Global Market Comments
July 2, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE FUTURE IS HAPPENING FAST),
(HOG), (TLT), (ROM), (MU), (NVDA), (LRCX),
(SPY), (AMZN), (NFLX), (EEM), (UUP), (WBA),
(THE WORST TRADE IN HISTORY), (AAPL)
I feel like I'm living life in fast forward these days.
First we got a slap across the face with a wet mackerel on Monday with a 328 plunge in the Dow Average on yet another trade war escalation.
Harley Davidson (HOG) said it was moving a factory out of the country to bypass new European duties imposed in response to ours. If Harley is doing this you can bet there are 10,000 other companies thinking about it.
And even though robust economic growth should assure us that we remain in a new bear market for bonds, traders think otherwise. A 10-year Treasury bond (TLT) yield at 2.81% says that we're already in the next recession, we just don't know it yet.
As always happens with the ebb and flow of the trade war, technology got hammered. My favorite early retirement vehicle, the ProShares Ultra Technology 2X ETF (ROM), plunged some 11.19% to an even $100. Chip stocks such as Micron Technology (MU) and Lam Research (LRCX) get particularly hurt as China buys 80% of their processors from the U.S.
In the meantime, Tesla (TSLA) continues its phoenixlike rise from the ashes yet again, burning the shorts for the umpteenth time. The shares are now taking another run at a new all-time high. You would think people would learn but they don't. Einstein's definition of insanity is repeating the same thing over and over again and expecting a different result.
While bearish analysts predicted the imminent demise of the company, I saw a steady stream of trucks delivering new Tesla 3s from the Fremont factory while driving back from Los Angeles last weekend. Nothing beats on-the-ground research.
I'm sorry, but there is definite disconnect from reality with this company. The most hated company in America has produced the fifth best performing stock in over the past eight years, up more than 2,000%. I guess that's what happens when you disrupt big oil, Detroit, the U.S. dealer network, and the entire advertising industry all at the same time.
Interestingly, we caught three of the five best performers early on, including Tesla, NVIDIA (NVDA), and Netflix (NFLX).
Emerging markets (EEM) continue their death spiral, pummeled by the twin threats of trade wars and a soaring dollar (UUP). Most big emerging companies have their debt in dollars.
Sometimes you have to forget what you know to make money, and that has certainly been the case for me with emerging countries, where I spent a large part of my life.
The future is happening fast. Amazon (AMZN) single-handedly demolished the drug sector when it announced its takeover of online pharmacy company PillPack. The traditional brick-and-mortar retail pharmacy sector lost $9 billion in market capitalization just on the announcement. Walgreens (WBA) alone dropped a gut churning 10%.
If anyone can slash America's bloated health care bill it is Jeff Bezos. Just ask any former bookseller or toy maker.
And for a final middle finger salute to investors, the president said he wants to withdraw from the World Trade Organization, which the U.S. itself created after WWII. That means the United Nations is next on the chopping block.
America is rapidly becoming rogue nation No. 1, the next failed state. And failed states don't have great stock markets. Just check out the Somalia Stock Exchange.
They net of all of this is that the rest of the global economy is rolling over like the Bismarck, while the U.S. remains a sole beacon of strength. That's not good when half of S&P 500 earnings come from abroad.
However, that strength is based on a temporary one-time-only stimulus from massive deficit spending and corporate tax cuts that runs out of juice next year.
So keep tap dancing on the edge of the Grand Canyon. We'll miss you when you're gone. And before you ask, the best hedge in this kind of market is cash, which has huge option value that almost no one recognizes.
Despite all the chaos, uncertainty, and massive headline risk, I managed to tiptoe between the raindrops, keeping the Mad Hedge Fund Trader Alert Service performance just short of a new all-time high.
I closed out the month of June at a healthy 4.45%, my 2018 year-to-date performance rose to 24.82% and my 8 1/2-year return catapulted to 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.
This coming holiday shortened week will be all about the jobs, jobs, jobs. Also, the Fed will raise interest rates by 25 basis points on Wednesday to an overnight rate of 2.00%.
On Monday, July 2, at 9:45 AM, the May PMI Manufacturing Index is out.
On Tuesday, July 3, at 10:00 AM, the May Factory Orders are published.
