The technology industry is just one piece of the pie and is now being utterly eclipsed by geopolitics left, right, and center.
At times like this, fundamentals and growth rates go out the window.
It’s a shame because growth rates for the best of breed in technology are still nothing short of spectacular.
The elevated risk here is that frontier companies such as Uber (UBER) become marginalized and their narrative starts to turn into a version of technology that is too expensive and unable to pin down expenses.
The easy money in tech is no more as we are barreling towards a global slowdown with China and America doing their best to move forward the global recession into the beginning of 2020.
So when Uber prints $5.2 billion in losses from the prior quarter which is a sequential increase of 30%, the vicious sell off in shares epitomizes the souring of sentiment that is pervading through the equity landscape.
The Uber’s earnings call was summed up when CEO of Uber Dara Khosrowshahi chimed in saying, “No doubt in my mind that the business will eventually be a break even and profitable business.”
These vague statements that offends time-sensitive hawks is a recipe for disaster in August 2019.
The purse strings of tech are not nearly as loose as they once were even 6 months ago.
Investors want profit making enterprises mixed with accelerating revenue growth – put your money where your mouth is type of ventures.
This has reduced the appealing side of tech down to outperforming software companies and even they are battling in the trenches as the wave of geopolitical risk-off sentiment crushes shares.
I would sell every Uber dead cat bounce because there is no way that Uber shares will surpass its all-time high of $46.38 this year.
The surge in bond prices show that risk appetite has dried up and Uber is unfortunately at the opposite end of the risk appetite spectrum.
I would also put its brother in arms Lyft (LYFT) in the same boat.
Lyft loses less money but are a speculative bet to “eventually” make money, and that is exactly what people don’t want to hear right now.
It will be a slippery slope for any tech company further out on the risk curve to invest in a business model that doesn’t turn a profit.
As it stands, Uber and Lyft were lucky to go public when they did, barely getting the IPOs over the line.
If they waited a few more months, they would have had to postpone it.
Expect meager M&A movement moving forward as the global slowdown will test the business models of every tech company and that means the weakest will need to restructure, go under, or even sell themselves at garage sale prices.
It is time to hunker down in tech shares and not bet the ranch.
The positions I have are short-dated deep in the money call spreads in software stocks that are bets that shares won’t go lower in a straight line.
I have fused that with positions in semiconductor stocks from the short side as a tech global slowdown means less demand in consumer electronics which hoover up semiconductor chips.
To be honest, I was worried when it dipped all the way down to $25 last year because it was a stock that was prime for liftoff.
Liftoff has happened but a little later than I first surmised.
Roku had a blowout quarter crushing estimates with expanding their pie 59% year-over-year to $250 million scorching consensus estimates of $224 million.
The outperformance doesn’t stop there with the company rapidly adding users to 30.5 million active users during the quarter, up 39% year-over-year.
The monetization side showed the same outperformance with average revenue per user (ARPU) up to $21.06, up $2.00 year-over-year.
For all the doubters out there, who dismissed the potential of Roku because they weren’t part of an Amazon, Google, Facebook, or Apple group, then you were wrong.
What we have seen in the past year is the potential transforming in real-time into high octane outperformance.
The x-factor that put the company’s business model over the edge was the “onslaught” of new streaming assets coming online this year and in 2020 from Disney, NBCUniversal, and HBO.
Recent surveys suggest that Amazon’s Fire TVs haven’t been able to keep up with Roku.
And as Disney and NBC roll out gleaming new streaming assets, Roku will be able to do what is does best – sell digital ads.
Roku being independent doesn’t care who streams what because selling ads can be sold on any streaming program.
This makes me believe that Roku is in a better position not being a Fang because of a lack of conflict of interest.
For example, Google and Amazon have skirmished about different crossover partnerships such as YouTube on the Amazon Kindle and so on.
They plainly don’t want to help each other
Part of the DNA of these big tech companies is bringing each other down.
In my mind, Roku has definitely benefited from the first-mover advantage and have perfected selling digital ads over over-the-top (OTT) boxes.
It just so happens that Roku has prepared itself to extract maximum profits from the intersection of integrating online streaming assets and the consumer quitting analog cable.
The timing couldn’t have been better if they tried.
In its infancy, Roku’s revenue was reliant on selling the physical hardware, but that revenue has trailed off at the perfect time because of the explosion of digital ad growth in the industry boosting its other business.
