Global Market Comments
October 24, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY SECRET MARKET INDICATOR),
(SPY), (USO), (TSLA), (TBT), (NFLX), (FXY), (SNAP)
Global Market Comments
October 24, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY SECRET MARKET INDICATOR),
(SPY), (USO), (TSLA), (TBT), (NFLX), (FXY), (SNAP)
Global Market Comments
December 8, 2020
Fiat Lux
FEATURED TRADE:
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
Expect lower revenues from Facebook (FB) and Google (GOOGL) because ad revenue has taken a hit.
It makes no sense to spend ad money on Facebook and Google ads for restaurants and hotels during times like this and that’s if they even still exist today.
The accumulative effect of the bankruptcies in other parts of the economy will shrink Google and Facebook’s ad dollar coffers.
The two internet giants together could see more than $44 billion in worldwide ad revenue evaporate in 2020, but that doesn’t mean these companies won’t be profitable.
For 2020, Google's total net revenue is now projected to be about $127.5 billion, down $28.6 billion for the year.
Facebook’s management said there was “a weakening in the ads business in countries taking aggressive actions to reduce the spread of COVID-19.”
Facebook’s overall usage has increased during the pandemic, with data up more than 50% over the last month in countries hit hardest by the virus, but the spike in volume isn’t in a form in which they can monetize it.
In 2021, Facebook’s advertising business is projected to recover growing 23% year-over-year to $83 billion.
I now expect Google to generate $54.3 billion in operating income (43% adjusted EBITDA margin) and Facebook will make $33.7 billion (49% margin), in 2020.
Digital platforms have felt the abrupt halt in spending, given the relative ease of stopping ad spend.
Secondary ad companies are also performing worse than expected with forecasted revenue for Twitter (TWTR) down by 18% (to expected revenue of $3.2 billion) while Snap (SNAP) ad revenue is expected at $1.66 billion, 30% lower.
Amazon’s ad business boasts a fortified moat because their revenue comes from product searches and those have experienced a surge in demand because of the coronavirus.
Facebook-owned WhatsApp has increased by 50% and that number is up 70% in Italy as the Italians go through a severe outbreak and lockdown.
Another side effect from the virus is the reduction of video streaming quality to ease the strain on internet networks, as YouTube and Netflix (NFLX) have also done.
Facebook is monitoring usage patterns in order to make the system more efficient, and add further capacity as required.
To help ameliorate potential network congestion, they temporarily reduced bit rates for videos on Facebook and Instagram in certain regions.
Facebook is conducting tests and further preparing to respond to any problems that might arise with network services.
Facebook and Google’s weakness proves that even the largest of Silicon Valley tech companies are battling with revenue restructuring while waiting for the U.S. economy to open up.
Although this is terrible news for Facebook and Google, the Nasdaq index is in the process of bottoming out.
The 3.28 million U.S. jobless claims were unprecedented but could very well represent a flushing out of the horrible news as the Nasdaq index spiked by 4% intraday.
Tech shares have had this job claim number baked into the share price for quite a while and we knew it was going to drop like an atomic bomb.
Some estimates had 4 million unemployed and the pain on main street is real, just search on Twitter – hashtag #lostmyjob.
The anecdotes stream down about individuals coming to grips with a sudden sacking and new reality of zero income.
This is just the first phase of job removals and the silver lining is that tech companies largely avoided the worst of the firings partly because many tech jobs can be moved remotely unlike many hospitality jobs.
The other silver lining is that the health scare is supercharging the digital ecosystem as society has effectively been moved online.
Any short-term weakness in tech companies will only be brief as tech stock will lead the recovery as the economy starts to open up again and the record amount of fiscal stimulus breathes life into hobbled companies.
Tech investors should prepare to pull the trigger.
First, what is augmented reality for all the newbies?
Augmented reality is an interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer-generated perceptual information, sometimes across multiple sensory modalities.
Augmented reality (AR) went rival in 2016 when the Pokemon Go mania captivated everyone from children to adults.
No sooner than 2021, the AR addressable market is poised to mushroom to $83 billion - a sizeable increase from the $350 million in 2018.
Much like machine learning, corporations are learning to marry up this technology with their existing products supercharging the performance.
Ulta Beauty, for example, has acquired AR and artificial intelligence start-ups to help customers digitally test the final appearance of makeup before users purchase the product.
