BlastInvest.com!
Blast Investor
Real-time Plus
by
Henry Lu
Bonus issue - SOHU WLL earnings
10/28/2004
WLL earning report
Whiting Petroleum (WLL) reported blowout earnings on Oct 15,
2004. Its cash flow increased dramatically year over year. The
main reason for such excellent earning was due to 2 factors:
- high oil and natural gas price compared to last year
- The accretive acquisition WLL had over past months.
Net income or earning per share typically under-estimate profitability
of oil or gas stocks. Wall street analysts typically look at cash
flow to measure profitability of oil/gas stocks. WLL cash flow is up
60% year over year.
PV-10 NAV value was $63 per share including the effect of share
offering as of Oct 1 oil/gas price (oil at $45.87 N gas at
$5.64). Oil recently trades above $50 and natural gas trades
above $8.
One question I got from a subscriber is: "what does this
PV-10 NAV mean? "
Answer:
It means if oil stays at $45.87 price constantly, and N gas stays at
$5.64 constantly and WLL cost stays same from now on, WLL can
make $6.3
true business profit
per share. Therefore, WLL is worth $63 NAV value by applying a multiple
of 10. PV-10 value disclosure is required by SEC in annual
report for oil and natural gas stocks.
With WLL stock price at $30, WLL is still trading at multiple of 5
against its true profit per share at Oct , 2004 oil and gas price.
SOHU earning
SOHU reported earning today. 2004 Q3 revenue was $25.9 million,
up 17% year over year, but down 5% quarter over quarter. Overall SOHU
wireless business is short of expectation while its ads business is in
line with expectation.
Ads - strong growth
Internet ads revenue now is 60% of total revenue. SOHU ads revenue is
$15.5 million, up 77% over last year same period. The Q3 SOHU ads
revenue is same number as SINA Q2 ads revenue. SOHU will rase
pricing by 15% to 20% for ads in early 2005. SOHU make money not
only by more volumn, but also by higher price per unit.
Wireless
Wireless continues to disapoint. One big reason for poor
performance of wireless was known: 1 year ban on MMS. There was
one more additional reason for poor wireless revenue: China mobile
system migration to MISC billing system.
Because wireless business is only small port of SOHU total business
going forward, SOHU risk on wireless is no longer that big. Further
more, SOHU management expect wireless business to bottom on Q4.
Core SOHU competitive advantage
The core SOHU competitive advantage is its brand name and #1 internet
traffic property in China. SOHU has surpassed SINA in terms of internet
traffic reach while SOHU stock price does not reflect that. SOHU is
trading at 40% of SINA valuation while SOHU ads revenue is 84% of SINA
ads revenue. Wireless business is low-margin, low
barrier-to-entry volatile business so that valuation
difference between SOHU and SINA can not be justified by SINA's
stronger wireless division.
Revisit SOHU investment rational
Let's revisit my initial SOHU investment rational:
- fast growing China market
- high barrier-to-entry internet portal ads business model as its
majority of business
- frequent price hike
- decent management team, highly scalable profitability growth
- high return on equity
- low valuation. Price to free-cashflow metrics: SOHU = 15,
SINA = 29 , YHOO = 90. SOHU is trading at half of valuation of
SINA in this metrics.
Even with all the problems of wireless business, SOHU stock still meets
the criteria of above characteristics of Buffett consumer monopoly
growth stocks.
Peter Lynch has criteria for growth stocks: PE trades at half of its
growth. If we break down SOHU business into 2 parts: Ads and wireless,
we can certainly see that SOHU meet the Lynch growth stock criteria
here. If we look at price to free-cashflow instead of PE, SOHU
valuation looks even better.
Conclusion
Continue to hold WLL SOHU for the long term. Since my investment style
is long term investment, I would ignore short term up or down noises in
the market.
