baidu, inc. nasdaq: bidu recommendation: buy · 2019-09-12 · investment thesis 2 recommendation:...
TRANSCRIPT
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Baidu, Inc.NASDAQ: BIDU
Recommendation: BUY
Rafa Campos and Ryan Ciemny
Investment Thesis
2
Recommendation: Baidu, Inc. (NASDAQ: BIDU) is undervalued in the market with substantial long-term upside, therefore we recommend a buy – recent pullback due to trade concerns and potential Google re-entry provides great entry opportunity
Rationale: Baidu’s strong fundamental business model and dominant market share put the Company in a good position to capitalize on growing access to internet in China
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Strong growth in video streaming platform iQiyi
Solid core business to be enhanced by investment in AI
Dominant search engine in a market with strong regulatory barriers to entry
Cheap opportunity to initiate portfolio exposure to Chinese economy
Price Target: $295.37
36.6% upside to current price of $216.24
Company Overview
3
Company Profile Historical Stock Chart
2017 Revenue by Segment Revenue Breakdown ($ in millions)
Volume (000’s) Baidu is the leading Chinese internet search provider with 80%
of the Chinese search engine market share
Baidu operates a business model similar to that of Google deriving the majority of its revenue from online marketing and advertising services
Baidu competes with Tencent and Alibaba as the top 3 leaders in the Chinese tech market
Baidu.com is the fourth largest website globally based on average daily visitors and page views
The Company also invests in technology including artificial intelligence and autonomous driving
On March 30, 2018 Baidu’s video-streaming subsidiary iQiyihad its IPO but Baidu maintains 58% ownership
0
20000
40000
60000
80000
100000
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
$220.00
$240.00
$260.00
$280.00
$300.00
$222.18
Online Marketing Services
86%
Other 14%
$4,647
$7,086
$9,357 $9,428 $10,688
$21
$81
$343 $880
$1,704
$4,668
$7,167
$9,699 $10,308
$12,392
0%
5%
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15%
20%
25%
30%
35%
40%
45%
50%
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2013 2014 2015 2016 2017
Online Marketing Services Other EBITDA Margin
Industry Overview
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Overview Market Share
137
210
298
384
457513
564618
649688
731772
0
100
200
300
400
500
600
700
800
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Baidu80%
Sogou7%
Qihoo 3603% Other
10%
Revenue Growth of Search Engines in China Internet Users in China (in millions)
$1,613
$2,760
$4,101
$6,122
$8,016
$10,009
$11,854
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2010 2011 2012 2013 2014 2015 2016
Almost 50% of the Chinese population still does not have access to the Internet
Total advertising expenditure expected to increase in China as a result of increasing access
Mobile searches now comprise over 50% of all search queries globally
Mobile will continue to drive global ad spend for the foreseeable future
Baidu remains the leader in China, while Google is undisputed leader globally
Chinese economy still posting strong GDP growth, but investors fear slowing growth rates
Dominant search engine in China with strong barriers to entry
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Overview
Search Engine Optimization R&D Spend ($ in millions)
1
Strong core business to be enhanced by investment in AI2
Baidu’s dominant 80% market share is protected by strong regulations against foreign competitors (i.e. Google)
Government censorship
Restriction of data transfer out of China
Cloud services must be operated by Chinese companies
Google employees and US politicians opposed to re-entry into China
Google pulled out of China in 2010 due to censorship concerns
When Google entered Chinese market from 2006-2010, Baidu still gained 17% market share
Google’s algorithms have historically struggled to deal with complexities in Chinese language
Baidu has significantly increased its investments into Research and Development related to Artificial Intelligence
Integration of AI into search engine leads to better user experience
Higher customer ROI from improvements related to AI investments driving top line growth
Current investment in autonomous vehicles could lead to long-term leadership in China
$1,020
$1,487 $1,483
$1,889
2014 2015 2016 2017
Recent Developments
Growth in video streaming platform iQiyi
61Difference in revenue is due to rounding.
