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Investors leverage our research to quickly see what really drives a company's value, test what-if scenarios, and make better investment decisions. At the core of each piece of content is a rigorous and deep analytical model, but what makes our research different is the Trefis Interactive Experience. The Trefis Interactive Experience transforms those analytical models into a format that lets you drill down into the data and create your own "what-if" scenarios. We cover hundreds of large-cap stocks and our content is trusted by millions of investors and executives globally on numerous leading online brokerage platforms, as-well-as on platforms such as Thomson Reuters and Forbes.


COMPANY OF THE DAY : ERICSSON

Ericsson is set to announce its Q3 results on Thursday, with cost cuts likely to boost earnings.

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FORECAST OF THE DAY : DISH NETWORK'S PAY TV ARPU

Dish saw growth in its Pay TV ARPU in recent years, but will likely see some near-term pressure driven by an increase in lower-ARPU Sling TV subscribers.

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RECENT ACTIVITY ON TREFIS

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How Will Estee Lauder's Revenue Grow In The Next Two Years?
  • By , 10/16/18
  • tags: EL
  • Estee Lauder  (NYSE: EL)  has displayed progressive growth in revenue in the last few quarters. In the latest quarter, the company’s revenue grew by 16% y-o-y, driven by meaningful organic growth in its Skin care and Makeup segments. Estee Lauder’s Skin Care segment constituted one-third of its sales, recording a 24% growth driven by strong innovations, increasing demand from younger consumers, and gains from its hero products – Estée Lauder, La Mer, Origins, and Clinique brands. Further, EL’s makeup segment continued to see strong sales, with an 11% increase in the revenue driven by strong growth from its brands viz. Estée Lauder and Tom Ford, Too Faced, BECCA, and La Mer. Moreover, the Fragrance segment revenues increased 12% y-o-y, primarily due to double-digit gains across all geographies, and the Hair care segment revenue rose by 6% owing to the successful launch of new Aveda products. In all, EL delivered a solid FY 2018 as the company remained focused towards its new strategies, made successful value enhancing acquisitions, and executed well on its productivity initiatives. Going forward, we expect the company’s revenue from all the segments to grow, as it continues to work on its long-term strategic plan for sustainable growth. Accordingly, we forecast the company’s revenue to grow at a compound annual growth rate (CAGR) of 5.8%. We have built an  explanatory dashboard –  Estee Lauder’s Revenue Growth In The Next Two Years  –  to outline the major drivers of revenue over the next two years. You can make changes to our assumed figures to arrive at your own revenue and growth estimates for the company. EL’s   Revenue Growth Estee Lauder Inc. generates revenue from five key segments – Skin care, Makeup, Fragrance, Hair Care, and Other Segment.  
    What To Expect From United Continental's 3Q'18 Earnings Despite Crude Headwinds?
  • By , 10/16/18
  • tags: UAL DAL AAL ALK JBLU LUV
  • United Continental  (NASDAQ:UAL) is expected to report its earnings on 16 th October after the market close. UAL operates approximately 4,600 flights to 357 different airports. The airline operated 1.6 million flights carrying 148 million passengers in 2017. The market expects the UAL’s 3Q’18 revenue to be $10.78 billion. Accordingly, the earnings for the quarter are expected to come in at $3.06 per share, representing an increase of 37% on a year-on-year basis. We currently have a price estimate of $96 per share  for the company, that is 12% higher than the market price. View our interactive dashboard for United’s Outlook For 2018  and modify the key drivers to visualize the impact on UAL’s price. UAL’s strategy to maximize margins and to increase efficiency over the past quarter has led its stock to be the top performer for the current year. Consequently, the company has provided a bullish third quarter estimate with expectations of passenger unit revenue increasing in all its sectors in a range of 4-6%. Additionally, the rising crude oil prices are likely to weigh on UAL’s margins during the third quarter. That said, the company’s pre-tax margins are expected to come in at 8-10%, despite the increasing fuel cost environment. To offset the higher fuel charges, the legacy carrier has increased its baggage fees from $25 to $30 for the first bag and from $35 to $40 for the second bag. This comes on the back of Congress choosing not to enforce fee structures through the federal aviation commission. Since airline baggage fees are not as price sensitive as airline ticket prices, it should provide momentum to the company’s bottom-line in a rising fuel cost environment and could be a sustainable strategy for the company in the short term. In the latest month of September, the traffic increased by 6.7% and capacity expanded by 6% on a y-o-y basis. Furthermore, the company transported 8.5% more passengers during the month. Mainline completion factor also increased to 99% from 97% from the previous quarter. UAL has been trying to regain market share and has done so by increasing capacity in recent times. It was previously believed that this would lead to an all-out fare war. Currently, the consensus is that (despite attempts by UAL to gain market share), there are few signs of a price war breaking out. In conclusion, UAL’s results are expected to continue their positive trend despite the crude oil headwinds, mainly owing to operational efficiencies, and better targeted strategies that aim to increase business in areas which are not as price sensitive as airline tickets.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    AMZN Logo
    How Much Will Amazon's Other Services Contribute To Top Line Growth By 2020?
  • By , 10/16/18
  • tags: AMZN BABA AAPL MSFT IBM EBAY NFLX FB
  • Amazon  (NASDAQ:AMZN) has reported a steady revenue growth in recent years across revenue streams. Amazon’s core commerce operations include products sold on its websites and platforms, which make up over 60% of the company’s net revenues. In addition, one of its ancillary revenue streams include Amazon’s third-party seller services, which have also correspondingly increased in recent years. Core online sales have increased from $77 billion in 2015 to $108 billion in 2017. In the same period, third-party seller and other services combined have increased from $18 billion to over $36 billion, outpacing the growth in core business proportionally (though the absolute growth of the core sales was larger due to the sheer size). Going forward, we expect these revenues to continue to outpace growth in online sales over the next few years due to easier year-over-year comparisons and increasing demand for offered services by the company. We expect the company to end the current year at over $50 billion in revenues from these services. We further expect this figure to increase to nearly $70 billion by the end of the decade. We forecast the company’s net revenues to increase from $178 billion in 2017 to $235 billion this year. This figure is likely to increase to over $340 billion by the end of the decade. Accordingly, we forecast third-party seller and other services revenues to contribute around 20% of Amazon’s overall revenue growth in the same period. We have summarized  our expectations for segment growth through 2019 and 2020 in an interactive dashboard on Amazon’s Third-Party Seller & Other Services revenue . Below we take a look at key revenue drivers for this segment. Factors Driving Segment Growth Amazon categorizes its total revenues into six key segments that include online store sales, physical stores, Amazon Web Services, subscription services, third-party seller services and other services. Third-party seller services revenues mainly include commissions on transactions and fulfillment fees, shipping fees and fees charged on other third-party seller services offered. The company provides Fulfillment by Amazon services in combination with some sellers’ programs. In this setup, third-party sellers maintain ownership of their inventory, irrespective of fulfillment being provided by Amazon or the third-party sellers themselves. As a result, these products are not included in our inventories. In this segment we also include Advertising and other services revenues, which are generated from sales of advertising services and sales related to other service offerings such as co-branded credit card agreements. In recent years, both revenue streams have grown steadily, with the contribution of these revenues combined to Amazon’s net revenues increasing from 17% in 2015 to 21% in 2017. Third-party seller services revenues doubled from $16 billion in 2015 to $32 in 2017. Similarly, advertising and other services revenues surged from $1.7 billion in 2015 to $4.6 billion in 2017 – an annual growth rate of 65%. In the current year thus far, third-party seller services revenue has increased 40% y-o-y to $19 billion through the first half of the year. Additionally, other services revenues are up by over 100% y-o-y to $4.2 billion. We expect the company’s combined third-party and advertising services revenues to be around $52 billion for 2018. Over the next couple of years, these revenue streams should continue to grow steadily. With customers warming up to advertising services, cooperative marketing efforts and promotion services offered by the company, we expect these revenues to continue to grow to over $10 billion by 2020. In addition we third-party seller services revenues to increase at around 15% annually through the end of the decade to $60 billion. As a result, combined other services revenues are expected to increase to $70 billion by 2020. If you disagree with our forecasts, you can modify these figures on our  interactive revenue contributor dashboard for Amazon and come up with your own estimates. Y ou can further use these figures in our near-term valuation dashboard for Amazon to calculate your fair price estimate for the company’s stock based on new estimates. The Trefis price estimate for  Amazon’s stock stands at $1,650, which implies a valuation of $830 billion. Our estimate is slightly lower than the current market price, which has fallen by over 12-13% this month. Amazon’s stock price surged from $1,200 in January to an all-time high of $2,000 through September. See our complete analysis for Amazon View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    MO Logo
