Part 3

Walt Disney (DIS)

Company Background

The Walt Disney Company is a diversified international family entertainment and media enterprise. It operates through a few different segments: Media Networks, Parks, Experiences and Products, Studio Entertainment and Direct-to-Consumer and International (DTCI). Founded back in 1923 by Walt and Roy Disney, the company has got almost 100 years of history in producing quality content and making families and children happy all around the globe. Walt Disney’s products include: television, publishing, films, music, video games, amusement parks, broadcasting, and radio and web portals. The company has become a global leader in the sector it operates and that has been reflecting on its share price performance especially in the past few years. The stock had been up 50% since the end of 2016 until early 2020 and there has been a clear uptrend going on the stock during that period of time. Yet, 2019 has definitely been the best year for Disney so far with the stock rising 35%, beating the market’s benchmark S&P 500 and its 28% gain during that period of time.

The market was in a very strong bullish rally throughout 2019, but that is not the only reason as to why the company managed to deliver such strong financial results and the stock price has spiked up so much. There has been a new major factor for Disney’s growth – the company’s new service – Disney+ (Disney Plus). Now, let’s have a look at the numbers.

Current position – Financial Performance & Future Growth Prospects

Walt Disney delivered strong financial results in the past few years, which has been leading to more buying interest among investors and traders and that has been driving the stock price higher.

If we take a look a little bit further back, we will see that the company’s financial statements had been showing a continuous improvement over the past 5 years since 2015. The sales had been growing steadily around 6-7% a year between 2015 and 2019, followed by a significant increase of 15% in 2019, led by the company’s acquisition of Twenty First Century Fox in March 2019. Disney acquired its competitor’s film and television studios, as well as its US cable and satellite channels, such as Fox Networks Group International, a 73% stake in National Geographic Partners, Indian television broadcaster Star India, and a 30% stake in Hulu. The acquisition let the company add Twenty First Century Fox’s assets and products contribute to Disney’s content portfolio. Fox’s television business is expected to increase Disney’s TV presence globally. In fact, one of the main reasons Disney acquired Fox was in order to strengthen its TV slate on a global basis and increase its international footprint after the acquisition. One should know that Fox Networks International operates above 350 channels in 170 countries and is a leader in this sector. The December 2019 ending quarter’s results were very strong and the company showed an increase in both revenue and profitability, driven by top-line growth across all of their segments, most particularly the Studio Entertainment and Direct-to-Consumer (DTC) businesses. In fact, the company has seen a great success on its recent movies Frozen II and Star Wars: The Rise of Skywalker, which boosted Studio Entertainment’s revenues. Actually, The Rise of Skywalker which came out in December 2019 had a great global debut with $198.8 million in sales, making it the No.1 western film in nearly all markets out there.

Looking at the current situation, we should note that Disney has been hurt significantly by the virus and sales as well as net profits have decreased. In fact, the company’s sales decreased almost 50% in the 12 months period between December 2019 and December 2020. The company reported its Q1 for the fiscal 2021 on February 11th and managed to beat the consensus estimates for both its top and bottom line by reporting adjusted earnings of 32 cents per share and revenues of $16.25 billion. Both of the metrics decreased substantially on an annual basis with 79.1% and 22.2% respectively.

However, Disney+ attracted its users immediately and helped the company gain a solid user base within a very short period of time based on its strong content portfolio and a cheaper bundle offering. Disney+ offers nearly 500 movies and 7,500 episodes of television from a variety of different brands, such as Disney, Marvel, Pixar, Star Wars and National Geographic, as well as Disney+ originals. Furthermore, Disney+ only costs $6.99 a month or $69.99 a year, which is half the price of their competitors at Netflix for example.

Disney+ has definitely been the company’s greatest success in the past couple years. The Walt Disney Company reported that Disney+ had nearly 95 million subscribers worldwide as of its first quarter of 2021. This marks a growth in the service’s subscriber base of almost 70 million since the start of the fiscal year of 2020. The service launched in November 2019 and by the company’s first fiscal quarter of 2020 had already amassed more than 26.5 million subscribers.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months has taken the price from the March 18th lows of 2020 around $79 to the $203 all-time highs in the beginning of March, 2021. This represented an astonishing 157% gain for the stock in less than a year. However, the road to the current all-time highs was filled with many different hurdles as the bulls had to overcome quite a lot of obstacles in order to keep pushing the price higher. There were few 10% corrective movements that took place during this strong uptrend, but the uptrend remained intact on all occasions.

We will start buying DIS at $185, just above the major support where lots of buying pressure is expected. In case the price breaks the support and drops further, we will be interested in adding more to our buy positions at the next strong support at $170. Our first take profit target is at $220, followed by the next target at $235 where we will be fully closing our positions and collecting the profits.

