Weekly Stocktake

Disney – Where is the Magic?

Disney – Where’s the Magic?

Disney, once the vanguard of the entertainment industry, now faces the challenge of overseeing its various business divisions. From linear networks to streaming, theme parks to cruises, and sports to merchandise; Disney is trying to sustain its established cash cows while simultaneously investing in and nurturing the growth of its other ventures. But in doing so, it has been burning through cash, fighting boardroom proxy battles, and losing clout with consumers.

For Q2 2024, revenue for Disney increased by 1.3% to reach $22.1 billion. And operating income increased by 15% to reach $3.8 billion. Direct-to-consumer, which includes streaming services such as Disney+ and Hulu, posted its first ever quarterly operating profit, which was $47mn. This was driven by cost-cutting that Disney has implemented in their operations and content spend. Hulu programmes such as “The Bear” and “Shogun” drove the new signups to Disney’s streaming services. Disney’s experiences segment, the cash cow, generated $8.4bn in revenue, with an operating profit of $2.3bn for the quarter. Disney noted that they expect sales for their experiences segment to drop during the year, as the pent-up demand for experiences, built up during the Covid Pandemic, subsides.

Under Bob Chapek’s (Disney’s previous CEO) tenure, Disney has poured substantial resources into productions across its various studios: Marvel, Pixar, Star Wars, and Fox. However, many of these endeavours have failed to replicate the box office triumphs of previous years, particularly during Marvel’s illustrious heyday. These productions were intended to serve as the cornerstone for Disney’s streaming services to flourish, but the over expansion lead to disappointing figures.

During the earnings call, Disney acknowledged that Netflix has established the gold standard for streaming. Netflix consistently leads the industry, often pioneering new features, such as the recent crackdown on password sharing, a move that has proven effective in recouping lost revenue. Netflix have been what other streaming services are trying to replicate. However, If you were to ask about Netflix’s primary competitor, Netflix would likely point to YouTube. Netflix has previously hinted at this perspective. YouTube’s exceptional consumer engagement aligns with Netflix’s preferred focus of measuring the duration of viewers’ attention on screen.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
196.55
This Week
201.89
% Change YTD
7.20% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
76 428
This Week
78 464 Lunar Capital increasesymbol
% Change YTD
2.04% Lunar Capital increasesymbol
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 156
This Week
16 341 Lunar Capital increasesymbol
% Change YTD
8.86% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 128
This Week
5 223 Lunar Capital increasesymbol
% Change YTD
9.49% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.50
This Week
18.46 Lunar Capital increasesymbol
% Change YTD
0.87% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
19.93
This Week
19.91 Lunar Capital stocktake arrow down
% Change YTD
-1.29% Lunar Capital stocktake arrow down
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
82.81
This Week
82.75 Lunar Capital stocktake arrow down
% Change YTD
7.51% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Disney – Where’s the Magic? Read More »

Amazon – Not your everyday Bookseller

Amazon – Not your everyday Bookseller

Amazon, once an online bookseller, has gradually transformed into the expansive “everything store.” Utilizing its efficient fulfillment infrastructure, Amazon swiftly delivers both its own products and third-party products worldwide. While its e-commerce segment drives the bulk of revenue, the true profit engine lies in its cloud division: AWS. In the latest quarter, Amazon’s North American e-commerce unit generated $86 billion in revenue with a 5.7% operating margin, while AWS generated $25 billion in revenue with a notable 37.6% operating margin. Amazon’s free cash flow was $50.1bn for the last twelve months, demonstrating its significant financial strength.

Amazon is renowned for identifying pain points within their own operations and devising solutions to overcome them, and then selling that solution as a service to third parties. In this way, they turn cost centres into profit centres. When they managed their internet servers, they noticed significant periods of dormancy in their IT infrastructure, punctuated by occasional spikes in usage. Recognizing this, Amazon seized the opportunity to create AWS. Instead of companies needing to set up and manage their IT infrastructure, Amazon does it for a fee, based on usage. Today, global enterprises rely on AWS to power their entire operations. Now, AWS is increasingly being employed by companies to train their generative AI models. Amazon observed that many companies are still in the training phase of their generative AI products, and that the products aren’t available for the market just yet.