    Why Big Tobacco Entering The Cannabis Space Makes Sense
  • By , 10/16/18
  • tags: MO PM
  • The cannabis market is booming, with tremendous growth expected in the coming years. According to Canopy Growth Corporation (TSX: WEED, NYSE: CGC), the potential global opportunity is expected to exceed $200 billion by 2032 . On the other hand, tobacco companies have been faced with a shrinking cigarette market.  Altria  (NYSE:MO), in particular, has been most susceptible to this decline, given the fact that it operates in just the U.S. It is not an unknown fact that the smoking rate has been falling, with the U.S. witnessing one of the steepest declines in the world. In the face of this, a majority of the company’s revenue growth in the past has been a result of increasing the prices of tobacco products. However, given a higher volume decline than in the recent past, the smokeable segment, which forms a large chunk of the company’s sales, has been witnessing a fall in revenue. In the face of this, the fact that big tobacco companies may be looking into the cannabis space should not come as much of a surprise. According to The Globe And Mail, a deal between Altria and pot company Aphria (TSE: APH) may be in the cards, which we think may be a win-win for both. We have a  $71 price estimate for Altria, which is significantly higher than the current market price. The chart has been made using our new, interactive platform. You can click here for our interactive dashboard on Our Outlook For Altria In FY 2018  to modify the assumptions and gauge the impact on the company’s revenue, earnings, and price per share metrics. Reasons Why A Deal Would Make Sense 1. Declining Tobacco Market: As mentioned earlier, Altria has been witnessing a falling cigarette market, with reported domestic cigarette shipment volume   declining  7.6% in the first half of 2018. Consequently, the company has been focusing on its smokeless and innovative products segments to spur the growth. However, currently, these divisions form a very small chunk of their revenues, and although strong growth can be expected from these markets, it is nowhere near the enormous potential of the cannabis market. 2. Sufficient Cash Balance: Altria has a strong cash balance to pursue an investment in this space. As of June 2018, the company had cash and cash equivalents totaling $1.43 billion. Moreover, the company also generated free cash flows of $3.78 billion in the same time period, which could be used for an investment into a cannabis company, besides paying its dividend obligations. 3. Aid In Aphria’s Expansion: An investment by Altria will help the pot company to bolster its position in the cannabis space as it gives them the funds needed to strategically build or acquire key assets in the almost 30 countries pursuing a medical cannabis program. The money is also likely to be invested in the cannabis edibles space. The appeal of the edibles market is expected to increase at a fast pace once legalized in Canada (expected to happen next year), given its growth in the U.S. For example, in Colorado, the share of edibles and concentrates went up from 11% and 13% at the beginning of 2014 to 15% and 29% by the end of 2017 . Furthermore, in California and Oregon, their combined share exceeds 35%. 4. Experience Of Dealing With Regulators: Altria has been operating in the highly controlled tobacco market for a while now, and hence, has sufficient knowledge of dealing with regulators. Moreover, its massive presence in the consumer goods industry will also help Aphria in better understanding customer trends and ensure better brand positioning. Altria will also be able to help the pot company with supply chain and distribution network planning. Many skeptics have been citing the high valuations pot companies already sport as a reason why big tobacco may refrain from investing in this sector. However, given the fact that cannabis use is rising rapidly, while cigarette smoking is plunging, particularly in developed markets, tobacco companies don’t have much of choice than to ensure future growth is secured. Moreover, given the astronomical growth expected from this market, it may be better to be a first-mover, rather than playing catch-up in the years to come. See Our Complete Analysis For Altria   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    PM Logo
    What's In Store For Philip Morris This Earnings Season?
  • By , 10/16/18
  • tags: PM MO
  • Philip Morris International  (NYSE:PM) is set to release its third quarter earnings on October 18, wherein the revenue is expected to decline by 4.2%, as compared to the corresponding quarter of the previous year. A decline in the sale of traditional cigarettes is the main factor resulting in the fall in revenues, with increased sales of its reduced risk products (RRPs), iQOS in particular, as well as price increases, partially offsetting it. Meanwhile, any positive impact on earnings from a reduction in the tax rate is expected to be canceled out by foreign currency headwinds, resulting in a flat EPS growth. The tobacco giant cut its earnings guidance last month to $4.97 to $5.02, significantly lower than our expectation. While foreign currency translations are expected to be a $0.12 per share headwind, as opposed to a 6 cent benefit anticipated earlier in the year, a combination of a lower than projected tax rate and better performance of the cigarette business should have offset some of the negative currency impact. Consequently, we can say that one of the drivers behind the guidance cut is the lower than predicted shipments of iQOS devices and heated tobacco units, predominantly in Japan. This does not bode well for a company aiming for a smoke-free future, and relying on iQOS for much of its long-term growth. While the company is undertaking certain initiatives to turn around the performance in Japan, any meaningful benefit won’t be expected to be felt until next year. We have a $105 price estimate for Philip Morris, which is substantially higher than the current market price. The charts have been made using our new, interactive platform. You can click here for our dashboard on Our Outlook For Philip Morris In Q3 & FY 2018  to modify different drivers, and see their impact on the revenue, earnings, and price estimate for Philip Morris. What’s Going On With iQOS? Two of iQOS’ strongest markets – Japan and Korea – reported floundering sales in the second quarter. The company had earlier blamed the slower than expected growth in Japan on the fact that the company may have largely met the demand of the so-called “innovators” or “early adopters.” Meanwhile, the more conservative consumers, especially those who are aged 50 years or more, are a more difficult segment to capture. These consumers represent a mammoth 40% of the total adult smoking population, and hence, the commercial plans, in terms of timing, intensity, and content of communication, needs to be looked into and altered, keeping this segment in mind. Another factor hampering the device’s sales is the improved device reliability and longer life cycle, which has led to fewer iQOS replacement purchases. In Korea, HeatSticks’ (also called HEETS) market share reached 8% in the second quarter, an increase of 7.8 points when compared to the prior year period, but just 0.7 points sequentially. The company has stated the liability for this rests primarily on the actions of the Korean government and FDA, which has resulted in confusion among the adult consumers with regard to the heated tobacco category. The Korean government has commenced discussions on graphic health warnings for heated tobacco products, while the Korean FDA has mischaracterized the tar generated by the device, a claim the company has refuted based on scientific evidence. As a result of the above, the company expects the heated tobacco shipment volume to be between 41 and 42 billion units in 2018. This includes a full-year net inventory reduction of 3 billion units – 4 billion reduction in Japan and 1 billion increase in other markets – which is expected to be concentrated in the third quarter, compared to an expected 2 billion net inventory increase. According to our estimates, we expect the volume of heated tobacco units to cross 42.7 billion. We have also created a dashboard showing our estimates for the contribution of iQOS towards the total revenue of Philip Morris in FY 2018. You can access it by clicking here for the dashboard on  Revenue Breakdown Of Philip Morris In FY 2018. If you don’t agree with our forecast, you can modify the metrics to arrive at your own estimates. What Is Philip Morris Doing To Improve The Sales? Philip Morris is taking a number of steps to accelerate HeatSticks’ performance in the face of the weak growth and increased competitive pressure, though their impact is expected to be felt starting next year. These include: Introduction of the next-gen iQOS devices, with enhanced features, such as consecutive use. Launch of a stronger tasting HeatSticks’ variant to capture a greater share of the adult smoking population. Commencement of sales of a mainstream-price product for price-sensitive consumers. Simplification of the registration process for new consumers, which posed a barrier to entry, particularly for older smokers. Escalation of its loyalty program, and the establishment of a more targeted and relevant communication content. Addressing the reliability issues in the current generation of iQOS. Was There Anything Positive In The Results? Amid the doom and gloom of iQOS’ performance in Japan in the first half of the year, a few positives may get overlooked. The momentum of iQOS in Russia remains favorable, with the HeatSticks off-take share in Moscow reaching 4.4% in the second quarter, up by 1.7 points sequentially versus the first quarter. This was the result of a successful rollout of the company’s digital initiatives in the country. The regional market share in the EU reached 1% in Q2, up by 0.8 points compared to the second quarter of 2017. This growth was underpinned by strong performance across the launch markets, particularly Greece and Italy, where HEETS shares have increased by 3.1 points to 4.1%, and by 1.3 points to 1.9%, respectively. As the marketing is limited to select areas in the EU launch markets, the market share is not really reflective of iQOS’ performance in the region. Instead, if we look at the number of iQOS users in the region, which has increased by more than fourfold over the past 12 months, to approximately 1.2 million, it can better indicate the device’s success. Moreover, in its traditional cigarettes business, while in Saudi Arabia, cigarette industry volume and PM sales volume remained under pressure in the second quarter, declining by about 24% and 40% respectively, the declines in both improved on a sequential basis. This sequential improvement is expected to continue through the remainder of the year. Furthermore, the cigarette portfolio performance remained strong in a number of key markets, such as Germany, Indonesia, the Philippines, and Turkey. Consequently, for the full-year, the cigarette volume decline may not be as high as expected earlier. See Our Complete Analysis For Philip Morris International   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    RHHBY Logo