On Wednesday, July 4, U.S. markets are closed for Independence Day. I will be watching the fireworks display over New York's Hudson River from the top of a Midtown Manhattan skyscraper.
Thursday, July 5, sees a huge bunching up of data thanks to the Fourth of July. It leads with the ADP Employment Report for private sector jobs at 8:15 AM EST. The Weekly Jobless Claims follow at 8:30 AM EST, which saw a rise of 9,000 last week to 227,000. Also announced is the all-important 25 basis point interest rate rise from the Federal Reserve and the FOMC Minutes at 2:00 PM, a reading of what was discussed at the last Fed meeting.
On Friday, July 6 at 8:30 AM EST, we get the June Nonfarm Payroll Report. Then the Baker Hughes Rig Count is announced at 1:00 PM EST. I will be sipping a glass of champagne as I board the Queen Mary 2 at the Brooklyn Cruise Terminal. I look forward to all those who signed up for my Seminar at Sea.
As for me, I will be hurriedly packing for the 2018 Mad Hedge European Tour.
Unfortunately, traveling in the grand style of the 19th century Belle Epoque involves bringing 200 pounds of luggage.
Now where are those darn black dress socks? And why am I missing a stud for my formal shirt?
Good Luck and Good Trading.
Time to Get Off the Merry-Go-Round
Mad Hedge Technology Letter
June 26, 2018
Fiat Lux
Featured Trade:
(THE CHIP DILEMMA)
(MU), (NFLX), (AMZN), (NVDA), (AMD), (RHT)
The hawks are circling around 2019 chip guidance and that is bad news for chip equities.
Perusing through recent earnings reports, it's not a surprise that investors are uncertain whether tech can bail the rest of the equity market out of this slow macro malaise.
The deterioration in the macro climate has given added dependence to the tech vanguard with investors piling into large cap tech as a flight to quality ensues.
It helps when the tech sector is at the heart of every and any future business.
Names such as Amazon (AMZN) and Netflix (NFLX) are so far above their 50-day and 100-day moving averages that investors will take this mild sell-off as a healthy sign of consolidation.
This also means that traders will pin down Netflix's and Amazon's 50-day and 100-day moving averages as the line in the sand for technical support.
The equity weakness underscores that not all tech names are created equal, and firms without moats have been the leakiest.
Red Hat, the up-and-coming enterprise cloud company, became the scapegoat for mid-cap cloud companies triggering a massive sell-off dipping 14.23% instigated by weak guidance.
It was one of the first cloud snafus for a few quarters fueling an intense risk off surge in cloud and chip names.
It seems not a day goes by where the administration does not announce another provocative countermeasure to the tit-for-tat trade skirmish being played out at the highest levels of government.
Analysts have been trigger-happy as the few bears out there are incentivized to be the first one to call the peak of the chip market.
Careers are made and lost with these bold calls.
As bad as the Red Hat (RHT) miss was to the tech narrative, Micron (MU) made a big splash on its quarterly earnings report boding well for large cap tech names.
Micron beat estimates and surprised on the upside on guidance.
Micron was the first recommendation of the Mad Hedge Technology Letter at a cheap $41.
To read the first article of the Mad Hedge Fund Technology Letter about Micron, please click here.
The stock rocketed to more than $60 at the end of March and the end of May, each time dragged down by big picture headwinds.
Micron is a great long-term hold and the volatility in the stock is not for everyone.
If you want to avoid mind-numbing volatility, then stay away from chip stocks as the boom-bust nature of this sector has created a paranoia bias among analysts generating stock downgrades.
Cloud stocks are succinct, zeroing in on the few growth metrics that matter.
The guesswork involved in chip stocks is the perfect formula that leads to downgrades, because the silicon is distributed to other companies for end products of which are hard to keep tabs.
Hence, the chips industry has experienced a tidal wave of wrong analysts calls that unfairly taint chip stocks and the price action that follows.
Micron's data center cloud revenue, a huge driver of DRAM chips, were up 33% QOQ.
The cornerstone of Micron's business and the reinvestment into cloud products has made this stock best of breed in the chip sector and a top 3 chip stock of the Mad Hedge Technology Letter.
The only other stocks that compare with this outstanding growth story and that are at the cutting edge of innovation are hands down Nvidia (NVDA) and Advanced Micro Devices (AMD) in that order.
Next year's profit margins are the next conundrum for the chip industry.