Perhaps even more impressive is the loss of 8 cents last quarter when the company was expected to lose 22 cents.
This signals to investors that profitability is just around the corner for Roku and after years of burning cash, they are finally ready to turn the page and start a new chapter in the history of Roku.
Roku bottomed out at $25 and is now trading over $125, an extraordinary feat and one of the stories of the tech industry in 2019.
I wouldn’t chase the stock here, but I will say the momentum is palpable and Roku will end the year higher than where it is now.
It’s a great stock with an even more compelling story and about to harvest and monetize the new streaming assets that are coming through the pipeline.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/08/streaming-tv-platforms.png4951012Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-08-12 01:02:412019-09-16 10:29:45Unstoppable Roku
Apple has endured a tumultuous last six months, but the company and the stock have turned the page on the back of the anticipation of the new Apple streaming service that Apple plans to introduce next week at an Apple event.
The company also recently announced a partnership with Goldman Sachs (GS) to launch an Apple-branded credit card.
In the deal, Goldman Sachs will pay Apple for each consumer credit card that is issued.
These new initiatives indicate that Apple is doing its utmost to wean itself from hardware sales.
Effectively, Apple's over-reliance on hardware sales was the reason for its catastrophic winter of 2018 when Apple shares fell off a cliff trending lower by almost 35%.
This new Apple is finally here to save the day and will demonstrate the high-quality of engineering the company possesses to roll out such a momentous service.
Frankly speaking, Apple needs this badly.
They were awkwardly wrong-footed when Chinese consumers in unison stopped buying iPhones destroying sales targets that heaped bad news onto a bad situation.
I never thought that Apple could pivot this quickly.
Apple's move into online streaming has huge ramifications to competing companies such as Roku (ROKU).
In 2018, I was an unmitigated bull on this streaming platform that aggregates online streaming channels such a Sling TV, Hulu, Netflix and charges digital advertisers to promote their products on the platform through digital ads.
I believe this trade is no more and Roku will be negatively impacted by Apple’s ambitious move into online streaming.
What we do know about the service is that channels such as Starz and HBO will be subscription-based channels that device owners will need to pay a monthly fee and Apple will collect an affiliate commission on these sales.
Apple needs to supplement its original content strategy with periphery deals because Apple just doesn’t have the volume to offer consumers a comprehensive streaming product like Netflix.
Only $1 billion on original content has been spent, and this content will be free for device owners who have Apple IDs.
Apple's original content budget is 1/9 of Netflix annual original content budget.
My guess is that Apple wants to take stock of the streaming product on a smaller scale, run the data analytics and make some tough strategic decisions before launching this service in a full-blown way.
It's easier to clean up a $1 billion mess than a $9 billion mess, but knowing Apple and its hallmarks of precise execution, I'd be shocked if they make a boondoggle out of this.
Transforming the company from a hardware to a software company will be the long-lasting legacy of Tim Cook.
The first stage of implementation will see Apple seeking for a mainstay show that can ingrain the service into the public's consciousness.
Netflix was a great example, showing that hit shows such as House of Cards can make or break an ecosystem and keep it extremely sticky ensuring viewers will stay inside a walled pay garden.
Apple hopes to convince traditional media giants such as the Wall Street Journal to place content on Apple's platform, but there has already been blowback from companies like the New York Times who referenced Netflix’s demolition of traditional video content as a crucial reason to avoid placing original content on big tech platforms.
Netflix understands how they blew up other media companies and don’t expect them to be on Apple’s streaming service.
They wouldn’t be caught dead on it.
Tim Cook will have to run this race without the wind of Netflix’s sails at their back.
Netflix has great content, and that content will never leave the Netflix platform come hell or high water.
Apple is just starting with a $1 billion content budget, but I believe that will mushroom between $4 to $5 billion next year, and double again in 2021 to take advantage of the positive network effect.
Apple has every incentive to manufacture original content if third-party original content is not willing to place content on Apple's platform due to fear of cannibalization or loss of control.
Ultimately, Apple is up against Netflix in the long run and Apple has a serious shot at competing because of the embedment of 1 billion users already inside of Apple's iOS ecosystem that can easily be converted into Apple streaming service customers.
