three billion users across your family of apps, when you have a lot of advertisers, companies, entrepreneurs, shops, whatever in your ecosystem, I do believe that yes, it will become very easy for them to monetize. But the most important thing here of course was to have a very good baseline model that they can build on it. they can build more on it, release more products and services and move much quicker, which is exactly what has happened with Muse Spark. Of course, it will take some time, but the market is always forwardlooking. So the moment we're going to get a hint of success, yes, I do think the stock will move super quickly and then yes, there is still is the the capex story, the free cash flow under pressure and all of that. But if the payback period is going to be under one year, then yeah, I guess it changes the whole story. And who knows, maybe we might see a headline where Meta does sell compute might also happen. All of these things can change the sentiment around this name very quickly. Quickly moving on to Rubric. As you can see, Rubric is down 8.3% right now before the market opens. But as you can clearly see, the stock has done extremely well over the past couple of months. Has more than doubled. It's up 30% year to date. It's definitely not a cheap name just like many other cyber security names out there. But the thing with rubric is yes it is down a lot right now but it was already up 11% on Thursday. Why? Because crowd strike reported Wednesday after the market closed. Ruby got that initial pump. So the stock is now back down. Yes, it was priced to perfection but the quarter itself was a very good quarter. Beats across the board. It's actually a triple beat because they also raised guidance yet again. So I'm not that surprised. I'm not that worried. Yes, maybe. Could we go back to the low 90s? It's possible. Could we fill that gap? It's possible, but it doesn't really matter. What does matter is this revenue up close to 38% year-over-year. Subscription AR up 32.8. Net new ARR 35.2% growth year-over-year and free cash flow margin of 15.4%. So, they beat on revenue revenue excluding material rights. I believe they're now past those lapping quarter. So, that's good. That would have been then a growth of 43%. They beat subscription ARR, net new ARR as well, non-GAAP EBIT, free cash flow, and non-GAAP EPS. Customers with ARR above $100,000 increased by 23.1% also beating estimates by seven customers or so. The over $1 million AR customer, that's up 57% yearover-year. Net retention rate 119% holding near historical 120% that well driven by cross-selling and seat expansion. With regards to guidance, subscription AR was raised by 1.3% to 29% year-over-year growth. Net new AR Rised 6% to 14% year-over-year growth, up from 7.3% before and 0% initially. So this is again when you follow this company and you listen to the commentary, it's not really that surprising. Revenue was raised 2.8% to now expected to grow 28% year-over-year or 34%. Excluding material rights, free cash flow guidance raised by 10%. And so to me, this is another very good quarter. Good execution by the company. It's a $20 billion company or so. It is not not cheap. Okay, I'll have to reiterate it time and time again, but it is a name that is growing quite quickly and I do see a lot of tailwinds for this company, especially in this age of AI cyber resilience. So, Rubric is a name that I own. Yes, I've taken a little bit of profits before, but I'm I'm not really planning on buying more at these levels as of right now. If things continue to improve for the business and the stock really doesn't move much, then yes, then I'll improve and increase my position. Moving on to Irene. Iran is down another 7% or so before the market opens back under $40 per share. It's a $14 billion. Well, less than $14 billion company right now. It's down 11.6% year to date. Now, contrary to Rubric, this one does not triple beat and execute to perfection. Now, there are definitely some okay things in the quarter, but there are still some questions to be asked here. And so, for this quarter, what did we get? We have AI cloud revenue that has increased by a lot. Of course, it's now at 70.5 million. Bitcoin mining is now lower than this. the drop in revenue, you should not really be surprised because well, the Bitcoin mining business is expected to go away by the end of this year so that they can fully focus on the AI cloud uh business. So, no real big surprises there. As for GAP net income, I just well net income a loss here adjusted a bit the margins there. You shouldn't really be surprised that it's trending this way. It's normal. They're ramping up. So, not surprised there. Then with regards to what comes next. So we first of course had the delivered horizon 1. So 50 megawatt of ITA liquid cooled capacity delivered to Microsoft at children. They also received Nvidia exemplar cloud status