    Expect Ocrevus To Drive Roche Holding's Q3 Earnings Growth
  • By , 10/16/18
  • tags: RHHBY
  • Roche Holding  (NASDAQ:RHHBY) is scheduled to announce its Q3 earnings on October 17. We expect mid-single digit growth in the company’s top line, primarily led by Ocrevus, which has seen strong growth in the recent past. However, Oncology drugs’ revenue growth could remain tepid, as growth in the sales of new drugs will mostly be offset by older drugs, including Rituxan, which will likely continue to see a double digit dip in Europe. We have created an interactive dashboard ~  What Is The Q3 Outlook For Roche Holding ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s adjusted earnings, and price estimate. Expect Neuroscience Drugs Revenue To See Strong Growth We forecast Roche’s Neuroscience, Metabolism & Other Drugs segment revenues to see strong growth in mid-twenties (percent) to north of $6.5 billion for the full year. This can primarily be attributed to its new drug Ocrevus, which garnered over $1 billion in sales in the first half of the year, marking Roche’s best drug launch ever. Ocrevus is used for the treatment of relapsing and primary progressive forms of multiple sclerosis. The company recently stated that data shows earlier Ocrevus treatment slows multiple sclerosis. The market size for multiple sclerosis is estimated to be over $17 billion, and it is expected to grow at a CAGR of 6% in the coming year. Roche’s Ocrevus will likely be a key player in this segment, and could garner as much as $5 billion in peak sales. Looking at the gross margins, they have remained stable at around 80% over the past few years, and we don’t expect any significant change in the near term. Expect Oncology Drugs And In-Vitro Diagnostics To See Modest Revenue Gains We forecast only a modest growth in the company’s largest segment – Oncology Drugs. The company has been facing a decline in its blockbuster drugs, such as Rituxan, which lost its patent exclusivity in Europe last year, and it will also lose the U.S. exclusivity this year. Note that Rituxan is an important drug for Roche, and it generated revenues of over $5.5 billion in 2017. However, the company has been focused on the launch of new drugs the past few quarters, in order to compensate the expected revenue loss from Rituxan, as well some other blockbuster drugs, which are expected to lose their patent exclusivity next year. Some of these new drugs includes, Tecentriq and Gazaya, which are expected to do well in the coming quarters. Also, Perjeta sales have seen steady growth in the recent past, and this trend will likely continue in the near term, and aid the overall segment revenue growth. Our forecast of only a modest growth in segment revenues can be attributed to the new drugs sales, which will mostly be offset by declines in some of the blockbuster drugs. Looking at the company’s In-Vitro Diagnostics business, we expect growth to be in low single digits to around $12.4 billion in 2018. We expect the growth to be driven by its lab business, which saw mid-single digit growth in the previous quarter as well.  However, we don’t expect any significant revenue jump in this business for Roche, as there is stiff competition from the likes of Johnson & Johnson, and other players.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    ABT Logo
    What To Watch For In Abbott Labs' Q3 Earnings
  • By , 10/16/18
  • tags: ABT BSX ISRG MDT
  • Abbott Labs  (NYSE:ABT) is set to report its Q3 2018 earnings on October 17, and we expect the company to post steady growth, led by its Diagnostics and Medical Devices segments. While the Diagnostics business will likely benefit from market share gains in core laboratory, the Medical Devices business should see continued growth in electrophysiology as well as structural heart, driven by higher MitraClip sales. We forecast a low-to-mid-single digit growth for the company’s Nutritional business, led by growth in the emerging markets. We have created an interactive dashboard ~ What Is The Q3 Outlook For Abbott ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s adjusted earnings, and price estimate. Expect Diagnostics Revenues To See Continued Growth We expect Abbott’s  Diagnostics revenues to see a strong 30% jump to north of $7 billion in 2018. This can primarily be attributed to the impact of the Alere acquisition, which has widened the  company’s suite of diagnostic products. Abbott in the previous quarter saw market share gains in its core laboratory, which grew in low double digits in H1 2018. These trends will likely continue in the near term, and drive the segment revenues higher. Expect Nutritional Business To See Slow Growth While Medical Devices Segment Revenues Should Trend Higher We forecast low single digit growth in the company’s Nutritional business, as high growth for Ensure and Glucerna brands in the emerging markets will likely be offset by a slow growth in the developed markets. However, our forecast is more conservative and lower than the company’s guidance of mid-single digit growth in Q3 and for the full year. Looking at the Medical Devices segment, we expect the revenues to grow in mid-single-digits, partly reflecting the benefits from the St Jude acquisition synergies. The company is seeing strong growth in electrophysiology, as well as structural heart, and this trend will likely continue in the near term. Electrophysiology growth can partly be attributed to its Confirm RxTM Insertable Cardiac Monitor (ICM), while higher MitraClip sales should continue to aid the Structural Heart revenues. The company is focused on increasing the international sales of MitraClip, which also received the U.S. FDA approval for its 3rd generation in Q3 this year. Also, the company recently announced positive clinical study results, which stated that the patients with MitraClip had fewer heart failure hospitalizations, and a reduction in risk of death. This is a positive development and it should further aid the MitraClip sales in the coming quarters. We currently have a $66 price estimate for Abbott Labs, and forecast the earnings to be $2.90 for the full year. We will revise our estimates post the Q3 earnings announcement.    What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
    GM Logo
    What Is Lyft's Long-Term Revenue Growth Potential?
  • By , 10/16/18
  • tags: GM F TM TTM
  • Ride sharing company Lyft has witnessed exponential growth in its revenues in the past few years. Between 2016 and 2017, the company’s net revenues grew by nearly 45%, and reports suggest that for the first half of 2018 the company has doubled its revenue to $909 million . Total revenues in 2017 were around $1 billion. Our interactive dashboard on Estimating Lyft’s Long Term Revenue Potential   looks at the ride hailing market growth and estimates how much revenue Lyft can generate by 2030. You can use the outputs of this dashboard to arrive at your assumptions for our dashboard on Estimating Lyft’s Valuation . According to a 2017 report by Goldman Sachs, the ride hailing industry is likely to reach a market size of $285 billion by 2030. Goldman’s analysis estimates 15 million rides per day globally, which is likely to increase to 97 million by 2030. We take 15 million as a proxy for our estimated 2018 number of rides globally, and assume that the average gross revenue per ride will be around $9 in 2018 – based on Uber’s average given that Uber dominates the ride hailing market and has a global presence. Based on these assumptions, we estimate the ride sharing market size to be around $50 billion in 2018 – which is likely to increase nearly sixfold and reach around $285 billion by 2030. Both Uber and Lyft are working on several initiatives encouraging users to ditch their personal vehicles in favor of hailing or sharing a ride. A focus on technology to provide efficient end-to-end mobility solutions are likely to boost the expansion of this market, as they could improve pricing and quality of service. Penetration of ride sharing users is growing steadily, leading to an increase in the market size. Lyft currently operates around 10 million rides per week, which gives it a global market share of around 10% based on total number of rides (105 million per week, based on Goldman’s estimate of 15 million rides per day). However, since Lyft operates only in the U.S. and Canada, its revenue per ride is likely to be higher than the average – as revenue per ride is likely lower in emerging economies. Based on this, we assume that Lyft’s global market share could be around 15% of gross revenues. Lyft’s share of revenue in each ride operated via its platform is around 20%. We expect this number to remain steady over the next decade, and based on these assumptions, Lyft’s net revenues could be around $8.5 billion by 2030. You can modify these assumptions in our interactive dashboard here to arrive at your estimate of Lyft’s long term revenue potential. You can use this information to modify your assumptions for Lyft’s Price/Sales multiple to arrive at its valuation using our interactive dashboard  Estimating Lyft’s Valuation . We expect Lyft to generate revenues of $1.5 billion in 2018, and this number is likely to increase by nearly 8 times in the next 12 years. Based on Lyft’s latest valuation of $15.1 billion, the company commands a Price/Sales multiple of around 10.5X. Lyft is not profitable yet, but the company is reducing its losses and with an increase in volumes and lower sales and marketing expenses, it could breakeven in the next 2-3 years. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs: For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    How Much Are Amazon's Individual Divisions Worth?
