“Never invest in a business
you can’t understand.”
Warren Buffet

Since 2008, Rene Marius Köhler has invested a large share of his available liquid assets in international internet companies. This strategy has paid off to date, and there is no end in sight for the positive performance shown by these investments.

Portfolio breakdown as of Q2/2020:

Amazon

Business model: Amazon has set itself the goal of becoming the most customer-oriented company in the world. To this end, the Group operates one of the world’s most successful platform economies, which is monetised via multidimensional business models. Amazon’s businesses focus on the retail of consumer products and an array of subscription models. The Group uses its online platforms and physical stores to sell its own merchandise, merchandise from retailers and digital content from third-party producers. This also includes its own electronic devices, such as the Kindle Reader, the Fire Tablet, Fire TVs or Echo devices (Alexa). In addition, there are programmes that enable partners to distribute their content via Amazon’s platforms. Finally, Amazon Web Services (AWS) makes the company the largest cloud computing provider in the world at the present time.

Product mix: Amazon divides its activities into three segments: North America, International and AWS. The Group continues to generate the lion’s share of its sales in North America (60.7%), with International responsible for about 28.3% of revenues. Although Amazon Web Services only contributed 11.0% to sales, it is considered the company’s most important growth market with its latest growth rate being 46.9% (North America 33.2%; International 21.3%). At the same time, a significant portion of the Group’s EBIT (AWS: USD 7,296 million vs. Group: USD 12,421 million) is generated by AWS.

Selected key facts:

  • AWS is the market leader in the global cloud business (with a market share of around 17.5%)
  • A tenfold increase in TAM is expected in the cloud business; CAGR for AWS 13’18’: 50.1%
  • World’s number 1 in e-commerce, global market share: 13.7%
  • TAM in e-commerce: USD 2,928 billion; expected CAGR through 19’23’: 17.4%
  • More than 2.5 million retailers on Amazon Marketplace
  • 2.1 billion visits per month
  • 2019 performance: +20.1%
Amazon valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 2.9 2.5 2.1 1.9
P/E FWD 68.6 46.6 33.3 25.8
EV/EBIT FWD 54.4 37.8 27.8 21.9
P/CFPS FWD 28.5 21.9 17.4 14.3
Amazon - Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 331,271.0 387,940.8 449,170.8 509,758.7
Umsatzwachstum yoy 18.7% 17.1% 15.8% 13.5%
EBIT 17,677.7 25,399.1 34,610.2 43,934.3
EBIT margin 5.3% 6.5% 7.7% 8.6%
Net Income 13,684.3 20,140.3 28,169.2 36,409.4
EPS 27.51 39.44 54.01 68.94
FCF 32,650.7 42,424.1 53,481.5 65,015.3
FCF Yield 3.4% 4.4% 5.6% 6.8%

Source: Capital IQ; Koehler Group; Montega Equity Research

Alibaba

Business model: Alibaba Holding uses its investments to operate online and mobile e-commerce platforms. Its core assets consist of Taobao (digital marketplace) and Tmall (retail platform for third-party providers), but the Group also includes various other e-commerce platforms, such as Alibaba Health (pharmaceuticals and healthcare), Alibaba.com (wholesale platform for retailers) and Lazada and Aliexpress (other retail platforms). In addition to retail, the company also operates platforms in the logistics (Cainao Network), delivery services (Ele.me), restaurant and tourism (Koubei) and online travel sectors (Fliggy). Similar to Amazon, Alibaba links video content and music streaming services to its offering. Alibaba also uses ad and marketing strategies to monetise the platforms, with computing, data analytics and cloud solutions adding the finishing touches to what the Group has to offer.

Product mix: Alibaba divides its operations into four business segments: Core Commerce (85.5%), Cloud Computing (5.4%), Digital Media and Entertainment (7.8%) and Innovation Initiatives and Others (1.2%). The Group has enjoyed strong growth rates in all these segments (Group: 58.1% yoy). The most dynamic segment is the Cloud Computing business (101.0%), but growth remains strong in Core Commerce (59.9%) and Digital Media and Entertainment (32.8%). So far, however, Core Commerce is the only segment to turn a profit.

Selected key facts:

  • Number 1 in Chinese e-commerce (eMarketer market share: 60%)
  • The proportion of global retail e-commerce transactions originating from China increased by 41.4 percentage points to 42.4% from 2005 to 2016
  • Alibaba has monopoly-like access to 755 million MAUs
  • Gross merchandise value (GMV) recently grew by 50.0%
  • Global number 3 in the cloud business and number 1 in Asia
  • On “Singles Day” 2019, 554,000 orders per second were placed on Tmall alone, and sales totalled around USD 38.4 billion over the 24 hours of “Singles Day” 2019
  • 2019 performance: +55.2%
Alibaba valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 6.1 4.9 4.0 3.3
P/E FWD 24.2 19.2 14.2 9.8
EV/EBIT FWD 31.6 24.3 16.1 10.0
P/CFPS FWD 24.9 19.7 17.1 -
Alibaba Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 96,095.5 119,138.4 146,649.5 178,374.0
Sales growth yoy 29.1% 24.0% 23.1% 21.6%
EBIT 18,605.5 24,211.9 36,527.0 59,082.2
EBIT margin 19.4% 20.3% 24.9% 33.1%
Net Income 24,060.4 30,370.9 40,958.6 59,531.0
EPS 9.01 11.30 15.36 21.84
FCF 23,349.5 29,591.5 34,060.0 -
FCF Yield 4.0% 5.0% 5.8% -

