Sunday, June 2, 2019

NGK - My Perspective


After a long time, felt like writing about a movie. Watched Director Selvaraghavn’s #NGK starring Suriya. Selvaraghavan tried to get the art house of cinema into the commercial format leaving the film open ended rather than answering all the why’s. The film is like reading a novel where you tend to loose the narration and at some point feel senseless about what’s happening. But if watched closely, many hidden layers and metaphors are used in the screenplay and its amazing if we connect the dots.


#NGK is about the journey of a guy who don’t know the ABC of politics to knowing the alphas & betas of the game. Suriya who was nothing short of a spectacle as #NGK starts off acting like a kid and this is clearly established by the way he asks Sai Pallavi to encourage him before he enters politics.




In movie we keep hearing the dialog “I’m learning” very often. The film is about what NGK learned from the circumstances and how did he apply it to become successful. During his initial interactions with the local MLA, NGK is all calm, confused & surprised (he hardly blinks his eyes during this portion) about what’s happening indicating that he’s a kid in the political system. But once he learns about how to get into the system, NGK is all fun, quirky and the brilliance of Selvaraghavan comes in the way he shows the entire episode in a satirical, dark comedy way. In the mean time we get introduced to Vanathi(Rakul) who is a political analyst. The film progresses well until we reach the interval, where his friend asks Suriya to stab him to death in a dharna as he’s going to die of a disease and it will help him for his image building. I found this out of sense and bland writing initially but the brilliance of the film maker is how he had an underlying layer in this episode. The 1st half of the 2nd half is also about the circumstances what the character goes through and the film literally gets interesting after the fight in the hospital. The character transformation happens from here.




NGK underplays allowing the people to think that he is dead after the attack on him gets a widespread attention. He wants the people to sympathize him and understands if he comes out of no where its going to be a celebration. This is displayed through a fantastic music and dance beat. The blocking and framing were just lit here ( If closely observed the song starts of with a music that’s played when a body is taken to a graveyard indicating the peoples belief that NGK is dead and when he suddenly appears, the music is all blasting ).





The extreme transformation happens in the stage scene where NGK is all alone with the person who raises the spark in him to join politics discussing about his way of speech. NGK is all of respect to this person till now but he threatens him not to discuss what’s happened with anyone outside. This clearly establishes that he’s transformed into a selfish politician.






Before leaving to the meeting, NGK asks his parents to look at him for one last time. We get the feeling that Suriya will die and yes he will be attacked.  But its his parents who will die. The director uses the interval scene as a metaphor and indirectly indicates that NGK killed his parents for his political mileage(initially its through his friend’s death that he gets noticed). So, all the climax speech by him was acting from his side so the people sympathize with him.




Its his men in the meeting who start the attack on the opposition leader and the crowd follows. NGK thinks of starting a political party but learns from Vanathi that he will be needing money and cadre support. So, he continuous with the opposition party so he has better prospects of winning the election(This is established in the media discussion). The movie ends with NGK giving an interview to a telivision channel where he is asked about forming the government on an alliance. He replies “I’m still learning”. The director clearly establishes that he is a full fledged politician now and we understand that some people might have turned against him continuing with the opposition party and so he didn’t get an absolute majority.

Overall #NGK is a complete director's film with a stellar performance from Suriya. Highly recommend watching it.

Sunday, February 26, 2017

Valuation of Snap Inc.


Wherever something fascinating happens the excitement to watch it is overshadowed by the fact that we need to add a snap story of it. In the time of what is touted to be one of the biggest IPO’s, I valued Snap Inc. Here I present my numbers and the story behind the assumptions.

Initially, while reading the S-1 what stuck me is that Snap claims itself to be a camera company. Should I assume Snap operates in a business of manufacturing cameras?? It doesn’t make sense. My valuation began with finding the right industry in which Snap Inc, operates. The main source from which Snap derives its revenues is the online mobile advertisement platform. In recent times mobile advertising has become a big boom to companies like Google, Facebook, Twitter. As of Dec 2016, mobile ads constituted about 40% of the advertising sector. The major factor for mobile advertising is the average amount of time an user spends on the app rather than the number of users. This is what has driven the revenues of Facebook by 30% in the fourth quarter of 2016 and FB claims that users spent more time on Facebook & Instagram which in turn gave them the opportunity to expand the number of slots for ads. According to a recent article on WSJ, when analysts asked Snap Inc. executives about its decelerating user growth and competition from Facebook, Mr. Spiegel emphasized that the number of users matters less than how much they spend time on the app. Snapchat is next only to Facebook with an average user spending around 20-30 minutes in the app daily.

When valuing relatively new companies, everything seems to be offbeat and Snap is no exception to it. The cashflows were negative in the last two years but it showed an increase of 589% in revenues. It will be foolish if we expect the same growth rate in the coming years. The best possible way to value startups or new firms without any substantial cash flows is to compare the firm with its peers. As Facebook went to IPO in 2012 in order to have a better picture I considered the average growth rates of Google revenues for the last 10 years and assumed Snap to be growing around the same average(35%) in the foreseeable future. Initial growth rate was assumed to be 60%(2017-2019) and then a growth of 30%(2020-2023), finally a 15% rate was considered from 2024-2026. Thereafter I assumed that the terminal cash flows will grow at a rate equal to the US risk free rate of 2.38%. The EBT margins were set to a value of 31.5% in 2026 and the previous margins were calculated based on an improvement spread of 50%. Snap claims that it owes Google Inc. $2 billion in the next 5 years for using their cloud front services. The capital expenditures were calculated based on this and an estimated sales/capital ratio of 2.

The following steps were followed in arriving at the cost of capital
  • US Risk Free rate of 2.38% and Equity risk premium of 5.69%
  • The average unlevered beta of 0.90 is taken for the advertising industry and it is relevered at Snap Inc’s current Debt/Equity ratio.
  • Cost of equity is calculated using CAPM and is equal to 7.54%.
  • Based on the current Interest coverage ratio of -362.17, I considered a rating of D2/D for the firm and the corresponding rating based spread of 14% has been added to the risk free rate to arrive at a 16.38% cost of debt.
  • Snap Inc. do not have any preferred shares.
  • From the S-1 a total of 1151.15 million shares are being issued (look at the excel sheet for detailed calculation). The price per share was assumed to be at $16 based on reports speculating that Snap can be priced between $14-$16.
  • The debt value is taken from the 10-k and the estimated cost of capital is 7.58%.

Proceeds from the IPO are estimated to be $3 billion at $16 per share, which will be retained by the company. In calculating value of options: volatility, strike price & term to expiration are taken from the S-1 filed by Snap Inc. It is assumed that options do not provide any tax advantages. Taking the above assumptions my value for Snap Inc. is $10.87 per share. I want to be clear that $10.87 is the amount at which I value a share of Snap Inc and it not the price per share of the firm. 

Facebook had a worst IPO but now its stock price is soaring high while Twitter had an excellent IPO but it is plunging now. One major factor which I think will have a significant effect on the stock price is acquisitions. If Snap Inc. can be a takeover target of leading tech and media companies it greatly helps in boosting the share price. The recent example is Twitter, when it was not preferred to be acquired by either Google or Disney and the leaked list of Salesforce acquisition targets didn’t feature Twitter, the share price fell considerably.  Finally, I would like to conclude that it is unpredictable to say how Snap Inc. will perform in the future. I prefer to trade Snap Inc. rather than investing in the firm.

Click here to download the spreadsheet depicting the valuation.