There’s some interesting stuff in the latest 10-K that Avid has filed. While some of these details are good for the short thesis, I still think that there are better shorts out there.
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Avid: Starting to burn through cash
On August 13, Avid issued a press release that provided a timeline for the release of its restated financial results. Comparing the figures with a past press release, it is possible to guestimate Avid’s cash burn.
- On Dec 31, 2014 Avid’s cash balance was $48M.
- On June 30, 2014 Avid’s cash balance was $23.0M with $5.0M of debt. So $18M after subtracting debt.
In the 2 quarters, Avid burned through $30M of cash. It may need to start drawing down its line of credit with Wells Fargo by the end of the year.
Is Google’s management out of touch with how Google makes money?
I’ve never been blown away by the way Google’s management communicates with shareholders.
- The 10-K presents “Cost-per-click” and “aggregate paid clicks”, both of which are terrible metrics.
- The shareholder letters largely gloss over Google’s cash cows: its search advertising and display advertising businesses.
Notes on Demand Media and Rightside
These companies do not seem compelling to me as investments (long or short). However, I feel like these companies are somewhat misunderstood because some analysts don’t understand the industry. Continue reading
China 2.0
Apparently there is a new wave of Chinese stocks hitting US exchanges. Some of them are Web 2.0 related. Needless to say, I am extremely skeptical about these Chinese stocks. Historically, there has been an extreme level of blatant fraud from China. This is mainly because these Chinese stocks were listed on foreign exchanges around the world and because scumbags gravitate towards reverse mergers. (To be fair, these China 2.0 stocks are not reverse mergers.) The underwriting of these China 2.0 stocks seem rather loose. They do not have to comply with all parts of Sarbanes-Oxley thanks to the JOBS act. At least 3 of these companies (GOMO, WBAI, WUBA) have identified material weaknesses in their internal controls.
Spinoff situation: Harvard Apparatus Regenerative Tech
HART is a development-stage company that has successfully grown replacement tracheas (airways) out of a patient’s own stem cells. These replacement tracheas are then transplanted back into the patient’s body. This is a huge improvement over the traditional method of transplanting a donor trachea, which requires the patient to be on expensive immune-suppressing drugs that shorten their lifespan and have other complications.
HART has a market cap of $38M ($4.77/share). At the time of the spinoff, the company had $15M in cash and had spent around $16.5M developing its technologies so far ($31.5M in total). Given the risks in developing this technology, I believe that this spinoff may be undervalued.
Visa: A wonderful business with a strong moat
Visa is basically a technology company in the payments processing industry. Network effects and economies of scale contribute to the duopoly enjoyed by Visa and Mastercard. Both companies should grow earnings as they are toll bridges on the secular trend towards electronic payments.
Unfortunately, the valuation remains a little high so this is not one of my best ideas.
Adjusted TTM P/E: 23.47 (source: Yahoo Finance / Capital IQ)
Forecasted earnings growth: “Mid to high teens” (source: Q3 investor presentation)
*Disclosure: Long Visa.
