WEBVTT 1 00:00:08.860 --> 00:00:10.650 Hello and welcome to this Vidcast, 2 00:00:10.650 --> 00:00:15.450 which is devoted to the return of a longstanding player in the 3 00:00:15.450 --> 00:00:19.730 tech business. Return to the stock market, the name of the company's arm, 4 00:00:20.470 --> 00:00:22.770 and it's not only a longstanding player, 5 00:00:22.880 --> 00:00:26.250 it's also a very specific company in terms of business model. 6 00:00:28.150 --> 00:00:32.930 The origin of the company is another firm whose name is Acorn Computers. 7 00:00:33.470 --> 00:00:38.250 The company was created in 1978 and it produced the 8 00:00:38.260 --> 00:00:43.250 first microchips arm one, which was in the first pc, 9 00:00:43.460 --> 00:00:46.730 which was developed by uk, by the government, by the way, 10 00:00:46.830 --> 00:00:50.810 in order to promote the use of personal computers in schools. 11 00:00:51.990 --> 00:00:52.890 In the mid eighties, 12 00:00:53.030 --> 00:00:56.810 the companies experiencing financial difficulties and as a consequence, 13 00:00:56.970 --> 00:01:00.650 it's going to be acquired by the Italian company or ti. 14 00:01:01.710 --> 00:01:02.730 In 1990, 15 00:01:03.590 --> 00:01:08.490 the company is creating a joint venture together with Apple and N 16 00:01:08.690 --> 00:01:10.250 X P, the Dutch company. 17 00:01:10.910 --> 00:01:15.690 The name of the company is going to be Advanced Risk Machines Limited 18 00:01:16.610 --> 00:01:21.490 a R m, and the aim of this company at first is to work on a very, 19 00:01:21.560 --> 00:01:24.730 very exciting project whose name is Apple, Newton, 20 00:01:25.350 --> 00:01:28.850 the ancestor of PDAs Palm, and so on so forth, 21 00:01:28.850 --> 00:01:32.890 which is going to be commercialized in 1993. And fortunately, 22 00:01:33.550 --> 00:01:36.250 the product is outstanding. It's mind blowing, 23 00:01:36.390 --> 00:01:38.330 but it's going to be a commercial failure. 24 00:01:38.870 --> 00:01:40.850 As a consequence of this commercial failure, 25 00:01:41.150 --> 00:01:43.530 the company is going to develop a new business model. 26 00:01:43.590 --> 00:01:47.570 We don't want to have one unique customer and focus on this customer. 27 00:01:47.790 --> 00:01:52.330 We want to diversify the number of customers and we're not going to manufacture 28 00:01:52.430 --> 00:01:56.730 and produce anything. We design systems and we sell the license. 29 00:01:58.910 --> 00:02:02.490 As an example, in the Nokia 61 10, 30 00:02:02.980 --> 00:02:07.170 there was a microchip which was manufactured by Texas Instrument ti, 31 00:02:07.990 --> 00:02:12.570 and a design of the microchip had been accomplished by arm. 32 00:02:13.560 --> 00:02:16.250 Then you understand that it is a game with three actors. 33 00:02:16.950 --> 00:02:19.970 Of course there is the O E M, the customer, Nokia. 34 00:02:20.580 --> 00:02:23.210 Nokia is selling consumer products, a smartphone, 35 00:02:23.630 --> 00:02:25.250 but in the smartphone there is a chip. 36 00:02:25.510 --> 00:02:30.370 The semiconductor partner is producing, developing, 37 00:02:30.370 --> 00:02:34.450 and producing and manufacturing the chips, but the system itself, 38 00:02:34.450 --> 00:02:36.210 which is going to be on the chips, 39 00:02:36.470 --> 00:02:41.010 is designed by Arm Army's licensing the technology to the 40 00:02:41.120 --> 00:02:45.010 semiconductor partner and is receiving upfront a license fee, 41 00:02:45.550 --> 00:02:47.770 but that's not one and unique source of revenue. 42 00:02:48.090 --> 00:02:53.090 The second source of revenue is when the partner is producing and selling chips 43 00:02:53.090 --> 00:02:57.610 to the O E M, customer arm is getting some royalty per chip. 44 00:02:57.830 --> 00:03:02.560 Do you understand that you have first upfront kind of repayment of r and d cost 45 00:03:02.980 --> 00:03:07.120 and then there will be a continuous stream of revenues as a consequence of 46 00:03:07.120 --> 00:03:09.040 selling the chips to the O E M? 47 00:03:10.030 --> 00:03:14.200 There's a very strong principle in our business model Neutrality. 