Amazon has followed the same principle with regards to their fulfillment service. Companies are able to sell their products internationally on Amazon’s platform, while not needing to go through the process of figuring out the complicated rates and tariffs they are required to pay in each country.

Amazon’s reach extends far beyond e-commerce and cloud computing. They also run a video-streaming platform, own a significant share of an electric car company (Rivian), and operate an advertising business integrated with their e-commerce operations, which generated $11.8 billion in revenue this recent quarter. Advertising, known for its high operating margins, is likely to contribute to Amazon’s growing profitability.

Yet, amidst their diverse ventures, Amazon faces formidable competition. Beyond rival e-commerce and traditional retail businesses, they contend with tech giants like Alphabet and Microsoft. Big Tech is also facing increased regulatory pressure around the world.

Amazon’s origins in a low-margin environment have instilled a cost-effective mindset into their DNA. They have shown, time and again, how to develop new products and services while keeping costs low.

Amazon and Microsoft are held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
198.44
This Week
196.55
% Change YTD
4.36% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
75 371
This Week
76 428 Lunar Capital increasesymbol
% Change YTD
-0.60% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
15 928
This Week
16 156 Lunar Capital increasesymbol
% Change YTD
7.63% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 100
This Week
5 128 Lunar Capital increasesymbol
% Change YTD
7.50% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.81
This Week
18.50 Lunar Capital stocktake arrow down
% Change YTD
1.09% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.12
This Week
19.93 Lunar Capital stocktake arrow down
% Change YTD
-1.19% Lunar Capital stocktake arrow down
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
89.29
This Week
82.81 Lunar Capital stocktake arrow down
% Change YTD
7.59% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Amazon – Not your everyday Bookseller Read More »

Microsoft: On Cloud Nine

Microsoft: On Cloud Nine

Microsoft unveiled their Q3 2024 results last week. Revenue for the quarter reached $61.9 billion, marking a 17% year-over-year increase. Meanwhile, net income for the same period amounted to $21.9 billion, reflecting a 20% year-over-year rise. The primary growth driver for Microsoft’s revenue was their cloud services segment, encompassing products and services such as OneDrive and Azure. Cloud services revenue for the quarter totalled $35.1 billion, increasing by 23% year-over-year. As of Friday, 26 April, Microsoft held the title of the world’s most valued stock, boasting a valuation of just over $3 trillion.

Microsoft has been among the beneficiaries of the Large Language Model hype that surged last year and this year. Microsoft has invested approximately $13 billion in OpenAI, the creator of ChatGPT. Microsoft does not have any ownership stake in OpenAI. But, they are entitled to a share of profit distributions. Microsoft’s cloud service, Azure, enables businesses to deploy their AI applications using their servers. However, Microsoft has stated that the demand for their AI services currently surpasses their current capacity. Consequently, they are ramping up their capital expenditure. In the latest quarter, they spent $14 billion on capital expenditure, exceeding the anticipated $11 billion.

Microsoft encounters formidable competition from other well-resourced rivals such as Amazon and Alphabet in the cloud computing/AI arena. As companies expand, scaling their market share becomes progressively challenging compared to their initial growth trajectory. Frequently, firms seeking to increase their market presence through acquisitions find themselves paying a premium to entice shareholders. Recently, Microsoft concluded its acquisition of the gaming giant Activision for just under $70 billion. Only time will reveal whether Microsoft has potentially overpaid for the company, or whether they were able to use their platform to create a more compelling gaming experience for users.

Microsoft not only provides cloud and gaming services, it’s Office suite of business tools is widely used in businesses and homes worldwide, it also provides on-line security, data management, virtual meeting services (Teams) and search services, amongst others.

