Sunday, May 30, 2021

Portfolio Updates (May 2021)

It has been another month of a roller coaster ride for US tech stocks and the shares in my growth portfolio have also taken a plunge. The selloff was attributed to the fear of rising interest rates as inflation picks up steam. While a high inflation environment may hurt stocks in the short run, history have also shown that stocks beat inflation over the long run.

Every time, after each crisis, the rich get richer, and the poor get poorer. So, despite the uncertain economic outlook, I will continue to stay invested. Just look at the net worth of billionaires before and during the Covid 19 season.


Source: https://www.statista.com/chart/22068/change-in-wealth-of-billionaires-during-pandemic/

(1) Growth Portfolio




Other than the two new additions for my US portfolio, UiPath and Alphabet Class A, I have been averaging down most of my US stocks. Practically most of my tech stocks had blowout quarters, yet the shares tanked after the earnings report. For instance, The Trade Desk, reported 37% revenue growth, achieved free cash flow, and announced a ten-for-one stock split. Yet the top ranked demand-side platform, which benefits from the rise of streaming services, still got punished down 26% in a single trading session. I believe investors are taking reference from FAANG earnings such as Google and Facebook, which had 34% and 48% revenue growth. Since mega cap stocks can achieve such high returns, investors are expecting more growth from smaller cap tech stocks to compensate for their higher risks. After all, it is about the opportunity costs.


Amazon 

Amazon.com has become so popular that it has become a verb. i.e., if your business is Amazon-ed, it means your business is disrupted.  Despite being an ecommerce behemoth with a market cap of USD 1.63T, its growth is not slowing down anytime soon. I bought a few shares before its earnings, hoping that the rumour of a stock split would play out. In the end, there was no stock split, yet Amazon crushed analysts’ expectations, with revenue up 44%, but stock price is hovering around the $3,200 range. 

 

Unfortunately, the rumours of a stock split turned out to be mere unfounded speculation. Although the stock split did not happen (yet), I have no regrets of owning shares of this company. In fact, a stock split does nothing to the fundamentals of a company. Like a pizza, you own more slices of it but smaller pieces after a split. Since history has shown that stock splits always drive-up stock prices (remember Apple and Tesla stock splits), my FOMO actually kicked in and bought the shares.


Most of us know Amazon for being an e-commerce company. Although the tech giant derives most of its revenue from e-commerce, this segment only accounts for 33% of its operating income, with Amazon Web Service making up the rest of its earnings. Despite the stellar growth in AWS, I believe this cloud infrastructure has only scratched the surface of cloud computing’s potential. 


Check out their clients: https://www.contino.io/insights/whos-using-aws



These are big companies like Adobe, Disney, Novartis, McDonalds, and Baidu. Even streaming giants such as Disney and Netflix, who are competing against Amazon Prime, are using AWS. Whichever side of the streaming services you are on, they are all contributing to AWS when their demands grow. Even Apple is said to be a client of AWS.

Furthermore, there is still a huge runway for AWS when 5G becomes more mainstream. When full self-driving and Internet of Things become the new normal, they will require low latency connectivity, which translates to a higher demand for edge computing and hybrid cloud. Since Amazon is an indisputable leader in providing cloud platforms and infrastructures (as seen with AWS Outposts and AWS Snow series), it will inevitably dominate the future landscape of 5G.

 

Roblox


This is a company which I added to my watchlist recently. From the surface, it seems like a platform for developers to create new games with limited coding knowledge and a multiplayer online game for young children and early teens. It currently makes money from selling Robux, an in-house currency which can be used to upgrade one’s avatar or enhance abilities of a game player. 

 

My belief is that Roblox is more than just a game but a metaverse platform which is gaining popularity. If you cannot attend a concert physically due to Covid 19, think of being present in a virtual concert. Lil Nas X has successfully hosted a concert in Roblox which attracted 33 million visits; it was indeed a roaring success. If one can organize a concert in a metaverse, one can also officiate virtual weddings, organize birthday parties, throw baby showers…the possibilities are (virtually!) endless. 

 

Secondly, Roblox is partnering with Tencent to develop its own version of Roblox in China, with the former owning 51% of the partnership. It also aims to focus on providing education in STEM (Science, Technology, Engineering and Mathematics). 

 

As China is the country with the biggest gaming industry due to its huge population, it is able to scale leaps and bounds by having access to the 800 million internet users. Moreover, having Tencent, which globally dominates the gaming industry, as Roblox’s partner, Roblox is able to benefit from its gaming expertise to bring the metaverse to fruition in China.

 

Currently, Roblox seems to be priced for perfection, trading at 46.5X price to sales ratio. Despite a rich valuation, one must look beyond its revenue and consider its bookings segment. Similar to deferred revenue, bookings account for cash which is received by Roblox but has not been earned. This can be likened to the case of Starbucks, whereby the value that is loaded into the Rewards Card will not be reflected as sales until coffee is bought. In Q1 2020, Roblox reported bookings of $652mil, up 161%. If we consider bookings as part of revenue, it would be trading at a more reasonable 23.4 price to sales ratio.






TTM for Revenue+Bookings= USD 2.285b
Market Cap (18th May closing)= USD 53.433b
Price/ Sales= 23.4x


(2) Dividend Portfolio




When the phase II heightened alert was announced, there was a sudden sell down in Singapore shares, particularly in the  bank sector and retail REITS. Even industrial REITS were not spared either, and I took the opportunity to add Ascendas REIT at $2.86 and $2.92. In my view, the REITS sell down was unwarranted since a month of heightened alert will not cause a fundamental change in their long term prospects.

 

The following Monday, I bit the bullet and sold off all my bank shares: DBS at $29.00+41.49%, UOB at $25.10+24.48% and OCBC at $11.70+14.91%. Unfortunately, after selling, the share prices took a turn and resumed its uptrend. Well, all I can say is short term pain for long term gain. From my blogpost last month, I have said that I would like to focus more on growth companies which can deliver superior returns, which the financial sector cannot achieve. That being said, I will still continue to grow my dividend portfolio by adding on REITS, as I would still like to grow my passive income.


I am currently sitting on about $108k in cash and will continue to add on to promising and disruptive tech companies for the long haul. The next few months will be rocky for tech stocks as the monetary policy outlook remains uncertain, but I see it as an opportunity to buy on weakness.

Stock Portfolio: $444,651

Total Cash at Hand: $108,000

Total Portfolio Value: $552,651




Portfolio1  Net Worth (Dividend+Growth): $444,651

Portfolio 2 Net Worth; $193,833

Total Cash at Hand: $108,000

Net Worth (Cash+Equity) = $746,484

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