48 00:03:14.890 --> 00:03:19.160 Neutrality means that you can develop chips which are going to be used by any 49 00:03:19.480 --> 00:03:23.520 customer, and you can partner with any semiconductor partner. 50 00:03:24.140 --> 00:03:29.080 And so you understand there is a diversity of potential customers and sources of 51 00:03:29.380 --> 00:03:30.213 income. 52 00:03:30.840 --> 00:03:35.800 I previously said that Newton has been developed by arm for 53 00:03:35.920 --> 00:03:37.640 Apple and it did not work, 54 00:03:38.500 --> 00:03:42.440 but Apple after 93 is going to experience a few difficult years. 55 00:03:42.700 --> 00:03:45.600 In 1997, the company is really in trouble. 56 00:03:46.060 --> 00:03:50.120 The revenues are dramatically down from 11 billion in 57 00:03:50.400 --> 00:03:55.000 1995 to 10,000,000,096, 7,000,000,097. 58 00:03:55.430 --> 00:03:59.840 This year the company is generating losses of 1 billion and the net cash is down 59 00:04:00.060 --> 00:04:03.200 and down to about 500 million. 60 00:04:04.620 --> 00:04:07.920 In February the same year it's a return of Steve Jobs, 61 00:04:08.340 --> 00:04:12.920 the well-known and charismatic co-founder of Apple with Steve 62 00:04:13.110 --> 00:04:17.560 Wozniak. Steve Jobs is going to completely transform Apple as you know, 63 00:04:17.980 --> 00:04:20.520 but in order to finance the transformation of the company, 64 00:04:21.030 --> 00:04:25.840 he's going to sell the 40% stake that Apple was holding in 65 00:04:25.940 --> 00:04:30.680 arm and they're going to generate approximately $800 million 66 00:04:30.780 --> 00:04:31.613 of cash, 67 00:04:31.810 --> 00:04:35.720 which is a nice compliment to the 500 million to finance a transformation. 68 00:04:36.110 --> 00:04:37.680 This is why John Scully, 69 00:04:38.140 --> 00:04:43.040 who had been C E O after Steve Jobs and before Steve Jobs one said 70 00:04:43.040 --> 00:04:48.000 that Apple saved arm because Newton was really a game changer for 71 00:04:48.300 --> 00:04:49.133 arm. 72 00:04:49.260 --> 00:04:54.080 But what is also important to remember is that arm saved Apple providing cash, 73 00:04:54.170 --> 00:04:58.800 800 million when the company definitely needed cash to transform 74 00:04:58.800 --> 00:05:00.440 itself. Well, 75 00:05:01.000 --> 00:05:05.280 probably what saved Apple is not only 800 million because cash is not enough to 76 00:05:05.680 --> 00:05:06.640 transform and save a company. 77 00:05:07.620 --> 00:05:12.000 Mac O SS X and iMac are also probably significantly 78 00:05:12.600 --> 00:05:14.760 contributing to the renewal of Apple. 79 00:05:15.980 --> 00:05:19.920 Now in 1998, this is the end of Newton, 80 00:05:20.820 --> 00:05:25.120 but in 98 it's also the I P O of arm on the London Stock Exchange. 81 00:05:25.590 --> 00:05:30.280 It's natural to be listed on the L S E when you are a UK company 82 00:05:31.140 --> 00:05:35.880 at that time, there are predominantly two segments. Smartphones, uh, 83 00:05:36.090 --> 00:05:37.240 Nokia was a good example, 84 00:05:37.460 --> 00:05:41.960 but also Internet of Things I O T and the companies 85 00:05:41.960 --> 00:05:44.440 designing systems for the microchips, 86 00:05:44.440 --> 00:05:49.040 which are used in this absolutely fantastic segment. By the way, 87 00:05:49.040 --> 00:05:53.840 in 2022, almost two thirds of systems on chips, 88 00:05:54.210 --> 00:05:57.000 socks are produced by Arm, 89 00:05:57.730 --> 00:06:02.200 65% worldwide market share. It's a tremendous success in this business. 