Microsoft and Amazon held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
199.38
This Week
198.44
% Change YTD
5.37% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
73 364
This Week
75 371 Lunar Capital increasesymbol
% Change YTD
-1.98% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
15 282
This Week
15 928 Lunar Capital increasesymbol
% Change YTD
6.11% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
4 967
This Week
5 100 Lunar Capital increasesymbol
% Change YTD
6.92% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
19.14
This Week
18.81 Lunar Capital stocktake arrow down
% Change YTD
2.79% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.41
This Week
20.12 Lunar Capital stocktake arrow down
% Change YTD
-0.25% Lunar Capital stocktake arrow down
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
87.14
This Week
89.29 Lunar Capital increasesymbol
% Change YTD
16.01% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Microsoft: On Cloud Nine Read More »

Gearing Up – A Semiconductor Story

Gearing Up – A Semiconductor Story

Semiconductors or chips regulate electrical flow in electronic devices. They are vital for various products like computers, artificial intelligence (AI) systems, smartphones, automotive vehicles, and military equipment. Taiwan Semiconductor Manufacturing Company (TSMC) manufactures roughly 90% of the world’s cutting-edge chips, while ASML crafts lithography machinery essential for making these chips smaller and more energy-efficient.

Last week, TSMC and ASML released their Q1 2024 results. TSMC saw a 16.5% increase in revenue to NT$592 billion (with an average USD/NTD exchange rate of 31.4) compared to the same quarter last year. While ASML reported €5.29 billion in revenue for the quarter, marking a 21.5% decline from the same period last year. Due to the recent interest around AI, high performance computing chips accounted for 46% of TSMC’s revenue for the quarter.

ASML believes that the semiconductor industry is going to go through a transitory year this year. Orders for its machinery for Q1 2024 dipped nearly 4% compared to the same quarter last year and decreased by 60% compared to the previous quarter. Some of ASML’s latest extreme ultraviolet (EUV) machines go for around €350 million each. Consequently, manufacturers must be certain about their timing for acquiring lithography equipment. ASML anticipates its revenue for the year to remain consistent with 2023 levels. Subsequently, it’s positioning itself to escalate production for 2025.

The US Chips Act aims to encourage semiconductor manufacturers to establish plants within the United States. TSMC and Samsung have each secured approximately $6.5 billion in grants and subsidies to construct facilities in the US. ASML stands to benefit significantly from the Chips Act, given its near monopoly on the sale of EUV lithography machinery worldwide. However, due to the scale of these projects, there is an elevated risk of delays. Consequently, ASML faces the challenge of potentially building up inventory without the ability to deliver products, whilst these new facilities are being constructed. This could impact their near-term financial performance. However, when these new facilities are ready, they would need to be furbished with ASML’s lithography machines, which will likely be very positive for ASML.

The demand for more and more computing power to process the growing demand for AI, smartphones, EV’s and larger and more complex cloud service providers; is adding strain to energy grids. This is driving both the design and manufacture of more energy efficient semiconductors, as well as alternative energy solutions.

ASML is held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
203.47
This Week
199.38
% Change YTD
5.87% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
75 312
This Week
73 364 Lunar Capital stocktake arrow down
% Change YTD
-4.59% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 175
This Week
15 282 Lunar Capital stocktake arrow down
% Change YTD
1.80% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 123
This Week
4 967 Lunar Capital stocktake arrow down
% Change YTD
4.14%Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.84
This Week
19.14 Lunar Capital increasesymbol
% Change YTD
4.59% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.09
This Week
20.41 Lunar Capital increasesymbol
% Change YTD
1.19% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
90.18
This Week
87.14 Lunar Capital stocktake arrow down
% Change YTD
13.21% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Gearing Up – A Semiconductor Story Read More »

JP Morgan and the Fortress Balance Sheet

JP Morgan and the Fortress Balance Sheet

Last week, JP Morgan released its Q1 2024 results. The quarterly net revenue increased to $41.9 billion, marking a 9% increase from the preceding quarter. Net income also saw a significant increase, reaching $13.4 billion, up 44% from the previous quarter. Provisions for credit losses witnessed a decline of 32%, settling at $1.9 billion. JP Morgan upheld a steady return on equity of 17%.