If you haven't noticed lately, Silicon Valley's big tech companies are all migrating into service-related SaaS products with Alphabet (GOOGL) announcing a new gaming product that will bypass traditional consoles and operate through the Google Chrome browser.
Even Walmart (WMT) announced its own solution to gaming with a new cloud-based gaming service.
I envision Apple traversing into the gaming environment too and using this new streaming service as a fulcrum to launch this gaming product on Apple TV in the future.
The big just keep getting bigger and are nimble enough to go where internet users spend their time and money whether it's sports, gaming, or shopping.
Apple is no longer the iPhone company.
I have said numerous times that Apple's pivot to software was about a year too late.
The announcement next week would have been more conducive to supporting Apple’s stock price if it was announced the same time last year, but better late than never.
Moving forward, Apple shares should be a great buy and hold investment vehicle.
Expect many more cloud-based services under the umbrella of the Apple brand.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/03/netflix-mar25.png564972Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-03-25 02:06:312019-07-10 21:39:03Apple's Big Push Into Services
As 2019 christens us with new technological trends, building our portfolio and lives around these themes will give us a leg up in battling the algorithms that have upped the ante in our drive to get ahead.
Now it’s time to chronicle some of these trends that will permeate through the tech universe.
Some are obvious, and some might as well be hidden treasures.
Smart Areas Will Conspicuously Advance
American consumers will start to notice that locations they frequent and the proximities around them will integrate more smart-tech.
The hoards of data that big tech possesses and the profiles they subsequently create on the American consumer will advance allowing the possibilities of more precise and useful products.
These products won’t just accumulate in a person’s home but in public areas, and business will jump at the chance to improve services if it means more revenue.
Amazon and Google have piled money into the smart home through the voice assistant initiatives and adoption has been breathtaking.
The next generation will provide even more variety to integrate into daily lives.
Location-based Dispersion Will Ramp Up
The gains in technology have given the consumer broader control over their lives.
The ability to practically manage one’s life from a remote location has remarkably improved leaps and bounds.
The deflation of mobile phone data costs, the advancement of high-speed broadband internet services in developing countries, more cloud-based software accessible from any internet entry point, and the development of affordable professional grade hardware have made life easy for the small business owners.
What a difference a few years make!
This has truly given a headache for traditional companies who have failed to evolve with the times such as television staples who rely on analog advertising revenue.
Millennials are more interested in flicking on their favorite YouTuber channel who broadcast from anywhere and aren’t locally based.
Another example is the quality of cameras and audio equipment that have risen to the point that anybody can become the next Justin Bieber.
Music executives are even using Spotify to target new talent to invest in.
Overhyped Bitcoin Will Finally Take A Siesta From The Mainstream
Blockchain technology has the makings of transforming the world we live in.
And the currency based on the blockchain technology had a field day in the press and backyard summer barbecues all over the country.
Well, 2019 will finally put this topic on the backburner even though Bitcoin won’t disappear into irrelevancy, the pendulum will swing the other direction and this digital currency will become underhyped.
The rise to $20,000 and the catastrophic selloff down to $4,000 was a bubble popping in front of us.
It made a lot of people rich like the Winklevoss brothers Cameron and Tyler who took the $65 million from Facebook CEO Mark Zuckerberg and spun it into bitcoin before the euphoria mesmerized the American public.
On the way down from $20,000, retail investors were tearing their hair out but that is the type of volatility investors must subscribe to with assets that are far out on the risk curve.
The volatility that FinTech leader Square (SQ) and OTT Box streamer Roku (ROKU) have are nothing compared to the extreme volatility that digital currency investors must endure.
E-Sports Will Become Even More Popular
Video games classified as a spectator sport will expand up to 40% in 2019.
This phenomenon has already captivated the Asian continent and is coming stateside.
This is a bit out of my realm as standard spectator sports don’t appeal to me much at all, and watching others play video games for fun is something I am even further removed from.
But that’s what the youth like and how they grew up, and this trend shows no signs of stopping.
Industry experts believe that the U.S. is at an inflection point and adoption will accelerate.
Remember that kids don’t play physical sports anymore because of the risk to head trauma, blown ligaments, and the sheer distances involved traveling to and from venues turn participants away.
Franchise rights, advertising, and streaming contracts will energize revenue as a ballooning audience gravitates towards popular leagues, tapping into the fanbase for successful video game series such as Overwatch.