  • By , 10/16/18
  • tags: AMZN AAPL BABA GOOG BIDU FB EBAY MSFT
  • Amazon’s (NASDAQ: AMZN) business has two main segments – the e-commerce business and cloud computing platform Amazon Web Services (AWS). The difference in the nature of these two businesses warrants analyzing them independently. Thus, we apply revenue multiples to each of Amazon’s business divisions to arrive at a sum of the parts (SOTP) valuation for the stock. On a SOTP basis, we estimate the stock’s value to be $1,500 which is 20% lower than the current market price, suggesting that one or both divisions may be overvalued on a standalone basis. In this note, we take a look at the valuation of each. Our interactive dashboard on  Amazon’s SOTP Price Estimate  breaks down the divisional valuations. You can modify the key drivers to visualize the impact on the division’s valuations. Amazon’s e-commerce business has two components – North America e-commerce and International e-commerce. The company’s e-commerce business offers goods and services through physical and online stores, third party sellers and subscription (Amazon Prime). While the North America e-commerce business has been profitable, Amazon’s marketing spending to fend off competition has led to operating losses in its International business. The company’s total e-commerce revenue is forecast to grow to around $213 billion (+33% y-o-y) in fiscal 2018. Furthermore, growth from Prime members ( estimated at about 100 million ) and Amazon’s acquisition of Whole Foods is likely to sustain growth going forward also. The AWS business offers cloud based solutions for cloud computing, storage and other services. AWS continues to ride the cloud adoption wave, with revenues forecast to grow to $25 billion (+44% y-o-y) in fiscal 2018. Given the sustainable nature of the revenue growth in both of these business segments – at least in the near term – they can be independently valued on a revenue multiple basis. To estimate the divisional enterprise value, we apply an EV/S multiple to revenues of both divisions. The use of EV/S entails the assumption of a sustainably growing business, which is quite the case for both of Amazon’s business segments. Taking a cue from Walmart’s acquisition of Flipkart and adjusting for relatively lower growth rates globally, we apply an EV/S multiple of 2.5x to Amazon’s e-commerce business to arrive at an EV of $533 billion. For the AWS business, we derive the EV/S as the average of BVP Nasdaq Emerging Cloud Index of 8.5x to arrive at an EV of $214 billion. This gives us a total EV of $747 billion. Adjusting for the $2 billion of cash, we arrive at an equity value of $749 billion or $1,500 per share. It should be noted that Trefis has a price estimate of $1,655 for Amazon’s stock on the whole. This is because the two divisions likely benefit from one another, leading to an overall valuation that is higher than our SOTP estimate. Do not agree with our forecast? Create your own price forecast for Amazon by changing the base inputs (blue dots) on our interactive dashboard .  
    AMZN Logo
    How Much Will AWS Contribute To Amazon's Near-Term Revenue Growth?
  • By , 10/16/18
  • tags: AMZN
  • Tech behemoth Amazon  (NASDAQ:AMZN) is most widely known for its online e-commerce business. However, Amazon’s cloud services business Amazon Web Services is a massively important segment for the company. Amazon derives over 40% of its total value from Amazon Web Services, per Trefis estimates, despite generating only around 10% of net revenues in 2017. This is largely due to the fact that AWS is a high-margin business (25% reported operating profit margin) while non-AWS business streams operate at thin margins. Amazon’s North America operating profit margins stand at around 2-3%, while Amazon International has operated at a loss over the last few years. Amazon has reported strong growth in AWS revenues in recent years, with revenues surging from just under $2 billion to over $17 billion from 2012 through 2017. Going forward, we expect AWS revenues to continue to grow rapidly in the coming years. We expect the company to end the current year at around $25 billion in revenues from AWS. We further expect this figure to increase to over $44 billion by the end of the decade. We forecast the company’s net revenues to increase from $178 billion in 2017 to $235 billion this year. We further expect this figure to increase to over $340 billion by the end of the decade. Accordingly, AWS is expected to contribute around 16% of Amazon’s overall revenue growth in the same period. We have summarized  our expectations for segment growth through 2019 and 2020 on an interactive dashboard on Amazon Web Services Revenue . Below we take a look at the key revenue drivers for this segment. Factors Driving Segment Growth Amazon categorizes its total revenues into six key segments that include online store sales, physical stores, Amazon Web Services, subscription services, third-party seller services and other services. AWS revenues include sales of compute, storage, database, and other service offerings that form a part of global Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and hosted private cloud markets. Amazon’s AWS customers include startups, enterprises, government agencies and academic institutions. It is interesting to note that Amazon has been a clear leader in the specific market domains in which it operates (primarily IaaS, PaaS and hosted private cloud). Over the last three years, the company’s market share in its addressable market has remained in the 32-33% range, according to a report by Synergy Report Group . While Amazon’s addressable market market grew from $23.5 billion in 2015 to $54 billion in 2017, AWS revenues surged from $7.9 in billion to $17.4 billion in the same period. The growth was driven by a higher demand for offerings, growth in resulting customer usage as well as cost structure productivity due to the scalability of Amazon’s cloud offerings. While AWS’ initial fixed cost for Amazon was very high, it was justified because of massive economies of scale. In the current year thus far, AWS has continued its growth spree, with revenues increasing nearly 50% on a y-o-y basis to $11.5 billion through the first half of the year. For this year, we expect Amazon’s share in the combined IaaS, PaaS and hosted private cloud market to stand at around 32%, with the market size expected to be around $76 billion . Accordingly, we expect AWS revenues to be around $24 billion for the year. Over the next couple of years, Amazon’s addressable market is expected to increase at over 30% to over $135 billion. We forecast Amazon’s market share to gradually decline to less than 31% in the coming years. As a result, AWS revenues are expected to increase to $43-44 billion by the end of the decade. If you disagree with our forecasts, you can modify these figures on our  interactive revenue contributor dashboard for Amazon and come up with your own estimates. Y ou can further use these figures in our near-term valuation dashboard for Amazon to calculate your fair price estimate for the company’s stock based on new estimates. The Trefis price estimate for  Amazon’s stock stands at $1,650, which implies a valuation of $830 billion. Our estimate is slightly below the current market price, which has fallen by over 12-13% this month after trading at an all-time high of over $2,000 through September. See our complete analysis for Amazon View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    What To Expect From Procter & Gamble's Q4
  • By , 10/16/18
  • tags: PG KMB UL CL
  • Procter & Gamble (NYSE: PG) is scheduled to announce its fiscal fourth quarter results on Friday, October 19. The company’s revenue and earnings per share came in ahead of market expectations in its fiscal third quarter earnings. In Q3, the company’s net sales grew 4% year-over-year (y-o-y) to $16.2 billion, driven by growth in the Beauty, Fabric & Health Care segments, partially offset by flattish growth in the Baby and Feminine Care businesses. Overall, the company’s organic sales were up 1% on 2% volume growth, with a 2% decrease in pricing and 1% growth in mix across all segments. In terms of bottom lime, P&G’s core EPS (adjusted) also grew 4% y-o-y to $1.00, primarily driven by increased net sales, partially offset by a reduction in operating margin due to reinvestments and gains on the sale of real estate in the base period. Procter & Gamble’s stock price has declined more than 10% over the course of 2018, due to falling prices and rising cost inflation. Our $83 price estimate for Procter & Gamble’s stock is slightly ahead of the current market price. We have created an interactive dashboard on what t o expect from Procter & Gamble’s fiscal Q4, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. Q4 Expectations In Q4, we expect Procter & Gamble to report growth in revenues on the back of growth across segments except for Baby, Feminine, and Family Care. This is because we expect the rising competition from local players to negatively impact the Baby and Feminine Care segments in Q4. We also estimate flattish trends in the Grooming segment in Q4 despite the declining revenue trend, due to the rising popularity of its direct-to-customer model  Gillette-On-Demand, which could offset some secular pressure from the likes of Dollar Shave Club. We expect the company’s SG&A costs to be around $4.6 billion in Q4, up 2% year-over-year (y-o-y). This is based on our assumption of growth in productivity savings from the combination of reduced overhead, agency fees, and ad production costs. We also expect the company’s adjusted gross profit margin to decline nearly 10% y-o-y in Q4, on the back of rising delivery costs. Based on these adjustments, we expect P&G’s adjusted operating income to decline almost in mid-double-digits to about $3 billion for Q4 2018. Overall, these adjustments resulted in a flattish growth in our adjusted net income forecast for the company, translating into adjusted EPS of $1.04 Fiscal 2018 Outlook P&G expects its organic sales growth to fall in the low end of the 2% to 3% guidance range in fiscal 2018. It also expects total revenues to reach $67 billion in the same period. In terms of the bottom line, the company continues to expect its core earnings per share growth to be in the 6% to 8% range, as compared to the previous 5% to 8% range. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Key Takeaways From Charles Schwab's Q3
  • By , 10/16/18
  • tags: SCHW ETFC AMTD
  • Charles Schwab  (NYSE: SCHW) announced its Q3 earnings on October 15 and reported another impressive quarter, sustaining its continued momentum from earlier this year. Schwab reported an impressive 19% and 55% jump in its revenue and earnings, respectively, driven by the Fed’s rate hikes, a higher interest earning asset balance, new brokerage accounts and increased trading activity. Interest earning assets continued to be the primary growth driver, aided by the Fed’s interest rate hikes, while trading revenue also saw growth. The company’s asset management segment revenues declined as a result of subpar ETF and mutual fund performance. A rise in trading volumes partially offset the losses the company saw due to a price cut in trading commissions. Operating expenses grew nearly 11% in comparison to the prior year comparable period, due to higher compensation and infrastructure spending to cater to the expanding customer base. However, an even stronger 15% revenue growth led to an improvement in operating margins. We believe continued momentum from Fed’s rate hike should drive near-term growth for Schwab. Our price estimate for Charles Schwab’s stands at $57, which is significantly higher than the market price. Below we discuss some of the key factors which impacted the brokerage’s earnings. Trading Volumes Recovery Offsets Price Cut In Trading Commissions Trading revenue contributes nearly 7% of Schwab’s overall revenue and saw its revenue grow to $176 million (+ 17% y-o-y) in Q3. Amid falling revenue per trade, which can be primarily attributed to the company’s decision to slash its commissions to $4.95 per trade, recovery in trading volumes (+8% y-o-y), helped offset the losses from the price cut. Further, increased stock market volatility, coupled with improvement in U.S. economic conditions, should result in increased near-term trading volumes – driven by enhanced client activity. As a result of this, we expect the trading commissions to improve marginally and offset the impact of a reduced commission rate. Mutual Funds and ETFs Slump, Digital Advisory Key To Future Growth Assets under management generate around 33% of Charles Schwab’s revenue, and the segment saw its revenue decline by around 6%. This decline was largely due to fee reductions and client asset allocation choices. However, robust growth in its advised solutions helped marginally reduce the loss. In addition, the company’s robo-advisory services have helped attract more investors, given the lack of advisory fees and enhanced customer support for portfolio management. The company has focused on its client engagement and advisory services and consequently expanded its customer base, which bodes well for its future growth.