That is just one micro example of what can and will be achieved.
Looking deeper into the guts, Qualcomm (QCOM) is hellbent on making their chips a critical part of the puzzle.
The company is better known for a telecom and a semiconductor play, not often lumped in with a list of AR stocks.
Qualcomm is strategically positioned to capitalize on the integration of augmented reality in mainstream corporate business embedding their chips into the devices.
Maximizing Qualcomm’s future role in the industry, the company announced in 2018 that it would be developing a chipset specifically for AR and VR applications.
This broad-based solution will make it easier for other developers to bring new glasses to the marketplace.
Autodesk (ADSK) is one of my favorite software stocks and a best of breed of industry design.
They sell 3D rendering software to designers and creators by offering a platform in which they can transform 2D designs into digital models that are both interactive and immersive, creating compelling experiences for end-users.
Autodesk has an array of powerful software suites to augment virtually any application, such as 3ds Max, a 3D modeling program; Maya LT game development software; its automotive modeling program VRED; and Forge, a development platform for cloud-based design.
Facebook (FB) has been piling capital into AR for years.
CEO Mark Zuckerberg wants to create an alternative profit-driver and is desperate to wean his brainchild from the digital ad circus.
One example is Facebook’s Portal TV and its Spark AR which is the platform responsible for mobile augmented reality experiences on Facebook, Messenger, and Instagram.
It supplies the virtual effects for consumers to play around with, but it is yet to be seen if consumers gravitate towards this product.
Lumentum (LITE) is the leader in 3D-sensing markets developing cloud and 5G wireless network deployments.
They manufacture 3D sensor lasers that can be used with smartphones to turn handsets into a sort of radar. Sensors are clearly a huge input in how AR functions along with the chips.
CEO of Apple (AAPL) Tim Cook put it best when he earlier said, “I do think that a significant portion of the population of developed countries, and eventually all countries, will have AR experiences every day, almost like eating three meals a day, it will become that much a part of you.”
He said that in 2016 and AR has yet to mushroom into the game-changing sector initially thought partly because the roll-out of 5G is taking longer than first expected.
Apple consumers will need to then adopt a 5G device or phone to really get the AR party started and that won’t happen until the backend of next year.
My initial channel checks hint that the Cupertino firm is planning a 5.4-inch model, two 6.1-inch devices, and one 6.7-inch phone, all of which will support 5G connectivity.
I surmise that Apple’s two premium devices will feature “world-facing” 3D sensing, a technology that could help Apple boost its augmented-reality capabilities and support other feature improvements on its priciest devices.
Apple has had a big hand in Lumentum's growth and will continue to buy their sensors, but other key component suppliers will get contracts such as Finisar, a manufacturer of optical communication components and subsystems.
Apple planned to debut AR glasses by 2020, but the rollout is now delayed until 2022.
They are clearly on the back foot with Microsoft (MSFT) further along in the process.
Microsoft already has a second iteration of its AR headset, HoloLens, and is compatible with several apps and has integration with Azure as well.
The head start of 2 years could really make a meaningful impact and might be hard for Apple to recover.
Facebook isn’t the only social media company going full steam into AR, Snap (SNAP) recently unveiled its newest spectacles, which feature AR elements.
Another application of AR is autonomous driving with Nvidia working on improving the driving experience by fusing AR with artificial intelligence.
Nvidia (NVDA) is already thinking about the next generation of AR technologies with varifocal displays, which improve the clarity of an object for a user.
It will take time to transform our relationship with AR, the infrastructure is still getting built out and many people just don’t have a device that will allow us to tap into the technology.
Investors must know that AR-related stocks will start to appreciate from the anticipation of full sale adoption and there could be a killer app that forces the mainstream user to take notice.
Until then, companies jockey for position and hope to be the ones that take the lion’s share of the revenue once the technology goes into overdrive.
Global Market Comments
December 4, 2019
Fiat Lux
Featured Trade:
(THE DEATH OF KING COAL),
(KOL), (PEA),
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
Mad Hedge Technology Letter
April 15, 2019
Fiat Lux
Featured Trade:
(XXXXX)
(SNAP), (FB), (PINS), (TWTR), (GOOGL)
America is full – that is what domestic social media growth is telling us.
The once mesmerizing service that captured the imagination of the American public has soured in the country that created it.
