Mad Hedge Technology Letter
July 19, 2018
Fiat Lux
Featured Trade:
(AVOIDING THE BULLY),
(MSFT), (AMZN), (WMT), (GME), (ORCL), (GE), (CPB)
Posts
A bully stealing your lunch is not fun.
Partnering up to subdue a bully isn't only happening on the school playground.
Walmart (WMT) is doing it now, too.
Let me explain.
The Amazon (AMZN) effect is understood as the disruption of traditional brick-and-mortar business by Amazon's domination in e-commerce sales.
This phenomenon was all about how Amazon would take over, and by all means they are, and in brisk fashion.
That is why Amazon trade alerts from the Mad Hedge Technology Letter are nestled away in your email inbox.
Desperate times call for desperate measures.
Amazon competitors are facing an existential crisis they have never seen before.
The newest member of the FANG group, Walmart, is transforming into a tech company, and this metamorphosis is picking up steam.
To read my recent story about Walmart's headfirst dive into India, the newest battleground country, by way of its purchase of Indian e-commerce juggernaut Flipkart, please click here.
The second part of its strategy was revealed by announcing that Walmart would partner with Microsoft's (MSFT) cloud platform Azure to tap into the deep A.I. (artificial intelligence) and machine learning expertise.
If you can't beat them, find another competitor to help you change the status quo.
The five-year deal is a game changer in a coveted cloud industry pitting David vs. Goliath.
Amazon's footprint is wide reaching and bosses 33% of the cloud market it invented, far and away surpassing runner-up Microsoft, which garners just 13% market share.
Microsoft is catching up fast and that 13% was just 10% in 2016.
Microsoft and Walmart have a common foe that haunts them in their dreams.
These companies feel they are better served combining forces than being isolated from each other.
In an exclusive Wall Street Journal interview with Satya Nadella, Microsoft's CEO, Nadella directly confirmed what people already knew.
This strategic move "is absolutely core to this (Amazon threat)."
Walmart will use Microsoft's advanced cloud technology to optimize its operations from managing inventory, selecting the most suitable products to display, and running its equipment efficiently.
In 2016, Walmart's purchase of e-commerce company Jet.com was thoroughly integrated onto the Microsoft Azure. This further cooperation will help boost a company that has been aggressively vocal about its tech exploits.
High-quality products sell themselves and the story has played itself over again.
Microsoft is a master at luring in business through the front door, and padlocking the front gate procuring business for decades.
This case is no different and a vital reason the Mad Hedge Technology Letter has pinned down Microsoft as a top three tech stock.
Walmart also has made it crystal clear that a prerequisite for doing business with them is not doing business with Amazon Web Services (AWS), Amazon's lucrative cloud division.
Any profit dropping down to the (AWS) bottom line is used to wield against the retail landscape, damaging Walmart's prospects.
The Amazon effect is starting to work against Amazon, as the threat is forcing other businesses to adopt the same mind-set as Walmart.
Snowflake Computing, a private data firm focused on warehouse databases established by Bob Muglia in 2014, was exclusively available on the AWS platform.
However, more and more retailers such as Walmart started banging on Snowflake Computing's door demanding that it offer its cloud services on a cloud platform that is not its competitor.
Snowflake Computing obliged and is now up and running on Microsoft Azure.
Can you imagine the competition being able to sift through troves of data understanding every strength and weakness?
It's a one-way street to bankruptcy court.
Perhaps that explains why GameStop (GME) is such a poor performer, as its operations are entirely on (AWS).
GameStop is a stock that I am bearish on, because selling video games as a middleman is a legacy business.
Kids just download everything direct from the manufacturer from their broadband connection, making GameStop's business model obsolete.
It has a turnaround plan, apparently Oracle (ORCL) has one too, but it's barely begun.
Microsoft is a bad choice as well for GameStop, which is heart and center in the video game industry as well.
There are many alternatives; someone should notify recently installed GameStop CEO Daniel A. DeMatteo about one.
(AWS)'s dominance is benefitting Microsoft Azure explaining the rapid pace of cloud market share advancement.
This is just the tip of the iceberg. Walmart has some other irons in the fire.
Enter Project Kepler.
