Broadcom Q3 FY10/24 Earnings Review

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Grab Bag Of Tech Remnants Keeps On Truckin

by Alex King, CEO, Cestrian Capital Research, Inc.

We can call Broadcom $AVGO a major player in AI if we like (because the name harks back to the original $BRCM, a white-hot chip stock when the Internet was young), or we can think of it as a grab-bag of stuff including virtualization software and other ageing cashflow streams. You choose.

For me I think there is no point trying to analyze fundamentals on a trend basis - there are too many weird and wonderful acquisitions for that, unless you have the ability to craft pro-forma accounts - and since nobody that doesn’t live in the bowels of the CFO’s office can do that, we won’t try.

This is in essence a large leveraged buyout with a tradable ticker. Nothing wrong with that as long as you know it if you own it or are thinking of owning it.

The easiest way I can think of to analyze an LBO from the outside is to watch (1) the total revenue line - up is good (2) the EBITDA and in particular unlevered pretax FCF margins - up is good (3) the net leverage (ie. Net Debt / TTM EBITDA) - down is good and (4) the share count - down is good.

Here’s $AVGO headlines.

And here’s the share count. What you want to see is that after each acquisition involving stock (which will cause a big jump up in the share count), the number ticks down due to buybacks or at least trends somewhat sideways whilst leverage falls and the balance sheet strengthens. So far this has more or less happened.

So, read on!