90 00:06:02.940 --> 00:06:07.160 In 2016, ARM is acquired by SoftBank, 91 00:06:07.730 --> 00:06:12.200 SoftBank's, Maza or csun, and SoftBank also completed with um, 92 00:06:12.300 --> 00:06:14.240 the SoftBank Vision Fund. 93 00:06:15.060 --> 00:06:19.720 What's going to happen is that SoftBank is going to massively invest in research 94 00:06:19.720 --> 00:06:22.760 and development, boost investment in research and development, 95 00:06:23.100 --> 00:06:27.360 and it's going to complete the diversification of ARM in different segments and 96 00:06:27.360 --> 00:06:30.080 industries such as a car business and infrastructure. 97 00:06:31.140 --> 00:06:35.000 The announcement of the acquisition by SoftBank was made in 2016, 98 00:06:35.100 --> 00:06:39.960 but it takes time to realize such an acquisition and it was realized 99 00:06:39.980 --> 00:06:43.840 in 2017 the price is 25 billion turning pounds, 100 00:06:43.840 --> 00:06:47.520 which represented at that time about 32 billion US dollars. 101 00:06:48.190 --> 00:06:51.720 What were the financial metrics of ARM when the company is acquired? 102 00:06:52.260 --> 00:06:55.360 If you take the figures full year, 2015, 103 00:06:55.480 --> 00:06:59.960 revenues are about a billion turning pounds and earnings after tax. 104 00:07:00.020 --> 00:07:03.000 The bottom line, the net income is 400 and something. 105 00:07:03.460 --> 00:07:07.920 The return on sales bottom line divided by top line is about 44%. 106 00:07:08.550 --> 00:07:10.040 When the acquisition is announced, 107 00:07:10.420 --> 00:07:15.160 we have the figures first half of 2016 revenues are 108 00:07:15.520 --> 00:07:19.160 slightly up for the first six months, a bit more than 500 million, 109 00:07:19.580 --> 00:07:23.360 and the bottom line still represents 44% of revenues, 110 00:07:23.860 --> 00:07:27.920 so it's an now outstanding return sales and commercial profitability. Now, 111 00:07:27.920 --> 00:07:32.720 the price which is paid by SoftBank represents 58 times 112 00:07:33.360 --> 00:07:38.280 earnings. The price earnings is 58 and it also represents 26 113 00:07:38.280 --> 00:07:43.200 years of revenues of full year 2015. Of course, it's growing, 114 00:07:43.300 --> 00:07:48.040 but these are very strong on high multiples. Interestingly, 115 00:07:48.070 --> 00:07:51.080 it's about at that time that Messiah SHI son, 116 00:07:51.740 --> 00:07:55.680 the charismatic chairman and C E O of SoftBank group 117 00:07:56.620 --> 00:08:00.240 starts communicating on his vision of the world. 118 00:08:00.960 --> 00:08:04.640 I like to shake up the world and is making a strong reference, 119 00:08:04.640 --> 00:08:06.920 which is permanent in his communication. 120 00:08:07.700 --> 00:08:11.560 On the Maji restoration was a gentleman's name, 121 00:08:11.560 --> 00:08:13.400 was Oma Sakamoto, 122 00:08:14.120 --> 00:08:18.960 a very strong and important actor in this restoration and is 123 00:08:19.350 --> 00:08:23.400 used as an example to what we should do now to shake up the world. 124 00:08:24.180 --> 00:08:27.200 But the question is how do you shake up the world? Well, 125 00:08:27.600 --> 00:08:30.600 artificial intelligence, and if you look at the brain, 126 00:08:31.960 --> 00:08:35.520 a brain is a very sophisticated set of connections. 127 00:08:36.220 --> 00:08:39.960 In the center of the brain, you have the chip, which is designed by arm. 128 00:08:40.140 --> 00:08:43.360 So ARM is a core business, 129 00:08:43.720 --> 00:08:48.280 a core acquisition for SoftBank. As a consequence of the acquisition, 130 00:08:48.280 --> 00:08:52.640 revenues are going to go up from about $1 billion plus 131 00:08:53.100 --> 00:08:56.320 to $2.7 billion a few years ago. 132 00:08:56.960 --> 00:08:58.680 I mean today when the company's listed, 133 00:08:59.760 --> 00:09:04.760 I previously said that SoftBank is going to boost the investment in research and 134 00:09:04.760 --> 00:09:09.240 development and when you look at the p and l before the company is sold and 135 00:09:09.250 --> 00:09:12.920 today the r and d is up from 30%, 136 00:09:13.120 --> 00:09:17.640 a bit less than 30% in 2015 and 2014 and 2013 137 00:09:18.060 --> 00:09:21.960 to about 40% of revenues there. So it's an r and d company. 