This is Walmart's response to Amazon Go stores, a partially automated retail store with no cashiers or checkout station, which currently has one functional location in Seattle.
Project Kepler is being developed by Jet.com co-founder and CTO Mike Hanrahan. And guess who is providing the technology for this alternative retail experience store - Microsoft.
Microsoft poached a computer vision specialist from Amazon Go who will help develop the appropriate sensors and computer vision algorithms necessary to get this store up and running.
These same sensors can be found in autonomous driving technology.
Shopping cart cameras could also be added to the mix to ensure quality and hopefully avoid the teething pains new technology grapples with.
Microsoft Azure CTO Mark Russinovich commented lately saying firms are on the front foot utilizing "A.I. and machine learning to automate processes to get insights into operations that they didn't have before."
Microsoft is perfectly set up to harvest many of these new contracts.
The deals have started to roll in.
Microsoft is successfully broadening its relationship with GE (GE), using the Azure data analytics capabilities to transform GE Digital's industrial IoT solutions.
This week also saw Microsoft scoop up Campbell Soup Company (CPB) as a new client, which decided on Microsoft Azure to modernize its IT infrastructure.
Campbell Soup will deploy Azure for real-time access to critical operations data, offering deeper intelligence for Campbell's senior management team.
This robust business activity is all because Microsoft is not Amazon, along with having a stellar product about which companies gloat.
Retailers have chosen Microsoft as the cloud platform of choice and expect the majority of retailers to tie their futures to Microsoft.
That's not the only iron in the fire.
Jetblack is another experimental retail service that Walmart is testing as we speak.
The service is still in beta mode in Manhattan targeting urban, high net worth mothers.
It emphasizes a personalized shopping experience in a narrow segment of goods that include household products, cosmetics, health and beauty products.
Shoppers will be able to snap photos of products and send them to Jetblack, receiving them at home with free shipping.
Customer service will be carried out by a high-quality lifelike bot, and Walmart intends to charge a membership fee to take part in this specialized shopping experience.
Microsoft subsidiary LinkedIn has also been leaning more on its parent company's technology lately.
LinkedIn software engineer Angelika Clayton wrote in her blog that "dozens of languages" are being converted into English via Microsoft Translator Text application programming interface, ballooning the candidate database for English speaking headhunters.
Could foreign language learning soon go way of the dodo bird and woolly mammoth?
Machine learning and A.I. have that type of power.
Tech analysts on the street must avoid issuing reports boasting that "everything is priced in," because these tech behemoths are driving innovation faster than people can understand it.
Walmart has turned into one of the most innovative companies around.
Who would have imagined this development a few years ago?
Nobody, not even Walmart itself.
Everything Microsoft touches lately turns into gold, along with being one of the more trusted tech titans out of the motley crew that has ruffled a few feathers this year.
Walmart is aggressively experimenting, systematically attempting to hop on new trends in retail hoping one or two will catch fire.
The credit must go to CEO Doug McMillon who has brought a tech first approach since being installed as CEO in 2014.
Even though conservative Walmart investors have penalized Walmart for the heavy spending, they must come to terms that Walmart's model is plain different now.
It's either spend or die in 2018.
Microsoft is in store to report its status on its pursuit of AWS, and I expect the company to inch closer with each earnings report.
Its outperforming Azure cloud business is in the first stages of a marathon, and sometimes it's not always salubrious to be the schoolyard bully because everybody starts avoiding you like the plague.
________________________________________________________________________________________________
Quote of the Day
"They broke the law on several occasions after being warned," said Larry Kudlow, director of the United States National Economic Council, when asked about Chinese company ZTE, which sold telecommunications equipment to Iran and North Korea.
Mad Hedge Technology Letter
July 18, 2018
Fiat Lux
Featured Trade:
(IS NETFLIX DEAD?),
(NFLX), (AMZN), (FB), (TWTR), (DIS), (GOOGL), (QQQ)
Too far out over their skis.
For the first time in five quarters, Netflix (NFLX) was unable to eclipse the alpine level like expectations prognosticated by its own senior management.
Netflix and Amazon (AMZN) have been given luminary status at the Mad Hedge Technology Letter because the straight-line price action offers such agonizing entry points for investors, along with the best business growth models in the American economy.