Online advertising consultant emarketer.com issued a report showing that Snapchat (SNAP), the worst of the top social media outlets, will lose users in 2019.
The 77.5 million users forecasted by the end of 2019 represents a 2.8% YOY decrease.
This report differs greatly from the report eMarketer issued just past August showing that Snapchat was preparing for a rise of 6.6% YOY in 2019.
The delta, rate of change, represents a massive downshift in expectations and the sentiment stems from the widespread saturation of social media assets.
Market penetration has run its course and the players have run out of bullets mainly targeting Generation Z.
These platforms have given up on baby boomers and Snap feels that pursuing the millennial demographic would be an exercise in futility.
Even more disheartening is that between 2020-2023, there will be only a minor uptick of user growth by 600,000 users clamping down on the impetus of a comeback of sorts shackling the business model.
The trend is not mutually exclusive to Snap, Twitter or Facebook, social media as a group will only expand the overall user base by 2.4% in 2020 hardly satisfying the appetite for growth that these companies publicly advertise.
Remember that much of Instagram’s growth originates from borrowing Snapchat users by way of copying their best features.
Even with this dirty tactic, growth seems to be petering out.
Snap’s shares have made a nice double after peaking shortly over $25 after the IPO.
But the double was a case of investors believing that management and execution had hit rock bottom – the proverbial dead cat bounce in full effect.
Now investors will pause to reassess whether there is another reasonable catalyst to drive the stock higher.
First, investors will need to ask themselves, is Snap in for another double?
Absolutely not.
So where does Snap go from here?
I believe they will borrow from the playbook of Mark Zuckerberg and attempt to emphasize supercharging average revenue per user (ARPU).
Whether the company arrives at this conclusion by chance or strategy, they must confront the reality that there are almost no other levers to pull if they want to perpetuate this growth story.
M&A is also off the table because the company is burning through cash.
Facebook’s (ARPU) came in at $7.37 last quarter indicating how Snap needs to make substantial headway in this metric with last quarter’s paltry (ARPU) at $2.09.
Essentially, management will conclude that each user isn’t absorbing enough ads because of declining user engagement.
Snap CEO Evan Spiegel will need to improve the pricing power charging advertisers at higher rates.
Obviously, the lack of an attractive platform resulting from poor execution and engineering problems needs a quick turnaround.
It’s not all smooth sailing for Facebook either, they keep chopping and reshaping strategy by the day attempting to minimize costs as the regulation burdens rot at the bottom line.
On the bright side, regulation hasn’t been as bad as initially thought – usership hasn’t dropped by orders of magnitudes.
In fact, Facebook’s users have shown a resurgent indifference to Facebook chopping up their data and repackaging it to 3rd parties, meaning Facebook has come through rather unscathed in the face of a PR storm.
There have even been recent reports of Zuckerberg being persuaded to start paying journalists for original content, a vast pivot for his hyped-up propaganda machine of being in the distribution business.
Juicing up (ARPU) is the lowest hanging fruit on offer for Snapchat and Facebook right now, overperforming in this sphere will improve financials and keep the mosquitoes away while affording them time to ponder how to reaccelerate user growth.
One outsized negative trend is that 90% of user growth appears to originate from undeveloped nations with a lack of discretionary spending power showing that this strategy has its limits.
Searching for another tool in its toolkit will redefine Snapchat, Twitter, and Facebook as we know it.
I would even classify it as an existential crisis.
Instagram have bought Facebook the most time to readjust its future direction highlighting that stealing Snapchat’s audience is still effective, expecting user growth to climb to 106.7 million US users, up 6.2% from 2018.
Instagram will continue its expansion by adding nearly 19 million new US users by 2023, but as much as it adds to its new social media asset, Facebook will be struggling for new net adds.
Snapchat is in dire straits and the stock market bubble could support the share price for up to another 8-12 months, but when the guillotine drops on Snapchat, the blood will smatter everywhere.
The company also plans to introduce a gaming service to take advantage of the popularity with its core users, Generation Z.
This should be the trick that breathes life into operating margins and (ARPU) which is why I believe the stock will hold up for the next period of time.
But with the gaming initiatives also comes rampant competition with the likes of Alphabet (GOOGL) and don’t forget Fortnite is still the 800-pound gorilla.
These trends also bode negatively for Pinterest (PINS) who might be going public as the last shot of tequila is downed at the after party.