138 00:09:22.780 --> 00:09:26.320 If you want to observe the evolution of revenues generated by arm, 139 00:09:26.740 --> 00:09:31.120 you have three periods, one before the acquisition by SoftBank. 140 00:09:32.220 --> 00:09:37.120 The third one is from 2020 because now we have the figures as consequence of the 141 00:09:37.240 --> 00:09:42.160 I P O prospectus and you have the figures in between when the company is fully 142 00:09:42.250 --> 00:09:43.840 owned by SoftBank. 143 00:09:44.570 --> 00:09:47.960 There are some segment information provided by the company, 144 00:09:48.140 --> 00:09:52.440 but it's a little bit difficult to figure out exactly what happened during this 145 00:09:52.440 --> 00:09:52.770 period. 146 00:09:52.770 --> 00:09:57.600 Still we have revenue figures and what we can observe is that there was 147 00:09:57.600 --> 00:09:59.480 some growth before 2015. 148 00:09:59.900 --> 00:10:04.360 It seems that growth accelerated while the company was owned by 149 00:10:05.000 --> 00:10:05.833 SoftBank, 150 00:10:06.180 --> 00:10:11.120 but it seems that in 2022 there is a kind of stabilization 151 00:10:11.420 --> 00:10:15.800 of revenues. A few days ago the company was listed, 152 00:10:16.380 --> 00:10:20.560 but a few years ago the company might have been acquired by 153 00:10:20.980 --> 00:10:25.320 nvidia, the very well-known company in IT ecosystem in 154 00:10:25.840 --> 00:10:29.880 September, 2020, there is a common announcement made by arm, 155 00:10:30.460 --> 00:10:34.360 Nvidia and SoftBank and they say that with ai, 156 00:10:34.430 --> 00:10:37.960 with artificial intelligence coming from ARM IT ecosystem, 157 00:10:37.970 --> 00:10:41.320 which is so well known by Nvidia altogether, 158 00:10:41.320 --> 00:10:43.440 they are going to create a world leader. 159 00:10:43.950 --> 00:10:48.280 There's a strong commitment from Nvidia ARM will keep 160 00:10:48.860 --> 00:10:51.320 its customer neutrality principles. 161 00:10:51.320 --> 00:10:56.240 Otherwise you understand that Nvidia is going to concur and control the world. 162 00:10:57.300 --> 00:11:02.240 Nvidia also commits itself to strengthen the r and d presence in UK 163 00:11:02.300 --> 00:11:04.680 in Cambridge precisely. 164 00:11:05.520 --> 00:11:09.320 SoftBank is supposedly remaining a financial partner in the long term, 165 00:11:09.380 --> 00:11:11.800 but with less than 10% in the future. 166 00:11:12.820 --> 00:11:16.960 The amount which is proposed by Nvidia is $40 billion, 167 00:11:17.450 --> 00:11:21.680 which can be compared in 2020 to the $32 billion, 168 00:11:21.680 --> 00:11:26.160 which we're paid about five years before by SoftBank. 169 00:11:26.820 --> 00:11:30.480 The amount is going to be paid in cash and stocks cash, 170 00:11:30.580 --> 00:11:34.600 $12 billion and N V D I shares for an amount of 171 00:11:34.600 --> 00:11:35.920 21.5 billion. 172 00:11:36.300 --> 00:11:41.280 The cap is supposed to issue shares 44.3 million multiplied by 173 00:11:41.280 --> 00:11:45.240 the stock price. The equivalent value is 21.5, 174 00:11:45.300 --> 00:11:47.640 but if you add this figure to 12 billion, 175 00:11:48.220 --> 00:11:51.280 you get 33.5 and not 40 billion. 176 00:11:51.900 --> 00:11:56.440 The reason is that Nvidia buys 80% plus of the stocks, 177 00:11:56.620 --> 00:12:01.520 but SoftBank temporarily retains 16 point 25% of the 178 00:12:01.520 --> 00:12:02.353 shares. 179 00:12:02.750 --> 00:12:07.160 This last figure is supposed to go down to under 10% in the long term, 180 00:12:07.860 --> 00:12:12.160 but that's not the end for SoftBank because there's a out close. 