Despite the increase in revenue, Net Interest Income (NII) declined 4% due to deposit margin compression and the overall amount of deposits decreasing. This was mainly seen in the Consumer and Community Banking (CCB) section of JP Morgan. However, due to the rise in the US equities market last year, CCB investment assets were up 25%.

JP Morgan expressed that despite the strong economic indicators, such as the strong unemployment rate and wages in the US, there is still a lot of uncertainty in the market such as the ongoing geopolitical tensions and a large number of persistent inflationary pressures. JP Morgan also highlighted that the bank has not experienced this level of quantitative tightening at this scale before. The effects are likely only going to be seen over the long term. These comments likely caused the stock price to slide by just over 6% following the results disclosure.

JP Morgan benefitted from the recent regional banking crisis in the US when they purchased First Republic. This contributed to their growth in assets, revenues, and profits. JP Morgan prides itself on its “fortress balance sheet”; which in turn allows it to take advantage of large deals when they become available.

JP Morgan is held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
200.74
This Week
203.47
% Change YTD
8.04% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
74 775
This Week
75 312 Lunar Capital increasesymbol
% Change YTD
-2.06% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 250
This Week
16 175 Lunar Capital stocktake arrow down
% Change YTD
7.75% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 204
This Week
5 123 Lunar Capital stocktake arrow down
% Change YTD
7.41% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.70
This Week
18.84 Lunar Capital increasesymbol
% Change YTD
2.95% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.27
This Week
20.09 Lunar Capital stocktake arrow down
% Change YTD
-0.40% Lunar Capital stocktake arrow down
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
90.87
This Week
90.18 Lunar Capital stocktake arrow down
% Change YTD
17.16% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

JP Morgan and the Fortress Balance Sheet Read More »

Balancing the Scale

Balancing the Scale

When companies grow to become large/mega cap businesses, they face both challenges and opportunities when they try to grow further. The specific circumstances for each company’s position significantly influences the potential or the impediments for continued expansion. Below are a few examples of some of the challenges and opportunities these companies may face.

The Challenges

Acquisitions
In acquisitions, large companies face a limited pool of targets due to fewer medium and large-sized companies compared to the number of small companies. Factors like compatibility and pricing reduce this pool further. With greater financial resources, acquiring companies often pay a premium for these companies to entice them to join. This trend is evident across numerous instances. For instance, in 2014, Facebook acquired WhatsApp for $19 billion. A decade later, WhatsApp boasts over 2 billion users but generates minimal revenue, estimated at around $1.2 billion for the previous year. Warren Buffett also regularly advises the lack of potential acquisition targets that Berkshire Hathaway can make to make a meaningful difference in their portfolio.

Product line and different markets
As companies achieve significant market share in different markets, introducing new products or expanding into new markets may not provide the same revenue and profit increases they previously enjoyed. Nike is currently experiencing this. Despite Nike rolling out numerous new products Nike’s revenue has had a compound annual growth rate of 7.2% for the last 2 fiscal years.

Corporate Constraints
As companies grow, their delivery platforms and teams need to be expanded to support their enlarged customer base and higher volumes. This may have been achieved with previous generation technologies and smaller more agile and flexible teams. With a larger client base and higher volumes and a complex platform, they may not be as agile as they previously were, increasing the time and costs of rolling out new products, services, and features; and allowing smaller, more nimble competitors to steal a march on them. Google is experiencing this with the roll-out of their AI tools, for example.

The Opportunities

Platforms
Businesses built as platforms, i.e. where multiple services are provided to clients, and new products or services can be added very quickly, however have an advantage despite their large/mega size. As platform businesses Microsoft, for example can expand by adding new features and services to their platform and further entrench existing and new customers into their ecosystem. Microsoft’s 365 product suite facilitates bundling various products, making it challenging for customers to switch once integrated. Moreover, they swiftly deploy new products to a vast customer base. For instance, between 2017 and 2023, the number of Microsoft Teams users surged from 2 million to 320 million, solidifying its leadership in virtual meetings arena.