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    Upbeat Consumer Banking Performance Helps JPMorgan Overcome Investment Banking Weakness In Q3
  • By , 10/16/18
  • tags: JPM BAC WFC GS MS C
  • JPMorgan Chase  (NYSE:JPM) posted a stronger-than-expected performance for the third quarter late last week, as optimism surrounding the U.S. economy had a positive impact on several parts of the bank’s diversified business model. The largest U.S. bank gained the most from the improving interest rate environment, even as an increase in payment activity boosted card income. This more than made up for the lukewarm investment banking performance for the period and also mitigated the impact of continued weakness in the mortgage industry on the top line. We have summarized JPMorgan’s Q3 2018 earnings and also detailed the major takeaways from the announcement in our interactive dashboard for the company, the key parts of which are captured in the charts below. Notably, JPMorgan’s dominant position across financial services including retail banking, investment banking, commercial banking as well as custody banking puts it in an enviable position in the industry – especially given the strong positive outlook for all these services. We have increased our price estimate for  JPMorgan’s stock upwards from $120 to $122  in view of the stronger-than-expected Q3 performance. See our full analysis of JPMorgan Net Interest Income Increases To Highest Level In JPMorgan’s History The rate hikes implemented by the Fed have helped the interest rate environment in the country recover steadily from the record low levels seen over 2014-2015. The ongoing rate hike process helped JPMorgan’s NIM figure climb from 2.22% in Q4 2016 to 2.48% in Q1 2018, before a flattening yield curve drove the figure lower to 2.46% in Q2. With the yield curve correcting itself over the last few months, JPMorgan’s NIM figure recovered to 2.51% in Q3 2018 – the highest level it has been at since early 2012.  Taken together with continued growth in the banking giant’s loan base, this translated into a record net interest income figure of $13.9 billion. Upbeat Payment Activity Boosts Card Income JPMorgan’s card income increased to over $1.3 billion for the first time since Q2 2016 thanks to a notable increase in customer spending, which boosted card sales volumes as well as merchant processing volume. JPMorgan’s credit and debit card volumes reached a new all-time high of $259 billion, while brisk growth in the volume of payments processed by JPMorgan’s merchant payment services helped these payment volumes swell to nearly $344 billion.   Investment Banking Revenues Soar From Upbeat Equity Market Showing The third quarter of the year is seasonally a slower period for investment banking activities compared to the first two quarters. While this would have weighed on securities trading revenues for the period, there was also a considerable reduction in capital market volatility over Q3. Taken together, these two factors resulted in a sharp sequential reduction in total securities trading revenues for JPMorgan. The third quarter also saw a notable reduction in M&A as well as equity capital market activity, which weighed on advisory & underwriting fees for the period. As shown in the chart below, JPMorgan’s total investment banking revenues were $6.26 billion in Q3 2018 – roughly 6% lower than the $6.68-billion figure a year ago. More importantly, this represents a 17% sequential decline in these revenues.   Based on JPMorgan’s Q3 2018 results, we now expect the bank to report EPS of $9.28 for full-year 2018. Taken together with our estimated P/E ratio of 13, this works out to a price estimate of $122 for JPMorgan’s shares, which is about 10% ahead of the current market price. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    What To Watch For In E-Trade's Q3 Earnings
  • By , 10/16/18
  • tags: ETFC AMTD SCHW
  • E*Trade Financial  (NASDAQ: ETFC) is scheduled to announce its third quarter results on Thursday, October 18. Consensus market estimates call for the company to report revenue of $910 million and adjusted EPS of 82 cents. Continued momentum from the recent Fed hikes should drive healthy growth in revenues from interest-earning assets. Further, improvement in U.S. macro conditions should drive trading volumes and consequently, trading commissions. Additionally, the acquisition of TCA should further boost the brokerage’s customers and asset growth in the near future. Accordingly, we expect the brokerage’s 2018 revenue and EPS to grow by 20% and over 67%, respectively, and Q3 results will likely be along the same lines. Our price estimate for E-Trade’s stock stands at $62, which is higher than the market price. We have also created an interactive dashboard on  Can Interest-Earning Assets Drive Growth For E-Trade In Q3,  which shows the forecast trends; you can modify the key value drivers to see how they impact the company’s revenues and bottom line. We expect that interest-earning assets will continue to be the key driver of growth in Q3. The Fed’s interest rate hikes in 2017 led E-Trade’s interest earning assets to grow by 23% in the year. Further, the robust growth continued in 2018 thus far, with over 31% and 26% year-over-year growth in assets for August and July, respectively. As a result, revenues from this segment, which contribute around 60% of the company’s overall revenues, are likely to increase significantly. Trading commissions account for nearly 20% of E-Trade’s overall revenues. Trading volumes maintained its strong growth in 2018 thus far, owing to the acquisition of OptionsHouse. Further, the brokerage saw nearly 30% and 20% year-over-year growth in trading volumes for August and July, respectively. A part of this is attributed to the most recent acquisition of TCA. The company’s decision to slash its commission per trade in 2017 could weigh slightly on its results. That said, we expect a significant jump in trading volumes and brokerage accounts in the near term owing to the TCA acquisition. Since trading commissions generate a relatively small percentage of the company’s overall revenue, we do not expect the price cut to have a significant impact on revenue and EPS growth in the near term. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams   More Trefis Research
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    What To Expect From Alcoa's Third Quarter Results?
