$ELY: A great mid-term play

So I know that there was a bunch of noise about Callaway pre-earnings and it kind of died since they went down since earnings, but I am going to reveal to you all why at $ELY's Current valuation they are a steal:

First I am going to list the exciting factors and then will give my areas of concern:

I want to start with the Financials - I am not going to give you all a serious breakdown, if you want to see the financials, go here: $ELY IR So from looking at the recent earnings report, we see that Callaway actually lost money last quarter - not good, But also not a problem or red flag. If you use your brain and look at the Financials, Callaway always loses money in Q4 - at least going back to 2017 which is as far back as I went. and also, that's the only quarter they lose money in. (with the exception of the quarter ending 6/2020, but that's an exception). So what does this tell me? well, mainly everyone that thought that Callaway's earnings for Q4 were going to be amazing are retarded, especially since the Topgolf merger hasn't finished yet (the merger is actually going to finish in March), but also because this business is cyclical. Secondly, it tells me the sell off afterwards has left Callaway very undervalued.

Now Quickly we are going to take a divergence and look at a competitor to Callaway - $GOLF. They have had a very similar trajectory and their numbers are very similar to Callaway ($GOLF Financials $ELY Financials) In fact, as of right now, $GOLF has had a better % increase in their stock - 26.5% compared to 20% - this just tells me that the Topgolf merger has not been priced in. Ok, now that we have all of that covered, lets get to the Juicy part about why I think this stock is undervalued and why anyone who is excited about this company is excited about it - Topgolf

I am not a golfer, never owned a fucking golf club in my life, but you know what I love doing? going to fucking Topgolf and having some drinks with friends and hitting a ball into the red, or if I'm lucky yellow, zones. That's why this company has 1.1 billion in revenue and a 30% YoY growth from 2017-2019 Not because avid golfers like them, but because they appeal to people who aren't golfers. Now I don't think this will have a large impact on Callaway's sales of merchandise/clubs because they were already the items used at Topgolf. They also just Inked a deal with MGM Grand to allow them to have betting at Topgolf locations and on Topgolf's WGT Game Wait, did I just say that Topgolf has a game or an app? Yep They do which it was hard for me to find the exact number of monthly players, but it looks like they are averaging 100k downloads/month and already have millions of users. Now this isn't super important as it currently stands, but if MGM starts getting people to bet on golf matches on that app, then that could be big.

Now I know what you are thinking: "Well if Topgolf is so great, why don't they just IPO themselves and make way more money?" Well that's exactly what they were planning on doing until Covid happened. (you can also find this info in the S-4) What happens when you are a company growing at an astronomical rate and then you have to shut down your 1.1 billion of revenue? You get fucked. And you know what's expensive as well as time consuming? Going through IPO readiness. And since Topgolf wanted to be able to keep Expanding (see the "coming soon" count) and also wanted some security from their debt, they decided to merger with Callaway. Now, when Callaway decided to Merge with Topgolf, the S-4 filling says that Callaway agreed to essentially pay for Topgolf at 2.5 Billion (2 Billion + 500 million in Debt). Now if I look at Callaway who ended today at a share price of 27.37. That means the company is valued at 2.58 Billion. basically the same valuation that they had for Topgolf. Now, If you go to Page 114 of the Amended S-4 filing on January 27, you'll see that the original offer was for 1.6 Billion + assuming 636 million of indebtedness - roughly 2.2 Billion so I'm going to be conservative and say the 300 million difference is goodwill, and considering Callaway paid 174 million in Goodwill for a fucking wolf hunting company There will be some Goodwill involved in this deal. I still think this is a steal compared to TopGolf's original valuation of 4 billion and I personally believe that Topgolf will continue to grow.

Now for the Areas of concern:

Callaway had an increase of cost of revenue from 58%-63%. While that doesn't sound like a lot, that is actually an increase of 8%, which comes out to 38.05 Million. this was caused by supply chain problems caused by Covid and paying extra salary to employees (not execs). If you think the supply chain problems will continue for a long time, this could be a large area of concern, however I think these will clear up by Q3 2021

As previously stated, Topgolf acquired a lot of debt due to Covid (total debt was 541 Million as of September 27, 2020) , this may force them to slow growth as they may need to pay that off instead of opening locations.

Golf was one of the sports that wasn't affected as much as others during Covid, so the growth from Callaway's sales may not increase much, or even decrease, as other things open up in the summer/whenever America opens.

The insider trading has been more sells than buys, this is never a good sign, but insider trading doesn't always reflect that the stock is overvalued.

The share dilution when Callaway merges with Topgolf may cause a selloff or a short term issue (90 million shares being issued)

The Topgolf CEO is stepping down and he was obviously a killer (although the rest of the Topgolf board is staying on)

Callaway has been acquiring companies recently and as a result creating goodwill (Goodwill = Money we threw away by paying a company more than we deemed them worth).

So I know that was basically ramblings with a bunch of links, so here is the TL;DR

Callaway's drop in price after earnings was due to euphoria because people are retarded and didn't realize that based on historical trends they would have negative EPS in Q4.

Callaway is a company that has consistently turned a profit, which I personally find important in this time of companies that just burn cash

The Topgolf merger has not been priced in as Callaway's growth is actually less than $GOLF's (I'm not saying the actual name of that fucking company) albeit $GOLF has slightly better financials

Topgolf is a good deal at 2.5 Billion, as an IPO would net them at least 4 Billion, and as we know in this euphoric market where an app that guys go on to realize that they are fucking ugly and that girls only know how to start a conversation by saying "hey" (bumble) gets a 9 billion mkt cap from IPOing, it would probably have been more than 4 Billion

Topgolf is more than just a place to hit golf balls as they now have a deal with MGMbet and have an app that a lot of people use

TopGolf had to acquire a lot of debt due to Covid, but some of that debt is from Callaway, so that should lessen the load on Topgolf

I want to reiterate I don't think this is a short-term play, it's really a mid-term one this is something that should pay off over the summer as Topgolf gets back to 100% revenue and the Covid supply chain issues lessen. I'm too retarded to give a price target, but if I would give it a stab i'd say something around $35-40 by Q3 2020.