A current AIM International Fund Holding: NetEase, Inc. (NTES) by Arsh Salwan. "Let's Take it Ease-y"

NetEase, Inc. (NTES, $300.11): “Let’s Take it Ease-y”

By: Arsh K. Salwan, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• NetEase, Inc. (NASDAQ:NTES) provides online services to consumers in mainland China. NTES operates through 3 segments: Online Game Services, Advertising Services, and Email/E-commerce/Others. The Online Game Services segment accounted for 73% of total revenue in FY17.  

• NetEase has been continuously improving their online games services segment as they have released popular games such as Fantasy Westward Journey, Speedy Ninja, and Rules of Survival.

• The company recently announced a new blockchain sharing platform, “Planet”, that serves as a sharing platform amongst users along with a decentralized value exchange. Blockchain will be an important focus of NetEase in 2018.

• In FY17, Online Game revenue had decreased 10% YoY while E-Commerce revenue had increased 175% YoY.

• The YTD stock price change for NetEase has been -13.5%.  

Key points: For the past couple of years, NetEase has been one of the top video game developers in China. NTES has depended heavily on revenue generated from iconic games created throughout the years. There was a decline in revenues and a weaker gross margin for online games in the previous 3 quarters, and this may be a concern moving forward.

The biggest competitor of NetEase is Tencent Holdings Limited, a world class tech company with almost 1 billion users on its social network, WeChat. In late 2017, Tencent announced that it would be adding in-chat mini games which would make it easier for users to play games within the chat. Due to the convenience of Tencent’s mini-games, NetEase’s gaming segment could decrease.

Management recognized the “mini-game” this threat early on and decided to release 14 new games in Q4 FY17 and to focus more on E-Commerce. NTES opened their E-retail business, Koala, which has plans to spend about $11 billion over the next three years on inventory from Europe, Japan, and the U.S. The purpose of this is to attract customers and bring a global presence of goods into China.

NetEase recognized that moving into the E-commerce space would be dangerous because China’s other tech giant company, Alibaba, would become an immediate competitor. To mitigate the competition risk involved, Koala implemented a new strategy to bypass local middlemen and buy inventory directly from international companies. Another advantage that Koala has compared to Alibaba is the delivery time. Delivery for Chinese consumers has averaged about 15-20 days for international orders but Koala has lowered that to 2-3 days. The introduction and growth of Koala could push NTES back towards its 52-week high.

What has the stock done lately?

After meeting earnings expectations in Q3 FY17, it was expected that the company was on a road to turn it around after missing Q2 FY17 earnings. On February 7, 2018, Q4 FY17 earnings were released and the stock price dropped from $314 to $285 in 2 trading days. Since earnings were released, NTES has been up ~5%.

Past Year Performance: In one year, NTES is up ~15%. In the month of August 2017, NTES dropped 11% from $308 to $275. This was due to the fact that the company’s Q2 earnings did not meet the expectations of investors. That may seem worrisome, but the stock later jumped to $371 in mid-December representing an increase of 35%. With average performance in the previous 3 quarters, Q1 FY18 will be very significant in regards to where the company will be heading and if adjustments have been made.

Source: FactSet

My Takeaway

William Deng Lei, NetEase’s CEO/Founder, has run NetEase with expertise in a variety of  areas. Gaming has always been the main focus, but management recognizes that Tencent has new plans to expand so NTES has begun to explore into other areas of business. With NetEase’s e-commerce platform, Koala, there have been changes to the main focuses of the company. With the increased use of e-commerce to purchase international products in China, Koala could have a very bright future. NTES must capitalize on any slip-ups from Tencent and improvements must be made in the gaming segment- if this is done, NetEase could have a promising future. However, with the previous quarter’s missed earnings and increased competition, I am recommending a “hold” for NetEase, Inc.

Source: FactSet

Fifth Set of AIM Program Student Equity Pitches on Friday, February 23rd - Join Us in Person or On-Line

AIM Class of 2018 and 2019 Student Equity Presentations - Friday, February 23rd

The fourth set of AIM student equity presentations of the spring semester will be on Friday, February 23, 2018. 