There are many opportunities for companies to grow, but as they keep on growing there are certain challenges that they face. Some companies have a better ability to deal with these challenges than others.

Berkshire Hathaway and Microsoft are held in the Lunar BCI Worldwide Flexible Fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
205.72
This Week
200.74
% Change YTD
6.59% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
74 536
This Week
74 775 Lunar Capital increasesymbol
% Change YTD
-2.75% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 379
This Week
16 250 Lunar Capital stocktake arrow down
% Change YTD
8.25% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 254
This Week
5 204 Lunar Capital stocktake arrow down
% Change YTD
9.11% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.85
This Week
18.70 Lunar Capital stocktake arrow down
% Change YTD
2.19% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.35
This Week
20.27 Lunar Capital stocktake arrow down
% Change YTD
0.50% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
86.97
This Week
90.87 Lunar Capital increasesymbol
% Change YTD
18.06% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Balancing the Scale Read More »

Making Lululemon-ade

Making Lululemon-ade

Last week, Lululemon, the Vancouver based athleisure company, released their Q4 2023 results. The yearly revenue increased by 18.5% to $9.6 billion, accompanied by an 81% increase in Lululemon’s net income to $1.5 billion. This surge in net income can be attributed mainly to a notable decrease in the 2023 impairment charge. In the preceding year, Lululemon faced an impairment charge of $407 million, whereas this year’s charge stands at $74 million. 2022’s impairment charge primarily comprises of the impairment of its investment in the home-workout product-range: “Mirror.”

The Americas segment, making up 79% of total sales, experienced a modest revenue increase of nearly 12%. In contrast, the international segment, representing the remaining 21% of sales, witnessed a robust 54% revenue surge. During the earnings call, management articulated their aspiration for the international segment to contribute 50% of sales in the future. They acknowledged a deceleration in the demand growth rate for their products in the Americas’ market. Consequently, they adjusted their annual sales growth projection to around the mid-teens. This adjustment led to a 15% decline in Lululemon’s share price on the day.

Lululemon is investing for growth, primarily targeting the expansion of its brand visibility and bolstering its presence in international markets, particularly in China, where demand for its products has been substantial. To enhance brand recognition, the company is focusing on sponsoring athletes and teams. Notably, they are backing the Canadian national team for the 2024 Summer Olympics. Lululemon intends to address underrepresented markets by opening around 10 stores in the US and 30 stores in other parts of the world.

Lululemon contends with lots of competition in the athleisure sector, including major players like Nike, as well as various niche athleisure brands. Lululemon is a luxury brand within this competitive landscape. Amidst heightened global economic uncertainty, consumers tend to slow down their spending on luxury goods.

Lululemon is held in the Lunar BCI Worldwide Flexible Fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
204.52
This Week
207.32
% Change YTD
10.08% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
72 991
This Week
73 254 Lunar Capital increasesymbol
% Change YTD
-4.73% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
15 973
This Week
16 429 Lunar Capital increasesymbol
% Change YTD
9.44% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 117
This Week
5 234 Lunar Capital increasesymbol
% Change YTD
9.74% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
20.44
This Week
19.00 Lunar Capital increasesymbol
% Change YTD
3.83% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
85.27
This Week
20.62 Lunar Capital increasesymbol
% Change YTD
2.23% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
81.82
This Week
85.58 Lunar Capital increasesymbol
% Change YTD
11.19% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Making Lululemon-ade Read More »

Wal-Smart

Wal-smart

Over the last few decades, Walmart has become the largest retailer in the world. Back in 1962, Sam Walton opened the first Walmart store in Arkansas. The cornerstone of the company’s strategy was delivering a diverse array of products at consistently low prices. With a keen eye on expansion, Walmart targeted the underserved rural regions of America. Today, Walmart operates over 10,000 stores worldwide.