The huge sums of money required to stay ahead of competition could crush profitability.
Pricing is currently stable but stagnant.
The additional marginal costs could be the reason for investors to flee.
More specifically DRAM pricing for 2019 is under the microscope and soft numbers could spell doom for a company that extracts 71% of its revenue from DRAM chips.
All these negative whispers come at a time where DRAM chips are lifting Micron shares to the heavens. And if there was no international friction, the share price would be substantially higher than it is today.
As of today, the chip industry is still grappling with DRAM supply shortages causing costs per unit to spike.
When you consider that DRAM demand is so healthy that China is once again investigating large cap chip companies, investors should be jumping for joy.
These probes are unfounded and are brought about because DRAM pricing is one of the main inputs to setting up data centers and self-driving technology among other businesses.
If China is forced to pay exorbitant prices for groundbreaking chips that can only be found at American and Korean companies, it makes producing every digital end product costlier. infuriating Chinese management.
SK Hynix, Samsung, and Micron comprise more than 90% of the DRAM market, to which Chinese companies need unfettered access.
DRAM chips, unlike other hardware components, are traded on a transparent public market and the probe highlights the building anxiety if Chinese companies are priced out of this sector.
China views the price spike phenomenon in chips as entirely favoring foreign companies that lap up the DRAM profits like money falling from the sky.
Micron carves out half its sales from China, but it is untouchable because loads of chips are required to fuel its global technological supremacy initiative, which is being chipped at by the administration.
CEO of Micron Sanjay Mehrotra has continued to brush off the China threat because he knows Chinese firms cannot fabricate its products.
If this ever happened, kiss the preferential DRAM pricing goodbye, because China would flood the market with substitutes, which has happened to various end markets in the digital and non-digital ecosphere.
The investigation could end in some sort of monetary slap on the wrist and could be payback for blasting a massive hole in Chinese telecommunications hardware conglomerate ZTE's business model.
The administration's heavy-handed response to ban Chinese investment in technology is a long-term victory for Micron, SK Hynix, and Samsung, which have the DRAM market cornered.
These three companies will corner the market even more going forward thanks to help from Washington, widening each moat.
China is not short on funds; it is short on technological expertise because a generation of copy and paste youth cannot compete with the best and brightest minds in Silicon Valley.
Not only can it not compete, it cannot lure the best and brightest to the mainland capitulating local innovation standards.
Its only hope was to pay premium prices for emerging American technology and now that spigot has been turned off.
Technology is in its infancy and is in the early innings of a stunning growth trajectory with a one-way ticket to singularity.
There will be zigs and larger zags on the way. If you thought the Chinese could just ignore Micron and buy from the Koreans, you were wrong.
The relentless demand for DRAM chips is wilder than a British soccer hooligan. Cutting off access to one massive avenue of DRAM chips would be a death knell for any scalable production process that relies on heavy shipments of DRAM chips.
Although markets have been haywire lately, these developments are incredibly bullish, unless China can suddenly produce high-quality chips, which won't be anytime soon.
For the short term, try to pick up the best chip names at yearly lows as tech will not stay suppressed forever.
If you want to scale down the risk, park your funds in the best cloud tech names to weather the storm.
_________________________________________________________________________________________________
Quote of the Day
"We've had three big ideas at Amazon that we've stuck with for 18 years, and they're the reason we're successful: Put the customer first. Invent. And be patient," - said founder and CEO of Amazon Jeff Bezos.
Global Market Comments
June 11, 2018
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE WEDNESDAY, JUNE 13, 2018, PHILADELPHIA, PA, GLOBAL STRATEGY LUNCHEON),
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE NEW WORLD ORDER),
(AAPL), (MU), (TWTR),
(I'M HITTING THE ROAD)
It seems like another day, another analyst downgrade for technology. The latest report came from Japan's Nihon Keizai Shimbun, which reported that Apple has asked parts suppliers throughout Asia to cut back parts shipments for its iPhones by 20%. Apple shares responded by falling by $5 to $190.
Granted, the global cell phone market has been flat for the past two years. What is new is that Apple has been extracting an ever-larger share of the global smart phone profit stream, now at a heady 92%, thanks to more expensive products with better functionality. That's what I'm focusing on.
We saw a similar downgrade for the chip sector days early, which cut $9 off the high beta play there, Micron technology (MU).
