PHILIPPE LAFFONT is the founder and PM of Coatue Management, a $5 billion long/short equity hedge fund focused on global technology and the telecom sector.
Two short ideas, Apple Inc. (NASDAQ:AAPL) and Facebook, he just joked.
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Three long ideas that could double or triple.
The old internet model is broken. It was setup to connect the Department of Defence and universities, but it was very slow.
Now we are using the internet in a very different manner. Today emails need to be returned immediately, we have streaming, and games.
Amazon has a one second delay it costs them $5 billion, Zynga also cannot have a delay. Wall street cannot run their business without a delay.
Equinix Inc (NASDAQ:EQIX) is the first iea which solves these problems. It immediately sends information right to the center. Equinix is the backbone of the internet.
Their model would be very hard to copy or break into. Equinix spent $2 billion on their data centers, today they generate $600 million in FCF.
Revenues should double, EBITDA margins could expand, and stock could be worth $30.
Slow broadband is part of this problem. Most people are using games, movies and music which require much higher bandwidth. Things will need to be quicker.
WIFI usage is increasing drastically. Virgin Media Inc. (NASDAQ:VMED) has the best broadband network, their competitors do not even compare. You cannot fiber the whole country.
Using S-curve the number of broadband users should grow exponentially. 20% unleveraged return on capital. EBITDA- Capex is $1.5 billion.
Each company building the infrastructure in the beginning of the internet went bankrupt or were taken over. Now Virgin Media is on top of the game at a good time.
Virgin is low cost compared to broadband and Virgin Media has higher revenues. The 4% revenue growth understates the growth story. 6% EBITDA growth with higher margins, fixed cost leverage, 10% FCF with no cash taxes, stable capex and sharebuy backs make this story more exciting.
The company has bought back 25% of its shares in the past two years and plans to buy another 25%.
The company can buy back all its shares in 5 years, only 1% of companies can achieve this. Virgin Media Inc. (NASDAQ:VMED) believes that they can also buyback all the shares within 5 years.