Walmart is able to offer “everyday low prices” by focusing on the following:

  • Economies of scale: Walmart leverages its immense purchasing power to secure bulk deals with suppliers, enabling them to extend significant cost savings to their customers.
  • Supply chains: Using AI technology, Walmart has refined its supply chain operations to optimize inventory management and streamline product distribution.
  • Variety of products: From groceries to appliances, Walmart boasts a diverse product range, establishing itself as a go-to destination for consumers seeking a wide array of goods. By selling higher-margin items like appliances, Walmart can balance out the sale of lower-margin products while ensuring profitability.
  • Omnichannel Strategy: Walmart has recently enhanced its online shopping platform, enhancing customer convenience. Additionally, the company has expanded its advertising business, enabling suppliers to directly target consumers.
  • Membership: Walmart offers a membership program designed to further incentivize customer loyalty. By participating in the program, customers gain access to exclusive benefits and capitalize on the company’s competitive pricing.

A few weeks ago, Walmart released their Q4 2024 results. Revenues increased 5.7% to $173bn for the quarter. While operating income increased by 30.45% to $7.3bn. Walmart, along with other retailers are operationally leveraged. If their revenue increases at a higher rate than their operating costs, their operating income grows at a higher rate than their revenue. The converse is true if their operating expenses grow at a higher rate than their revenue.

Walmart is held in the Lunar BCI Worldwide Flexible Fund. It is also held by Lunar Capital’s Offshore Portfolio clients

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
206.27
This Week
204.52
% Change YTD
8.60% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
73 718
This Week
72 991 Lunar Capital stocktake arrow down
% Change YTD
-5.07% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 085
This Week
15 973 Lunar Capital stocktake arrow down
% Change YTD
6.41% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 124
This Week
5 117 Lunar Capital increasesymbol
% Change YTD
7.28% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
18.70
This Week
18.77 Lunar Capital increasesymbol
% Change YTD
2.57% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.45
This Week
20.44 Lunar Capital stocktake arrow down
% Change YTD
1.34% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
81.82
This Week
85.27 Lunar Capital increasesymbol
% Change YTD
10.78% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Wal-smart Read More »

Shoprite-aholics

Shoprite-aholics

Companies striving for growth in a sluggish economy face formidable challenges when trying to grow, particularly those operating as supermarket retailers with an already large presence in the country. Another way for expansion involves gaining market share from competitors, a strategy used by Shoprite, South Africa’s largest supermarket retailer. Shoprite’s strength comes from the some of the following attributes:

  1.  They boast an established portfolio of brands, each uniquely tailored to appeal to distinct customer segments. The Usave, Shoprite, and Checkers brands cater to specific markets based on customer income levels and range of products sold.
  2. Shoprite employs a centralized distribution model, leveraging large distribution centers around the country. This strategic approach enables them to maintain high stock levels in their stores while simultaneously managing costs. Their stores will also hold products with similar levels of quality.
  3. Shoprite distinguishes itself by predominantly owning and controlling its stores, in contrast to competitors like Pick ‘n Pay and Spar, which have a higher reliance on franchise outlets. This ownership structure allows Shoprite to swiftly implement business changes and ensures a superior level of consistency compared to its competitors.
  4. Shoprite also employs AI to do its purchasing from its suppliers. Shoprite had a 98% in-stock levels for the period. Shoprite are able to maintain a high in-stock levels, while still keeping their prices low, partially because of this.

Last week, Shoprite released their H1 2024 results. Revenue for the business increased by 13.9% to reach R121.1bn for the period. Excluding the revenue growth attributable to the acquisition of Massmart stores, Shoprite’s supermarket segment grew by 11.2%. While Gross Profit increased by 14.7% to R28.6bn, representing a 23.6% gross margin. Trading profit for the period increased by 10.7% to R6.7bn.

One of the standout metrics was Checkers Sixty60. Its revenue has grown by more than 60%. The app is leading more customers to the Checkers brand, resulting in market share growth. Checkers also use their stores as mini distribution centers, which means they don’t have to build and create new distribution centers for the Sixty60 purpose. Pieter Englebrecht, the CEO, has said these are the reasons this segment in profitable.

