A Look At Futu, Celsius And Uber 🔥

Your Easy Briefing on Under-Hyped Stocks 👀


Hello Benchmarkers!

Happy to have you on board! Today, we provide you with an easy briefing on 3 under-hyped and high-growth companies:

  • Celsius Holdings 🥤

  • Futu Holdings 📈

  • Uber Technologies 🚕

👉  Want insights only? Jump to The Bottom Line


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Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Celsius Holdings 🥤 (NASDAQ: CELH)

THE INTRO - Celsius Holdings was founded in 2004 and is active in the energy drinks segment. It differentiates itself from larger competitors such as Red Bull, Monster and Bang Energy with a focus on a “healthy lifestyle”. According to Celsius, clinical trials have even shown the health benefits of its drinks.

THE MARKET - According to Allied Market Research, the energy drinks markets shows no sign of slowing down. It is set to grow by 7.3% a year over the 2018 - 2026 period. Growing from $ 53B to $ 86B in sales.

HOW TO WIN - The market for energy drinks is run by 2 main factors: marketing and distribution.

THE PLAN TO WIN - Celsius is relying on its healthy image, an army of social media athletes and a well-oiled distribution network.

  • There are 337K “#Celsius”-tagged posts and 187K “#CelsiusSverige”-tagged posts (Sverige is Sweden, a country where Celsius has expanded to) on Instagram

  • On the distribution side, Celsius is available in most convenience and grocery stores, fitness outlets and e-commerce websites

  • Its products are also enjoying high customer ratings and each get from 1,000 to 2,500 reviews on Amazons with ratings averaging 4.5 stars. For comparison, Red Bull has around 3,000 reviews per product and 5 stars, Bang Energy has 10,000 ratings and 4,5 stars while Monster Energy has 7,000 ratings and 5 stars

FINANCIAL CHECK - Celsius Holdings’ sales are growing at 80% YoY (and 86% in previous quarter) and reached $ 36m in Q3 ‘20. Its gross margins increased to 48% from 43% in Q2 ‘20 and operating income reached $ 4.7m (versus $ 1.6m in Q2 ‘20). The company is now sitting on a $ 52m pile of cash, up from $ 20m in the previous quarter.

RISKS - Some reports have pointed to accounting red flags and a potential cash shortage in the short term. With cash and equivalents now sitting at $ 52m, we have been reassured. You can find all of these allegations right here.

The Bottom Line ⚡️

  • The market for energy drinks is enjoying a “second youth” as new players such as Celsius and Bang Energy take advantage of social media influencers to ride on the “healthy” and “fitness” mega-trend

  • Celsius is also nailing its distribution strategy and expanding to new regions (Nordics) all while showing healthy financials with strong revenue growth and a growing operating profit

  • Of course, trading at 18 times EV / Sales is not cheap for a consumer goods company. For comparison National Beverage Corp (FIZZ) trades at 4 times EV / Sales and Monster Beverages (MNST) trades at 10 times EV / Sales

We have initiated a starter position (10% of full potential) in Celsius Holdings.


Futu Holdings 📈 (NASDAQ: FUTU)

THE INTRO - Futu Holdings was founded in 2011 and provides online brokerage services in Hong Kong and Mainland China. Through its investing platform “Futubull”, it provides market data, trading services and news feeds of Hong Kong, Mainland China and US stock markets.

  • It offers a fully digitised brokerage platform and it makes money mainly from trade executions and margins financing

  • Their users consist in the emerging affluent Chinese population, taking advantage of generational shift in wealth management

THE MARKET - Household wealth in China is booming and the regulatory environment is opening up.

  • The Boston Consulting Group reports that household wealth in China set to increase by $ 14T by 2023 and reach $ 35T while Credit Suisse places it at $ 39T by 2022. Furthermore, UBS and Financial Times report that China’s asset management industry is set to reach around RMB 47T by 2025, up from RMB 11T in 2017

  • Overall, the regulatory environment in China is becoming more open as access to markets is being provided to foreign institutions and investors

“If you’re any financial institution, a fund manager big or small, China is now an open market to you […] It is really a high point of openness and capital market development for China” - Fraser Howie, taken from Financial Times

THE PLAN TO WIN - Futu Holdings is betting that the new generation of investors want an investing tool with a well-crafted UI / UX and various social features.

“We have embedded social media tools to create a network centered around our users and provide connectivity to users, investors, companies, analysts, media and key opinion leaders. This fosters the free flow of information, reduces information asymmetry and supports the investing decision-making process. For instance, users can exchange market views, watch live broadcasts of corporate events and participate in investment education courses offered through the NiuNiu Classroom. Importantly, our social network serves as a powerful engagement tool.” - Futu Holdings S1

  • As of December 2019, the daily active users for the social community reached 208k users and these users spent on average 24.5 minutes each day on the platform

  • This strategy drives up user engagement and translates into more commissions for Futu Holdings

FINANCIAL CHECK - Futu Holdings’ sales are growing at a 272% YoY (and 164% in previous quarter) and reached $ 122m in Q3 ‘20. Its gross margins increased to 81% from 78% in Q2 ‘20 and net income reached $ 52m (versus $ 31m in Q2 ‘20). Net profit margins have now reached 43%, up from 34% in the previous quarter.