Chasing this stock has usually worked out for the better, but leading up to the latest quarterly earnings report, Netflix started to scrunch up.
The firing squad loaded up its bullets and after Friday's close, shots were rained down on Netflix's parade as it failed to beat the only metric significant to Netflix investors - new subscribers.
The numbers were not even close.
Netflix fizzled out on its domestic subscriber's growth metric by 560,000, when 1.23 million new subscribers were expected.
International numbers succumbed to the inevitable, but less in percentage terms, failing to surpass the expected 5.11 million, only successfully adding 4.47 million new subscribers.
The 5.2 million adds out of the expected 6.3 million expected is the best news that has happened to Netflix in a long time if you are underinvested in this name.
Ravenous investors looking to jump on Netflix's bandwagon are licking their chops.
After-hours trading saw the stock tank, falling down the rabbit hole by almost 15%.
The stock had only recently been trading around an all-time high of $419. Fluffing their lines has given investors a much-awaited entry point into one of the creme de la creme growth stories in the vaunted tech sector.
Let's get a little more granular, shall we?
Even for high-flying tech stocks, the velocity of the price surges has put off many investors calling the stock "overbought."
Netflix shares were up 108% in 2018 before profit taking commenced before the earnings call. It was unusual to see Netflix intraday slide of 4%.
Investors smelled a rat.
It was only a matter of time before normal investors were finally given a chance to swiftly pile into this precious gem of a stock.
That time is now.
UBS analyst Eric Sheridan recently declared Netflix's growth story as "all priced in."
I don't buy it.
Yes, the shares got ahead of itself, but the Netflix narrative is still intact.
Over the earnings call, Netflix CEO Reed Hastings gushed about the current state of the company remarking that "fundamentals have never been stronger."
The bad news is that it missed on overzealous estimates; the good news is it added 5.2 million new subscribers.
Don't forget that in Q1 2018, Netflix beat total estimates by a herculean 920,000 subscribers, which is around what it missed by in Q2 2018.
The most recent quarter was overwhelmed by World Cup 2018 fever, with audiences migrating toward probably the most dramatic and exciting World Cup in history and the first to be streamed.
The most popular sporting event in the world gave Netflix a short-term kick in the cojones, delaying many new subscription sign-ups until after France lifted the trophy for the second time in its illustrious history.
The Twitter (TWTR) and Facebook (FB) numbers back up this thesis, experiencing explosive engagement and ad buying over the monthlong tournament boding well for their next earnings results.
Don't worry investors.
These eyeballs are just temporary.
The tournament offering a short-term bump to social media stocks clearly is just a one-off event that happens one summer out of every four.
Any recent profit taking will see the same investors eyeing a lower cost basis after this share dump.
Netflix won't be down for long.
Let's briefly review some of Netflix's cornerstone advantages:
The massive user migration from linear television to over-the-top content (OTT) led by cord-cutting millennials, responsible for a growing slice of domestic purchasing power.
The inherent advantages of a global over-the-top content (OTT) streaming model, applying massive scale with the cheap marginal cost of current technology.
The first-mover advantage that has allowed Netflix to have its own cake and eat it.
And the competition's laggardly response to Netflix eating its own cake.
Netflix CFO David Wells' take on the missed targets was "lumpiness" in the business and brushed it off like a bug crawling up your leg.
Hastings also chimed in about the increased competition shaping up and Disney (DIS), HBO, and other players finally getting their act together.
He mentioned there is room for multiple players in this industry, but they better not show up to the gunfight with a knife.
Netflix has been weaning itself from Disney's, Fox's and other third-party content for years, along with spending 50% more on marketing in 2018.
Ted Sarandos, chief content officer of Netflix, let it be known that 85% of new spending will be on original content in 2018.
Out of $8 billion earmarked for content in 2018, a colossal $6.8 billion is set to be splashed on in-house productions.
Compare this with the competition of Amazon, which plans to spend $4.5 billion on original content in 2018 and Hulu's plan to spend $2.5 billion in 2018.
Down the road, Netflix will have greater ability to finance its expensive content spend as it has flipped to a profit-making entity.