181 00:12:12.780 --> 00:12:17.160 If ARM is generating financial performance, which is nice enough, 182 00:12:17.410 --> 00:12:21.920 there will be an additional paid price for SoftBank of $5 billion 183 00:12:23.020 --> 00:12:26.320 the day you want to buy arm, you want to attract people, 184 00:12:26.700 --> 00:12:28.480 you want to retain people. 185 00:12:28.590 --> 00:12:33.480 This is why there will be a specific share issue which is proposed to the 186 00:12:33.540 --> 00:12:38.160 ARM employees and it represents $1.5 billion stock 187 00:12:38.160 --> 00:12:40.160 options, restricted stock units, 188 00:12:40.440 --> 00:12:43.200 I mean stock based compensation of any kind. 189 00:12:43.790 --> 00:12:45.440 This was a great industrial project, 190 00:12:45.460 --> 00:12:49.960 but it's going to be refused and that was a little bit predictable 191 00:12:50.540 --> 00:12:52.240 by the antitrust authorities. 192 00:12:52.780 --> 00:12:57.360 The fight will stop in February, 2022, Nvidia with drugs. 193 00:12:57.790 --> 00:13:01.640 It's not the first time that the antitrust authorities are refusing this kind of 194 00:13:01.740 --> 00:13:06.720 merger, which was creating a giant dominant giant. In 2018, 195 00:13:06.740 --> 00:13:11.240 the authorities rejected the merger between Broadcom and Qualcomm. 196 00:13:11.980 --> 00:13:16.000 The same year. They had also rejected the acquisition of N X P. 197 00:13:16.220 --> 00:13:20.160 You remember a former ARM shareholder, the initial joint venture, 198 00:13:20.700 --> 00:13:25.160 the acquisition of N X P by Qualcomm, so it's going to be rejected, 199 00:13:25.830 --> 00:13:27.720 refused, and as a consequence, 200 00:13:28.060 --> 00:13:32.880 Nvidia is going to be forced to pay a severance fee of one point $25 billion to 201 00:13:32.880 --> 00:13:34.400 Salt Bank. Now, 202 00:13:34.420 --> 00:13:38.560 if you can't sell the company and if you want to make money out of your 203 00:13:38.560 --> 00:13:40.240 investment, you have to go public. 204 00:13:40.630 --> 00:13:43.200 This is a reason why there is one unique eternity, 205 00:13:43.200 --> 00:13:47.560 which is initial public offering. Now, what is the mood of the market? 206 00:13:48.220 --> 00:13:52.200 The moment the company is listed, I mean a few weeks ago, 207 00:13:53.100 --> 00:13:55.280 the market is not extremely excited. 208 00:13:55.730 --> 00:13:59.200 There are some other IPOs which are going to take place roughly at the same 209 00:13:59.200 --> 00:14:00.520 time. Instacart. 210 00:14:01.390 --> 00:14:04.640 Instacart is going to be listed at $42 per share. 211 00:14:05.190 --> 00:14:08.720 Then it's going to go up a little bit just after the I P O. 212 00:14:08.830 --> 00:14:13.120 Then it's going to stabilize and then it's going to drop to $25. 213 00:14:14.150 --> 00:14:16.600 Klaviyo is also a very interesting process. 214 00:14:17.180 --> 00:14:19.680 The company is listed for about $32. 215 00:14:20.460 --> 00:14:23.840 It goes up to 37, it goes down, 216 00:14:24.100 --> 00:14:27.880 and now it's about 32, 33, quite the same. 217 00:14:28.500 --> 00:14:32.080 In the meantime, the NASDAQ is down by 1.5%, 218 00:14:32.300 --> 00:14:35.960 so you understand that the market is not very excited by IPOs. 219 00:14:36.190 --> 00:14:38.800 What are the main conditions of the I P O? 220 00:14:39.330 --> 00:14:44.160 First Arm is a UK company though as a company's going to be listed 221 00:14:44.460 --> 00:14:49.120 not on the London Stock Exchange, but on the nasdaq it's a foreign investor, 222 00:14:49.380 --> 00:14:53.200 so the company is not going to list directly it's ordinary shares. 223 00:14:53.350 --> 00:14:57.320 It's going to be listed through American Depository Shares. 