The bad news was enough to trigger a long overdue rotation from perennial leaders in technology toward laggard banks, retailers, materials, and consumer discretionary.
Remember, as long as no new net cash is coming into equities beyond share buybacks, the main indexes can't break out to new all-time highs. My 10-month range for the (SPY) lives!
It is normal to hear a rising tide of wailing from Cassandras decrying impending doom as we reach the end of an economic and stock market cycle. At nine years, this one is already the second longest in history. But we have six more years to run to top the market performance from 1949 to 1961.
Personally, I believe the current technology cycle has a minimum of one to two years to go, so there is more than ample time to make money in the sector.
Much media was focused last week on the G7 Meeting in Quebec City Canada, which appears to soon become the G6, ex the United States. Here we see the unfolding of another aspect of Trump's global strategy.
He wants to break up the American led post WWII order, which made us all wealthy and abandon Europe, Japan, and Australia as allies. This is what all the new trade wars against our friends are all about.
Instead, the NEW world order has us allied with Russia, Saudi Arabia, and a handful of Gulf sheikdoms. If carried out, it should shrink U.S. GDP growth by 1% to 2% a year, caused the mother of all stock market crashes, and greatly undermine the security of the United States.
My prediction is that it won't last. The market risk is zero for the short term, but enormous for the long term. I am not alone in these predictions.
There was another new world order emerging this week, and that the addition of Twitter (TWTR) this week to the S&P 500, replacing old line chemical company Monsanto (MON). I have to confess that I totally missed the Twitter turnaround, which has rocked from $14 to $45 in a year.
Maybe meeting Twitter employees during my nightly hikes on Grizzly Peak and meeting despairing Twitter employees who went up there to commit suicide had something to do with it. This kind of experience kind of puts one off a stock for life.
As for the Mad Hedge Trade Alert Service we are having another blockbuster month. I caught the upside breakout by the lapels and shook it for all it was worth with aggressive long positions in Microsoft (MSFT), Amazon (AMZN), Salesforce (CRM), Apple (AAPL), and the Biotechnology Index (IBB).
The result was to take the performance of the Mad Hedge Trade Alert Service to yet another all-time high. Those who signed up at any time in the past 12 months have to be extremely happy.
After one trading day, my June return is +6.24%, my year-to-date return stands at a robust 26.75%, my trailing one-year returns have risen to 62.14%, and my eight-year profit sits at a 303.65% apex.
This coming week will be all about the big Fed decision on interest rates on Wednesday.
On Monday, June 11, no data of note is released.
On Tuesday, June 12, the Federal Open Market Committee Meeting begins. At 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.
On Wednesday, June 13, at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST, the Fed is expected to raise interest rates by 25 basis points. At 2:30 Fed Chair Jerome Powell holds a press conference.
Thursday, June 14, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.
On Friday, June 15 at 9:15 AM EST, we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, I will be taking off on my 2018 Mad Hedge U.S. Road Show. See you at lunch.
Good Luck and Good Trading.
Mad Hedge Technology Letter
June 6, 2018
Fiat Lux
Featured Trade:
(SHOULD MICROSOFT BE A FANG?),
(MSFT), (AAPL), (AMZN), (MU), (GOOGL)
Microsoft's (MSFT) code grab of GitHub was another virtuoso bit of business by Microsoft CEO Satya Nadella.
Bill Gates' old stomping ground has been identified as a top 3 tech stock by the Mad Hedge Technology Letter since the early days of the letter.
A company with Amazon-esque growth and Apple-like profits is hard to beat.
There is little doubt that Microsoft will be leading the economy for the foreseeable future and its purchase of GitHub for $7.5 billion, a source code library and platform for developers to collaborate together, is testimony that Microsoft is developer friendly and raises its attractiveness level to the best developers on the market.
Universally, this underlines the strength of large-cap tech that keeps strengthening in an attempt to eclipse the competition.
Large-cap tech outperformance is one of the main overarching narratives in equity markets this year.
Investors have been handed more and more bullish evidence that has made Morgan Stanley's downgrade of Micron (MU) absurd.
The ultra-competitive environment tech industry is fighting tooth and nail to find the best technology talent around the world.
GitHub is the largest host of source code the world has ever seen and earns revenue by charging corporate customers who run projects on its platform.