Amazon uses its AWS (Amazon Web Services) arm to fund its various subsidiaries.
The high level of quality content is reflected in the 40 Emmy nominations garnered by Netflix, in effect crushing stalwart HBO.
Netflix is aggressively courting Hollywood's A-list and poaching them in droves.
Proven content creators such as Ryan Murphy, Shonda Rhimes, Shawn Levy and Jenji Kohan are now on Netflix's payroll, and are a vital reason for the uptick in quality programming.
This successful harvest will result in added brand recognition and elevated prestige for current and future eyeballs.
Netflix will push out around 1,000 original programs in 2018. More than 90% of Netflix's subscribers habitually watch its vast portfolio of original programming.
The only way Netflix can be stopped is if it stops itself.
The pipeline is plush, and it is not all priced into the stock yet.
Next year could be the year India and Japan massage the bottom lines to greater effect, as Netflix double downs on the international arena.
Netflix's first original Indian series "Sacred Games" has been a winner, and its first original movie "Lust Stories" is creating a stir among avid Indian movie followers.
CEO Hastings has gone on record stating the "next 100 million" Netflix subscribers will derive from the land of Taj Mahal and chicken tikka masala.
Netflix has a lot of work to do to catch up with entrenched leaders Hotstar and Alphabet's (GOOGL) YouTube India.
About 800 million Indians have never been online before. The screaming potential India offers cannot be found elsewhere, especially with films historically, deeply embedded inside India's ancient culture.
Next month will see the release of "Ghoul," based on critically acclaimed work by authors Salman Rushdie and Aravind Adiga.
Slated for imminent release is also Mumbai Indians, a documentary about a top team in the locally obsessed Indian Premier League cricket tournament.
GBH Insights' internal research has found that Netflix is watched 10 hours per week in American households.
That number will inevitably grow as the quality of content goes from strength to strength for this first-rate company.
And how did Netflix's shock miss affect the Nasdaq (QQQ) on the next trading day?
It showed the resiliency and intestinal fortitude that has been a hallmark of the tech sector bull market.
The latest earnings result snafu is a surefire chance to finally have a little taste of Netflix. It will be back over $400 in no time.
________________________________________________________________________________________________
Quote of the Day
"If we continue to develop our technology without wisdom or prudence, our servant may prove to be our executioner," - said retired U.S. Army General Omar Bradley.
Mad Hedge Technology Letter
July 17, 2018
Fiat Lux
Featured Trade:
(THE PATH AHEAD),
(IBM), (AMZN), (FB), (MSFT), (NFLX), (QQQ), (AAPL), (DBX), (BLK)
The Red Sea has parted, and the path has opened up.
Technology has been a beacon of light providing comfort to the equity market, when a trade war could have purged the living daylights out of bullish investor sentiment.
If an increasingly hostile, tit-for-tat trade skirmish threatening overseas revenue can't bring tech equities to its knees, what can?
It seems the more bellicose the administration becomes, the higher technology stocks balloon.
Does this all add up?
The Nasdaq (QQQ) continues its processional march skyward. If you were a portfolio manager at the beginning of the year without technology exposure, then polish off the resume before it picks up too much dust.
The Nasdaq has set all-time highs even after a brutal 700-point sell-off at the end of January.
Apple (AAPL), Microsoft (MSFT), Netflix (NFLX), and Amazon (AMZN) can take credit for 83% of the S&P 500's gains in 2018.
And that fearsome four does not even include Facebook (FB), which has left the shorts in the dust.
Each momentous sell-off has proved to be a golden buying opportunity, propelling tech stocks to higher highs and retracing to higher lows.
And now the path to tech profits is gaping wide, luring in the marginal investor after two highly bullish events for the tech world boding well for the rest of fiscal year 2018.
Xiaomi, one of China's precious unicorns, which sells upmarket smartphones, went public on the Hong Kong Hang Seng market last week.
The timing couldn't be poorer.
The rhetoric between the two global leaders reached fever pitch with the administration proposing $200 billion worth of tariffs levied on Chinese imports.
China reiterated its entrenched stance of not backing down, triggering a tense war of words between the two global powers.
The beginning of March saw the Shanghai stock market nosedive through any remnants of support levels.