Company Overview Market Share of Online Video Streaming in China
Projected User Growth and Market Penetration Revenue Growth by Segment ($ in millions)1
$4,516
$6,948 $8,947 $8,689
$9,889 $197
$420
$777 $1,642
$2,539
$4,713
$7,368
$9,724 $10,331
$12,428
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2013 2014 2015 2016 2017Baidu Core iQIYI
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iQiyi is China’s largest internet video streaming service in terms of user time spent and total MAUs
Q2 2018 Subscriber growth of 75% from a year ago totaling 67.1 million subscribers
Emphasis on investment in content development
In December 2017 users spent an average of 1.7 hours per day watching video content on iQiyi mobile apps
iQiyi Paopao is the company’s entertainment based social media platform for fans to interact with celebrities
Baidu - iQiyi31%
Tencent Video24%
Alibaba - Youku16%
Other29%
82.994.4
106.5118.1
128.6 137.5 144.96.0%
6.8%7.7%
8.5%9.2%
9.9%10.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
20
40
60
80
100
120
140
2016 2017 2018 2019 2020 2021 2022
Number of internet users (in millions) Penetration Rate
Opportunity for portfolio exposure to Chinese economy
71Difference in revenue is due to rounding.
Chinese Internet Users and Penetration Rate (in millions)
Growth of Chinese Middle Class Portfolio Overview – International Exposure
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137
210
298
384
457513
564618
649688
731772
11%
16%
23%
29%
34%38%
42%46%
48%50%
53%56%
0%
10%
20%
30%
40%
50%
60%
0
100
200
300
400
500
600
700
800
900
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
92%
8%
United States
Other
Key Risks
8
Dominant market share and regulatory constraints prevent foreign companies and smaller players from significantly threatening Baidu’s leadership
Google’s algorithms have historically struggled to deal with complexities in Chinese language
Google re-entry still unofficial and not supported by US Senate and Google employees
Baidu has lost and regained market share before, and search engine optimization through AI should maintain company’s edge in the long run
iQiyi well positioned to capitalize on market growth due to significant recent spend on original content
China is still expected to post strong economic growth and trade war is not expected to affect ad spend significantly
Revenue concentration – 99% of revenue comes from China
Shift to mobile – since Baidu doesn’t control an operating system, this could favor Google’s re-entry
Potential Google re-entry into Chinese market
Increased competition from Tencent and Alibaba in search engine space, especially in mobile
Increased competition in video streaming space
