We're breaking down some key points for assessing fast-growing (but not always profitable) companies... --------------------------------------------------------------------------------------------------
When Are Losses Worth It? Investing in High-Growth, Money-Losing Companies.
| | | A slew of high-profile IPOs and small technology companies have gained interest from investors this year, sending share prices soaring. But many of these new, fast-growing businesses are not profitable. That fact may scare many investors away — rightfully so. A company burning through cash with little to show for it is a sure way to lose money. However, there are exceptions to the rule. Some businesses grow fast enough despite losing money that a future payoff is likely. (Amazon is a good example.) - Mind the GAAP: Typical business reports follow GAAP, or generally accepted accounting principles, listing revenue, followed by the cost to create what the company sells, additional operating expenses, other income and expenses such as tax and interest. But for many high-growth companies, non-GAAP accounting adjustments often pop up.
- What kind of adjustments? GAAP includes one-time expenses that might not occur again as well as non-cash expenses. So, companies offer additional ways to look at the business. Uber, for example, uses adjusted EBITDA, a metric that doesn't include debt, taxes, depreciation, amortization, and stock-based compensation.
- Understand why: When looking at adjusted metrics, it's important to know the role a one-time expense played. Or if the company is intentionally running at a loss so that it can invest in its growth. Each case will vary, though, making it important for investors to do their homework.
Read the rest for some key metrics to look for when evaluating these types of companies. | |
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| | Watch: Why Box Office Results Don't Explain How Movies Make Money
| | | Box office totals are widely reported, but they don't reflect when a movie actually becomes profitable. We're breaking down how it actually works on our YouTube channel. | |
Some Perspective on Stock Market Corrections and "Plunges" This week brought the worst trading day of 2019 as trade-war tensions continue to escalate between the United States and China. But it's important to understand what that really means — and it isn't that you should panic. - Declines and corrections are pretty common: Since 1950, there have been 37 separate corrections in the S&P 500 (meaning a decline of at least 10% from a recent high). That averages out to once every 1.9 years. Now, the market doesn't really care about averages so it could go years without a major correction or have multiples in one year.
- Know your nominal vs. percentage declines: It can be stressful to hear the Dow Jones fell more than 900 points at its intraday worst on Aug. 5, but that amounted to 2.9%. The Nasdaq shed 300 points or 3.5%. The nominal point value of the major indexes increases over time as the companies they include increase in value, and as that goes up so will the likelihood of larger point swings. It might sound like a lot, but the percentage offers context of whether it's truly a plunge.
Read the rest here.
| | Is Disney's Streaming Bundle a Game Changer? | | | Disney shares fell when it reported earnings this week, but the company also announced it would bundle its streaming services — Disney+, Hulu and ESPN+ — for the same price as Netflix's most popular plan. | | | | Not sure what to ask your smart speaker? Keep up with what's happening in the market by adding our daily flash briefing to your home assistant. Just look for The Motley Fool on your Amazon Alexa or Google Home app, click subscribe, and then you're good to go. | |
Top Esports Stocks for 2019 The market for video games as spectator entertainment is expanding rapidly, but it's still new and waiting to be defined. While that can make growth difficult to forecast, a report from Goldman Sachs suggests that esports revenue could climb to $2.96 billion in 2022 from $869 million in 2018. You can also use major consumer brands' interest in the market as a potential gauge for upside. Consider that McDonald's is betting big on esports as a marketing opportunity; PepsiCo and Nike have a range of sponsorships in the industry, and Comcast is building a $50 million stadium for esports in Philadelphia. But if you're looking for companies that are primary players, here are some to start exploring. - Activision Blizzard (NASDAQ:ATVI) has one of the strongest franchise catalogs in the video game history, along with an impressive history of creating new intellectual properties. It's also at the forefront of creating organized esports leagues that attract professional ownership, broadcast partners and advertisers.
- Tencent Holdings (NASDAQOTH:TCEHY) is a Chinese tech and media company that owns a strong roster of video game franchises and holds investments and partners with other gaming businesses. It owns and operates streaming and social media platforms that can serve to amplify its esports efforts.
Read the rest for a detailed look at these companies and three more. | |
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