224 00:14:57.830 --> 00:14:58.800 It's not an issue, 225 00:14:59.460 --> 00:15:04.200 and your prospectus is named F one instead of SS one. 226 00:15:05.140 --> 00:15:09.600 Now, when you list a company, you can issue new shares there, you need cash. 227 00:15:09.820 --> 00:15:14.680 Arm does not need cash because ARM is cash rich and in addition to 228 00:15:14.680 --> 00:15:19.400 that, the financial performance of ARM is strong enough to self-finance, 229 00:15:19.500 --> 00:15:22.920 to self sustains growth. Other company does not need cash. 230 00:15:22.920 --> 00:15:24.280 As a consequence of bank, 231 00:15:24.280 --> 00:15:29.280 which wants to show an internal rate of return of its investment is going 232 00:15:29.280 --> 00:15:33.080 to sell shares. It's a SoftBank divestitures. 233 00:15:33.900 --> 00:15:37.600 At the end of the process, SoftBank will hold a little bit more, 234 00:15:37.880 --> 00:15:42.400 a little bit less of 90% of the share depending on over 235 00:15:42.800 --> 00:15:46.000 allocation or not. Interestingly, there will be commitments. 236 00:15:46.790 --> 00:15:51.760 Some usual suspect long-term partners of the company are going 237 00:15:51.820 --> 00:15:56.600 to decide to invest in the shares to maintain the link and the partnership. 238 00:15:57.260 --> 00:16:02.120 It represents a total of $735 million and you can see in the 239 00:16:02.120 --> 00:16:06.600 list a M D Apple long-term historical partner, 240 00:16:07.020 --> 00:16:11.960 Google, Intel, Nvidia, Samsung, T S M C, et cetera, 241 00:16:12.180 --> 00:16:13.013 et cetera. 242 00:16:13.420 --> 00:16:18.200 As SoftBank is selling 95.5 million A D Ss. 243 00:16:19.060 --> 00:16:21.560 As the offer price is $51. 244 00:16:21.660 --> 00:16:26.160 It represents about 5 billion cash in for soft banks, 245 00:16:26.900 --> 00:16:27.370 of course, 246 00:16:27.370 --> 00:16:31.760 minus about $100 million of fees you are going to pay to the investment banks 247 00:16:32.140 --> 00:16:34.400 and the lawyers. The stories, 248 00:16:34.620 --> 00:16:39.600 the equity story is about the brain arm is in the center of the brain 249 00:16:39.740 --> 00:16:44.160 of everything because it is in the center of artificial 250 00:16:44.200 --> 00:16:48.680 intelligence in I P O process. In order to make it a success, 251 00:16:49.560 --> 00:16:53.960 SoftBank is going to receive the nice support from this long-term historical 252 00:16:53.960 --> 00:16:55.000 partner Apple. 253 00:16:55.570 --> 00:16:59.800 Apple is going to announce that they have signed an agreement contract with 254 00:17:00.420 --> 00:17:05.120 arm, which extends the partnership beyond 2040. What does it mean? 255 00:17:05.340 --> 00:17:08.680 It means credibility. It means uh, auto book. 256 00:17:08.820 --> 00:17:13.320 It means long-term cash flows, so that's a nice support from Apple. 257 00:17:13.980 --> 00:17:17.920 Now, consequence of the environment and the I P O itself, 258 00:17:18.150 --> 00:17:21.240 what happens at stock price? The opening price, 259 00:17:21.300 --> 00:17:25.200 the offered price is 51. It's going to be a success the first year. 260 00:17:25.260 --> 00:17:29.720 The first closing price is $66. There will be a high, 261 00:17:29.720 --> 00:17:34.680 which is going to be observed very quickly after of $69, and then it goes down. 262 00:17:35.620 --> 00:17:39.200 It goes down and it's going to stabilize and go up a little bit. 263 00:17:39.570 --> 00:17:43.760 Today the stock price is $54 per share. 264 00:17:45.030 --> 00:17:47.600 From $51 to $54, 265 00:17:48.010 --> 00:17:52.360 there will be an increase of $3 out of 50, which is about 6%. 266 00:17:52.500 --> 00:17:53.640 During the same period, 267 00:17:53.700 --> 00:17:58.640 the NASDAQ is experiencing a drop of 3% from the moment the company 268 00:17:58.660 --> 00:18:03.440 is listed, thirteens 14th of September to the moment I'm recording. 269 00:18:03.470 --> 00:18:08.400 This is with cast, so it's not a failure When you are stock prices are by 6%. 