 Follow the link to review the student equity write-ups.  You can also find every write-up since AIM's inception here.

 February 23rd Write-Ups

Location:  Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in the AIM Research Room 488, 4th Floor (pdf directions to AIM Room).   

• Date:  Friday, February 23rd 
• Location:  AIM Research Room
• Presentation Times: 9:00 to 9:50 a.m. & 3:00 to 4:00 p.m. CST
• Link to pdf Student Equity Write-ups 
• If you are unable to attend, you can always view them via the webcast HERE 

AIM will again be utilizing Twitter for your comments and questions.  Please follow the instructions below.

How to comment using Twitter:

1. Go to the MarquetteAIM Twitter account (you can use Search Twitter on your site) and click Follow.

2. During AIM presentations, go to #AIMpitch and follow the tweets (discussion) on Twitter (it will also be appearing on the Rise Display Board in the AIM Room and on your smartphone)

3. Tweet your comments and questions during the AIM equity pitches

• Follow the rules of etiquette for using Twitter during AIM pitches
• Use the hashtag #AIMpitch to start each tweet
• Use $TICKER (note: this is called a cashtag and it be should the unique ticker/symbol for the stock that is being presented, ex: $TSLA)
• Keep you comment short because each tweet is limited to a maximum of 140 characters
• Example for Tweeting on a student’s Tesla equity pitch (note: the ticker for Tesla is TSLA): #AIMpitch $TSLA How do lower gas prices impact demand for electric cars? 

A current AIM Program Small Cap Equity Holding: Mercado Libre, Inc. (MELI) by: Gregory Glaab. "The Melt Up of MELI"

Mercado Libre, Inc. (MELI, $377.50): “The Melt Up Of MELI”

By: Gregory Glaab, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Mercado Libre, Inc.  (NASDAQ:MELI) provides an online commerce platform with focus on e-commerce and its related services. The company provides users with buying, selling and paying mechanisms for a more efficient market place. The company was founded by Marco Galperin in October of 1999 and is headquartered in Delaware however, all of their operations take place in nineteen Latin American countries, most notably Argentina, Brazil, and Mexico.

• MercadoPago has continued to grow and develop throughout its time within the portfolio— it is relied upon as a secure payment option for unbanked customers, similar to PayPal.

• Speculation as to whether Mercado Libre will embrace Amazon as a partner or try to compete.

• Widespread government turmoil continues to be a leading risk for the company.

• After showing all-time highs in 2017, MELI has the potential to become the perennial e-commerce platform for Latin America.

Key points: Mercado Libre has invested heavily in their online payment mechanism, MercadoPago. It is relied upon by many who do not have bank accounts and is considered the Latin American PayPal. Like the rest of the company, MercadoPago has a ton of potential within Latin America, where poverty and alternative payment mechanisms are much more prevalent than in the US or Asia. This payment mechanism allows lower income citizens to participate in the services that MELI has to offer, widening their customer base.

Brazil accounted for over 53% of MELI’s revenue in 2016 after growing 21% throughout the year while all other major country percentages of revenue decreased. Currently, the only Latin American country that AMZN is popular in is Mexico. Earlier this year, Amazon announced that they plan to expand operations to South America, specifically Brazil. Jeff Bezos has shown no signs of slowing down the mission of AMZN, “to be the Earth’s most customer centric company”. It is only a matter of time before full scale operations reach Brazil. Whether MELI is able to create enough barriers of entry for Brazil, will likely determine how well AMZN is able to penetrate the rest of the Latin American countries. This then begs the question as to whether MELI would work with AMZN or try to compete for market shares.

Government corruption is nothing new in Latin America. Many issues were highlighted in their largest market, Brazil, when they hosted the Olympics and World Cup in 16’. As mentioned prior, MELI has continued, to increase their percentage of revenue throughout the next year. Venezuela has a much more documented history of corruption from the head of state down to local government. Unlike Brazil MELI decreased Venezuela’s percentage of total revenue due to increased uncertainty within the country.