The stock has continued to attract a lot of investors’ attention as it remains the world’s largest entertainment company and its portfolio of services is absolutely astonishing. The phenomenal image that Disney has managed to build throughout the years has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some media and entertainment exposure to their portfolios. The stock is currently sitting at $195 per share near its all-time highs of $203 per share. It seems that the stock finally found some meaningful resistance at the current levels, after the massive 27% up move that the stock staged in the period January-February. The most recent rejection of the price at the $200 mark could be taken either as a signal for a fading bullish momentum and for a potential price correction ahead or as a momentum gathering period throughout which the bulls are trying to build some strength for the next push higher. A more meaningful correction should not be completely discarded as a potential scenario as nothing can go up or down in a straight line forever and after the strong bullish rally in the past 12 months it will be more than normal to see such downward corrective movement.

However, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market. We expect most of the big tech names as well as other favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLC and the XLK will be two of the best performing sectors in March. While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, we see that the winners would most likely continue to win. We remain cautiously bullish on DIS in the short term and believe that any price corrections should be treated as great opportunities to buy this strong performing stock at a good discount, which would in turn give us a chance to maximize our profits to the upside.

Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLC and the Communications sector as a whole would continue to attract a lot of the investors’ attention moving forward, as Communication is everything nowadays and the companies in this space are the ones shaping up our future. This makes us optimistic for the future performance of DIS as a meaningful part of the ETFs structure. Our analysis shows that as a result of the remarkable brand loyalty and impeccable brand image, even if a certain correction occurs, DIS will be able to hold its ground better than some of the other stocks out there.

Acknowledging the fact that we are once again approaching the all-time high levels in a time filled with plenty of uncertainty and high volatility, we would like to point out that buying at these levels would be more suitable for risk-oriented investors, while risk-averse traders should wait for a minor 5-7% correction before jumping back in on the long side. Thus, we are advising our risk-oriented followers to look at the 180-190 range for a potential long entry, while our risk-averse followers should wait for the 170-180 range in order to start buying.

PayPal Inc. (PYPL)

Company Background

Throughout the last 15 years PayPal has established itself as one of the largest online payment solutions providers on the back of its strong product portfolio and two-sided platform that enables it to offer smooth and secure transaction facility to both customers and merchants. PayPal is the largest “bank” in the world with over 305 million active accounts. The company operates as a payment processor for online vendors, auction sites, and many other commercial users, for which it charges a fee in exchange for benefits such as one-click transactions and password memory. PayPal is benefiting from robust growth in total payments volume owing to increasing net new active accounts. Further, strengthening customer engagement on the company’s platform has been a major positive.

Current Position – Financial Performance & Future Growth prospects

PayPal has a remarkably strong brand identity and recognition all around the world as PayPal’s safety and simplicity of transactions and the fact that it’s both brand and technology pioneer have allowed the company to establish itself as the go-to place for transactions online. PayPal recently announced that users would be able to buy, sell, and hold bitcoin in their Paypal accounts. But this wasn’t the biggest news. PayPal also said that it plans to eventually make bitcoin and other cryptocurrencies usable as a payment method for purchases through PayPal’s 26 million merchants.

While some small businesses were devastated as a result of the COVID-19 pandemic, other small and mid-sized companies that were fully on board with the digital revolution were able to continue making sales while stores were closed. PayPal was a force in processing payments for online businesses while while their on-site operations were closed. Additionally, PayPal also saw a significant increase in its peer-to-peer payments category. When looking at the numbers we could see that total payment volume increased 36% during the third quarter – the highest increase in the company’s history. Furthermore, in October, already into the fourth quarter, PayPal had its highest-volume day ever. Transactions also grew with 30% up to $4 billion – the most transactions ever.

One of its newest platforms has been the company’s peer-to-peer payment service, Venmo, which in turn is the key catalyst behind the solid growth in its total payment volume (TPV). Venmo is driving the active accounts base of the company with the aid of strong monetization efforts and robust features.

Additionally, the fast adoption of Venmo, thanks to the unique client base that PayPal possesses, has allowed PayPal to present a serious challenge to their up and coming rival Square. Furthermore, the company offers domestic and international person-to-person payment facilities with the help of PayPal and Xoom products.

One Touch, is another key growth catalyst for PayPal’s accelerating mobile volumes as a result of its robust mobile checkout services, and its overall contribution to the merchant and customer base.

With the aid of these robust products, PayPal continues to gain solid traction in the global online payment market. It allows customers to send payments in more than 200 markets globally. It has connections with financial service providers worldwide. Further, the company supports withdrawal of funds from bank accounts in 56 currencies and holding balances in PayPal accounts in 25 currencies. Additionally, transfer of funds supports more than 100 currencies globally.

Additionally, this San Jose, CA-based company is gaining from strategic acquisitions including Hyperwallet, Braintree and iZettle that are helping it in delivering better payment experience.

Furthermore, PayPal’s growing banking initiatives remain noteworthy. Instant Transfer to bank allows U.S. customers to transfer money to their bank accounts seamlessly within 30 minutes on the back of the company’s partnership with JPMorgan Chase.

Paypal has consistently grown both its revenue and net income over the years. It nearly doubled its revenue between 2015 and 2019, while net income more than doubled from $1.2 billion to $2.5 billion. In the second quarter of 2020, net revenue jumped by 22% year over year to $5.3 billion, while net income soared by 86% to $1.5 billion.