  • By , 10/15/18
  • tags: AA FCX CLF
  • Alcoa (NYSE: AA), a global producer of aluminum, will release its third-quarter results on October 17th, 2018. The market expects  the company to report revenue of $3.35 billion, 12% higher on a year-on-year basis. The Non-GAAP earnings for the quarter are expected to be $0.50 per share compared to $0.72 per share reported a year ago. The lower EPS is likely to be the result of volatility in aluminum and alumina prices due to production curtailment in Alunorte (the largest alumina factory), Alcoa’s workers’ strike at its Australian plants, and a 10% tariffs on Chinese goods. We have a price estimate of $43 per share for the company, which is higher than its current market price. Our detailed estimates for Alcoa’s key drivers that impact its price estimate are available in our interactive dashboard – Alcoa’s Outlook For 2018 . You can make changes to our assumptions to arrive at your own price estimate for the company. Key Trends Impacting Alcoa’s 3Q’18 Results A 10% tariff on Chinese goods worth $200 billion was implemented by the US government on September 24th, 2018. This would result in lower shipments of aluminum and alumina for Alcoa in the remainder of 2018 outside the US. The tariff is expected to rise to 25% next year, which could again negatively affect the company’s stock price in the near term as a result of lower shipment volume. Further, there is a lot of volatility in the alumina and aluminum prices due to the trade war between the US and China. Weaker prices, coupled with lower shipments, are likely to weigh on the company’s bottom-line. Late in this quarter, Norsk Hydro, a Norwegian Aluminum producer, announced a production halt in Alunorte, the world’s largest alumina factory outside China. While Alcoa had already projected a global deficit of aluminum and alumina in the last quarter, the production halt announcement, coupled with Alcoa’s Australian workers on strike in late September, worsened the deficit case, leading to a surge in aluminum prices and alumina prices. Aluminum surged to $2,240/ton and alumina to $640/ton. Now that Norsk Hydro plans to resume production at Alunorte at half capacity, and the strike at Alcoa’s Australian plant has ended in Concord, the prices have backpedaled to $2,023/ton and $535/ton respectively. Going forward, we expect the average price of aluminum and alumina for Alcoa to be $2,237/ton and $487/ton, respectively, in 2018. Further, the smelter restarts announced in Alcoa’s Warrick operations earlier this year following the favorable market conditions, are not expected to achieve full production until 2019, thus hindering supply growth in the US. This is expected to weigh on the company’s operating margins for the current quarter as well as the remainder of the year. Furthermore, the US reached a last-minute accord on free trade with Canada and Mexico. However, this does not cover tariffs on aluminum and steel. Though this accord could provide some respite, Alcoa could experience lower shipment volume in 2018, which could affect its net income for the quarter and the remainder of the year.   What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Key Takeaways From Walgreens Q4 FY’18 Earnings
  • By , 10/15/18
  • tags: WBA
  • In its Pharmaceutical Wholesale Services segment, Walgreens grew 4.7% y-o-y in Q4. Certain factors that have aided growth in this segment include network claims, brand inflation, and growth in specialty pharmacy. This segment saw strong performance in emerging markets and the UK. Growth in Online Sales –  The company’s efforts to boost its digital capabilities have started paying off. In this regard, more than 22.5% of all 4Q retail refill scripts were initiated via the digital channel with the Walgreens mobile app, having been downloaded in excess of 50 million times since the launch. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    Cost Reductions And U.S. Business Could Drive Ericsson's Q3 Results
  • By , 10/15/18
  • tags: ERICSSON ERIC MSI NOK
  • Telecom equipment major  Ericsson  (NASDAQ:ERIC) is expected to publish its Q3 2018 results on Thursday, October 18. We expect the company’s results to be driven by its recent cost-cutting initiatives, potentially stronger demand from the U.S. market and a more favorable product mix. Below is a quick overview of what to watch when the company publishes earnings. We have also created an interactive dashboard analysis on what to expect from Ericsson over 2018 . You can modify the key drivers to arrive at your own estimates for the company’s revenues and EPS. U.S. Business Should Remain Robust North America could continue to be a big driver of Ericsson’s business on account of strong capital spending by major U.S. wireless carriers. Moreover, the market is at the forefront of the 5G upgrade cycle, with major U.S. carriers commencing their commercial roll-outs of the technology this year. Ericsson’s exposure to the North American market has been increasing, with sales to the region accounting for about 31.2% of total sales in Q2. The company is also expanding its market share over rival Nokia. The company is looking to capitalize on the growing market, noting that it would double down on its R&D efforts in the U.S., hiring about 400 engineers, while also beginning to carry out some manufacturing in the country. Cost Cutting And Product Mix  Ericsson has cut costs significantly over the last few years, noting that it had achieved its target of cutting SEK 10 billion (~$1.1 billion) in run-rate costs as of the end of the second quarter. Over Q2, the company also improved its gross margins to 36.7% year-over-year, driven by its cost reduction initiatives, and it is possible that this could continue into Q3. The company has also been revisiting its managed services contracts to identify contracts to be exited, renegotiated or transformed. Although this is impacting revenues of the business, it could aid longer-term profitability. Ericsson’s Networks product mix has also been more favorable this year, with the Ericsson Radio System – an end-to-end radio modular and scalable network portfolio – accounting for 84% of the company’s radio sales year-to-date. This could also help boost the company’s margins. What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    Why Lowe's Is Worth $118
  • By , 10/15/18
  • tags: LOW HD
  • While unseasonably cold weather dampened  Lowe’s (NYSE:LOW) first quarter results, it posted a recovery in the second quarter, beating consensus expectations on both revenues and earnings. However, the company was unable to match the astounding performance posted by its closest competitor –  Home Depot  (NYSE:HD), continuing the recent trend of the former playing catch-up to the latter. Lowe’s is faced with significant organizational changes, including a new CEO and CFO, along with certain disruptions and inventory issues which have pressured sales. Consequently, the company downgraded its sales growth and comps growth outlook to 4.5% and 3%, from 5% and 3.5% earlier, and has guided for a 180 basis point decline in operating margins versus -40 bps. We have a  $118 price estimate for Lowe’s, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here for the interactive dashboard on Our Outlook for Lowe’s In FY 2019, to modify our driver assumptions to see what impact it will have on the company’s revenues, earnings, and price estimate. We have arrived at a $118 price estimate for Lowe’s based on revenue projections of $74.3 billion for FY 2019, net income of $4.7 billion, a P/E multiple of 20, and a share count of 788 million. The market price stood at $105.36 as of October 12, 2018, implying our price estimate is higher by 12%. The revenue and margin forecasts have been based on the following: 1. Focus On Pro-Customers:  Professional customers place larger orders compared to the do-it-yourself segment, and better serving these customers can boost revenues for Lowe’s in the long term. While the recovery in the housing segment has benefited players such as Home Depot and Lowe’s, the latter’s growth has not been as stellar, primarily due to its focus on the do-it-yourself consumer segment. While the do-it-yourself segment is lucrative and accounts for the bulk of Lowe’s revenues, these customers are small ticket buyers and many are just one-time customers. On the other hand, pro-customers account for only 30% of Lowe’s revenues, but they enter into big-ticket transactions and are usually repeat customers. Keeping this in mind, the company has been focused on these customers by introducing pro-focused brands such as Mapei and Zoeller. 2. Housing Market: Despite news regarding a weak housing market, reflected in the declining home sales figures, the company feels positive about the strength in the home improvement sector. The company has often stated that the housing stock in the country is old and in need of repair and renovation, which should help Lowe’s. Moreover, unemployment is at its lowest level since 2000, and wages are improving. Although interest rate hikes make mortgages more expensive, on the whole, it is indicative of a strong economy. Strong macroeconomic conditions bode well for a company like Lowe’s that is heavily reliant on the improvement of the economy. 3. Digital Growth: Comps improved 18% on the company’s website in Q2, which now accounts for 5% of the total sales. Lowe’s intends to continue upgrading the shopping experience, with features such as optimized search capability, expanded assortment, faster site speed, improved checkout, and next day delivery. Lowe’s also provides flexible fulfillment options of buy online, pick up in store, and buy online, deliver from store, besides making it easier for customers to engage with its in-home project specialists to request services. We expect strong growth from this segment to continue. 4. Onset Of Hurricane Season:  As hurricanes are expected to devastate many houses, there will be a greater need to fix these post the storms. Such a scenario will boost the demand for products of home improvement companies such as Home Depot and Lowe’s, which cater to not only the do-it-yourself (DIY) segment, but also professionals in the home improvement/remodeling and construction space. Home owners face the likelihood of severely damaged properties, necessitating the demand for home improvement equipment and materials. Moreover, since some of the properties in the flood-affected areas may be without insurance, people will be forced to pay out of their pockets for the repair work. Hence, a significant portion of the work can be expected to be conducted by the DIY segment, which is a core customer base for both Home Depot and Lowe’s. Even prior to the storms, the companies can be expected to have been selling large volumes of small-ticket items such as bottled water, tarps, and straps, as well as larger ticket times like fans, blowers, air conditioning units, and generators. 5. Stabilizing Gross Margins: Lowe’s has implemented new pricing and promotion analytics tools to ensure that the company is “competitive on highly elastic traffic driving products while increasing profitability across less elastic items.” This factor played a role in the slight improvement in gross margins witnessed in the second quarter. The metric also benefited from the adoption of the new revenue recognition standard. On the other hand, increased transportation costs had a negative impact on the gross margin. The company has guided for a gross margin expansion of 60 basis points for this year, along with 180 basis points of decline in the operating margin, as mentioned earlier. 6. Exiting Orchard Supply Hardware Operations:  The main reason for exiting these operations is to concentrate on the core home improvement business . The management expects to close all 99 stores which are located in California, Oregon, and Florida, as well as one distribution facility by the end of FY 2018, which is one of the factors driving a larger than intended decline in operating margins. In FY 2017, Orchard generated $600 million in sales, but was a $65 million drag on the EBIT, and hence, our expectation is that the closure should positively impact the margins from the next financial year. 7. Reduced Tax Rate:  Given the fact that Lowe’s operates primarily in the U.S., its effective tax rate has been 35% or higher in the past few years. As a result of the decline in the corporate tax rate from 35% to 21%, effective January 2018, the company is expected to have a tax rate of 25%, which should be a key driver in the substantial improvement in the net income margin this year. See our complete analysis for Lowe’s.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    What To Expect From IBM's Third Quarter Earnings
  • By , 10/15/18
  • tags: IBM HPE MSFT AMZN ORCL SAP ACN
  • IBM  (NYSE:IBM) is scheduled to report its third quarter 2018 earnings on October 16. The tech giant has reported revenue growth this year after witnessing mixed results and revenue declines in the preceding quarters. Through the first half of the year, IBM has reported a steady 4% increase in net revenues to $39.1 billion, which was offset by slightly lower gross margins. While most core segments reported modest 3% growth in revenues in this period, IBM’s Systems revenues jumped 16% in the six-month period ended June. Going forward, we expect IBM’s core business segments including Technology Services & Cloud, Business Services, Cognitive Solutions and Systems to continue to drive growth. Furthermore, we also expect net income and EPS to be up in the low-single digits through the end of the year. We have summarized our Q3’18 expectations, based on the company’s guidance and our own estimates, on our interactive earnings preview dashboard for IBM . If you think differently, y ou can change expected segment revenue, gross margin and net income margin for IBM to gauge how changes will impact its expected EPS for the quarter. Key Growth Trends A key growth area for IBM in recent years has been its Cognitive Solutions segment, while the company’s core Technology Services and Business Services segment revenues have largely  stagnated . Global Business Services revenues have declined 2-3% in the last few years despite an increase in new signings. Similarly, Technology Services and Cloud Platforms revenue, which includes infrastructure services, technical support services, and integration software, also declined in low single digits through 2017. However, the trend has been somewhat different this year. Global Business Services revenues have rebounded to low single digit growth (+3%) through the first half of the year to nearly $8.4 billion. Additionally, Technology Services and Cloud revenues have also increased at a similar pace  (+4%) through the six-month period to $17.2 billion. We expect these segments to continue to report low single digit growth through the end of the year. On the other hand, Cognitive Solutions revenues have slowed down to 3% revenue growth this year due to tougher year-over-year comparisons. We expect these trends to continue in Q3 as well. The key growth segment for IBM is likely to be Systems, which should continue to witness strong demand for all three offerings including IBM Z, Power and Storage. The company has reported  strong growth across these sub-segments and a meaningful increase in market shares across these domains. Going forward, revenue growth is expected to be slightly offset by a limited increase in gross profit margins, mainly due to the change in revenue mix (for instance Systems is a lower-margin business than Cognitive Solutions or other cloud-based offerings). Consequently, the company’s net income and EPS are expected to be only around 2-3% higher on a y-o-y basis to $3.1 billion and $3.40 for the quarter, respectively. Our forecasts are slightly higher than the consensus EPS . See Full Analysis For IBM Here What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own
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    How Much Will Subscription Services Contribute To Amazon's Near-Term Revenue Growth?