MELI saw all-time highs in majority of their financial metrics, shown in their increased stock price. The company was really able to differentiate themselves in 2017 from the rest of Latin American e-commerce platforms. Now that MELI has grown the size that it is now, it is being placed in the same sentences as Alibaba and Amazon.

What has the stock done lately?

MELI has seen its stock rise from $312.69 to $375.71, a YTD of 19.4% return. Prior to correction Monday, the stock had climbed to an all-time high of $395.67 before dropping to around $335. The stock has also recovered better than other large cap international companies with a 1-week price change of 11.87% while S&P 500 is 3.02%. Experts have its price exceeding $400 by the end of the month if they are able to match earnings in their next report.

Past Year Performance:

MELI saw its stock price climb 101.5% in 2017 to $314.66 at year end. Its YTD price change is 90.65% while the S&P 500 is 15.45%. After showing such a strong 17’ fiscal year, there is speculation as to how much bigger MELI can become. After seeing other e-commerce giants take off in the past couple of years, MELI could fill a massive void within Latin America and become the Amazon, of Central and South America.

1 Year Stock Chart vs. Benchmark (Russel 2000 Index)

Source: FactSet

My Takeaway

After showing such a strong 2017 fiscal year it is difficult to say whether the current share price is an accurate intrinsic value of the company. Its demographics and geographic revenue can be attributed to drivers and risks. Unlike in China or the United States that already have established e-commerce platforms that are universally accepted within their population, Latin America is anyone’s game. With Amazon recently stating that they want to extend operations into Brazil, MELI’s largest revenue holder, the company could be put out of business like many other companies have experienced in the US. Along with that, with continued uncertainty and stability issues within Latin American countries, this poses an even greater risk for Mercado Libre. After assessing the risks and drivers of the company, I believe this stock is highly overweight and should be sold soon.

1 Month Stock Chart

Source: FactSet

A current AIM Program Small Cap Equity Holding: Malibu Boats, Inc. (MBUU) by: Riddhi Vakil. "Boat's a Buy"

Malibu Boats, Inc. (MBUU, $30.77): “Boat’s a Buy”

By: Riddhi Vakil, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

•Malibu Boats, Inc. (NASDAQ: MBUU) designs, manufactures, and markets performance sport boats for water sports, such water skiing, wakeboarding, and wake surfing, as well as having options for recreational boating. Founded on November 1, 2013, it is headquartered in Loudon, Tn.

•In the last couple of days, they have increased their trading volume which is seen to many investors as a bullish move. This adds more stability and support for price advances.

•Acquisition of Cobalt earlier has shown to significantly greater than they expected in terms of financial performance.

•The retail industry has supported the growth for MBUU as there is in increase in consumer confidence.

•Although there has been great performance for them domestically, they have had trouble in international markets.

•MBUU’s market share has remained steady and they remain to be a leader in performance sport boats with Cobalt increasing their share in this as well.

Key points: The acquisition of Cobalt has allowed them to hold the number one market share position in the US under the sterndrive category, allowing them to be in the “buy” position under many investor reports. Their return from this acquisition continues to grow at great heights. They are expecting a higher level of growth than anticipated.

The consumer discretionary market is booming after increased levels of consumer confidence and consumer spending due to the increase in wages and the tax cut policy. MBUU is aimed towards customers who have a higher disposable income and are willing to spend it on their product. Although this may have not been the case about ten years ago, it is present now. The economy is booming and is expected to grow even further through this year.

MBUU recently has had a huge spike in their trading volume, going from 185,398 shares to 284,414 shares, a significant increase from their usual trading patterns. This could mean that the company is responding to the market and economy and showing sign of growth. This could also predict a move in the stock price that could be beneficial to investors since it is in a bullish manner.

What has the stock done lately?

After releasing their earnings statements on November 7^th, 2017 for quarter one FY18 results, there was a spike in the stock price because they had surpassed their estimates on earnings. With the trading volume increasing, there has been a decrease in the stock price. With the second quarter FY18 quarterly results coming out in a couple of days, investors are hopeful that they will beat their estimates.

Past Year Performance: MBUU has had a 43.01% increase in value in the past 52 weeks, but still remains as a “buy” in the eyes of many analysts because they seem room for growth from Cobalt.

