• Sharebar

Morning Monkeys,

I'm sure you've all been waiting with bated breath to look at some amateur's first try at an ER report. Hopefully this won't be an utter and complete waste of your time, but I somehow suspect it will be. So, for those of you kind enough to take a look at it and offer some constructive (or unconstructive) criticism and/or editing notes, let me thank you in advance.

Yesterday I posted a question about some of the funnier aspects found in an ER report and after reading everyone's experiences, I was able to make some key changes to my "report" namely, a better title. Now, is my new title funny, original, or the least bit entertaining? No, it's dumb, but hey, gotta start somewhere, right?

At any rate, I'm not kidding about the free beer if you take a look at it, but I do have a few caveats so that I'm not shelling out several thousand dollars on you hard drinking monkeys out there:

1) You need to live near me, which, sadly for most of you, is Richmond, VA. Since this site is called "Wall Street" Oasis, I suspect out of the 40-50 thousand users, this probably means there's 9 who live in this area. But, if there's a lot of response (highly unlikely given the request), maybe I'll come and park a keg in Zuccoti Park or something (assuming there's no dirty hippies in the area.)

2) In order to get said free beer, when we meet, you'll need to be prepared to discuss it constructively for, let's say, 3-8 minutes.

3) At some point in your career, someone needs to have paid you to do equity research. So, if you're some college junior at University of Richmond, stick to the comments section, it's not that I don't care what you think, it's just that I'm not willing to pay for it.

I should note, I'm actually fairly good at modeling, but most of my work is with actuarial models as opposed to financial models, so I've tried to keep the valuations simple so I don't look like a complete idiot. Also, my professional career and college coursework have all been mathematics, so my level of financial analysis knowledge is limited to what's in the CFA level 1 material (passed in June!) So, expect stupid errors.

Anyways, thanks again to everyone who takes time out of their day to take a look at this. I'm sure it's awful for a variety of reasons, but I've tried to support my conclusions the best I could. Looking forward to hearing what you think.
https://docs.google.com/open?id=0BzgRTYOUIJE5LUlXd...

Thanks monkeys!

The WSO Advantage - Equity Research

Financial Modeling Training

IB Templates, M&A, LBO, Valuation. Learn More.

Wall St. Interview Secrets Revealed

30,000+ sold & REAL questions. Learn More.

Resume Help from ER Pros

Land More Interviews. Learn More.

Find Your Mentor

Realistic ER Mock Interviews. Learn More.

Comments (15)

  • Ovechkin08's picture

    Just a brief comment, your report lacks 2 key elements:

    1) charts/graphs. Investors only skim the top of reports and will only read full reports if they really like the intro/idea You need to grab attention in the first paragraph and have less text and more visuals.

    2) Where are your forecasts? I want to see what you think the numbers will look like over the next few years. Show us your DCF model in the back as an appendix too.

    I will get a copy of a JPM report and send it to you when I have a bit more time.

    Other than that, good attempt, keep it up!

  • ladubs111's picture

    Ok ER reports aren't lab reports. You don't have to write step by step your DCF model. Just tag on the DCF model IS/BS/CF on the appendix. Also instead of listing numbers like 2008-2011 ROE numbers u had, use tablets. Also the analysis is weak, but expected.

    Last pro-tip, imagine us analyst/associates/fund managers got hundreds of these to go thru a week, so you want to present it short and sweet. don't write out list of numbers in the body of the paragraph when u can just show it. This isn't college English 101 anymore where bsing enhances grades, we hate all the extra words. If you can convert some of those sentences into charts, tablets, graphs instead it would be a lot better.

  • West Coast rainmaker's picture

    Agree with above points. Shrink the title - it takes up too much room on the front page. State upside to current price (and what current price is!).

    Open Table's growing revenue? How fast? Does this translate to EPS? Is it generating cash?

    Get 1 or 2 attractive graphs for the front page. Scatter the rest throughout as appropriate, or put in appendix.

    Agree with the need for forecasts. Get 3Q12, 2012, and 2013. You list some attractive parts of the business (eg international expansion) but how does this impact EPS? And how do your ideas differ from consensus?

    You also haven't clearly articulated how you are valuing this- PE? Cash flows? It's clear if you read the report that you are using a DCF, but say so up front. Personal preference, but I like to come up with a value some other way, then use a DCF to sanity check it. Of course, your DCF should incorporate your projections.

  • Solaxun's picture

    Consider this guy has no publishing software so it's pretty damn difficult to make a report look pretty in MS word.

  • SirTradesaLot's picture

    Never, NEVER write a research report that says 'I think' or 'my opinion'. Always use "WE" or "OUR OPINION". It gives it more authority. No professional would make that error.

    You give a price target without a current price. Don't make me do work. Give me the current price.

    You can abbreviate millions of shares and things like that.

    Calculate beta yourself. Define the timeframe you want to tell your story and use "=linest(__,__)" in excel to calc beta using the historical data.