This is definitely not a revenue grab as GitHub's marginal revenue is beside the point.
Upon the announcement, Microsoft shares traded higher confirming the stance of investors treating Microsoft as a super growth stock and not a legacy company of yore that focuses on extracting profits while keeping overhead low.
Growth is about spending and spending some more.
This San Francisco-based company plays host to 24 million developers and has become a critical platform for developers working on collaborative projects for Apple (AAPL), Alphabet (GOOGL), and Amazon developers around the world.
Microsoft is its biggest contributor and the purchase makes sense long term and short term.
GitHub has a de-facto monopoly of open source coding repositories. There is only one game in town for developers to collaborate on, boding well for Microsoft.
Not only will Microsoft have the biggest library of code in the world, but the monetization pathway of GitHub squarely falls on the shoulders of Microsoft Azure - Microsoft's sensational cloud business.
GitHub is just another tool that will be incorporated into its cloud and is part of the strategy to surpass Amazon as the No. 1 cloud provider.
Microsoft envisages developers and businessmen working in concert on Microsoft's cloud using its proprietary software and services that will happily feed through to the bottom line in a material way.
Look for Microsoft to keep adding premium selective parts to its software and services lineup.
As for individual developers, GitHub has been the platform to display their talents.
It is commonplace during interviews for developers to point out contributions to projects through GitHub, giving them an edge in the hiring process.
Any reputable developer should have repositories on GitHub chronicling their every move.
Every major tech company deeply respects the functionality of GitHub and what it brings to the industry.
This is not just a flash in the pan.
Crucially, the plethora of new data access about coders streaming into the Redmond, Washington, offices is a dream come true.
This will also allow Microsoft to identify and recruit the best of the best in an algorithmic method to the dismay of other tech companies.
Theoretically, the company could create an in-house ranking system of developers using the data and automate its HR department while topping it off with some artificial intelligence sauce.
There is certain to be untold, untapped talent hidden away in the layers of GitHub repositories. Once Microsoft combs through the nitty-gritty, surely a slew of contract offers will head the way for the dark horses roaming around GitHub.
In a sellers' market, the buyers find you and pay you more than the market price and not the other way around.
GitHub flirted with the possibility of going public before meeting with Nadella.
The meeting blew away GitHub leaving management impressed.
That smoothed the way for the decision to accept Nadella's offer of $7.5 billion paid in Microsoft stock.
The inflated price was a head turner.
Just three years ago, the last private round of valuation estimated GitHub at $2 billion in 2015.
Microsoft even floated the idea of buying GitHub for $5 billion in informal talks at one point.
Therefore, the $7.5 billion in stock paid to GitHub is considered a healthy premium to the market price.
Even with the inflated price, this move was a no-brainer.
The deal will see Microsoft's Vice President Nat Friedman take the reins at GitHub as CEO. He will be instructed by Nadella how to exactly realize the perfect fusion between Microsoft Azure and GitHub's code treasure trove.
Naturally, there is no guarantee all 28 million GitHub users will be coding on the Azure platform. However, if just a few million convert and adopt the Azure platform, then a GitHub purchase will seem like a massive bargain.
It's entirely possible that in the near-term future, Microsoft will be crowned as the best place in the world to work as a developer.
If this does not come to fruition, Microsoft will be in the ballpark of the top echelon.
The ability to recruit the best developers in the world is reinforced by its other big-name purchase of LinkedIn, a job networking site purchased for $26.2 billion in 2016.
LinkedIn and the data that came with it, is another salient tool helping Microsoft identify inefficiencies in the job market.
The historical progression of employees' careers is digitized, and trends can be manipulated from the data.
Microsoft will be able to understand more about the state of the job market than any other company in the world.
Ownership of the biggest coding platform, largest job networking site, and massive amounts of prized data resulting from these platforms are precious gems inside of Microsoft's portfolio.
All of these new functions will derive synergies from each other helping evolve Microsoft into a stronger company.
No doubt there will be GitHub links showing up in LinkedIn profiles.
The applications are unlimited.
In the future it might be difficult to entirely avoid the Microsoft ecosystem. The conscious decision to become even more developer friendly is poised to pay dividends in the quality of its tech staff.
Microsoft will have to extend an olive branch to the portion of developers who disagree with this purchase.