Marcoeconomic risk – trade war and overall slowing Chinese economy
Key Risks Mitigants
Final Recommendation
9
Recommendation: Baidu, Inc. (NASDAQ: BIDU) is undervalued in the market with substantial long-term upside, therefore we recommend a buy
Base Case
Price Target: $295.37Upside: 36.6%
Upside Case
Price Target: $346.94Upside: 60.4%
Downside Case
Price Target: $219.43Upside: 1.5%
Appendix
10
Products and ServicesBaidu Product / Service U.S. Equivalent
Search
Web Search Google Search / Chrome
Image Search Google Images
Hao123.com Website Directory
DuerOS Alexa
Social
Post Bar Reddit
User-Generated Content
Baidu Knows Yahoo Answers
Baidu Encyclopedia Wikipedia
Baidu Wenku Google Docs
Location-Based Products
Baidu Maps Google Maps
Baidu Travel TripAdvisor
Mobile
Web Search / Browser / Assistant Google App / Siri
Mobile Guardian Anti-Malware
Transaction Services
Baidu Nuomi Local Services – Dining, Movies, Hotels
Baidu Takeaway Delivery Grubhub / UberEats
Baidu Wallet Apple Pay/Wallet (Collaboration with PayPal)
Baidu Cloud iCloud
Baidu Apollo Waymo (Self-Driving Car)
iQiyi Netflix / YouTube
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Valuation – Comparable Companies Analysis
12
Market Enterprise EV / Revenue EV / EBITDA Price / Earnings
Company Ticker Capitalization Value 2017A LTM 2017A LTM 2017A LTM
Alibaba Group Holding Limited BABA $422,388 $415,512 10.3x 10.1x 25.8x 33.7x 48.8x 49.1x
58.com Inc. WUBA 10,560 9,706 6.6x 5.8x 29.7x 25.6x 95.0x 43.4x
Weibo Corporation WB 16,102 15,414 16.0x 10.5x 43.5x 28.3x 88.5x 34.8x
Alphabet Inc. GOOG.L 829,772 731,499 5.9x 5.9x 18.2x 19.1x 35.2x 51.8x
Sogou Inc. SOGO 2,986 1,943 3.8x 1.8x 24.0x 13.2x 62.2x 35.0x
Momo Inc. MOMO 9,249 8,826 4.6x 5.3x 16.2x 17.5x 16.6x 22.2x
Tencent Holdings Limited 700 448,555 453,732 13.8x 11.1x 33.8x 28.8x 53.8x 32.8x
Baidu, Inc. BIDU $75,707 $64,998 5.8x 4.7x 18.1x 14.0x 30.8x 19.8x
Low $2,986 $1,943 3.8x 1.8x 16.2x 13.2x 16.6x 22.2x
Mean 248,516 233,804 8.7x 7.2x 27.3x 23.8x 57.2x 38.4x
Median 16,102 15,414 6.6x 5.9x 25.8x 25.6x 53.8x 35.0x
High 829,772 731,499 16.0x 11.1x 43.5x 33.7x 95.0x 51.8x
Operating StatisticsRevenue Revenue Growth EBITDA EBITDA Margin
Company Ticker 2017A LTM '16-'17A LTM 2017A LTM 2017A LTM
Alibaba Group Holding Limited BABA $23,126 $41,059 56.5% 59.4% $9,219 $12,328 39.9% 30.0%
58.com Inc. WUBA 1,471 1,664 32.6% 30.6% 326 379 22.2% 22.8%
Weibo Corporation WB 1,150 1,474 75.4% 75.0% 423 544 36.8% 36.9%
Alphabet Inc. GOOG.L 110,855 123,898 22.8% 24.8% 35,781 38,205 32.3% 30.8%
Sogou Inc. SOGO 908 1,085 37.5% 52.6% 143 147 15.8% 13.6%
Momo Inc. MOMO 1,318 1,670 138.3% 70.3% 373 505 28.3% 30.2%
Tencent Holdings Limited 700 34,740 40,738 56.5% 46.4% 14,122 15,753 40.6% 38.7%