RISKS - Futu Holdings is competing with bigger names such as Alibaba-backed Ant Group. However, one has to note that Futu Holings is backed by Tencent and Sequoia Capital. Furthermore, the financial technology landscape in Mainland China is gradually opening up as discussed but still subject to the will of governing bodies, as it has been the case with the Ant Group IPO.

The Bottom Line ⚡️

  • Futu Holdings is growing at a fast clip as it provides the trading tools a new generation of investors require

  • It is taking advantage of the “community” building effect of investing, increasing the time spent on app and the number of trades per day

  • The trading market is set to boom in China as wealth is being built up and the amount of investable assets increases dramatically

  • Regulation is an element to watch for sure and competition from top players such as Alibaba should be monitored

We have initiated a medium position (50% of full potential) in Futu Holdings.


Uber Technologies 🚕 (NYSE: UBER)

THE INTRO - Uber was founded in 2009 with the goal of making mobility easier and cheaper. By 2013, it was already operating in 35 cities and launched UberEATS, the food delivery service.

THE MARKET - Uber expanded at an aggressive pace and entered international markets very quickly. When it could not win, it stopped its own operations but made sure to grab a share of its rival.

  • In 2016, it exited China by selling its operations to DiDi for a 15% stake and $ 1B in cash. In 2017 it combined it Russian operations with Yandex and got 37% of the shares. In 2018 it merged its operations in South East Asia with Grab and got 18% of the company. In 2020 it acquired Careem (UAE) for $ 3.1B and it sold its UberEATS operations in India to Zomato for a 10% stake

  • While it is leaving markets it cannot win into, it is consolidating its core businesses. In July 2020, Uber therefore agreed to acquire Postmates for $ 2.65B in stock

  • Uber is mostly active in the ride sharing and food delivery business. Two fast growing and large markets

    • Ride sharing market is set to grow from $74B in 2019 to $ 210B by 2025. Representing a CAGR of 19%.

    • Food delivery market is set to reach $ 476B by 2025 up from $ 375B in 2020 (CAGR of 4.8%). This market has received a 2 to 3 years boost from the pandemic as online delivery penetration jumped from 9% to 13% in a matter of months

THE PLAN TO WIN - Uber’s strategy relies on two pillars. It seeks to dominate its home markets and own share of each location’s leader in markets it cannot win into.

  • Mobility - Uber counts over 65% of all ride sharing bookings in its major markets: North America, Europe, LATAM and Oceania

  • Delivery - Uber is leading or holds the second spot in over 25 countries it is active in (includes US, UK, France, Mexico, Japan, Australia)

FINANCIAL CHECK - Total gross bookings decreased 10% YoY as Uber’s mobility business was hard hit by the pandemic.

  • Mobility gross bookings decreased to $ 5.9B in Q3 ‘20 down 53% from $ 12,5B a year earlier. While delivery gross bookings increased by 134% to $ 8,5B from $ 3.6B a year earlier.

  • Overall, hardest hit regions where North America (30% decrease in GAAP revenue YoY) and LATAM (39% decrease in GAAP revenue YoY) while EMEA and APAC increased by 20 and 43% respectively.

  • Uber booked an operating loss of $ 1.2B in Q3 ‘20 but still had $ 9.4B in current assets versus $ 6.9B in current liabilities.

RISKS - Uber is still losing cash at a rapid pace and a second external hit would be a major drag on the business’ cash situation. Uber has managed to turn itself into a full delivery business during the pandemic but it still badly needs its mobility business to drive its operations.

The Bottom Line ⚡️

  • The pandemic has been a two-edged sword for Uber, boosting its food delivery business but slashing its mobility operations

  • Competition is intense but Uber manages to stand its ground by defending core markets and divesting non-core activities and non-core locations

  • Once the pandemic fades away, the food delivery will grow further from a larger base while the EBITDA profitable rides business will pick up again

  • Uber has now become the global “mobility” holding. Moving people, food and goods at a global scale either directly or indirectly

We have initiated a medium position (50% of full potential) in Uber Technologies.


Sources and credits

  • Investor presentation

  • Company website

  • Allied Market Research

  • Financial Times

  • UBS

  • Credit Suisse

  • Boston Consulting Group

  • Morgan Stanley


🔥 THERE IS MORE, WAY MORE 🔥

The markets are nervous and we are moving fast. While you were away we have increased our stake in some of our positions which are not included in the “10-Stocks Portfolio”.

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We developed and implemented our investment strategy in mid-August 2018 and started sharing our investment insights in August 2020.

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Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Disclosures

The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article other than contributions from paying subscribers.

Historical Performance Disclaimer

Please note that our portfolio returns have not been audited by any external or third party. These are not not intended to serve as the basis for any investment decision or purchase. All investments involve risk and the past performance of a security or financial product does not guarantee future returns.