The supermarket retail arena is fiercely competitive, with customers primarily prioritizing price and product availability. Supermarkets operate within a framework of relatively low gross and net margins, making them highly susceptible to shifts in costs. Their path to profitability predominantly hinges on scaling their business to achieve higher sales volumes while concurrently maintaining consistent operating costs.

Shoprite is held in the Lunar BCI Worldwide Flexible Fund.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
205.68
This Week
206.27
% Change YTD
9.53% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
72 775
This Week
73 718 Lunar Capital increasesymbol
% Change YTD
-4.13% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
16 274
This Week
16 085 Lunar Capital stocktake arrow down
% Change YTD
7.15% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 137
This Week
5 124 Lunar Capital stocktake arrow down
% Change YTD
7.42% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
19.09
This Week
18.70 Lunar Capital stocktake arrow down
% Change YTD
2.19% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.68
This Week
20.45 Lunar Capital stocktake arrow down
% Change YTD
1.39% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
83.33
This Week
81.82 Lunar Capital stocktake arrow down
% Change YTD
6.30% Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Shoprite-aholics Read More »

Snowflake – Trying to be a Snowball

Snowflake – Trying to be a Snowball

Beneath every artificial intelligence application lies a vast sea of data. Snowflake allows companies to store their structured, semi-structured, and unstructured data in one location, and access it from anywhere around the world. Moreover, companies can seamlessly tap into third-party datasets through Snowflake’s Market Place. Currently, Snowflake is expanding its suite by integrating Generative AI tools into their products, enabling users to interact in natural language with Snowflake applications. Sridhar Ramaswamy has replaced Frank Slootman as CEO, as Snowflake tries to further develop its AI strategy. Ramaswamy held the position of Senior Vice President of AI at Snowflake.

For Q4 2024, Snowflake’s net revenue increased 33%, reaching $775 million. Simultaneously, Snowflake’s operating loss increased by 5.7%, now standing at ($276mn). A positive shift is evident in Snowflake’s gross margin, which increased from 73% a year ago to 74% this quarter. Additionally, the operating loss margin improved, decreasing from -44% a year ago to -36% this quarter.

Breaking down the expenses, Sales & Marketing, and Research & Development each constituted 47% of the revenue. Notably, a significant portion of this allocation was attributed to stock-based compensation. This practice is prevalent among smaller companies like Snowflake that have limited financial resources and use stock options to top up cash payments for staff. The aim is to incentivise employees to stay at their company for longer by offering them a higher amount of equity. In contrast, larger entities such as Microsoft, Amazon, and Meta, can rely more on cash-based compensation to secure top-tier talent.

Snowflake faces stiff competition from other well-resourced AI businesses, including Microsoft and Amazon. This compels them to make significant investments in sales and marketing for customer acquisition and engagement. Snowflake operates on a pay-per-use model, which has its own set of challenges. Companies tend to utilise less of their Snowflake credits during times of perceived uncertainty. Snowflake’s focus is to get more businesses to join their data cloud, while making their products easier for individuals to use.

Snowflake, Microsoft, and Amazon are held in the Lunar BCI Worldwide Flexible Fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
207.05
This Week
205.68
% Change YTD
9.21% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
74 213
This Week
72 775 Lunar Capital stocktake arrow down
% Change YTD
-5.36% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
15 997
This Week
16 274 Lunar Capital increasesymbol
% Change YTD
8.41% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
5 089
This Week
5 137 Lunar Capital increasesymbol
% Change YTD
7.70% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
19.31
This Week
19.09 Lunar Capital stocktake arrow down
% Change YTD
4.32% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.89
This Week
20.68 Lunar Capital stocktake arrow down
% Change YTD
2.53% Lunar Capital increasesymbol
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
81.66
This Week
83.33 Lunar Capital increasesymbol
% Change YTD
8.26%Lunar Capital increasesymbol
Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Snowflake – Trying to be a Snowball Read More »

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