achieved on GB300 Envink 72 hardware. That's good customer expansion. The good and the not so great right now. They signed a new multi-year contract with an undisclosed Frontier AI lab. I'll get back to that in a second. Existing relationships expanded with Coher Prometheus Perplexity Figure AI, Fall AI, and Hicksfield AI. Now, why do you tell us that you've signed a contract with a Frontier AI lab, but you cannot tell us who that is or what the amount is going to be? either tell us or don't write this in the press release. To me, this doesn't make any sense because every other company out there, if it was Entropic or OpenAI or a Google or a Meta or whatever, you write it. You write the name and you tell us how much. In this case, you don't tell us how much. You don't even write the name. To me, this just it doesn't pass the smell test. Now, if they do come out with, oh, it's a 1020 billion dollar or so agreement with Anthropic or whatnot two weeks down the line, then okay, fine. But I would still find it very, very strange that you write this and you don't drop the name. Moving on to another good thing, contracts economics. So they got now three-year yields increased to 20 million megawatts of it with active negotiations around 25 million per megawatt and customer prepayments of 45 to 55% which is good which is again something that we've seen with the Nebus and Aorif but this is already trending in the right direction. Why is that important? Well, it's very important because they need to grow. They need to grow quickly. They say that the live operating ARR right now sits at a billion dollars and they are targeting ARR above $4 billion by Q2 fiscal 27. Now the thing with these ARR numbers are the following thing. When you look at the size of the AR number, the $1 billion today, the $4 billion expected, you see what the company is already doing right now. You're also having to look at the fiscal year 27 capex which sits at 25 to30 billion dollar now. Okay, they've got $14 billion in existing cash committed debt. They've got $8 billion targeted new GPU debt and prepayments. The remaining capex funding is going to come from data center real estate debt, operating cash flow and corporate sources. Now, the operating cash flow is a part that only exists if they execute, right? if they start generating more and more revenue over the coming months and quarters. Now, going back to that four over4 billion AR R target, first of all, the original what was it over $500 million in AR that they had to deliver in Q1 of this year, they never delivered it by the way, right? If you missed that one, they never delivered it. They didn't even come close to it. So, that's the part where execution is extremely crucial. But to reach that $4 billion, Horizon 2 to4 must move from construction into productive GPU capacity fast enough. The revenue conversion, the AR ramp is expected ahead of GAP revenue recognition, making the March 2027 quarter very important. Again, it's a it's another milestone or it's another crucial date that they're setting. And if they miss it again, it will create issues. And that's my problem here with IN. It's you have all of these great things, right? You you have land, you have contracted power, etc., etc. You've got that Microsoft contract as well. But stop talking, okay? Stop talking. Stop putting out big numbers. Every time the number becomes bigger and bigger, start meeting the small numbers and then you'll build trust with your investor base. Because when we look at an iron and then we compare although we don't have to or we cannot compare it to a nebus or a core it's night and day and for those thinking that I'm bearish irran or I'm short I don't short anything. Second of all, I'm not bearish Iran or what they're trying to do. I'm bearish the execution. I'm bearish probably the leadership as well. If you've listened to that earnings call, you would probably understand. If you've listened to Corwe, if you've listened to Nebus, and then you listen to Iran, you would definitely understand. Of course, I rather have a computer scientist and mathematician, ex Yandex engineers to run a Nebus and AI cloud business than some ex Bitcoin miners and finance dudes. But okay, Cororeweave has successfully pivoted from being Bitcoin dudes to a huge huge AI cloud player. But with Iran, it just takes more time. And as I've said in previous videos, people that thought that oh that they could flip the switch and suddenly they have gigawatts worth of revenue coming in. No, data center buildouts take time. GPUs, they don't fall out of the sky for free. It takes time. But when you start looking at the competition, well, it seems like the competition is just moving faster. That's all I've got for you in today's video. Let me know what you think about this whole thing down in the comment section below. See you all in the next one. [music] Bye-bye. >> [music]