Source: Capital IQ; Koehler Group; Montega Equity Research

Tencent

Business model: Tencent Holding has various equity investments in digital platforms and operates its products on a global basis. The Group is primarily active in the areas of online gaming, social media, messaging services, mobile payment, online advertising, music and video streaming and information technology. One of the core assets is Tencent’s “super app” WeChat, which has more than 1 billion users and combines the functions of an array of well-known apps (Facebook, WhatsApp, Instagram, news feeds, payment) into a single app.

Product mix: Tencent divides its operations into the segments of Value Added Services (VAS), Online Advertising and Others (as of Q1/20, this is further subdivided into Fintech and Others). The VAS segment, where Tencent bundles together its operations related to online gaming and social network services, is responsible for the lion’s share of the Group’s sales and gross profits (56.5% and 72.3%, respectively). However, the Group’s online advertising business (ads and online marketing), as well as its fintech business (especially mobile payments), are considered the drivers of the company’s growth (CAGR ’14’18: 62.6% and 80.7%, respectively). Tencent is currently using these segments to monetise its platform and its near-monopoly on access to customers.

Selected key facts:

  • World’s number 1 in online gaming
  • 10% of worldwide gaming revenues can be attributed to Tencent products
  • WeChat is a prime example of a successful platform economy (with the platform leveraged in various ways, including via browser, online advertising, payment, messaging and social media functions)
  • Near-monopoly on access to around 1.2 billion MAUs (83% of the Chinese population)
  • China’s number 1 for mobile payments
  • The transaction volume of mobile payments in China is USD 790 billion (11 times higher than in the USA)
  • 2019 performance: +22.5%
Tencent valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 7.0 5.8 4.8 4.2
P/E FWD 27.6 22.7 21.0 16.6
EV/EBIT FWD 23.9 19.5 17.3 13.8
P/CFPS FWD 24.6 21.7 19.6 16.1
Tencent – Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 67,037.1 81,117.0 97,821.9 112,730.0
Sales growth yoy 24.1% 21.0% 20.6% 15.2%
EBIT 19,610.5 24,057.8 27,042.6 33,851.5
EBIT margin 29.3% 29.7% 27.6% 30.0%
Net Income 16,706.2 20,323.7 21,898.3 27,684.1
EPS 1.74 2.13 2.51 2.89
FCF 18,717.9 21,259.4 23,546.6 28,637.2
FCF Yield 4.0% 4.5% 5.0% 6.1%

Source: Capital IQ; Koehler Group; Montega Equity Research

Facebook

Business model: Facebook runs a platform economy consisting of various products for networking and displaying digital content on smartphones, computers and other end devices. Its product portfolio includes the social media platform “Facebook”, the digital community “Instagram” and the “Messenger” and “WhatsApp” messenger services. The Group also markets a hardware, software and development ecosystem that connects people virtually via “Oculus” virtual reality glasses.

Product mix: Facebook generates the majority of its sales revenue through advertising income (98.9%). To date, a marginal amount of sales revenue has come from payment services and other revenue streams (1.1%). These other revenue streams also include Oculus sales. Geographically, Facebook’s home market, the USA, accounts for the majority of its sales (43.2%), with the remainder divided between the regions of Europe (24.4%), Asia-Pacific (21.0%) and the rest of the world (8.5%).

Selected key facts:

  • Facebook (#1), Messenger (#4), Instagram (#6) are some of the world’s leading social media solutions (based on number of users)
  • WhatsApp is the world’s leading messaging service with 1.5 billion MAU
  • The entire Group has 2.5 billion MAU (Q3/19); Instagram has around 1.0 billion MAU (Q3/19)
  • Globally, 65 billion WhatsApp messages are sent every day
  • CAGR for operating cash flow 14’18’: 41.4%
  • Forecast for sales from digital advertising with Instagram: CAGR 18′ 21′ : 36.3%; USD 15.65 billion (source: eMarketer)
  • Average revenue per user (ARPU) worldwide: USD 24.96; CAGR 09’18’: 26.2%
  • 2019 performance: +51.3%
Facebook valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 6.4 5.4 4.6 4.0
P/E FWD 23.1 19.2 15.9 15.0
EV/EBIT FWD 17.7 14.8 12.3 10.7
P/CFPS FWD 26.8 22.5 18.1 14.6
Facebook – Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 85,852.2 102,656.0 119,813.6 137,693.9
Sales growth yoy 21.8% 19.6% 16.7% 14.9%
EBIT 31,191.7 37,377.1 44,868.5 51,421.0
EBIT margin 36.3% 36.4% 37.4% 37.3%
Net Income 25,753.4 31,004.3 37,382.6 39,798.2
EPS 9.05 10.90 13.46 15.93
FCF 22,210.0 26,480.8 32,829.1 40,854.8
FCF Yield 4.0% 4.8% 5.9% 7.4%

Source: Capital IQ; Koehler Group; Montega Equity Research

Alphabet

Business model: Alphabet primarily offers online advertising services via its search engine Google and the YouTube platform. Its product portfolio includes both performance-based and brand-oriented advertising services, with the company also having numerous growth options in technology markets. Alongside research into autonomous driving, Alphabet is also engaged in the cloud business and the provision of internet and television solutions, for example.