270 00:18:08.400 --> 00:18:13.160 When the market is down by three, Nvidia was about to buy arm, 271 00:18:13.740 --> 00:18:18.080 but it's interesting to benchmark these two companies and compare their 272 00:18:18.230 --> 00:18:21.360 financial metrics. Let's compare them on the same basis, 273 00:18:21.370 --> 00:18:26.000 which is full year 2022, and let's first have a look at the revenues. 274 00:18:26.900 --> 00:18:29.840 NVIDIA is 10 times as big as arm 275 00:18:30.460 --> 00:18:35.200 $2.7 billion for one $27 billion for the other. 276 00:18:36.140 --> 00:18:37.480 In terms of return on sales, 277 00:18:37.480 --> 00:18:41.480 both are experiencing and generating a high commercial profitability, 278 00:18:41.660 --> 00:18:44.400 25% of EBIT for arm, 279 00:18:44.620 --> 00:18:46.760 35% of ebitda, 280 00:18:47.500 --> 00:18:50.800 but you remember that EBIT is transformed into ebitda, 281 00:18:50.800 --> 00:18:55.360 adding up de Precision amortization, but also this non-cash item, 282 00:18:55.410 --> 00:18:59.640 which is stock-based compensation. Again, options, 283 00:19:00.430 --> 00:19:04.880 RSUs and so on. Nvidia is generating an EBIT on sales, 284 00:19:04.880 --> 00:19:08.840 which is lower than arm 16% as opposed to 25%, 285 00:19:09.660 --> 00:19:13.800 but as a company is significantly distributing stock-based compensation to its 286 00:19:14.040 --> 00:19:17.760 employees, the EBITDA represents 31% to sales, 287 00:19:18.260 --> 00:19:21.600 31 for Nvidia, 34% for arm. 288 00:19:21.820 --> 00:19:23.640 The commercial profitability is high, 289 00:19:24.580 --> 00:19:27.720 but you remember that commercial performance is not performance. 290 00:19:27.720 --> 00:19:29.680 Performance is Return Capital employed. 291 00:19:30.390 --> 00:19:35.360 Then the capital employed at ARM is about $1.8 billion out of 292 00:19:35.360 --> 00:19:39.320 which Goodwill represent 1.7 billion. 293 00:19:40.220 --> 00:19:45.000 So the acquisition expenses are roughly the capital employed for arm. 294 00:19:45.000 --> 00:19:48.680 There's no manufacturing and property, plant and equipment of any kind. 295 00:19:49.420 --> 00:19:53.800 The capital employed without acquisition is 0.1, 296 00:19:53.800 --> 00:19:56.920 which is absolutely negligible. As a conent, 297 00:19:56.920 --> 00:19:59.840 the return capital employed is 36%. 298 00:20:00.500 --> 00:20:04.760 The company's assets turnover is 2.7 divided by 1.8, 299 00:20:04.890 --> 00:20:09.640 which is multiplied by 25%. 36% is a very high return capital. 300 00:20:10.310 --> 00:20:13.080 This means that the company has a fantastic growth potential, 301 00:20:13.500 --> 00:20:17.800 but together with profitability, performance, and returning capital. 302 00:20:18.910 --> 00:20:21.960 What about Nvidia? The return on sales is 16%. 303 00:20:22.740 --> 00:20:26.840 The company's capital employed represent $20 billion, 304 00:20:27.470 --> 00:20:29.960 including 6 billion of goodwill. Yes, 305 00:20:30.170 --> 00:20:34.280 there are manufacturing footprints and facilities at Nvidia. 306 00:20:34.900 --> 00:20:39.240 At the consequence, the assets turnover is just a little bit more than one, 307 00:20:39.300 --> 00:20:40.133 1.3, 308 00:20:40.330 --> 00:20:45.320 which is multiplied by 16 to give a return capital of 21% in 309 00:20:45.320 --> 00:20:48.040 both case return capital and gross, 310 00:20:48.590 --> 00:20:52.880 even though the gross is not that high for ARM in 2022. 311 00:20:53.340 --> 00:20:57.840 If you want to forge your own opinion about the financial value creation of a 312 00:20:57.840 --> 00:21:01.480 capital, you divide the enterprise value by the capital employed. 313 00:21:01.820 --> 00:21:05.880 The value of the business operations divided by how much was invested, 314 00:21:06.470 --> 00:21:08.400 it's 32 times for arm, 315 00:21:08.650 --> 00:21:13.520 which means that a D invested in the business has been transformed into $32 of 316 00:21:14.130 --> 00:21:18.960 value on a capital market. This multiple, which is named the market to book, 317 00:21:18.960 --> 00:21:21.480 is 56 times for Nvidia. 