A small minority is skeptical.
The integrity of the platform will have the potential to be compromised favoring Microsoft's narrow interests.
Nadella will need to do some smoothing over with the maverick developers to get them on board with everybody else.
Even though some developers are worried the platform will be undermined, certainly the existing developers at Microsoft are jumping with joy about this development.
The GitHub buy will aid Microsoft developers to build more unique cloud products to sell as add-ons.
Venture capital company Andreessen Horowitz will be rewarded with a $1 billion pay packet from its $100 million investment into GitHub.
A cool 10-fold return.
These were the precise deals that Microsoft used to lose out to the vaunted FANGs.
It shows how far Microsoft has come in such a short amount of time.
Smartly, Nadella has used the cash pile to draw in businesses that have synergies with the existing Microsoft ecosystem.
GitHub is another example of round pegs fitting into round holes.
Microsoft is a darling of the Mad Hedge Technology Letter, and now that it has crossed the $100 threshold, this price level will act as ironclad support.
If the stock somehow gets caught up in macro-headwinds and drops to $95, consider it a gift from God.
_________________________________________________________________________________________________
Quote of the Day
"School districts in the U.S. don't adopt technology very quickly," - said co-founder and CEO of Netflix Reed Hastings.
Mad Hedge Technology Letter
May 31, 2018
Fiat Lux
Featured Trade:
(HOW SALESFORCE RAN OVER ORACLE),
(CRM), (ORCL), (MU), (RHT), (MSFT), (INTC), (AMZN), (GOOGL)
Modern tech has an unseen dark side to it.
Coders relish the opaqueness surrounding the industry infatuated with developing the next big thing to take Silicon Valley by storm.
There is nothing opaque about the Mad Hedge Technology Letter.
I grind out recommendations and you follow them. Period. End of story.
To put it mildly, the letter has gotten off to a flying start since its inception in February 2018, and there is no looking back, only looking forward.
Micron (MU), Red Hat (RHT), Microsoft (MSFT), and Intel (INTC), just to name a few, have been solid recommendations standing up to all the nonsense and mayhem permeating throughout the periodically irrational markets.
Have you noticed lately when you open up the morning paper while sipping on a steaming mug of Blue Bottle Coffee, that almost every story is about technology?
It's not a mistake. I swear.
Technology is permeating into the nooks and crannies of our society and the leaders of this movement are laughing all the way to the bank.
One of those aforementioned pioneers is no other than local lad, Salesforce CEO and perennial Facebook basher Marc Benioff.
I recommended Salesforce at $110 and it was one of the first positions in the Mad Hedge Technology portfolio.
You can't blame me.
I saw this stock pick from a million miles away and I will explain why.
Salesforce set ambitious targets that nobody thought were realistic at the time.
How high in the sky does Benioff want to build his castles?
By 2022, Marc Benioff set out sales targets of a colossal $20 billion per year.
Then Benioff gushed that Salesforce would pass the $40 billion mark, done and dusted by 2028 and $60 billion by 2034.
Remember that tech CEOs are incentivized to forecast ludicrous sales targets because it lures in the unknowledgeable investor.
Unknowledgeable or pure genius, it does not matter, Salesforce is an emphatic buy.
Salesforce is the ultimate growth stock.
In 2016, annual revenue came in at $6.67 billion, which is about the same size as a middle level semiconductor company.
They followed that up with $8.38 billion in 2017, demonstrating the parabolic shaped trajectory of the company.
At the end of fiscal year 2017, Salesforce announced that it expects revenue of around $12.60 billion in 2019.
The latest earnings report, Benioff disclosed full year guidance of $13.13 billion.
This puts Salesforce in the running to achieve its lofty aspirations.
Apparently, the castles Benioff is building aren't in the sky after all.
Theoretically, if Benioff expands the business into a $16 billion to $16.5 billion business by 2019, Salesforce will have a more than likely chance to pass the $20 billion mark by the end of 2020, a full two years than initially thought.
Salesforce will have ample wiggle room on the way to $20 billion if it is 2022 for which it aims.
Why am I rambling on about revenue?
It's the only metric that Salesforce investors value.
The company registered two straight years of less than $200 million in profits then followed it up with a less than stellar 2016 where it lost almost $50 million.