In 2019, PayPal generated revenues of $17.8 billion. It earns revenues transactions and other value-added services that accounted for 90.6% and 9.4%, respectively, of 2019 revenues. Further, the company’s primary geographical markets which include United States, the U.K. and Other Countries contributed 53%, 10.5% and 36.5%, respectively, to 2019 revenues.

PayPal Holdings reported non-GAAP earnings of $1.08 per share in its most recent earnings report, which positively surpassed the consensus by 8%. Furthermore, the figure improved 29% on a year-over-year basis.

Net revenues of $6.12billion also surpassed the consensus estimates of $6.04 billion. The figure improved 23% from the year-ago quarter on both reported and FX-neutral basis. Further, it increased 12% from the prior quarter.

The operational metrics relating to Paypal’s platform have been equally impressive. From Q2 2015 through its latest quarter, it achieved more than sixfold growth in net new active accounts, from 3.4 million to 21.3 million. Over the same period, total payment volumes more than tripled from $69 billion to $222 billion. With many countries encouraging people to switch to online payments to avoid handling physical cash, Paypal is in a great position to add many more new users in the coming years.

PayPal witnessed year-over-year growth of 24% in total active accounts with the addition of 16 million net new active accounts during the reported quarter. The total number of active accounts was 377 million in the quarter under review.

Technical Analysis

By looking at the daily chart, we can see the strong bullish rally that has occurred in the last 12 months has taken the price from the March 23rd lows of 2020 around $82 to the $309 all-time highs in the middle of February, 2021. This represented an astonishing 277% gain for the stock in less than a year. However, the road to the current all-time highs was filled with many different hurdles as the bulls had to overcome quite a lot of obstacles in order to keep pushing the price higher. There were multiple 10% corrective movements that took place during this strong uptrend, and also couple 20% declines but the uptrend remained intact on all occasions.

We will start buying PYPL at $240, just above the major support where lots of buying pressure is expected. In case the price breaks the support and drops further, we will be interested in adding more to our buy positions at the next strong support at $225. Our first take profit target is at $300, followed by the next target at $325 where we will be fully closing our positions and collecting the profits.

The stock has continued to attract a lot of investors’ attention as it remains the world’s largest non-traditional online bank with a continuously improving portfolio of services. The way that PayPal has managed to evolve into an innovative and disruptive fin-tech company throughout the years has turned the stock into a go-to choice for both small retail and large institutional investors looking to add some financial and tech exposure to their portfolios.

The stock is currently sitting at $242 per share, which is 21.6% below its all-time highs of $309 per share. It seems that the stock has finally found some meaningful support around the 225-240 levels, after the massive almost 30% decline that the stock staged in the last 2-3 weeks. The most recent failure of the price to break below the $225 mark could be taken either as a signal for a fading bearish momentum signaling for a potential bullish reversal ahead and a general resumption of the long-term uptrend. A more meaningful correction for the stock was anticipated by us as we clearly pointed to the heavily overextended nature of the uptrend in our last analysis of the stock back in November, 2020.

However, we believe that the new $1.9 trillion stimulus package accepted in the US, will inject a lot of liquidity into the market, which will be a great short-term positive for the equity market. We expect most of the big tech names as well as other favorites to restore their favorable image among traders and investors in the coming weeks, thus we anticipate that the XLC and the XLK will be two of the best performing sectors in March. While we believe that the stock market in the US is currently holding a lot of intrinsic risks – COVID-19, the newly formed office in DC, the economic recovery, the post-Brexit economic reality for the UK and EU etc. – and that we could be in for a sideways and choppy price action in the coming months. However, we see that the winners would most likely continue to win. We are strongly bullish on PYPL in both the short and long term and believe that the most recent price corrections must be treated as a great opportunity to buy this strong performing stock at a remarkable discount, which would in turn give us a chance to maximize our profits to the upside.

Moreover, some of the technical indicators that we are monitoring closely on a daily basis (50 DMA, 100 DMA, Bollinger Bands, RSI etc.) have already retraced from their overbought conditions and are signaling that the uptrend might be returning pretty soon. In addition to that, it is important to note the fact that the XLK and the Technology sector as a whole would continue to attract a lot of the investors’ attention moving forward, as technology is everything nowadays and the companies in this space are the ones shaping up our future. This makes us optimistic for the future performance of PYPL as a meaningful part of the ETFs structure. Our analysis shows that as a result of the great leadership performance by the senior management of the company and the phenomenal fundamental positioning of PayPal, the stock will be able to hold its ground better than some of the other stocks out there in the event of an even deeper correction, and it would also significantly outperform the broader market once the uptrend resumes.

Acknowledging the fact that we are in a position to buy at an over 20% discount from the all-time high levels, we would like to point out that buying at these levels would be suitable for both risk-oriented investors as well as risk-averse traders. Thus, we are advising all of our followers to look at the 225-240 range for a potential long entry on the stock

Sincerely,

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