318 00:21:21.740 --> 00:21:26.080 So D again invested in business operations has been transformed into 319 00:21:26.080 --> 00:21:30.480 $56 of value. This is a fantastic value creation for both, 320 00:21:31.380 --> 00:21:35.080 but it looks better for Nvidia and it's the same for enterprise value on 321 00:21:35.200 --> 00:21:36.020 revenues. 322 00:21:36.020 --> 00:21:40.720 How many euro of revenues are justifying the enterprise value of 323 00:21:41.100 --> 00:21:43.000 21 Euro for arm? 324 00:21:43.580 --> 00:21:48.440 So the company is worth 20 years of revenues when Nvidia is worth twice as 325 00:21:48.440 --> 00:21:50.920 much 42 years of revenues. 326 00:21:51.860 --> 00:21:56.400 The return capital is less at Nvidia, but probably in the mind of investors. 327 00:21:57.280 --> 00:22:02.240 Prospects for growth are probably a bit higher for Nvidia. Now, 328 00:22:02.240 --> 00:22:03.280 where do we stand today? 329 00:22:03.640 --> 00:22:07.800 I told you that the current stock price is $54 per American 330 00:22:08.010 --> 00:22:09.800 depository share per share, 331 00:22:10.780 --> 00:22:15.120 it represents a market capitalization of $55 billion. 332 00:22:15.650 --> 00:22:18.400 Quite good news for SoftBank and Nvidia, 333 00:22:18.770 --> 00:22:23.360 there were right one buying for $32 billion. 334 00:22:23.540 --> 00:22:26.520 The other one proposing $40 billion. 335 00:22:26.910 --> 00:22:31.240 They were right in their estimations and today some financial 336 00:22:31.360 --> 00:22:34.800 analysts anticipate that their stock price is going to double 337 00:22:35.500 --> 00:22:36.720 $100. 338 00:22:37.760 --> 00:22:40.920 I just said that at $54 per share, 339 00:22:41.500 --> 00:22:45.160 the company is evaluated for 20 years of revenues. 340 00:22:45.380 --> 00:22:49.720 Now at 100 it's going to be 40 years of revenues, which is by the way, 341 00:22:49.720 --> 00:22:51.440 the multiple for Nvidia. 342 00:22:52.060 --> 00:22:55.120 So it's not a completely a realistic assumption. 343 00:22:55.980 --> 00:22:58.640 You remember it was a video in the academy. 344 00:22:59.680 --> 00:23:04.080 Snowflake was listed for 100 euros of revenues 345 00:23:04.780 --> 00:23:07.880 and at the end of the day, stock price went a little bit down. 346 00:23:08.100 --> 00:23:12.680 But what is very interesting is that Soft Bank keeps 90% of the 347 00:23:12.700 --> 00:23:13.533 shares. 348 00:23:13.700 --> 00:23:18.440 It probably means that Maan anticipates the stock price is going to 349 00:23:18.580 --> 00:23:19.480 go up again. 350 00:23:20.130 --> 00:23:23.800 Maybe he has the same opinion as a financial analyst, 351 00:23:24.580 --> 00:23:28.760 but anytime I read some optimistic anticipations about 352 00:23:29.150 --> 00:23:30.560 evolution of stock prices, 353 00:23:31.160 --> 00:23:35.200 I remember the statement made by John Rockefeller. 354 00:23:35.510 --> 00:23:39.480 Rockefeller was the first American person to become a billionaire in dars, 355 00:23:39.980 --> 00:23:44.440 and his wealth as a percentage to G D P has never been reached by any 356 00:23:44.650 --> 00:23:47.760 additional person such as Bill Gates or whatsoever. 357 00:23:48.430 --> 00:23:49.960 Rockefeller used to ask the question, 358 00:23:50.060 --> 00:23:53.240 how much money does it take to make a person happy? 359 00:23:53.790 --> 00:23:56.320 It's a question about wealth. It's not wealth, 360 00:23:56.670 --> 00:24:01.360 it's just one more dollar. So if you want to make somebody happy, 361 00:24:01.910 --> 00:24:05.800 it's not how many dollars you hold is the additional dollar, 362 00:24:05.970 --> 00:24:09.320 which definitely makes you happy. So Mr. 363 00:24:10.260 --> 00:24:15.080 Maayan is probably anticipating a lot of happiness and additional 364 00:24:15.350 --> 00:24:18.680 happiness from arm. Thank you very much.