  • By , 10/15/18
  • tags: AMZN BABA AAPL MSFT IBM EBAY NFLX FB
  • Amazon  (NASDAQ:AMZN) has successfully managed to capture a huge chunk of the e-commerce market, particularly in the U.S. While dominating global markets is a long-term goal for the company, it is important for Amazon to maintain stickiness among its existing customers. Amazon’s Prime subscription has been a strong solution, with customers getting a number of benefits and services such as shipping benefits, access to Prime Video, Prime Music, Twitch Prime, Prime Early Access, Kindle Owners’ Lending Library and supplemental service offerings such as Amazon Channels (HBO, Showtime, Starz) and Amazon Fresh. Over the years, revenues generated from standalone subscription fees have steadily risen for Amazon. Amazon has reported strong growth in subscription services revenues, from $2.7 billion in 2014 to nearly $10 billion by 2017 – an annual growth rate of over 50%. Going forward, we expect these revenues to continue to grow at a rapid pace over the next few years. We expect the company to end the current year at about $13 billion in revenues from subscription services. We further expect this figure to increase to $20 billion by the end of the decade. We forecast the company’s net revenues to increase from $178 billion in 2017 to $235 billion this year. This figure is expected to increase to over $340 billion by the end of the decade. Accordingly, the company’s Subscription Services segment is expected to contribute around 6% of Amazon’s overall revenue growth over the same period. We have summarized  our expectations for segment growth through 2019 and 2020 on an interactive dashboard for Amazon’s Subscription Services segment . Below we take a look at the key revenue drivers for this segment. Factors Driving Segment Growth Amazon categorizes its total revenues into six key segments that include online store sales, physical stores, Amazon Web Services, subscription services, third-party seller services and other services. Subscription Services revenues mainly include annual and monthly fees associated with Amazon Prime membership. The segment also includes some revenues from audiobook, e-book, digital video, digital music and other non-AWS subscription services. It should be noted that subscription fees vary across geographies and duration (for instance, monthly fees are generally more expensive than annual fees). Back in December 2013, Amazon first reported to have “tens of millions” of Prime subscribers.  While an exact number was not disclosed, this implied at least 20 million subscribers, which was the starting point used in an analysis by Recode . This was followed by a 53% increase in paid subscriptions in 2014 and subsequently by a 51% annual increase in 2015. The total number of Prime subscribers increased by “tens of millions” in 2016, or reportedly 20 million  per TechCrunch . And most recently, we have a figure of about  100 million subscribers by the end of 2017. Based on these numbers, we have used a rough estimate of 51 million subscribers for 2015, 71 million for 2016 and 100 million for 2017. In this period, subscription revenues have increased from $4.5 billion in 2015, $6.4 billion in 2016 and $9.7 billion in 2017. This implies annual fees per subscriber gradually increased from around $88 in 2015 to $97 in 2017. In the current year so far, subscription revenues have been boosted by an increase in total subscribers as well as the subscription fee revision (from $99 to $119) this year. Revenues increased by nearly 60% on a y-o-y basis to $6.5 billion through the first half of the year. For 2018, we expect Amazon to end the year with 125 million Prime subscribers with each paying an average of $105. As a result, we expect subscription services revenues to be around $13 billion for the year. Over the next couple of years, we forecast Amazon’s total Prime subscriber base to increase to over 170 million  globally. In addition we expect the implied fee per subscriber to gradually increase to $115 by the end of the decade. As a result, we expect Subscription Services revenues to increase to $20 billion by the end of the decade. If you disagree with our forecasts, you can modify these figures on our  interactive revenue contributor dashboard for Amazon and come up with your own estimates. Y ou can further use these figures in our near-term valuation dashboard for Amazon to calculate a valuation estimate for the company’s stock based on your new estimates. The Trefis price estimate for  Amazon’s stock stands at $1,650, which implies a valuation of $830 billion. Our estimate is slightly lower than the current market price, which has fallen by 12% this month. Amazon’s stock price surged from $1,200 in January to an all-time high of $2,000 through September. See our complete analysis for Amazon View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Fast-Growing Wolfspeed Segment In Focus As Cree Reports Fiscal Q1 Results
  • By , 10/15/18
  • tags: CREE MU
  • Cree  (NYSE:CREE) is expected to publish its Q1 FY’19 results on October 16, reporting on a quarter that is likely to see earnings improve on a year-over-year basis, driven by the Wolfspeed business and potential cost improvements in the lighting space. Cree has guided for revenues of between $395 million to $415 million for the quarter, marking a 12% year-over-year increase at the midpoint, with adjusted EPS projected to come in between $0.10 to $0.14. In this note, we take a look at some of the key factors that we will be watching when the company publishes results Tuesday. Wolfspeed Is Becoming Increasingly Important To Cree  While Cree operates in three core segments, namely Lighting, LED and Wolfspeed, it has been steadily reducing its reliance on the competitive and commoditized lighting space, which was once its bread-and-butter. During FY’18, lighting sales accounted for just 38% of total revenue, down from about 55% two years ago. On the other hand, the Wolfspeed segment, which makes power and RF products, is playing a growing role in the company’s business, accounting for 22% of revenues up from 11 % two years ago and Cree is looking to make Wolfspeed its largest business segment, quadrupling sales to about $850 million by 2022 . The segment’s products – which include silicon carbide material, power switching devices, and RF components – cater to high-growth markets including electric vehicles, military and aerospace applications. While overall shipments from the business have been growing, ASPs have also been rising ( up 21% last year ), due to a greater mix of a higher priced material substrate and RF products, and it’s likely that the trend will continue into Q1. The company has also been expanding its manufacturing footprint for these products while broadening its product portfolio. For instance, Cree’s has been a leader in commercializing silicon carbide products which are used in high-voltage applications, including electric vehicles, solar PV and 5G base stations, helping to improve efficiency and cut costs for these end products. On the capacity front, Cree is looking to double wafer capacity for external material customers while doubling its power device capacity by the end of calendar 2018, compared to the end of 2017 . That said, the company’s gross margins for Wolfspeed’s products could see some pressure in the near term, on account of the variability of its initial production yields and utilization of this new capacity. What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    What To Expect From CSX Corporation's Q3 Results
  • By , 10/12/18
  • tags: CSX UNP NSC
  • CSX Corporation (NASDAQ:CSX) is set to release its Q3 financial performance on October 16, and we expect the company to post steady growth led by coal and the intermodal freight segment. The company saw a record low operating ratio of 58.6% in the previous quarter, as it effectively managed its costs. We expect this trend to continue in Q3 as well, and aid the bottom line. Overall, we estimate the company to post $3.20 adjusted EPS for the full year 2018. We have created an interactive dashboard analysis  ~ What Is The Q3 Outlook For CSX Corporation . You can adjust the revenue and margin drivers to see the impact on the company’s earnings, and price estimate. Below we discuss some of the key segments which could see growth in Q3. Expect Coal Freight To See Mid-Single Digit Growth Led By Higher Exports We expect CSX’s coal freight revenues to grow in mid-single digits led by both volume and price gains. While we expect domestic coal volume to continue to decline, export volume should see significant growth, similar to the trend seen in the recent quarters. In fact, export coal revenues grew 30% in H1 2018, while the domestic coal revenues declined 13% during the same period. The U.S. coal export is seeing growth due to a rise in global benchmark coal prices. This has supported the demand for U.S. coal, and this trend will likely continue in the near term. The U.S. coal exports were up 30% to 70.5 mmt in the first eight months of 2018, and they could total over 105 mmt for the full year, marking the highest level since 2012. This should bode well for the railroad companies. However, for the full year we forecast only a low single digit growth in the coal freight revenues, given that the overall coal production in the U.S. is expected to see modest decline in 2018, given the domestic coal consumption could see a 2% dip, according to EIA .  Agriculture Freight Revenues Could See Some Growth After A Weak First Half Within Merchandise segment, agriculture & food products, and fertilizers have seen freight revenue decline in the first half of 2018, primarily led by lower volume. While the fertilizer freight decline can be attributed to closure of a facility in Q4 2017, agriculture & food products volume was impacted by the trends in the ethanol market, which has had a poor first half amid weakening biofuel mandate. While this trend could continue in Q3, the ethanol exports and the grain exports may offset these declines. Also, recently the Trump administration announced the increased use of ethanol in gasoline, which should bode well for the industry at large. Looking at pricing, it should see growth for most of the segments, as higher crude oil prices will result in higher fuel surcharges for the company. The Brent crude is currently trading around $80 per barrel, and there are reports suggesting it could move even higher towards $100 a barrel in the coming months. Intermodal Will Likely See Continued Growth We expect mid-single digit growth for the company’s intermodal freight revenues. The segment is seeing steady growth in both volume and pricing of late, due to the capacity constraints in the trucking industry. The ELD (electronic logging device) mandate being fully implemented, has led to shortage of drivers. The U.S. economy could add around 55,000 new trucks, subject to availability of trucks and drivers, to keep up with the current demand, according to a research report . Given the driver shortage, railroads are benefiting as manufacturers look for other transportation avenues. Q3 and Q4 in particular will be important for the railroad companies, as it is the peak season for manufacturers preparing for the December holidays.    What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.  