The 50-day moving average, 100-day, and 200-day were smashed to bits and Shanghai kept trending lower.
The trade skirmish has had the reverse effect on Chinese equities compared to the Nasdaq's brilliance, and combined with the strong dollar, has seen emerging markets hammered like the Croatian soccer team in Moscow.
Xiaomi's IPO was priced in the range of HK$17 to $22, and when it opened up on the first day at HK$16.60, investors were holding their breath.
Take the recent IPO triumph of cloud company Dropbox (DBX), whose IPO was priced in the expected range of US$18 to $20. The first day of trading showed how much appetite there is for to- quality cloud companies, with Dropbox starting its trading day at US$29, 40% higher than the expected range.
Dropbox finished its first day at a lofty US$28.48, a nice 35% return in one trading day.
No doubt Xiaomi's shares were not expected to perform like Dropbox, but it held its own.
Astonishingly, this company did not even exist nine years ago and is now the fourth-largest smartphone manufacturer in the world, grossing $18 billion in revenue in 2017.
The unimaginable pace of development highlights the speed at which the Chinese economy and consumer zigs and zags.
Chinese retail sales were up a staggering 9% YOY for the month of June 2018. Its overall economy met its 6.7% target for the second quarter of 2018.
The price range settled for the IPO gave Xiaomi a valuation of $54 billion.
Instead of getting roiled, Xiaomi came through with flying colors posting a 26% gain after the first week of trading.
Poor price action could have given Beijing ammunition to cry foul, laying blame for the underperformance on the U.S. tariffs.
The healthy price action underscores there is still room for Chinese and American companies to flourish in 2018, albeit through a highly politicized environment.
Specifically, Apple comes through unscathed as a disastrous Xiaomi IPO could have resulted in negative local press stoking higher operational risks in greater China.
Apple is in the eye of the storm, but untouchable because it employs more than 4 million local Chinese employees throughout its expansive ecosystem and has been praised by Beijing as the model foreign company.
Apple earned $13 billion in revenue from China in Q2 2018, a 21% YOY increase.
Hounding Apple out of China will be the inflection point when tech investors know there is a serious problem going on and need to hit the eject button.
If this ever happens, The Mad Hedge Technology Letter will be the first to resort to risk off strategies.
BlackRock's (BLK) CEO Larry Fink let everyone know his piece saying, "the lack of breadth in the equity markets is troubling."
Investors cannot blame tech companies for executing their way to the top behind the tailwind of the biggest technological transformation in mankind.
And even in the tech industry, winners can turn into losers in a blink of an eye, such as legacy tech company IBM (IBM).
Someone better tell Fink that this is the beginning.
Amazon recorded 44% of total U.S. e-commerce sales in 2017, equaling 4% of total retail sales in the U.S.
This number is expected to breach 50% by the end of 2018.
The second piece of bullish tech news was lifting the ban on Chinese telecommunications company ZTE.
It is open for business again.
From a national security front, this is an unequivocal loss. However, it saved 75,000 Chinese jobs and gave a small victory to American regulators attempting to patrol the mischievous behemoth.
The U.S. Department of Commerce lifted the seven-year ban even after ZTE sold telecommunication products to North Korea and Iran.
ZTE was fined $1 billion, changed the senior management team, and put into place an American compliance team that will monitor its business for the next 10 years.
Diluting the penalty lowers the operational risk for American tech companies because it shows the administration is willing to reach compromises even if the compromise isn't perfect.
China is a lot less willing to ransack Micron and Intel's China revenues, if America allows China to save face and 75,000 local jobs.
This is a big deal for them and their employees.
America has a strong hand to play with against China because China still requires Uncle Sam's semiconductor components to build its future.
This hand is only effective if Chinese still thirst for American technology. As of today, America is higher on the technological food chain than China.
The move is also a model of what the U.S. Department of Commerce will do if Chinese companies run amok, which Chinese tech companies often do because of the lack of corporate governance and transparency.
These two recent China events empower the overall American tech sector, and the market will need a berserk shock to the tech ecosphere foundations to make it crumble.
As it stands, the tech sector is handling the trade war fine, and with expected blowout tech earnings right around the corner, short tech stocks at your own peril.