Baidu, Inc. BIDU $12,392 $13,724 20.2% 26.5% $4,008 $4,637 32.3% 33.8%
Low $908 $1,085 22.8% 24.8% $143 $147 15.8% 13.6%
Mean 24,796 30,227 59.9% 51.3% 8,627 9,694 30.8% 29.0%
Median 1,471 1,670 56.5% 52.6% 423 544 32.3% 30.2%
High 110,855 123,898 138.3% 75.0% 35,781 38,205 40.6% 38.7%
Valuation – WACC
13
WACC Calculation
Capital Structure
Debt-to-Total Capitalization 9.2%
Equity-to-Total Capitalization 90.8%
Cost of Debt
Cost of Debt 3.5%
Tax Rate 19.1%
After-tax Cost of Debt 2.82%
Cost of Equity
Risk-free Rate(1) 2.9%
Market Risk Premium(2) 7.0%
Levered Beta 1.5
Cost of Equity 13.36%
WACC 12.39%
Valuation – DCF (Base)
14
FYE December 31, FYE December 31,
($ in millions) 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E 2024E
Total Revenue $7,167.3 $9,699.4 $10,308.3 $12,391.9 $15,327.1 $18,306.2 $21,331.5 $24,237.0 $27,225.9 $29,784.3 $32,411.2
Revenue Growth 35.3% 6.3% 20.2% 23.7% 19.4% 16.5% 13.6% 12.3% 9.4% 8.8%
Expenses
COGS 2,759.4 4,012.0 5,154.7 6,292.0 7,935.6 9,661.2 11,471.1 13,275.9 14,913.1 16,314.5 17,753.3
Gross Profit $4,407.9 $5,687.4 $5,153.6 $6,099.9 $7,391.4 $8,645.1 $9,860.4 $10,961.1 $12,312.9 $13,469.9 $14,657.9
Gross Margin 61.5% 58.6% 50.0% 49.2% 48.2% 47.2% 46.2% 45.2% 45.2% 45.2% 45.2%
SG&A 1,517.0 2,495.1 2,202.1 1,918.2 3,208.4 3,832.0 4,465.3 5,073.5 5,699.1 6,234.7 6,784.6
R&D 1,020.0 1,486.9 1,483.2 1,889.0 2,336.4 2,882.1 3,465.0 4,058.2 4,694.8 5,284.8 5,913.0
Operating Expenses 2,537.0 3,981.9 3,685.3 3,807.2 5,544.8 6,714.1 7,930.3 9,131.6 10,393.9 11,519.5 12,697.6
Operating Income (EBIT) $1,870.9 $1,705.5 $1,468.3 $2,292.7 $1,846.7 $1,931.0 $1,930.1 $1,829.5 $1,919.0 $1,950.4 $1,960.3
EBIT Margin 26.1% 17.6% 14.2% 18.5% 12.0% 10.5% 9.0% 7.5% 7.0% 6.5% 6.0%
Income Tax Expense (19%) 326.0 800.0 425.6 437.6 352.5 368.6 368.4 349.2 366.3 372.3 374.2
EBIAT $1,544.9 $905.5 $1,042.7 $1,855.1 $1,494.2 $1,562.4 $1,561.7 $1,480.3 $1,552.7 $1,578.1 $1,586.2
Cash Flow
Plus: D&A 576.3 854.5 1,215.7 1,715.4 2,121.7 2,534.1 2,952.9 3,355.1 3,768.9 4,123.0 4,486.6
Plus: Stock Based Compensation 5.1 7.3 15.1 26.7 33.1 39.5 46.0 52.3 58.7 64.3 69.9
Discretionary Cash Flow $2,126.2 $1,767.2 $2,273.5 $3,597.2 $3,649.0 $4,136.0 $4,560.6 $4,887.7 $5,380.3 $5,765.4 $6,142.7
Less: Increase in NWC (687.6) (621.6) (823.8) (960.7) (1,315.9) (1,110.9) (1,243.4) (1,085.0) (896.7) (767.5) (788.1)
Less: CapEx (706.0) (767.3) (615.9) (705.6) (1,127.6) (1,346.8) (1,569.4) (1,783.2) (2,003.1) (2,191.3) (2,384.5)
Free Cash Flow $732.6 $378.4 $833.8 $1,930.9 $1,205.4 $1,678.3 $1,747.8 $2,019.5 $2,480.6 $2,806.6 $2,970.1
Free Cash Flow Growth -- (48.3%) 120.3% 131.6% (37.6%) 39.2% 4.1% 15.5% 22.8% 13.1% 5.8%
Unlevered Free Cash Flow
WACC 12.39%
Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5
Discount Factor 0.94 0.84 0.75 0.66 0.59 0.53 0.47
Present Value of Free Cash Flow $1,137.0 $1,408.5 $1,305.1 $1,341.8 $1,466.3 $1,476.1 $1,389.9
Valuation – DCF (Base)
15
DCF Sensitivity Analysis
WACC
263.26 10.4% 11.4% 12.4% 13.4% 14.4%
21.8x $271.07 $258.13 $246.03 $234.69 $224.06
22.8x $280.75 $267.27 $254.64 $242.82 $231.74
EV/EBITDA 23.8x $290.44 $276.40 $263.26 $250.96 $239.43
24.8x $300.12 $285.53 $271.88 $259.09 $247.11
25.8x $309.81 $294.66 $280.50 $267.23 $254.79
Enterprise Value DCF Sensitivity Analysis
Cumulative Present Value of FCF $9,524.8
Terminal Value
Terminal Year EBITDA $6,447.0
Exit Multiple 23.8x
Terminal Value $153,124.3
Discount Factor 46.80%
Present Value of Terminal Value $71,656.5
% of Enterprise Value 88.3%
Enterprise Value $81,181.3
DCF Implied Equity Value and Share Price
Enterprise Value $81,181.3
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $92,167.5
Implied Share Price $263.26
Shares Outstanding 350
Comps Implied Equity Value and Share Price
Enterprise Value $118,656.4
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $129,642.5
Implied Share Price $370.30
Shares Outstanding 350
Method Weight Price Upside
Comparable Companies 30% $370.30 71.2%
DCF 70% $263.26 21.7%
Fair Value Estimate $295.37 36.6%
Valuation – DCF (Upside)
16
FYE December 31, FYE December 31,
($ in millions) 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E 2024E
Total Revenue $7,167.3 $9,699.4 $10,308.3 $12,391.9 $15,486.6 $18,692.0 $21,922.8 $25,269.8 $29,003.1 $32,668.1 $36,334.9
Revenue Growth 35.3% 6.3% 20.2% 25.0% 20.7% 17.3% 15.3% 14.8% 12.6% 11.2%
Expenses
COGS 2,759.4 4,012.0 5,154.7 6,292.0 8,018.2 9,864.7 11,789.0 13,588.9 15,596.5 17,567.3 19,539.2
Gross Profit $4,407.9 $5,687.4 $5,153.6 $6,099.9 $7,468.4 $8,827.2 $10,133.7 $11,680.9 $13,406.6 $15,100.7 $16,795.7
Gross Margin 61.5% 58.6% 50.0% 49.2% 48.2% 47.2% 46.2% 46.2% 46.2% 46.2% 46.2%
SG&A 1,517.0 2,495.1 2,202.1 1,918.2 2,852.8 3,443.2 4,038.4 4,654.9 5,342.7 6,017.8 6,693.2
R&D 1,020.0 1,486.9 1,483.2 1,889.0 2,360.7 2,942.8 3,561.1 4,231.1 5,001.2 5,796.5 6,628.8
Operating Expenses 2,537.0 3,981.9 3,685.3 3,807.2 5,213.5 6,386.1 7,599.4 8,886.0 10,343.9 11,814.3 13,322.1
Operating Income (EBIT) $1,870.9 $1,705.5 $1,468.3 $2,292.7 $2,254.9 $2,441.2 $2,534.3 $2,794.9 $3,062.8 $3,286.4 $3,473.6
EBIT Margin 26.1% 17.6% 14.2% 18.5% 14.6% 13.1% 11.6% 11.1% 10.6% 10.1% 9.6%
Income Tax Expense (19%) 326.0 800.0 425.6 437.6 430.4 466.0 483.7 533.5 584.6 627.3 663.0
EBIAT $1,544.9 $905.5 $1,042.7 $1,855.1 $1,824.5 $1,975.2 $2,050.6 $2,261.4 $2,478.2 $2,659.1 $2,810.6
Cash Flow
Plus: D&A 576.3 854.5 1,215.7 1,715.4 2,143.8 2,587.5 3,034.7 3,498.1 4,014.9 4,522.2 5,029.8
Plus: Stock Based Compensation 5.1 7.3 15.1 26.7 33.1 39.5 46.0 52.3 58.7 64.3 69.9
Discretionary Cash Flow $2,126.2 $1,767.2 $2,273.5 $3,597.2 $4,001.3 $4,602.2 $5,131.3 $5,811.8 $6,551.8 $7,245.6 $7,910.4
Less: Increase in NWC (687.6) (621.6) (823.8) (960.7) (1,355.8) (1,175.2) (1,310.8) (1,223.3) (1,120.0) (1,099.5) (1,100.0)
Less: CapEx (706.0) (767.3) (615.9) (705.6) (1,139.4) (1,375.2) (1,612.9) (1,859.1) (2,133.8) (2,403.4) (2,673.2)
Free Cash Flow $732.6 $378.4 $833.8 $1,930.9 $1,506.2 $2,051.9 $2,207.7 $2,729.3 $3,298.0 $3,742.7 $4,137.1
Free Cash Flow Growth -- (48.3%) 120.3% 131.6% (22.0%) 36.2% 7.6% 23.6% 20.8% 13.5% 10.5%
Unlevered Free Cash Flow
WACC 12.39%
Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5
Discount Factor 0.94 0.84 0.75 0.66 0.59 0.53 0.47
Present Value of Free Cash Flow $1,420.7 $1,722.0 $1,648.5 $1,813.3 $1,949.5 $1,968.5 $1,936.0
Valuation – DCF (Upside)
17
Enterprise Value DCF Sensitivity Analysis
Cumulative Present Value of FCF $12,458.6
Terminal Value
Terminal Year EBITDA $8,503.4
Exit Multiple 23.8x
Terminal Value $201,968.4
Discount Factor 46.80%
Present Value of Terminal Value $94,513.7
% of Enterprise Value 88.4%
Enterprise Value $106,972.3
Implied Equity Value and Share Price
Enterprise Value $106,972.3
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $117,958.5
Implied Share Price $336.93
Shares Outstanding 350
Comps Implied Equity Value and Share Price
Enterprise Value $118,656.4
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $129,642.5
Implied Share Price $370.30
Shares Outstanding 350
DCF Sensitivity Analysis
WACC
336.93 10.4% 11.4% 12.4% 13.4% 14.4%
21.8x $347.26 $330.18 $314.20 $299.22 $285.19
22.8x $360.03 $342.23 $325.56 $309.95 $295.33
EV/EBITDA 23.8x $372.81 $354.27 $336.93 $320.68 $305.46
24.8x $385.58 $366.32 $348.29 $331.42 $315.60
25.8x $398.35 $378.37 $359.66 $342.15 $325.73
Method Weight Price Upside
Comparable Companies 30% $370.30 71.2%
DCF 70% $336.93 55.8%
Fair Value Estimate $346.94 60.4%
Valuation – DCF (Downside)
18
FYE December 31, FYE December 31,
($ in millions) 2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E 2024E
Total Revenue $7,167.3 $9,699.4 $10,308.3 $12,391.9 $14,792.7 $16,300.0 $17,156.7 $17,769.7 $18,300.1 $18,791.3 $19,268.6
Revenue Growth 35.3% 6.3% 20.2% 19.4% 10.2% 5.3% 3.6% 3.0% 2.7% 2.5%
Expenses
COGS 2,759.4 4,012.0 5,154.7 6,292.0 7,840.1 8,802.0 9,436.2 9,951.0 10,431.0 10,899.0 11,175.8
Gross Profit $4,407.9 $5,687.4 $5,153.6 $6,099.9 $6,952.6 $7,498.0 $7,720.5 $7,818.7 $7,869.0 $7,892.3 $8,092.8
Gross Margin 61.5% 58.6% 50.0% 49.2% 47.0% 46.0% 45.0% 44.0% 43.0% 42.0% 42.0%
SG&A 1,517.0 2,495.1 2,202.1 1,918.2 3,096.5 3,412.0 3,591.4 3,719.7 3,830.7 3,933.5 4,033.4
R&D 1,020.0 1,486.9 1,483.2 1,889.0 2,254.9 2,566.2 2,786.9 2,975.3 3,155.6 3,334.3 3,515.3
Operating Expenses 2,537.0 3,981.9 3,685.3 3,807.2 5,351.5 5,978.3 6,378.2 6,695.0 6,986.3 7,267.8 7,548.7
Operating Income (EBIT) $1,870.9 $1,705.5 $1,468.3 $2,292.7 $1,601.1 $1,519.7 $1,342.3 $1,123.7 $882.7 $624.5 $544.1
EBIT Margin 26.1% 17.6% 14.2% 18.5% 10.8% 9.3% 7.8% 6.3% 4.8% 3.3% 2.8%
Income Tax Expense (19%) 326.0 800.0 425.6 437.6 305.6 290.1 256.2 214.5 168.5 119.2 103.8
EBIAT $1,544.9 $905.5 $1,042.7 $1,855.1 $1,295.5 $1,229.7 $1,086.1 $909.2 $714.2 $505.3 $440.2
Cash Flow
Plus: D&A 576.3 854.5 1,215.7 1,715.4 2,047.7 2,256.4 2,375.0 2,459.8 2,533.3 2,601.3 2,667.3
Plus: Stock Based Compensation 5.1 7.3 15.1 26.7 33.1 39.5 46.0 52.3 58.7 64.3 69.9
Discretionary Cash Flow $2,126.2 $1,767.2 $2,273.5 $3,597.2 $3,376.3 $3,525.5 $3,507.1 $3,421.3 $3,306.2 $3,170.9 $3,177.5
Less: Increase in NWC (687.6) (621.6) (823.8) (960.7) (1,182.3) (702.8) (574.4) (355.5) (159.1) (147.4) (143.2)
Less: CapEx (706.0) (767.3) (615.9) (705.6) (1,088.3) (1,199.2) (1,262.2) (1,307.3) (1,346.4) (1,382.5) (1,417.6)
Free Cash Flow $732.6 $378.4 $833.8 $1,930.9 $1,105.7 $1,623.5 $1,670.4 $1,758.5 $1,800.8 $1,641.0 $1,616.7
Free Cash Flow Growth -- (48.3%) 120.3% 131.6% (42.7%) 46.8% 2.9% 5.3% 2.4% (8.9%) (1.5%)
Unlevered Free Cash Flow
WACC 12.39%
Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5
Discount Factor 0.94 0.84 0.75 0.66 0.59 0.53 0.47
Present Value of Free Cash Flow $1,042.9 $1,362.5 $1,247.3 $1,168.3 $1,064.5 $863.1 $756.5
Valuation – DCF (Downside)
19
Enterprise Value DCF Sensitivity Analysis
Cumulative Present Value of FCF $7,505.2
Terminal Value
Terminal Year EBITDA $3,211.4
Exit Multiple 23.8x
Terminal Value $76,274.7
Discount Factor 46.80%
Present Value of Terminal Value $35,693.7
% of Enterprise Value 82.6%
Enterprise Value $43,199.0
Implied Equity Value and Share Price
Enterprise Value $43,199.0
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $54,185.1
Implied Share Price $154.77
Shares Outstanding 350
Comps Implied Equity Value and Share Price
Enterprise Value $118,656.4
Less: Total Debt $7,655.8
Plus: Cash & Cash Equivalents $18,642.0
Implied Equity Value $129,642.5
Implied Share Price $370.30
Shares Outstanding 350
DCF Sensitivity Analysis
WACC
154.77 10.4% 11.4% 12.4% 13.4% 14.4%
21.8x $159.04 $152.40 $146.19 $140.36 $134.90
22.8x $163.86 $156.95 $150.48 $144.41 $138.72
EV/EBITDA 23.8x $168.68 $161.50 $154.77 $148.46 $142.55
24.8x $173.51 $166.05 $159.06 $152.52 $146.38
25.8x $178.33 $170.60 $163.36 $156.57 $150.21
Method Weight Price Upside
Comparable Companies 30% $370.30 71.2%
DCF 70% $154.77 -28.4%
Fair Value Estimate $219.43 1.5%