Roy's Safety-First Criterion - SFRatio

and finance Allah shmoop How does Mo mentum work in

investment returns All right people we have mojo you know

for a moment way have your groove you invested in

I'm not here dot com A software company that completely

anonymous eyes is your presence anywhere on the grid that

is anywhere and everywhere Big brother thinks you are be

a mobile phone or e mail or chatbots Thing is

it makes you anonymous You pay cash upfront to buy

this thing and poof you're gone The company had $50,000,000

in revenues and 20,000,000 and expenses last year as word

of mouth at all It's marketing for it So it

had 30,000,000 pre tax and 20,000,000 after tax in earnings

and traded at 20 times earnings for a $400,000,000 valuation

at its AIPO But then suddenly it got sued by

the U S And by Chinese governments to disclose the

whereabouts of Carmen Sandiego Yeah you knew she couldn't hide

forever But the company declined open its server and big

fuss ensued Lawyer bills were big but the press for

the company was free and fantastic and far reaching Many

cynics thought you paid off the government to sue you

just for all the free press it would garner So

the next quarter when the company was supposed to print

18 cents a share in earnings it actually printed 23

cents And you note that on its balance sheet it's

deferred revenues line balloon from 17,000,000 tough 43,000,000 meaning that

a ton of new sign ups came to the companies

seeking to you know anonymous eyes themselves So now what

do you do is an investor The stock has been

trading around 20 bucks a share with 20,000,000 shares outstanding

but now all of a sudden it's $32 a share

The first print after the quarter is announced and you're

thinking Damn I missed it But have you this mist

it Resignation is an extremely common mistake among new or

non professional investors or professional investors who are just not

very good They don't look at the underlying fundamentals and

the earnings momentum behind the stock So a pro a

good one would ask a few questions like Is this

market saturated like the price to anonymous eyes yourself for

100 bucks a year so with say $50,000,000 in trailing

revenues That would mean that 500,000 people have signed up

to anonymous themselves Don't you think the world market is

something closer to 100,000,000 people who'd anonymous eyes and then

maybe you know 100 bucks each Right That's a world

market of something like $10,000,000,000 And if I'm not here

dot com own say 30% of that world market Well

they'd be $3,000,000,000 in revenues and enormous profits So it's

not like they've already dominated an early tiny market Right

There are 7,000,000,000 people on this planet and you're assuming

100,000,000 or 100 over 7000 there Whatever that percentages Yeah

that would be the market Okay next question How good

is this business Well to run it It's almost entirely

about automating a software process that works with phone companies

and cable companies and anyone else who provides Internet access

to the masses along with a small army of lawyers

who send a cease and desist letters toe websites and

a few other masking app things that company updates every

now and then Well in return for that identity masking

of I P address and phone trails while the company

collects 100 bucks their marginal additional cost on that 100

very little Maybe a few dollars like the 501,000 customer

cost the company like three bucks to manage and they

collect a year's anonima izing cash up front right to

get paid first Then they anonymized you for a year

afterwards and most people who buy one year by a

second and third and fourth And so on the moment

they don't continue to spend well they lose their anonymity

and I'm not here dot com is actually evil enough

so that they put out a mini press release on

everyone who has Dia Na Nim ized with them so

that they are well highly incentivized to continue renewing for

100 bucks a year So then you return to the

earnings mo mentum story The company just printed 23 cents

a share and fully tax earnings It was a big

earnings beat with big things clearly going on with its

balance sheet The stock's at 32 bucks a share now

with 20,000,000 shares outstanding giving it evaluation of well just

over 600,000,000 and anonymous izing is fast becoming a thing

in America and around the world and I'm not here

is ideally poised to take advantage of this mega trend

Could the company have 1,000,000 subscribers paying 100 bucks a

year this coming year Worldwide absolutely couldn't have 9,000,000 shore

easily It's not like we're going to run out of

people So suppose that had 4,000,000 paying 100 bucks And

this is a total guess because well you have little

window into the world other than to note that tons

of partners are voluntarily linking to their website now presumably

getting commissions for the sale of that $100 anonymous izing

year And while you can kind of track that number

if you spend the time so you're thinking well some

affiliate gets $20 for getting $100 sale for the company

so they only keep 80 instead of 100 But their

marginal cost like five bucks or three about something like

that So yeah that makes sense logically So if the

company had 2,000,000 paying $100 a year the company would

be printing $200,000,000 in revenues likely with only marginally more

costs than the 20,000,000 in operating costs And then well

then you had in taxes right like there's affiliate fees

and so on that they'd have to pay So maybe

the company as ah no $50,000,000 in operating expenses or

objects to then be taxed on 150,000,000 of operating profit

to the tune of say 40,000,000 to then have 110,000,000

in earnings Is that a reasonable estimate Sure given the

huge amount of press and chaos going on all over

the world with governments terrified of anonymous citizens and citizens

loving the freedom of being anonymous Sure 2,000,000 feels easily

doable this year And if company does these numbers well

then on 20,000,000 shares outstanding with 110,000,000 in earnings they'd

be printing something closer to five bucks a share in

earnings fully tax unlevel earnings and in the process they'll

have generated over $100,000,000 in cash on their balance sheet

And with this kind of spectacular growth the company should

trade at a vastly higher multiple than 20 gones earnings

more like 30 40 50 maybe even 80 times But

even if you pick 50 times for your target multiple

on that five bucks a share in earnings and you

just ignore the fat cash stash being generated on the

balance sheet with no debt you get a price target

of something more like $250 a share in just one

year Right That's 50 times the five bucks gives you

to 50 a share Well with the stock trading at

32 bucks a share now why isn't this a screaming

mo mentum by Well lots of nervous Nellies will worry

about the government stepping in to regulate the company But

can the government regulate them Is it even possible to

d anonymous eyes in the cloud The company claims that

it expunge is all of its data And while it

may be possible Dian Ana my zing would certainly take

a lot of time And you Khun bet that the

engineers working for I'm not here are like 300 points

smarter than the engineers working for government regulators Right So

it'd take the G men in grey suits a very

very long time to do harm but yeah Big brother's

always watching So the trick is to you know pull

the wool over his eyes and lead your life anonymously

or at least a CZ anonymously as you can So 00:07:10.982 --> [endTime] good luck with that Yeah