The rise of eSports can be attributed to not only kids not playing physical sports but also younger people watching less television and spending more time online.
Soon, there will be no difference in terms of pay and stature of pro athletes and video gaming athletes.
The amount of money being thrown at the world’s best gamers makes your spine tingle.
Data Regulation Will Tighten
The era of digital data regulation is upon us and whacked a few companies like Google and Facebook in 2018.
Well, this is just the beginning.
The vacuum that once allowed tech companies to run riot is no more, and the government has big tech in their cross-hairs.
The A word will start to reverberate in social circles around the tech ecosphere – Antitrust.
At some point towards the end of 2019, some of these mammoth technology companies could face the mother of all regulation in dismantling their business model through an antitrust suit.
Companies such as Amazon and Facebook are praying to the heavens that this never comes to fruition, but the rhetoric about it will slowly increase in 2019 because of the mischievous ways these tech companies have behaved.
The unintended consequences in 2018 were too widespread and damaging to ignore anymore.
Antitrust lawsuits will creep closer in 2019 and this has spawned an all-out grab for the best lobbyists tech money can buy.
Tech lobbyists now amount to the most in volume historically and they certainly will be wielded in the best interest of Silicon Valley.
Watch this space.
Software Favored To Hardware
The demand for smart consumer devices will fall off a cliff because most of the people who can afford a device already are reading my newsletter from it.
The stunting of smart device innovation has made the upgrade cycle duration longer and consumers feel no need to incrementally upgrade when they aren’t getting more bang for their buck.
The late-cycle nature of the economy that is losing momentum because of a trade war and higher interest rates will see companies look to add to efficiencies by upgrading software systems and processes.
This bodes well for companies such as Microsoft (MSFT), Salesforce (CRM), Twilio (TWLO), PayPal (PYPL), and Adobe (ADBE) in 2019.
Logistics Gets A Boost From Technology
This is where Amazon has gotten so good at efficiently moving goods from point A to point B that it is threatening to blow a hole in the logistic stalwarts of UPS and FedEx.
Robots that help deploy packages in the Amazon warehouses won’t just be an Amazon phenomenon forever.
Smaller businesses will be able to take advantage of more robotics as robotics will benefit from the tailwind of deflation making them affordable to smaller business owners.
Amazon’s ramp-up in logistics was a focal point in their purchase of overpriced grocer Whole Foods.
This was more of a bet on their ability to physically deliver well relative to competition than it was its ability to stock above average quality groceries.
If Whole Foods ever did fail, Amazon would be able to spin the prime real estate into a warehouse located in wealthy areas serving the same wealthy clientele.
Therefore, there is no downside short or long-term by buying Whole Foods. Amazon will be able to fine-tune their logistics strategy which they are piling a ton of innovation into.
Possible new logistical innovations include Amazon attempting to deliver to garages to avoid rampant theft.
This is all happening while Amazon pushes onto FedEx’s (FDX) and UPS’s (UPS) turf by building out their own fleet.
Innovative logistics is forcing other grocers to improve fast giving customers better grocery service and prices.
Kroger (KR) has heavily invested in a new British-based logistics warehouse system and Walmart (WMT) is fast changing into a tech play.
Tech Volatility Won’t Go Away
Current Chair of the Federal Reserve Jerome Powell unleashed a dragon when he boxed himself into a corner last year and had to announce a rate hike to preserve the integrity of the institution.
Markets whipsawed like a bull at a rodeo and investors lost their pants.
Tech companies who have been leading the economy and trot out robust EPS growth out of a whole swath of industries will experience further volatility as geopolitics and interest rate rhetoric grips the world.
Apple’s revenue warning did not help either and just wait until semiconductors start announcing disastrous earnings.
The short volatility industry crashed last February, and the unwinding of the Fed’s balance sheet mixed with the Chinese avoiding treasury purchases due to the trade war will insert even more volatility into the mix.
Powell attempted to readjust his message by claiming that the Fed “will be patient” and tech shares have had a monstrous rally capped off with Roku exploding over 30% after news of positive subscriber numbers and news of streaming content platform Hulu blowing past the 25 million subscriber mark.
Volatility is good for traders as it offers prime entry points and call spreads can be executed deeper in the money because of the heightened implied volatility.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/01/warehouse-robots.png512852Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-01-09 01:06:182019-07-09 04:58:15Top 8 Tech Trends of 2018
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