Blast
Investor Model
Portfolio Update
(as of 10/28/2004)
Model
Portfolio - Performance
|
|
Portfolio inception date
|
12/31/2003
|
Portfolio inception value
|
$89,000
|
YTD Performance
|
28.73% |
S&P500 Index YTD Performance
|
1.20% |
Model
Portfolio - Open Positions
| Symbol |
Last |
Shrs |
Value |
Paid |
Gain |
| ADGO.OB |
1.09 |
9,000 |
$9,810.00 |
0.78 |
$2,780.00 |
+39.54% |
| CHK |
15.79 |
1,100 |
$17,369.00 |
13.90 |
$2,069.00 |
+13.52% |
| EXXa |
1.56 |
6,500 |
$10,140.00 |
1.638462 |
-$530.00 |
-4.97% |
| HRB |
46.27 |
350 |
$16,194.50 |
54.00 |
-$2,715.50 |
-14.36% |
| LIBHA.PK |
4.50 |
1,200 |
$5,400.00 |
5.10 |
-$730.00 |
-11.91% |
| NRG |
27.72 |
670 |
$18,572.40 |
23.05 |
$3,118.90 |
+20.18% |
| NTES |
46.06 |
250 |
$11,515.00 |
36.60 |
$2,355.00 |
+25.71% |
| SOHU |
19.38 |
700 |
$13,566.00 |
24.882857 |
-$3,872.00 |
-22.20% |
| USG |
22.30 |
950 |
$21,185.00 |
18.425789 |
$3,660.50 |
+20.89% |
| WLL |
29.53 |
600 |
$17,718.00 |
22.683333 |
$4,088.00 |
+29.99% |
| $$CASH |
-26,896.5 |
-$26,896.50 |
- |
- |
- |
|
|
$114,573.41 |
|
|
|
|
Model
Portfolio
Transactions
| Date |
Type |
Symbol |
Shares |
Price |
Comm |
Amount |
Notes |
| Oct
19, 2004 |
Buy |
EXXa |
1,500 |
1.60 |
10.00 |
2,410.00 |
-
|
| Oct
6, 2004 |
Buy |
EXXa |
5,000 |
1.65 |
10.00 |
8,260.00 |
-
|
| Oct
6, 2004 |
Sell |
NEN |
100 |
80.00 |
10.00 |
7,990.00 |
+ 48.15% |
| Oct
5, 2004 |
Buy |
USG |
250 |
18.75 |
10.00 |
4,697.50 |
-
|
| Oct
5, 2004 |
Sell |
NTES |
100 |
39.12 |
10.00 |
3,902.00 |
+ 6.9% |
| Sep
30, 2004 |
Buy |
USG |
700 |
18.31 |
10.00 |
12,827.00 |
-
|
| Sep
29, 2004 |
Sell |
NEN |
100 |
79.65 |
10.00 |
7,955.00 |
+ 47.5% |
| Aug
5, 2004 |
Buy |
WLL |
250 |
23.50 |
10.00 |
5,885.00 |
-
|
| Aug
2, 2004 |
Sell |
NEN |
100 |
69.95 |
10.00 |
6,985.00 |
+ 29.5% |
| Jun
17, 2004 |
Sell |
HCA |
250 |
40.30 |
10.00 |
10,065.00 |
- 4% |
| Jun
17, 2004 |
Buy |
NRG |
670 |
23.05 |
10.00 |
15,453.50 |
-
|
| May
24, 2004 |
Sell |
ADGO.OB |
13,000 |
1.55 |
10.00 |
20,140.00 |
+ 98.7% |
| May
10, 2004 |
Sell |
HCA |
250 |
39.97 |
10.00 |
9,982.50 |
- 4.8% |
| May
10, 2004 |
Buy |
SOHU |
200 |
15.59 |
10.00 |
3,128.00 |
-
|
| Mar
5, 2004 |
Buy |
WLL |
350 |
22.10 |
10.00 |
7,745.00 |
-
|
| Jan
26, 2004 |
Sell |
WRP |
700 |
17.40 |
10.00 |
12,170.00 |
- 5% |
| Dec
31, 2003 |
Buy |
CHK |
1,100 |
13.90 |
10.00 |
15,300.00 |
-
|
| Dec
31, 2003 |
Buy |
NEN |
300 |
54.00 |
10.00 |
16,210.00 |
-
|
| Dec
31, 2003 |
Buy |
HRB |
350 |
54.00 |
10.00 |
18,910.00 |
-
|
| Dec
31, 2003 |
Buy |
NTES |
350 |
36.60 |
10.00 |
12,820.00 |
-
|
| Date |
Type |
Symbol |
Shares |
Price |
Comm |
Amount |
Notes |
| Dec
31, 2003 |
Buy |
SOHU |
500 |
28.60 |
10.00 |
14,310.00 |
-
|
| Dec
31, 2003 |
Buy |
LIBHA.PK |
1,200 |
5.10 |
10.00 |
6,130.00 |
-
|
| Dec
31, 2003 |
Buy |
ADGO.OB |
22,000 |
0.78 |
10.00 |
17,170.00 |
-
|
| Dec
31, 2003 |
Buy |
HCA |
500 |
42.00 |
10.00 |
21,010.00 |
-
|
| Dec
31, 2003 |
Buy |
WRP |
700 |
18.30 |
10.00 |
12,820.00 |
-
|
| Dec
31, 2003 |
Cash
In |
- |
-
|
-
|
-
|
89,000.00 |
Inception |