Don't expect any dividends from this neck of the woods anytime soon especially after acquiring MuleSoft, an integration software company, for $6.5 billion last quarter.
This purchase will add another $315 million of annual revenue to Salesforce's quest of eclipsing its future sales targets. This was after MuleSoft made $296.5 million in 2017 before it became a part of Marc Benioff's stable.
Benioff has proved a shrewd dealmaker, taking advantage of cheap capital to add suitable parts to his business.
Since 2016, Benioff has snapped more than 50 niche software companies that he rebrands as Salesforce products and sells them as add-on products.
This is further evidence that any funds available will be allocated toward reinvestment into products and services deeming any future dividend inconceivable, especially with the elevated revenue targets to surpass.
As for the business. Do we still need to talk about it?
Rip-roaring growth was seen across the board with total revenue increasing 25%.
Investors should stay away from any cloud company that is growing less than 20%.
Market intelligence firm International Data Corporation (IDC) voted Salesforce as the No. 1 client relationship management (CRM) platform for the fifth consecutive year.
It is the industry leader in sales, marketing, service, and increased market share in 2017, more than its closest competitors.
Larry Ellison must be tearing his hair out as Oracle's (ORCL) share price has been excommunicated to purgatory indefinitely.
Oracle is a company that I have been pounding on the tables to stay away from.
The Mad Hedge Technology Letter seldom recommends legacy companies that are still legacy companies.
Driving past his former estate, emanating from a sparkling perch in Incline Village overlooking Lake Tahoe, my neighbor gives me the goose bumps.
The property was later sold for $20.35 million. All told, Larry has around $100 million invested in real estate dotted around Incline Village. I sarcastically mentioned to him last time we bumped into each other to call me immediately when his $90 million estate in Kyoto, Japan, hits the market.
Oracle's position in the pecking order is a telltale sign of the inability to land the creme de la creme government contracts that ostensibly fall into Amazon (AMZN), Alphabet (GOOGL), and Microsoft's lap.
And it's not surprising that Larry is spending more time tending to his vast array of glittering luxury properties around the world rather than running Oracle.
Oracle is like a deer caught in the headlights and Marc Benioff is at the wheel.
On the Forbes 500 rankings, Salesforce has moved up almost 200 spots.
This position will rise as Salesforce is under contract booking a further $20.4 billion of commitments driven by its subscription services offering cloud products.
On the domestic contract front, it was much of the same for Salesforce, which inked premium deals with the U.S. Department of Agriculture, Kering, and sports apparel giant Adidas.
International companies such as Philips and Santander UK are expanding their relationships with Salesforce. A firm nod of approval.
Salesforce has been voted in the top three of most innovative companies for the past eight years by reputable Forbes magazine. The list was started in 2011, and it has never dropped out of the top three.
The gobs of innovation are the main logic behind the top five financial institutions expanding their relationship with Salesforce by an extra 70%.
Once companies start using the CRM platform, they become mesmerized with the premium add-ons that help companies run more efficiently.
Benioff has been a huge proponent of artificial intelligence (A.I.) and is an outsized catalyst to product enhancement gains.
Salesforce has taken Einstein, it's A.I. platform, and allowed all the applications to run through it.
The integration of Einstein has resulted in more than 2 billion correct predictions per day paying homage to the quality of A.I. engineering on display.
Instead of hiring a whole team of in-house data scientists, Salesforce is A.I. functionality by the bucket full and it is easy to use on its platform.
In some cases, incorporating Salesforce's A.I. into the business has bolstered other companies' top line by 15%.
Often, Salesforce's A.I. tools are declarative meaning the technology can identify solutions without a fixed formula.
Benioff has choreographed his strategy perfectly.
He is betting the ranch on unlocking data from legacy companies that migrate to his platform.
MuleSoft will help in this process of extracting value, then A.I. will supercharge the data, which is being unlocked.
What does this mean for Salesforce?
Higher revenue and more clients leading to accelerated growth. The share price has powered on north of $130, and after I recommended it at $110, I am convinced this stock will surge higher.
Salesforce is an absolute no-brainer buy on the dip.
Growth Means Shiny New Office Buildings
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Quote of the Day
"If we become leaders in Artificial Intelligence, we will share this know-how with the entire world, the same way we share our nuclear technologies today." - said current President of Russia, Vladimir Vladimirovich Putin.
