I forgot to mention the $6.1 billion of non-current deferred liabilities is related to a royalty payment from Nestle for a licensing deal over 40 years. This by no means is a bad liability but this will mean there will be revenue being recorded every year that has no cash received as its all been paid upfront. This naturally makes Starbucks balance sheet stronger compared to having $6.1 billion of interest bearing liabilities. You could view it as kinda a interest free loan.
Wouldn’t it be wise to compare SBUX to other companies with negative equity? I’m no expert but a 10% discount seems kinda modest to me. Conceptually I’m looking at SBUX like, why would I wanna own this company when so much of its proceeds from sales are due to bondholders, royalty holders, and customers? There’s also some structural threats they may face, including economic downturn, changes in consumer behaviors, unionizing employees, and boycotts due to the perceived political positions of the company.
I use 10% as a rough estimate from the negative equity relative to the market cap.. accounting for good will -$12 bil to a $98 bil market cap is about 12%. The licensing deal with Nestle for the remaining $6.1 billion is no money going out on from them… they will just be recording $177 million revenue per year for 34.5 years they have already received so all this will do be we adding some extra revenue each year they aren’t getting cash for. I actually think penalizing them for this, like I am, is a little critical but I think the “market” as a whole will discount them for this. Broad things like economic downturns, consumer behaviours or whatever else are pretty much risks every company has. Many of these trends like consumer behaviours will show up slowly overtime with slipping gross or operating margins. If we somehow slip into a economic downturn like 2008-2009 well no stocks are safe 😅
As sbux is a big moat i prefer the debt to be used to do buybacks. The only good thing about having no debt is you feel more secure about the duration of the business but with the exception of a moat, for example if coca cola increases their debt significantly that means nothing and is actually an advantage for a company when they have a big of a moat. Also i dont consider the sbux debt is unpayable or too high
Considering the low interest rate on the debt it was a good decision to do the buybacks. I am mainly factoring this is as SBUX garnering a lower multiple compared to the recent past because of this significant change in equality on the balance sheet.
I appreciate your content. Would you please consider doing an update on CHTR? The price is looking very attractive, and most of the fundamentals look good, but the debt seems concerning. Also, does the outlook for growth concern you?
The quick update is growth has been revised down in the short term. The temporary dispute with Disney created a loss of customers the last quarter. Potential future loss of customers if governments ACP program isn’t renewed. Debt I wouldn’t be overly concerned with since this is the case with all telecommunication companies. But when guidance goes down the stock will go down as well. Which they are being priced for short term stagnation with the 9 PE they are at now as there is uncertainly around what forward growth may be.
See for example what happened to Netflix in 2022. Their subscriber growth slowed considerably and they got priced in for that flat growth. Then that happened to not really be the case and have ran up close to the highs again. Now I wouldn’t expect CHTR at all time highs any time soon or their growth to reaccelerate to previous levels but I would expect it to normalize in the future which when forecasts start showing that their price would reflect that accordingly.
@@nealburnett4557 before year end 2024 then 2025 were estimated at $41 & $48 and now it’s estimated down to around $34 & 37 with acceleration after that. So you can see the markets prices that in with the current drop.
![KSI - Dirty [Official Visualiser]](http://i.ytimg.com/vi/VoDh1h1dPUE/mqdefault.jpg)
I forgot to mention the $6.1 billion of non-current deferred liabilities is related to a royalty payment from Nestle for a licensing deal over 40 years. This by no means is a bad liability but this will mean there will be revenue being recorded every year that has no cash received as its all been paid upfront.
This naturally makes Starbucks balance sheet stronger compared to having $6.1 billion of interest bearing liabilities. You could view it as kinda a interest free loan.
Wouldn’t it be wise to compare SBUX to other companies with negative equity? I’m no expert but a 10% discount seems kinda modest to me. Conceptually I’m looking at SBUX like, why would I wanna own this company when so much of its proceeds from sales are due to bondholders, royalty holders, and customers?
There’s also some structural threats they may face, including economic downturn, changes in consumer behaviors, unionizing employees, and boycotts due to the perceived political positions of the company.
I use 10% as a rough estimate from the negative equity relative to the market cap.. accounting for good will -$12 bil to a $98 bil market cap is about 12%.
The licensing deal with Nestle for the remaining $6.1 billion is no money going out on from them… they will just be recording $177 million revenue per year for 34.5 years they have already received so all this will do be we adding some extra revenue each year they aren’t getting cash for.
I actually think penalizing them for this, like I am, is a little critical but I think the “market” as a whole will discount them for this.
Broad things like economic downturns, consumer behaviours or whatever else are pretty much risks every company has. Many of these trends like consumer behaviours will show up slowly overtime with slipping gross or operating margins. If we somehow slip into a economic downturn like 2008-2009 well no stocks are safe 😅
I bought 100 shares at 84 and change and would be comfortable buying down to 75..
As sbux is a big moat i prefer the debt to be used to do buybacks. The only good thing about having no debt is you feel more secure about the duration of the business but with the exception of a moat, for example if coca cola increases their debt significantly that means nothing and is actually an advantage for a company when they have a big of a moat. Also i dont consider the sbux debt is unpayable or too high
Considering the low interest rate on the debt it was a good decision to do the buybacks. I am mainly factoring this is as SBUX garnering a lower multiple compared to the recent past because of this significant change in equality on the balance sheet.
I appreciate your content. Would you please consider doing an update on CHTR? The price is looking very attractive, and most of the fundamentals look good, but the debt seems concerning. Also, does the outlook for growth concern you?
The quick update is growth has been revised down in the short term. The temporary dispute with Disney created a loss of customers the last quarter. Potential future loss of customers if governments ACP program isn’t renewed. Debt I wouldn’t be overly concerned with since this is the case with all telecommunication companies. But when guidance goes down the stock will go down as well. Which they are being priced for short term stagnation with the 9 PE they are at now as there is uncertainly around what forward growth may be.
See for example what happened to Netflix in 2022. Their subscriber growth slowed considerably and they got priced in for that flat growth. Then that happened to not really be the case and have ran up close to the highs again.
Now I wouldn’t expect CHTR at all time highs any time soon or their growth to reaccelerate to previous levels but I would expect it to normalize in the future which when forecasts start showing that their price would reflect that accordingly.
@@balancesheetsmatter Thank you! This is helpful. Great example with Netflix.
@@nealburnett4557 before year end 2024 then 2025 were estimated at $41 & $48 and now it’s estimated down to around $34 & 37 with acceleration after that. So you can see the markets prices that in with the current drop.
27 PE for single digit rev growth... no thanks
Down BIG since the video
@@jacksonsoundcloud in the video I pointed to around $76 as a more attractive price point I was interested at buy at 🤷♂️