Product mix: The corporation’s business is divided into the sectors of “Google” and “Other Bets”, with Google contributing 99.6% of its sales revenues. Google’s business segments encompass Ads (advertising system), Android (smartphone operating system), Chrome (browser), Google Maps (map and navigation services), Google Play (video game solutions), YouTube (video portal) and Search (search engine). Other Bets includes Alphabet’s equity investments in Calico (biotechnology), CapitalG (venture capital company), Waymo (autonomous driving), Verily (biotechnology) and X (research company). Google operates on a global footing, with the majority of its sales revenues generated in the USA (46.2%) and EMEA (32.6%), while Asia-Pacific (15.6%), Canada (15.6%) and Latin America (5.6%) are of secondary importance.

Selected key facts:

  • 2 trillion search queries and over 1 billion hours of YouTube watch-time per day
  • YouTube is the number 2 social network, based on MAUs
  • Market share among search engines: 93.3% for mobile and 76.1% for desktop applications
  • Average search queries per user: 3.4x per day
  • CAGR for advertising revenues ’12’18: 17.7%
  • 2019 performance: +27.0%
Alphabet valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 4.3 3.7 3.3 3.0
P/E FWD 25.0 22.0 19.4 17.3
EV/EBIT FWD 19.6 16.9 14.7 13.4
P/CFPS FWD 27.6 22.9 19.6 17.6
Alphabet – Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 191,584.1 222,545.0 251,678.1 281,041.6
Sales growth yoy 17.8% 16.2% 13.1% 11.7%
EBIT 42,548.7 49,200.5 56,696.5 62,018.9
EBIT margin 22.2% 22.1% 22.5% 22.1%
Net Income 37,570.6 42,668.3 48,416.8 54,334.1
EPS 53.76 61.11 69.93 78.05
FCF 33,979.2 40,926.5 47,956.8 53,282.3
FCF Yield 4.1% 4.9% 5.8% 6.4%

Source: Capital IQ; Koehler Group; Montega Equity Research

Apple

Business model: Apple develops, manufactures and distributes smartphones, computers, tablets, wearables and accessories. At the same time, the corporation also operates a platform business that encompasses various additional services for end devices. Its core products are the iPhone (smartphone), iPad (tablet), Mac (computer/laptop) and wearables (including Apple Watch). Alongside this, they offer various other accessories and electronic devices such as AirPods, Beats (both headphones), Apple TV (TV stick) and digital products including Apple Music or Apple iCloud. Finally, its range of services is rounded off by the Apple Arcade gaming solution and ApplePay, Apple’s mobile payment service. The Group is excellent at monetising both its hardware and its platform, too. In turn, this enables it to participate in the success of its end devices at several stages.

Product mix: Apple only publishes segment reporting on a geographical basis. America (44.9%) remains Apple’s core market, followed by Europe (23.2%), “Greater China” (16.8%), Japan (8.3%) and the Asia-Pacific region (6.8%).

Selected key facts:

  • Its market share of worldwide smartphone sales is more than 10%
  • The iOS operating system enjoys a market share of more than 13.4%
  • The market share of iPad tablets is over 20%; market share of Apple wearables: 14.8% (Q3/19); Mac market share: 7.5%
  • Service revenues from iTunes, software and services recently increased to USD 46.3 billion (17.8% of total sales revenues)
  • 60 million subscribers to Apple Music (06/19)
  • Research and development expenditure in 2019: USD 16.2 billion
  • 64% of all Americans own an Apple product
  • Currently the largest company in the world by market capitalisation (as of 01/20)
  • Performance 2019: +86.0%
Apple valuation 2020e 2021e 2022e 2023e
EV/Sales FWD 4.4 4.3 4.3 4.1
P/E FWD 21.5 21.4 22.1 20.7
EV/EBIT FWD 18.4 17.7 - -
P/CFPS FWD 19.4 19.9 19.5 19.3
Apple - Key operating information 2020e 2021e 2022e 2023e
Sales (million USD) 296,055.9 307,208.3 303,967.0 317,521.0
Sales growth yoy 7.2% 3.8% -1.1% 4.5%
EBIT 71,338.1 74,233.6 - -
EBIT margin 24.1% 24.2% - -
Net Income 60,737.7 60,925.7 59,073.0 63,098.0
EPS 14.84 16.00 13.98 14.87
FCF 67,093.5 65,613.0 66,713.0 67,590.5
FCF Yield 5.1% 5.0% 5.1% 5.2%

Source: Capital IQ; Koehler Group; Montega Equity Research