    I'm not going to opine on the stock itself and form your opinion of it. Overall, nice first try.

    adapt or die:
    What would P.T. Barnum say about you?

    MY BLOG

  • In reply to SirTradesaLot
    tiger2012's picture

    SirTradesaLot:
    Never, NEVER write a research report that says 'I think' or 'my opinion'. Always use "WE" or "OUR OPINION". It gives it more authority. No professional would make that error.

    You give a price target without a current price. Don't make me do work. Give me the current price.

    You can abbreviate millions of shares and things like that.

    Calculate beta yourself. Define the timeframe you want to tell your story and use "=linest(__,__)" in excel to calc beta using the historical data.

    All of this advice and more. Maybe its just me, but because of the IB focus of WSO everyone gets way too hung up on DCFs.

    Try building your own bottom up IS model and run out the line items for the next 2-3 years. (3rd year number is always a bit iffy, especially in a growthing business like OpenTable.) Buy-siders aren't going to read your report because of your valuation, they want to know your opinions on changing condititions (revenue growth, changes in GPM, SG&A leverage).

    When it boils down to it, I'm much more interested in reading a sell-side report that has a big earnings divergence from consensus.

  • In reply to tiger2012
    mikesswimn's picture

    tiger2012:
    SirTradesaLot:
    Never, NEVER write a research report that says 'I think' or 'my opinion'. Always use "WE" or "OUR OPINION". It gives it more authority. No professional would make that error.

    You give a price target without a current price. Don't make me do work. Give me the current price.

    You can abbreviate millions of shares and things like that.

    Calculate beta yourself. Define the timeframe you want to tell your story and use "=linest(__,__)" in excel to calc beta using the historical data.

    All of this advice and more. Maybe its just me, but because of the IB focus of WSO everyone gets way too hung up on DCFs.

    Try building your own bottom up IS model and run out the line items for the next 2-3 years. (3rd year number is always a bit iffy, especially in a growthing business like OpenTable.) Buy-siders aren't going to read your report because of your valuation, they want to know your opinions on changing condititions (revenue growth, changes in GPM, SG&A leverage).

    When it boils down to it, I'm much more interested in reading a sell-side report that has a big earnings divergence from consensus.

    Quick question, for a bottom up IS model, is there any particular method that is preferrable? If I can find some sort of collerlation to, let's say, interest rates, household income, etc. I could build out a stochastic model for that purpose (although, that would take a while). Or, should I just utilize some version of the NY7 on revenues and run scenarios? Or, most likely, am I over thinking this?

    Thanks everyone!

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • mikesswimn's picture

    Also, thanks to everyone who took a look and offered me all of this great advice. I really appreciate it.

    If/when I should ever meet any of you, remind me that I owe you some drinks.

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • In reply to mikesswimn
    mikesswimn's picture

    mikesswimn:
    Quick question, for a bottom up IS model, is there any particular method that is preferrable? If I can find some sort of collerlation to, let's say, interest rates, household income, etc. I could build out a stochastic model for that purpose (although, that would take a while). Or, should I just utilize some version of the NY7 on revenues and run scenarios? Or, most likely, am I over thinking this?

    Ignore that, stupid question, going to run with a (very) modified CRR method to create a bottom up IS model. Will it work out? Probably not, but should be instructive.

    Thanks again to everyone!

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • In reply to mikesswimn
    tiger2012's picture

    [/quote]Quick question, for a bottom up IS model, is there any particular method that is preferrable? If I can find some sort of collerlation to, let's say, interest rates, household income, etc. I could build out a stochastic model for that purpose (although, that would take a while). Or, should I just utilize some version of the NY7 on revenues and run scenarios? Or, most likely, am I over thinking this?

    Thanks everyone![/quote]

    Way overthinking it. I don't know much about OpenTable but I'd guess they give a number of resturant partners and machines in their filings. So revenue on a per resturant or machine basis. Costs, etc.

  • In reply to tiger2012
    mikesswimn's picture

    tiger2012:
    Quick question, for a bottom up IS model, is there any particular method that is preferrable? If I can find some sort of collerlation to, let's say, interest rates, household income, etc. I could build out a stochastic model for that purpose (although, that would take a while). Or, should I just utilize some version of the NY7 on revenues and run scenarios? Or, most likely, am I over thinking this?

    Thanks everyone![/quote]

    Way overthinking it. I don't know much about OpenTable but I'd guess they give a number of resturant partners and machines in their filings. So revenue on a per resturant or machine basis. Costs, etc.[/quote]

    Yes, that's precisely what they do, but surprisingly, I didn't see it in the 10K but found it in their annual shareholders report. I definitely have that data, thanks for the suggestion!

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

  • justanother's picture

    To unlock this content for free, please login / register below.

    Connecting helps us build a vibrant community. We'll never share your info without your permission. Sign up with email or if you are already a member, login here Bonus: Also get 6 free financial modeling lessons for free ($200+ value) when you register!
  • In reply to justanother
    mikesswimn's picture

    "My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."