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    What To Watch For In Johnson & Johnson's Q3
  • By , 10/12/18
  • tags: JNJ BMY RHHBY PFE MRK
  • Johnson & Johnson  (NYSE:JNJ) is set to report its Q3 2018 earnings on October 16, and we expect the company to post steady growth, led by a ramp up in its oncology drugs sales. J&J’s key oncology drugs – Imbruvica, Darzalex, and Zytiga – have been on a strong run of late, and we expect this trend to continue, and drive the earnings growth for the company. We expect the company’s Consumer Healthcare business to see modest revenue gains, as growth in Beauty products will mostly be offset by continued decline in Baby Care products, similar to the trend seen in the recent past. Similarly, we don’t expect any significant growth in the company’s Medical Devices segment, as Vision Care and Surgery revenue growth will partly be offset by an expected decline in the Diabetes Care products. Note that the company’s Diabetes unit, LifeScan, was sold to Platinum Equity for $2.1 billion, and the transaction was completed earlier this month. We have created an interactive dashboard analysis  ~  What Is The Q3 Outlook For Johnson & Johnson . You can adjust the revenue drivers to see the impact on the company’s adjusted  earnings, and price estimate. Expect Pharmaceuticals  To Lead Q3 Earnings Growth Led By Oncology We expect J&J’s Pharmaceuticals’ revenue to grow in low double digits for the full year 2018, primarily led by a continued ramp up in oncology drugs sales, and also benefiting from Actelion’s acquisition. Within oncology, Imbruvica, Darzalex, and Zytiga have seen solid growth of late, and we expect this trend to continue in near term. Imbruvica reduces previously untreated chronic lymphocytic leukemia patient’s risk of death by a massive 85% in patients aged 65 or above, when compared to traditional chemotherapy. Thus the market for Imbruvica is huge, and the potential peak sales for J&J could be as high as $4 billion. The company recently announced the U.S. FDA approval for Imbruvica in combination use with Roche’s Rituxan for the treatment of Waldenström’s macroglobulinemia, which is a rare form of Non-Hodgkin’s lymphoma. Darzalex is also seeing strong growth in multiple myeloma therapeutic area. Zytiga is seeing growth in the metastatic high-risk castration sensitive prostate cancer indication based on the LATITUDE clinical trials, and it is unlikely to see any generic competition in the near term. As such, we expect these three drugs to see strong revenue growth in Q3 and aid the overall earnings growth for the company.  Consumer Healthcare And Medical Devices Will Likely See Moderate Growth In Q3 Johnson & Johnson’s Consumer Healthcare business will likely see modest growth in Q3, as an expected decline in Baby Care products will weigh on the overall segment performance. The company is facing competitive pressure for its Baby Care products, and this trend will likely continue in the near term. On the other hand, Beauty is seeing steady growth, led by Neutrogena and Aveeno brands. Looking at the Medical Devices segment, we forecast low single digit revenue growth in 2018, partly led by vision care, due to the Abbott Medical Optics acquisition last year. However, sales at other areas, primarily Diabetes Care, will likely remain weak. While the company has sold its LifeScan unit, it continues to see competitive pressure and price erosion for its Diabetes Care products.  Overall, we expect the company to post adjusted earnings of $8.15 in 2018, and we currently have a $154 price estimate, which we will revise post the  Q3 earnings release.   What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For  CFOs and Finance Teams  |  Product, R&D, and Marketing Teams More Trefis Research Like our charts? Explore  example interactive dashboards  and create your own.
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    How Much Will Physical Stores Contribute To Amazon's Top-Line Growth By The End Of The Decade?
  • By , 10/12/18
  • tags: AMZN BABA GOOG BIDU AAPL FB EBAY MSFT
  • Amazon  (NASDAQ:AMZN) has reported massive revenue growth in recent years, with revenues surging from just over $60 billion to almost $180 billion from 2012 through 2017. While much of the company’s top-line growth has been on an organic basis in this period, Amazon made headlines last year when it announced the $13.7 billion acquisition of Whole Foods in June. This resulted in a significant addition of physical stores to Amazon, which was most widely known for its online retail business. Amazon has reported $8.6 billion in revenues from physical stores through the first six months of 2018 already. We expect the company to end the year at around $18 billion in revenues from physical stores. We further expect this figure to increase to over $28 billion by the end of the decade. We forecast the company’s net revenues to increase from $178 billion in 2017 to $235 billion this year. We further expect this figure to increase to over $340 billion by the end of the decade. Accordingly, the physical stores segment is expected to contribute around 14% of Amazon’s overall revenue growth in the same period. We have summarized  our expectations for segment growth through 2019 and 2020 on an interactive dashboard for Amazon’s Physical Stores segment . Below we take a look at key revenue drivers for this segment. Factors Driving Segment Growth Amazon categorizes its total revenues into six key segments that include online store sales, physical stores, Amazon Web Services (AWS), subscription services, third-party seller services and other services. Physical store sales include revenues from sales on Amazon’s brick-and-mortal stores, mainly from the Whole Foods addition last year. The total area of leased or owned properties by Amazon for the purpose of its physical stores stood at 21.3 million square feet. Whole Foods has 7 properties in the U.K, 14 locations in Canada with the remaining 450+ in the U.S. From these locations, the company generated $5.8 billion in revenues through a part of the latter half of the year after the acquisition was completed. Based on these numbers, the company generated roughly $272 per square foot from physical stores. In the current year thus far, it is not clear if Amazon has added more physical stores. However, the company’s expenditure on property, plants and equipment has increased to $6.3 billion through the first half of the year, up from $5.2 billion in the comparable prior year period. While this may not directly translate to an increase in physical store capacity, it can be used as a reasonable proxy. We expect the company to end the year at over 30 million square feet of physical store space. Over the next couple of years, we expect Amazon to open more physical locations both domestically as well as internationally, due to which total area for physical stores is expected to increase to over 45 million square feet by 2020. For the current year, we expect revenue per square foot to be nearly 2x the 2017 levels, since the implied figure for last year was only applicable for a period less than six months. As a result we expect revenue per square foot to stand at $530 this year, which we expect to gradually increase to over $600 by 2020. As a result, Amazon’s physical stores sales are expected to increase from around $18 billion in 2018 to over $28 billion by the end of the decade. If you disagree with our forecasts, you can modify these figures on our  interactive revenue contributor dashboard for Amazon and come up with your own estimates. Y ou can further use these figures in our near-term valuation dashboard for Amazon to calculate a valuation estimate for the company’s stock based on your new estimates. The Trefis price estimate for  Amazon’s stock stands at $1,650, implying a valuation of $830 billion, about 5% below the current market price. Amazon’s stock traded at $2,000 through September before crashing by over 10% this month. See our complete analysis for Amazon View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research