 Source: FactSet

My Takeaway

MBUU has seen great heights in their stock in the past year. With the great acquisition with Cobalt, they have been able to stay on top in the industry. Market trends have been in favor of their business, and coupled with the success of their acquisition, they may be able to reach even greater success. MBUU management remains confident on their positive outlook and their continuous increase in their financials. This is still a hold for the AIM Funds.

Marquette professor, Dr. David Krause, delivered a presentation on blockchain technology to the Rotary Club of Milwaukee

Dr. David Krause was the guest presenter at the Rotary Club of Milwaukee on Tuesday, February 20, 2018

Dr. David Krause at Rotary Club of Milwaukee

Dr. Krause began his talk to over 200 Milwaukee Rotarians by stating, “Blockchain and bitcoin are potentially one of biggest collaborative math projects in history and could transform the global economy in a manner similar to the impact of the Internet. Cryptocurrencies and blockchain can fundamentally rewrite many business models, especially in banking and financial services – which is why we all need to understand this new, emerging technology."

A current AIM Program Small Cap Equity Holding: Physicians Realty Trust, Inc. (DOC) by: Gregory Anderson. "A Fresh Look at Physicians Realty Trust"

Physicians Realty Trust, Inc. (DOC, $15.25): “A Fresh Look at Physicians Realty Trust”

By: Gregory Anderson, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

• Physicians Realty Trust, Inc. (NYSE:DOC) is a real estate investment trust (REIT) that acquires, develops, manages, and leases healthcare properties to hospitals, physicians, and healthcare delivery systems. Physician’s portfolio includes healthcare office buildings, post-surgery treatments centers, and outpatient facilities. Physicians operates in the United States and is headquartered in Milwaukee, Wisconsin.  

• The end of the first quarter, 2017 marked $1.4 Billion in year-to-date investment activities. 

• The demand for healthcare assets (hospitals, offices, and outpatient facilities) should remain constant, even during times of economic downturn.

• With the Federal Reserve’s gradual rise in short-term interest rates, borrowing will become more expensive, raising the overall cost to acquire and develop properties.

• The healthcare sector is rife with problems, but future budgetary and structural changes could help Physicians Realty Trust.

• DOC has the ability to weather downturns in the market due to the highly leveraged real estate market.

Key points: 2018 has marked a troublesome period for Physicians Realty Trust, with a 17.1% decrease in stock price between December 31, 2017 and February 1, 2018. While this drastic drop could be seen as troublesome, Physicians has seen exponential growth over the last 3 years. DOC saw a 162% increase in net income between 2015 and 2016, as well as a 77.1% 5 year sales CAGR. The company’s historical rapid growth is a sign of its ability to operate efficiently and make sound investment decisions, one of which was a $725 million investment in Catholic Health in 2016, which effectively added 55 high-quality properties to DOC’s portfolio.

Prior to the rocky start in 2018, Physicians took some positive steps towards the tail end of 2017. One of these steps was adding Pamela Kessler to the board of trustees. Kessler is an experienced figure in the healthcare real estate market and is the Executive Vice President, CFO, and Secretary of LTC Properties, a publically traded senior housing REIT based out of California. Kessler is expected help DOC’s board of trustees by overseeing the board and advise in investment decisions. DOC also recently announced a 3.95% Senior undisclosed note priced at $350 million due in 2028. The proceeds from the sale are expected to be approximately $347 million after fees and expenses. This announcement is a sign that DOC is looking to increase capital for future acquisitions and developments.

The largest risk facing Physicians Realty Trust is the gradual increase in interest rates over time. A rise in interest rates makes borrowing more expensive, and as a result, acquiring properties more expensive. While the Trump administration is advocating a lower interest rate, the Federal Reserve increased the interest rate by 0.25 interest points in 2017.

What has the stock done lately?

As mentioned above, Physician’s stock has dropped by 17.1% in 2018 alone. The stock has seen the largest drop in February, with a 4.7% decrease between February 1 and now. The stocks drop is most probably due to the severe downturn the market, and its benchmarks (Russell 2000, S&P 500, etc.), saw in February alone. The question regarding DOC’s stock is whether or not it can rebound. The low price offers a potential upside and once the market levels out, it could prove to be a great long-term hold.