Global Market Comments
February 1, 2019
Fiat Lux
Featured Trade:
(THE DEATH OF KING COAL),
(KOL), (PEA),
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
Mad Hedge Technology Letter
January 8, 2019
Fiat Lux
Featured Trade:
(WHY I SOLD SHORT APPLE),
(AAPL), (FB), (SNAP), (SQ), (AMZN), (BB), (NOK)
Apple (AAPL) needs Jack Dorsey to save them.
That is what the steep sell-off is telling us.
Lately, Apple’s tumultuous short-term weakness is indicative of the broader mare’s nest that large-cap tech is confronting, and the unintended consequences this monstrous profit-making industry causes.
These powerful tech companies have sucked out the marrow of the innovative bones that the American economy represents, applying this know-how to pile up ceaseless profits to the detriment of the incubational start-ups that used to be part and parcel of the DNA of Silicon Valley.
In the last few years, the number of unicorns has been drying up rapidly on a relative basis to decades of the ’90s and the early 2000s – this is not a startling coincidence.
The mighty FANGs were once fledging start-ups themselves but have become entrenched enough to the point they transcend every swath of culture, society, and digital wallet now.
Becoming too big to boss around has its competitive advantages, namely harnessing the hoards of data to destroy any competition that has any iota of chance of uprooting their current business model.
And if these large tech companies can “borrow” the innovation that these smaller firms cultivate, they wield the necessary resources to undercut or just decapitate the burgeoning competition.
The net effect is that innovation has been crushed and the big tech companies are milking their profits for what its worth.
Fair?
Not at all.
But tech has never been a fair game and going to a gun fight with a knife is why militaries incessantly focus on technology to accrue a level of firepower head and shoulders above their peers.
The career of Co-Founder of Jet.com, an e-commerce platform bought by Walmart for $3.3 billion in 2016, perfectly illustrates my point.
Marc Lore was born from the mold of leaders such as Amazon (AMZN) founder Jeff Bezos, leveraging the wonders and functionality of the e-commerce platform to construct a thriving business empire.
Quidsi, an e-commerce company, was founded by Marc Lore on the back of Lore maxing out personal credit cards to rent trucks to head to wholesale stores up and down the East coast to buy diapers, wipes, and formula in large quantities.
Under the umbrella of Quidsi, diapers.com and soap.com were successful e-commerce businesses and a segment that Amazon hadn’t cracked yet.
CEO of Amazon Jeff Bezos identified Lore as a mild threat to his low-end pricing, high-volume business empire.
Yes, this was a market grab, but to avoid a looming and an escalating price war, Amazon bought Quidsi for $500 million and $45 million of debt leaving Lore with millions after repaying earlier investors but effectively neutering Lore and putting him out to pasture.
The best way to ensure there is not another Jeff Bezos is for Jeff Bezos to buy out the upcoming Jeff Bezos before he can get close enough to go for the kill.
While both Bezos and Lore extolled the acquisition with pleasantries, Lore later described it as a glass half empty scenario akin to a mourning.
Getting a golden parachute-like payment for innovation is the best-case scenario for these up and coming stars of tech.
Others aren’t as lucky.
The castle that Bezos built and this type of reaction to stunting competition cannot be quantified and has a net negative effect on the overall level of innovation in the tech sector.
Then there is the worst-case scenario for tech companies such as Snapchat (SNAP). They have been courted numerous times by Facebook (FB) and offered sweetened deals that most people would salivate over.
Each rebuff followed a further Facebook retrenchment onto Snapchat’s territory hoping that they would gradually tap out from this vicious headlock.
In return, Snapchat has had the Turkish carpet pulled out from underneath them and most of their in-house innovation has been borrowed by Facebook’s subsidiary social media platform Instagram.
During this time span, Snapchat’s share price has nosedived and the defiant Snapchat management has lost the momentum and bravado that was emblematic to their business model.
Innovation has also been strangled in Venice, California as declining usership has been partly due to a lack of fresh features and an emphasis on profit creation instead of innovation that led to a botched redesign and sacking of 100 engineers.
Then there is that one's company, two's a crowd and three's a party and Snapchat’s growth model trailed Facebook and Twitter who took advantage of the era of zero regulation to build usership and brand awareness.
Snapchat was late to the feast and has suffered because of it.