________________________________________________________________________________________________
Quote of the Day
"All of the biggest technological inventions created by man - the airplane, the automobile, the computer - says little about his intelligence, but speaks volumes about his laziness," - said author Mark Kennedy.
Mad Hedge Technology Letter
July 16, 2018
Fiat Lux
Featured Trade:
(THE REGULATION EFFECT),
(GOOGL), (AMZN), (FB), (SNAP), (TWTR), (NFLX)
Locking horns with large cap technology companies in court is inconceivable for regulators in Washington.
Yes, it is their job to put out fires left, right, and center, but when the scorching inferno reaches full intensity, regulators hit the pass button.
Taking on an industry that employs an army of lawyers and data analysts up the wazoo is frightful.
Tech wants to make the skirmish into a resource fight and no cohort has more ammunition than these four companies.
They are already on the way to create more unregulated industries simply because they do not exist yet.
This is why regulators cannot keep up with the nimbleness on display by the tech industry.
They are always one, maybe two steps ahead.
Investors have been able to digest consequences of the data fiasco fueling an even more bullish narrative for the likes of Facebook (FB) and Alphabet (GOOGL).
Facebook and Alphabet are the two laggards in the vaunted FANG group, only because they are up against Netflix (NFLX) and Amazon (AMZN), two of the most transformational companies of the gig economy generation.
Facebook and Alphabet give traders entry points; Amazon and Netflix hardly ever.
Investors are hard pressed to find days when Amazon and Netflix drop more than 1%, and a brief respite is met with a torrent of new buying.
Even more of a head-scratcher is the American law etched into the books, calculating harm by connecting it with price increases, underscoring the FANG's dominant position.
It is almost impossible to prove caused "harm" because Alphabet and Facebook services are free. However, the free service is a misnomer, because of the extreme manipulation of data allowing tech titans to profit from data opportunities instead of charging customers a service fee.
The Mad Hedge Technology Letter has been rolling out a steady dose of Facebook recommendations since its inception to scintillating effect.
The Cambridge Analytica scandal stoked mayhem on the global news waves ravaging Facebook shares from $192 down to $153.
Investors were panicking and rightly so. A precipitous drop is nothing investors with skin in the game like to see.
The Mad Hedge Technology Letter saw it as a gift from the celestial stars and ushered subscribers into this suave stock at $168, to reread this memorable story please click here.
Facebook has gone from strength to strength blowing past expectations celebrating all-time highs of a recent intraday price of $207 earlier this week.
I am still highly bullish on Facebook, even more so after the first fines were doled out for the recent scandals.
Under the old data laws in Britain, Facebook was fined a grand total of $660,000 along with a detailed report from the Information Commissioner's Office castigating Facebook's business practices.
This amount is peanuts for Facebook, practically equaling the cost of providing a16-person security detail for CEO Mark Zuckerberg around his Palo Alto, California, estate for maybe two weeks.
If Facebook can hold down these fines to inconsequential amounts, regulation will be a decisive tailwind going forward.
How does a headwind turn into a tailwind in the blink of an eye?
General Data Protection Regulation (GDPR) rolled out in Europe lately has helped Alphabet and Facebook solidify their digital ad business.
Alphabet has adopted a stringent version of the rules to its new model because the behemoth does not need to take on the added risk of noncompliance.
Marginal companies do.
The possibility of exorbitant fines clearly grabbed the attention of Silicon Valley CEOs, and they have put the ball in motion to insulate themselves from such downside risk.
Unsurprisingly, Alphabet has a higher opt-in consent rate than its smaller tech brethren.
Users are more comfortably entrusting data to an Alphabet instead of a smaller unknown that could potentially be 10 times worse than Alphabet.
Uncertainty breeds risk aversion.
Recent data shows other companies have a galling time keeping up with the same percentage of consent as Alphabet.
You cannot expect a college basketball player to perform miracles like Steph Curry.
This puts Alphabet in a healthier strategic position as the users who consent are five times more valuable to digital ad exchanges and easier to monetize.
Other ad exchanges face an uphill battle against Alphabet if they cannot increase the rate of consent.