Past Year Performance: DOC has decreased 23.2% in value over the past year but remains a bargain for a long-term hold. DOC missed earnings in both Q1 and Q2, but rebounded in Q3 and Q4 by beating earnings. The question is whether or not DOC can remain consistent and continue to grow Net Income (higher net income results in a higher dividend payout). Over the past year, DOC has maintained an average dividend yield of 5.91%, with a current dividend at $0.92. With the bearish tendency of the stock, the drop in price points to the volatility of the market, rather than a flaw in the operations of Physicians Realty Trust.  

Source: FactSet

My Takeaway

Even though 2018 has been plagued with a decrease in stock price, Physicians is here to stay. An investment in a healthcare REIT like DOC seems like a safe bet considering the need for healthcare properties. Even with the current issues that plague the healthcare industry, such as high medical costs and epidemics related to big-pharma companies, there is a renaissance of restructuring by major companies. One such example is the merger between Amazon, Berkshire Hathaway, and J.P. Morgan, which aims to decrease costs and implement a value over volume platform. If DOC positions itself correctly, they could capitalize and gain major market share by providing the physical assets to these emerging mergers. Additionally, the introduction of Pamela Kessler as an oversight of the board of trustees and a recent announcement of a 3.95% Senior undisclosed noted priced at $350 million reveals DOCs intention to grow and thrive. Physicians has the potential to gain traction and recover from the losses sustained in 2018.

A current AIM International Fund Holding: Aviva PLC (AVVIY) by Jacob Bishop. "A Life Insurance Company to Die For"

Aviva PLC (AVVIY, $14.15): “A Life Insurance Company to Die For”

By: Jacob Bishop, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Aviva PLC (NYSE: AVVIY) is a British multinational company that provides customers with long-term insurance and savings, general and health insurance, and fund management products and services.

• Aviva is acquiring the rest of insurance operations of VietinBank. This is an agreement that will allow Aviva to use VietinBank’s network of over 1,100 branches (second largest amount in Vietnam).

• Aviva is teaming up with Tencent and Hillhouse to create an online insurance giant. They are looking to disrupt the insurance world with a brand new digital platform that allows consumers to purchase insurance online.

• Dividend yield has averaged 3.9% over the past 5 years, a sign of a financially healthy firm. Look for that to increase in years to come.

Key points: Aviva has experienced steady, low volatility growth over the past 5 years as it reaches out to new emerging markets. In 2017, Aviva planned to purchase the remaining 50% of VietinBank, a state-owned Vietnamese bank that has the second largest network for insurance products in Vietnam. In addition to Vietnam, they are branching out within Singapore – Aviva is seeking regulatory approval for a joint venture with Tencent (the leading provider of internet services in China, which was recently added to the AIM International fund) and Hillhouse (a tech firm that specializes in self-driving vehicles and drones).

Speaking of digital, Aviva is looking to change the way insurance is sold. They are adding an emphasis on “ask it never”, a program that may sound just like bad customer service, but instead aims to allow them to price products without questions. What does this exactly mean? Well, they are looking to make insurance much cheaper for customers. They are trying to make insurance like any product that a normal consumer would purchase. Aviva is in the process of making it so you can purchase life insurance online. In the past, insurance has been a very personalized product, but Aviva looks to change that.

What has the stock done lately?

Since the beginning of 2018, AVVIY’s price has increased by 3.26%. For the trailing twelve months, Aviva’s ADR experienced a 15.44% increase in stock price. In 2017, Aviva paid out dividends twice for a total of $.0.63 per share, or 4.58%. They are set to release Q4 earnings for 2017 in March.

Past Year Performance: Aviva experienced an increase in almost all financial areas in 2017 when compared to 2016. Sales are estimated to grow from $44b to $52b (18.2% increase) and net income is projected to grow from $0.94b to $2.4b (155.31%). Yes, you read that right – net income has been projected to increase by 155% from 2016 to 2017 according to the average of analyst’s from Deutsche Bank Research, RBC Capital Markets, Morningstar Equity Research, and 10 other major firms. AVVIY underperformed the benchmark by roughly one percent, however it more than makes up for it in dividend yield.   In the past 5 years, the stock has paid out an average of 3.9% in dividends, and last year it paid out 4.58%. Operating profit has increased by 11%, Operating EPS is up 15%, and they have increased their net written premiums by over 11%.