The climate and mood for social media have significantly soured in the past six months and have tainted this whole niche sector with one toxic stroke with a brushstroke that has encapsulated any company within two degrees of this sector.
So where do the innovative problems start with Apple?
Right at the top with CEO Tim Cook.
Apple is known for brilliantly rewriting history and not fine-tuning it.
This is why I have preached the emphatic value of erratic but visionary leaders such as Steve Jobs and Elon Musk.
They take big risks and do not apologize for their smoking weed on podcasts and laugh about it.
Investors put up with these shenanigans because these leaders understand the scarcity value of themselves.
They don’t play it safe even if profits are the easiest option.
To save Apple, Apple would need to hire Square and Twitter CEO Jack Dorsey to innovate out of this mess.
The stock would double from here because Dorsey would bring back the innovative juices that once permeated through the corridors in Cupertino through Job’s genius ideas.
Under Cook’s tutelage, Apple has made boatloads of cash, but they were going to do that anyway because of Steve Job’s creations.
However, Cook has presided over China rapidly encroaching on its revenue source and is over-reliant on iPhone revenue.
They had years to develop something new but now China is beating Apple at its own game.
Not only has the smartphone market sullied, but so has the relative innovation that once saw every iPhone iteration vastly different from the prior generation.
The petering out of innovative smartphone features has gifted time to the Chinese to figure out how to snatch iPhone loyalists in China with vastly improved devices but at a way lower price point.
The erosion of Samsung’s market share in China should have been a canary in the coal mine and China is in the midst of replicating this same phenomenon in India too.
And I would argue that this would have never happened if Steve Jobs was still alive.
Jobs would have reinvented the world two times over by now with a product that doesn’t exist yet because that is what Jobs does.
As it is, Cook, a great operation officer, is a liability and probably should still be an operations manager.
Cook blared the sirens in early January with a public interview saying that revenue would drop by $9 billion.
This was the first profit warning in 16 years and won’t be the last if Cook retains his position.
Cook has steered the mystical Apple brand careening into the complex dungeon of communist China and was late to react.
Jobs would act first and others would have to react to his decisions, a staple of innovation.
Sailing Apple’s ship into the eye of the China storm stuck out like a sore thumb once Trump took over.
Adding insult to injury, consumers are opting for cheaper Android-based phones that function the same as iPhones.
The 10% of quality that Apple adds to smartphones isn’t enough to persuade the millions of potential customers to pay $1000 for an iPhone when they can get the same job done with a $300 Android version.
Cook badly miscalculated that Apple would be able to leverage its luxury brand to convince prospective buyers that iPhones would be a daily fixture and can’t-miss product.
Even though it was in 2010, it isn’t now.
The type of price points Apple is offering for new iPhone iterations means that this version of the iPhone should be at least 35% or 40% better than the previous version giving the impetus to customers to trade-up.
Sadly, it’s not and Cook was badly caught out.
Therefore, it is confusing that Apple didn’t apply more of its mountain of capital and luxurious brand status to cobble together a game-changing product.
Cook could have put his stamp on the Apple brand and might not have the chance now.
Cook being an “operations guy” has gone to the well too many times and the narrative and direction of Apple is a big question mark going forward.
This is the exact time needed for some long-term vision.
What does this all mean?
The shares’ horrific sell-off means that it is in line for some breathing room from the relentless downward price action.
However, unless the geopolitical tornados can subside, Apple debuts a Steve Jobs-esque bombshell of a product, or Square (SQ) CEO Jack Dorsey takes over the reins in Cupertino, the share price has limited upside in the short-term.
Apple will not have the momentous and breathtaking gap ups until something is fundamentally changed in the house that Steve Jobs built and that is what the tea leaves are telling us.
This has led me to execute a deep-in-the money put spread to take advantage of this limited upside.
Apple is a great long-term hold, but even Cook is threatening this premise.
As Cook is stewing in his office pondering his uncertain future, he forgets what it was that got Apple to the top of the tech ladder – innovation and lots of it.
The Mad Hedge Technology Letter ranks innovation as the most important input and x-factor a tech company can possess.
Steve Jobs understood that, yet, failed to pass on this hard-learned but important lesson to his protégé.
If Apple stays on the same track, they risk being the next Nokia (NOK) or Blackberry (BB).
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.
OKLearn moreWe may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Vimeo and Youtube video embeds: