Fundamental Analysis When You Don't Know the Sector, Stock Research (Broadcom Inc) | Martin Shkreli

okay we have a request from godell so I have to prioritize that make sure you sign up for godell uh the guy wants aago which I've never looked at this used to be called broadcom okay so this is uh

maybe how you would look at a stock from scratch so this might be helpful to some of you newcomers um I like to look at the what what's called the capital structure first

they the kind of six most important things I look at in any any stock the first is the stock price which is pretty simple this is the last sale of the stock

in any given Market in this case it's $156 it's not important to get it exactly right doesn't really matter that much what the pennies are now I'm looking for shares outstanding and you

can see that the the last 10 Q they're 463 million shares outstanding and then if you multiply those two numbers you get a market cap and that's 72 billion here I thought

broadcom is a bigger company maybe they did a split or something um we'll have to see and we'll we'll just that'll that'll be discovered as we go through

this they do a 10 for one or something like that this is March 1st so we'll just check the news out and see if they did a stock split

um okay here's the balance sheet I just like to take the cash which is 11 billion in this case and then I'd like to take the

debt which is 73 billion in this case and the Enterprise Value is basically the value of the company Net its cash position so in this case the

value of the company is higher than its market cap because the company is a net debt position but again I want to I want to check right now if about that stock split because

that's unnerving me a little bit so I'm just Googling investor ation news releases and you can find this in godell

as well H 10 for one forward split on 715s that was two weeks

ago so if you split your shares 10 for one you have 10 times as many shares so this is a market cap of 722 billion one of the biggest companies in the

world just to think about how big 700 billion do is it's about as big as Burkshire Hathaway Warren Buffett's company it's bigger than every football

team baseball team and NFL team combined by far still times 10 it's bigger than almost every country's GDP

not every country but quite quite a number of countries if you asked me back in my day there'd be if there'd be a trillion dollar company I'd say maybe then if you tell me there' be a whole bunch of them and even if I'm not

streaming I'm happy to do some requests for you if you subscribe to godell which is part of my new software company yeah we we can go through the this a little bit more slowly that'd be

my pleasure and I have a number of videos uh they're not necessarily on my channel but you should be ble to find some of the old videos I I did on um financial

analysis so I'm going to start with the income statement um to some in some ways for most tech companies it's a bit more important than the balance sheet balance Sheet's important too don't get me wrong

but um they're they're both important um so I'm going to put the dates down here as well as the calendar because this is a company that has a different calendar

quarter from their fiscal quarter so if you ever get confused and calendar and fiscal and even the big brain of us do just just look at the

dates and those are the 30 I'm sorry 90 days ending those dates so you don't have to get break your brain too much and if you line them up together as I'm

about to it gets a lot easier so for example they call this quarter the the second quarter for the fiscal year 2024

so I do fiscal q224 and by the way if you follow these videos it turns out that most of Wall Street has adopted the scy method which

is kind of crazy um I'm very flattered by that revenue is the products that you sell in some countries that's called

turnover it's either Revenue sales or turnover sometimes also called Topline so that's just product that goes out your door uh the only interesting thing about revenue is when do you recognize your

revenue revenue recognition is uh is a tricky question uh usually you recognize Revenue when Title passes you do not recognize Revenue the Normy will often

think that um you recognize Revenue when you get paid no never ever ever ever that's a rookie mistake you recognize Revenue when Title has passed to the customer and the customer owes you money

whether they paid or not is not that important so you can see broadcom grew pretty dramatically I think that was due to an acquisition I think they bought VMware if I'm not mistaken they got a little bit more into software and just off the

bat I can do this really interesting calculation which is new divided by old minus one and that's 43%

growth uh Year all right so 43% Revenue growth must have came from an acquisition and I will call up your mom and flirt with her and copulate don't test me you think scy doesn't know how

to be entertaining I taught all these guys how a troll bro I taught him how to troll cost of Revenue is often called cost of goods sold it's the same thing and gross

profit is revenue less cogs so you have revenue and you take away or subtract cost of good sold um somebody's asking about efficient market hypothesis I think

markets are mostly efficient but if they're really efficient there wouldn't be any investors and there seem to be some good investors out

there uh and also studying financial statements gives you a great insight into business in general so you don't even have to

be um trading or investing you can just be studying an industry and you have to know this stuff if you want to know the industry hopefully that helps all

right gross margin is 75% so that means that for every dollar of stuff broadcom sell 75% of it is what it is what they keep after they subtract what it cost to make

the stuff similarly if you had a lemonade stand and it had $100 of Revenue the cost of goods are your lemons your water your sugar your cup

the salary you pay for the person to stir it that counts as cost of goods and if that cost $25 and you had $75 after you subtract those costs you have $75 in

gross margin gross gross profit is not the same as that income very very very very different gross profit is just profit after the cost of the

materials that it costs to make the stuff of the company now we have research and development it's a little self-explanatory but this is basically

product development in Pharma you do R&D like including basic discoveries but in uh Tech it's often called Product Development because you're doing research and development but you're

really just making new produ prods so that's uh trying things out in the arena sgna is a little more even understandable this is all your selling and marketing cost your general administrative costs like Auditors and

lawyers and management team members and tax people and you name it all that stuff goes into there so it's kind of a catchall so together these things form

what we call operating expenses or Opex operating expenses are like the cost to operate the company not the cost of materials the cost of materials is over

here so you zoom in real close is a good basic business lesson these three things are the cost of the company you sold $ 12.5 billion of goods

but this could be 12.5 million or 12.5 th000 for your small business it doesn't matter what exactly how much money we're dealing with I'm just going to put

dollars and millions over here so we know but you sold 12.5 billion dollar of product it cost you 3 billion to make

this stuff 2 billion to research the stuff and 1 billion to sell the stuff you how much do you have left over 5.65 billion that's called

operating income so that's what your business brought in on a business basis we're going to look at some other subtractions in a second so there's a couple different

ways to look at it here is the profit excluding materials costs here is the profit excluding materials costs and business

costs and we look at these ratios quite often for example operating margin as you can imagine is the operating income

divided by revenue and the operating margin is 45% which is very high it's fun to compare that to other businesses so you could say okay the operating margin of Ford is

5% why is it so low well it's a tough business it's a harder business um it's not as profitable let's look at some other lines so now interest expense

broadcom borrowed a lot of money to buy another company so they have to pay interest that makes sense doesn't it um they also made some interest which

is very small and in essence we have a new line called pre-tax income I could do pre-tax margin

down here but I won't bother operating income is sometimes is also called iida if you're really about the Wall Street Life you name your dog iida even E's earnings before interest taxes depreciation and

amortization operating income in evid are slightly different but we won't get to that just yet so now we have taxes here broadcom paid negative taxes which I'm sure is going to make Bernie Sanders

really mad but in reality they probably did pay taxes it's just Gap um Gap accounting Gap is generally accepted accounting principles

and when they say generally accepted they mean you better accept it or you're going to you're going the big house like scy it's not a suggestion the generally accepted it's

like generally sometimes yes sometimes no no this is it you got to accept it but Gap often distorts um uh real net income so sometimes you

have to um adjust it and that's called non-gaap and there's nothing wrong with nonap it just doesn't conform to the

standard so there's 480 million shares outstanding this has gone up 10x as we know and so the company made a dollar a share per in earnings what does that

mean after all their costs including their negative tax they made $4.8 billion well there's 4.8 billion shares so it's roughly a dollar a share I'm going to go update

this as well and now let's do the quarter before so the quarter before and I can actually copy and paste all this because the formula is paste

over and so I can just plug and chug it's what we call plugging and chugging on Wall Street you ain't stay up late into the night plugging and

chugging then you ain't like me you make six models a day for six Summers shout out to anybody who knows the reference and you can see the trends over

time for how margin moves around you can combine them Alex or you can separate them 3B today right okay so we have some more information here again 43% Revenue

growth but I think that's all from an acquisition so if you borrow to buy another company are you really growing 43% your base business probably is not growing

43% and next quarter your growth will probably drop because eventually you annualize or anniversary the

acquisition right so if they they were doing around 7even eight billion before they bought a business that leaped them to 11 12 billion that growth is kind of artificial so we sometimes say the word

inorganic if they never did an acquisition and they were growing that fast that'd be incredible very few companies can grow that fast uh at that size Nvidia can

now let's look at the balance sheet so cash I just want to give you the link if you want to follow along cash is

9809 AR is accounts receivable so that's money your customers owe you inventory is next the balance sheet is listed in order of liquidity liquidity is how fast

will it turn into Cash other current assets is a bunch of stuff PP is property plant and equipment I actually thought Boron had more PP guess not Goodwill and intangibles are a weird Gap

accounting thing they don't really mean anything and other long-term assets so those are the assets of the company and they

sum to 175 billion now let's look at the liabilities of the company accounts payable it's money they owe vendors compensation money they owe or

they are obligated to pay more likely their employees uh debt we have short-term and long-term debt shortterm is due in a year longterm is due more than a year

there's that uh other current liabilities and other long-term liabilities again current means one year

long-term means more than a year shareholder Equity I kind of gloss over that it's kind of a complicated idea but

ultimately the balance sheet has to balance liabilities plus shareholder Equity have to equal assets that's the fundamental equation that's the fundamental equation

of Finance there's so you know fundamental equations in different fields of study well that's the the fundamental equation so good Goodwill is might as

well zero it out and some people do that they call that tangible book but it doesn't really make a difference what matters is the cash flow of the company and we're going to look at that

in a second so cash flow is very complicated there's two ways to look at a company's operations through the Gap lens and then through the cash lens uh a lot of old school people like

to look at the cash lens only I think you have to look at both so so the company made 4.8 billion according to Gap but Watch What Happens

watch this crazy trick we're going to so according to their public statements they made

2.1 that's listed here this is Gap net income 2121 but we made a bunch of adjustments and we got to 48 so here's the

adjustments they're making they're going to get rid of amortization which is writing off Goodwill basically they're going to get rid of depreciation which is writing off Capital Equipment and they're going to get rid of stock based compensation that stock based

compensation one's a little bit confusing because that that is a real expense in in some ways they have to get rid of the deferred taxes they have non-cash interest and some other stuff

and then working capital changes so when you get rid of all this stuff and you basically just say how much cash did we make last quarter and you add it all up what's

amazing is it was 4.6 billion but they said it was 2.1 billion so if somebody came to you and said hey you're the the heir of broadcom you just inherited broadcom congratulations you're the

richest person in the world um basically the CFO would come you you say how much money do we make last quarter he would say two billion he so how much money did we make last quarter and he'd

say 4.6 billion and he say how how could you tell me two different answers and he'd say well one is from the cash flow perspective and one is from the uh Gap perspective and you might say this is really

confusing I'm going to go back to being an Neo baby um so it's important to understand that those differences it's not easy it's not

rocket science either but you can do it if I can do it you can do it okay so that's really it for financial statements um to understand

broadcom we have to look at more than just more than just the financial statements for example the rumored to potentially be making a chip for open AI interesting all right

I like how they do their financial statements by the way and I know nothing about broadcom so we're going to spend some time learning about broadcom ah I see this is where the

acquisition must have happened do you see that big jump in in Revenue amazing how profitable they were you also see the big jump and

interest expense and a jump in shares outstanding and you can see how easy it is to sort of fill these things out once you've already set up the

framework doesn't take but a minute and you have that model for life so you can share them upload them like I have on the

GitHub and again it's more the reason we do this is because the companies don't provide these numbers longitudinally they only provide them for each quarter

so it's a little frustrating so we on Wall Street this is how everybody does it when you're a fundamental Analyst at least and you're not a quantitative investor quants have kind of beaten the

pants off the rest of us using a computer to invest is working really well for some firms

and it has been for a long time let's look at this quarter's difference between cash flow and then income we just check to make sure our

numbers match and they do so again big big gap between no pun intended between net income and cash flow okay

so that was all the news for 2024 let's look at 2023 and you can see they acquired VMware which is a software company virtualization software

11222 virtual machines that's the VM and V VMware that was a big acquisition VMware was one of the biggest software companies in the world

and for broadcom to buy them made them kind of a unusually unusual company both hardware and software and we're just going to do one

more quarter and then we're going to um look at what they actually do it's interesting how like the the VMware acquisition does it seem to make them more profitable if you notice their

their operating margin just dropped and they weren't growing before the VMware deal all right well we could take a step back and just see what what in the world it is that this company does which is

probably more important than even the financials at this stage so I'd start with the 10K the 10 Q is useful too but the 10K goes into like extreme

detail on these matters Semiconductor in infrastructure software I guess they they had sanch they were sanch at some point that was a

big software company obviously VMware broadcom I didn't know they were LSI as well and I don't know what they bought from AT&T these all used to be publicly

traded companies so this is like a conglomerate of all these old all these old companies so they make semos which is a complimentary metal

oxide semiconduct conductor and analog 3 to five which I don't even know what that is but we'll learn right that's the whole point set top boxes set

toop boxes are kind of gone huh a lot of different stuff fiber channel storage area networking VMware deal 30.8 billion

in cash so total 86 billion so 38 in cash like 50 in stocks stock broadcom stock huge acquisition probably one of the biggest Acquisitions in the history

of Technology are made by imprinting a network of electronic components onto a wafer they're based on Silicon Wafers their products are silicon Wafers with Coss

transistors ah third to fifth elements so this like geranium and stuff like that let's look if they break down their revenue by different segments that's always an interesting way to do

it looks like they do custom as6 too at RF 20,000 employees on 1029 amazing Hawk

tan CEO Hawk e tan all right so here's the annual section we're going to do it like this

and this would just sum to the number we see here which it does they also break down revenue between products and subscription which is

cool or products and subscription and services so that's really helpful so they have one big distributor WT

micro Electronics never heard of them but this isn't my space sorry oh they do the Malaysia trick they sell in Malaysia and then the

Chinese companies bring them back to bring them back to China to avoid the tariffs it's a little trick you know okay it doesn't look like they break Revenue down any further than that

which is frustrating look like we got one more year annuals here again it's hard to determine how much of this growth is by

acquisition look at the cash flow though it's pretty pretty substantial cash flow I'm just going to hard code these numbers in for now I guess I could sum them through this one right oh no

can't um let's see 13 764 16736 18085 oops so what do you think it'll be for

this year maybe 22 billion so 40 times I don't know it seems expensive to me

man it's like a generic Tech it's like almost like a tech Mutual fund you know what I mean like it's just a tech conglomerate it'll probably keep going

up but it's not a bargain and it's a roll up right all they do is borrow money buy a company borrow money buy a company borrow money buy a company nothing wrong with that I do it too

but one mistake is all it takes