AVVIY (blue) vs. Russell Global xUS TR USD (green)                   Source: FactSet

My Takeaway

Despite their attempt at digital disruption, you shouldn’t expect abnormally large gains from AVVIY anytime soon. The key reason to purchase this ADR and hold it is for the high dividend yield with a relatively low volatility. As most big insurance companies, this firm has strong financials that, barring a black swan event, show it will be around for a long time. If they do have success with their new digital platform, they could potentially change the way insurance is bought and sold.

Marquette's AIM Team Placed 1st in Milwaukee CFA Challenge - Next Stop is Boston for Americas CFA Finals

Stephen Arcuri, Charles Muth, Brooke Porath,
Andrew Crossman and Connor Konicke (l to r)

On February 15, 2018, Marquette University’s AIM ‘Blue’ team won the Milwaukee CFA Investment Research Challenge held at the Best Western Premier Park Hotel in Madison, Wisconsin. 

They advanced to the Americas Regional Finals in Boston, Massachusetts on March 19-20, 2018. 

The members of the AIM Blue team included: Andrew Crossman, Brooke Porath, Charles Muth, Connor Konicke, and Stephen Arcuri.

The faculty advisor was: Dr. David Krause. The industry mentor was: Dr. Joseph Wall. 

Marquette's "Blue" Team Wins the Milwaukee CFA Investment Research Challenge and Advanced to the Americas Challenge in Boston

Marquette Team Wins Milwaukee CFA Investment Research Challenge

On February 15, 2018, Marquette University’s AIM ‘Blue’ team won the Milwaukee CFA Investment Research Challenge held at the Best Western Premier Park Hotel in Madison, Wisconsin. They advanced to the Americas Regional Finals in Boston, Massachusetts on March 19-20, 2018. 

Dr. David Krause, AIM program director and CFA team faculty advisor, commented “I’m proud of the members of the AIM program who participated in the CFA Research Challenge. Dr. Joseph Wall served as the team’s industry mentor and I want to send out a special thank you to him for his efforts to support the student teams. I believe that both the Blue and the Gold teams could have been the overall winner – they both did an outstanding job. We look forward to participating in the Americas Challenge in Boston next month.”

The members of the AIM Blue team included: 

• Andrew Crossman
• Brooke Porath
• Charles Muth
• Connor Konicke
• Stephen Arcuri 

The members of Marquette AIM “Gold” team included:

• Adam Hamilton
• Grant Runnoe
• Holly Kuffel
• Mitchel Beine
• Michael Dennison

The Milwaukee CFA Society research company this year was AptarGroup (ticker: ATR). The teams in the competition included students from:

• ·         Carroll University
• ·         Marquette University - Blue & Gold Team
• ·         UW-Madison
• ·         UW-Whitewater - Team 1 & Team 2

Each of the teams in the local competition were required to make a 10-minute oral presentation to a panel of judges followed by 10 minutes of Q&A. The panel graded the presentation and Question and Answer competitions – and when combined with the score on the written research report – were able to determine the winning team.

 The CFA Institute Research Challenge offers students the unique opportunity to learn from leading industry experts and compete with peers from the world’s top finance programs.  This annual educational initiative promotes best practices in equity research among the next generation of analysts through hands-on mentoring and intensive training in company analysis and presentation skills. 

Fourth Set of AIM Program Student Equity Pitches on Friday, February 16th - Join Us in Person or On-Line

AIM Class of 2018 & 2019 Student Equity Presentations - Friday, February 16th

The fourth set of AIM student equity presentations of the spring semester will be on Friday, February 16, 2018. 

 

Follow the link to review the student equity write-ups.  You can also find every write-up since AIM's inception here.

February 16th Write-Ups

Location:  Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in the AIM Research Room 488, 4th Floor (pdf directions to AIM Room).  

• Date:  Friday, February 16th 
• Location:  AIM Research Room
• Presentation Times: 9:00 to 9:50 a.m. & 3:00 to 4:00 p.m. CST
• Link to pdf Student Equity Write-ups 
• If you are unable to attend, you can always view them via the webcast HERE 

AIM will again be utilizing Twitter for your comments and questions.  Please follow the instructions below.

How to comment using Twitter:
1. Go to the MarquetteAIM Twitter account (you can use Search Twitter on your site) and click Follow.
2. During AIM presentations, go to #AIMpitch and follow the tweets (discussion) on Twitter (it will also be appearing on the Rise Display Board in the AIM Room and on your smartphone)
3. Tweet your comments and questions during the AIM equity pitches

• Follow the rules of etiquette for using Twitter during AIM pitches
• Use the hashtag #AIMpitch to start each tweet
• Use $TICKER (note: this is called a cashtag and it be should the unique ticker/symbol for the stock that is being presented, ex: $TSLA)
• Keep you comment short because each tweet is limited to a maximum of 140 characters
• Example for Tweeting on a student’s Tesla equity pitch (note: the ticker for Tesla is TSLA): #AIMpitch $TSLA How do lower gas prices impact demand for electric cars? 

A current AIM Program Small Cap Equity Holding: BlackLine, Inc. (BL) by: Michael Vidovic. "The Financial Recording Automotive"

BlackLine, Inc (BL, $32.98): “The Financial Recording Automotive”

By: Michael Vidovic, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• BlackLine, Inc. (NYSE: BL) is a cloud-based software platform focused around automating common accounting and financial processes through the following 4 solutions: reconciliation management, financial close management, intercompany hub, and insights.

• BlackLine has failed to be profitable thus far, despite outperforming revenue growth each quarter.

• The company operates globally, and only recently attained their first customer in Hong Kong. Europe also continues to show demand above expectations.

• Tammy Cole has been hired as a Chief Strategy Officer along with ex-CEO of SolarWinds, Kevin Thompson, though their contribution has yet to be fully seen.

• The intercompany hub segment showed very disappointing growth in Q2 paired with unfavorable insider share selloffs, which have hurt the stock sizably in the last 6 months.  

Key points: APAC remains the geographic for new growth, though the company has only a few customers in the area. However, each quarter the company has been able to attain first customers in various countries in the region. The situation looks favorable given BlackLine’s impressive customer renewal rate assuming the company can continue to lock in further customers in the surrounding area. Once BlackLine gains an influence in east Asia though, the growth outlook should notably improve.

BlackLine began by selling mainly to large enterprise players, and has only recently began penetrating the middle market. Many of these companies still do their accounting and financial close processes manually, and it seems only a matter of time until BlackLine is able to grab these low-hanging fruits.

BlackLine continues to operate in a low competition environment, and has stood to benefit from being the only company of its kind. However, if the company is able to scale successfully, the market will likely see competition arise given just how large the market is.

New management has been cited to be a strong source of growth, though expectations seem blown out of proportion, and may only serve as minor improvements for the company.

What has the stock done lately?

BlackLine IPO’d in late 2016, and saw the stock rise 40% by July of 2017. However, the stock then dropped 25% following a weak Q2 performance, and has been relatively stagnant ever since. The company is taking longer than expected to generate a profit, and concerns to the contrary have mounted since.

Past Year Performance: BL has grown by 22% over the last year, but the company remains disappointingly far from being profitable. The primary contributors to the stock’s performance in spite of profitability setbacks have been the company’s very strong gross margins and high renewal rate at 98%. The company has sustained high top-line growth, and the potential market remains daunting in terms of size.

BlackLine 1 Year Performance

Source: FactSet

My Takeaway

The investment thesis for BlackLine remains as strong as ever, and the potential upside on the company has not changed. With such a high renewal rate, the company has shown that once in practice, the solutions are invaluable, and the problems seem to stem from unhappiness surrounding the company’s profitability. The TAM remains enormous, and a lack of real competition puts the company in a strong light in terms of being a growth stock.