The extra premium is derived from the ability to personalize the advertisements boosting the conversion rate for sellers.
Alphabet has in effect increased its quality of data just by being Alphabet.
It is certainly not fair, but life is not fair.
And then there is the conundrum of where do you go if you do not want to sell on Alphabet or Facebook?
Well, Twitter (TWTR), Snapchat (SNAP), and Instagram (owned by Facebook) are the other alternatives fighting for the scraps.
The battle to get users to consent is really the be-all and end-all for many of these ad sellers.
Facebook and Alphabet have seen the best results and will likely extend their hegemony.
Recently, Alphabet has been offering 15% less ads on its exchange. But, it all involves consented users demonstrating the unenviable position for other exchanges to match Alphabet's quality.
The EU antirust watchdog is expected to levy a multi-billion dollar fine for abusing its dominant position of its Android operating system.
This comes on the heals of fining Alphabet $2.82 billion last year for abusing the dominance of a search again.
The stock barely budged on this news.
Alphabet's punishment for being too dominant in Europe is laughable.
When a company is punished for being too good then you sit back and admire from afar.
There is no other company that can undermine its position and even hit with billions in fines - its leadership status is unquestioned.
American readers sometimes forget the popularity of the Android ecosystem outside of America because of the ubiquitous nature of iPhones stateside. The network effect has made it impossible to do business in Europe without collaborating with the Android platform.
Facebook took more than eight years to reach a billion users but only half that time to reach the next billion.
The stock has held up relatively well. The 73% market share of digital ad dollars Facebook and Alphabet extracted in 2017 is up from 63% in 2015.
This two-headed monster shows no sign of abating, demonstrated by taking in 83% of all digital ad growth, leaving the crumbs for the rest.
They are specialists at exploiting their business environments, much like mining companies exploit the earth.
Their platforms are so influential, they turn elections on its head.
Governments are scared of taking them down, empowering these companies to new heights creating a massive halo effect worldwide.
The Chinese communist government has even used Chinese social media platforms to establish an Orwellian surveillance system monitoring its people at all times. Such is the power of technology these days.
Users are forced to accept any conditional terms they offer, because many jobs are reliant on these platforms such as the millions of app developers hustling to create the new hot app.
They all have families to feed.
On an individual level, people would not sacrifice a cushy income because they do not wish to consent to tracking services.
The next step is for the Amazons and Alphabets to ramp up their private label businesses using their high-quality treasure trove of data.
Amazon has been the leader in selling its own products from tech behemoths, and that percentage in terms of overall sales will increase over time.
It does not need others to sell products they can make themselves for cheaper, better quality retaining every cent.
Amazon's private label is geared toward decent quality and low prices capturing the volume of transactions desired.
Bundling services, exploiting the data, and applying discriminatory pricing will become the new normal for these powerful platforms and nobody does that better than Amazon.
It has no incentive to allow eyeballs, data and dollars to escape these proprietary walled gardens hence the term walled gardens.
Even more genius, Facebook and Alphabet can track users outside their walled gardens if they are signed into their Facebook or Google accounts.
Granted, Facebook has had better price action of late as traders understand there has been no lasting effect from the misuse of leaked data.
However, Alphabet has the crown jewel of the next leg up in A.I. (Artificial Intelligence) - Waymo. Waymo is a company I have chronicled in the past leading the race in autonomous driving inching closer to full-scale deployment sometime in the next year.
If you think Alphabet and Facebook shares are lofty now and "overbought," then I cannot imagine what you'll think when these companies dominate further because the runway is as far as the eye can see.
________________________________________________________________________________________________
Quote of the Day
"One machine can do the work of 50 ordinary men. No machine can do the work of one extraordinary man," - said American author Elbert Hubbard.
Mad Hedge Technology Letter
July 12, 2018
Fiat Lux
Featured Trade:
(NEWSPAPERS REALLY KNOW WHO YOU ARE),
(TRNC), (AMZN), (FB), (GOOGL), (USPS), (SFTBY)
Mad Hedge Technology Letter
July 10, 2018
Fiat Lux
Featured Trade:
(THE ARTIFICIAL INTELLIGENCE CONUNDRUM),
(TSLA), (AMZN), (FB)