Global Market Comments
December 8, 2020
Fiat Lux
FEATURED TRADE:
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
Posts
Mad Hedge Technology Letter
August 26, 2020
Fiat Lux
Featured Trade:
(THE EMPTY PIPELINE OF TECH INNOVATION)
(AAPL), (FB), (AMZN), (GOOGL), (NFLX), (TSLA), (SNAP), (MSFT), (ORCL), (TWTR)
The oligarchical regime of Northern Californian tech companies stopped innovating because they don’t have to.
When you have a monopoly – you have one objective – to crush anything that remotely resembles competition.
That has been happening for years now by the Silicon Valley oligarchs and the government still hasn’t taken their finger out to do much about it.
Honestly, my bet is that most of U.S. Congress own stock portfolios and these portfolios are spearheaded by the likes of Apple (AAPL), Facebook (FB), Amazon (AMZN), Google (GOOGL), Netflix (NFLX), and possibly even Tesla (TSLA), if they want a little growth.
It’s a direct conflict of interest, but that's not surprising for politics in 2020, is it?
The government likes to jawbone to the public saying they will make competition a level playing field, but actions show they are doing the opposite.
The Silicon Valley oligarchs are whispering in the ear of Congress and they listen.
Who would want Congress to lose money in their retirement portfolios, right?
Well, what now?
Fast forward to the future - mid-September, TikTok — the Chinese-owned, video-sharing phenomenon — MUST sell its U.S. operations.
Given the app’s 100 million U.S. users, this forced divestment by President Trump has triggered a delirious auction now pitting tech giants Microsoft (MSFT), Oracle (ORCL), and Twitter (TWTR) against one another.
The White House and Big Tech are boiling the free for all down to a combined story of national security and opportunistic capitalism amid unfortunate geopolitical tension between the U.S. and China.
But the ultimatum to ByteDance, TikTok’s owner, is more accurately understood as a dark window into Silicon Valley’s utter failure to innovate, and a warning signal of its transformation into a mere protector of long-established turf.
Silicon Valley has long adhered to the motto, “Move fast and break things” – but that was long ago when Steve Jobs was busy making the first iPhone.
The truth is Silicon Valley couldn’t be more corporate than it is now, and they use the corporate machine to serve the ends they desire.
Big Tech is just in love with buybacks like the rest of corporate America and the only reason they avoid it now is to appear as if they are in tune with public discourse and not tone deaf.
Huawei, another punching bag of the Trump administration’s tech war with China, best foreshadowed the optics.
In remarks to reporters in March 2019, Chinese politician Guo Ping said, “The U.S. government has a loser’s attitude. They want to smear Huawei because they can’t compete with us.”
ByteDance produced the hottest new social media platform on a global scale, and Facebook, in typical fashion, responded by brazenly copying TikTok, adding a feature called Reels to Instagram.
Don’t forget that Mark Zuckerberg has been attempting to destroy Snapchat (SNAP) for years after CEO Evan Spiegel refused to sell it to Zuckerberg.
The rest of the tech ecosphere has turned a blind eye to the anti-trust violations because they don’t want to be the next takeout target.
Make no bones about it, Silicon Valley, with the help of the Trump administration, is about to do a smash and grab job on China’s best tech growth asset.
This cunning maneuver alone has the knock-on effect of not only extending the tech rally in U.S. public markets but increasing the scarcity value and emboldening the Silicon Valley oligarchs.
I’m all about good deals and robbing Chinese tech in broad daylight is overwhelmingly bullish for the U.S. tech sector.
Imagine adding another Instagram to the appendage of an already mammoth tech company.
So why innovate? Why deploy capital into research and development when you can just nick a foreign company's crown jewel?
Even if you hate Silicon Valley at a personal level, it is literally impossible to short them, and now they are resorting to stealing companies, what other passes will government, society, and corporate America give American tech?
In either case, it’s not for me to judge, and as a technology analyst - I am bullish U.S. tech.
Mad Hedge Technology Letter
June 24, 2020
Fiat Lux
Featured Trade:
(WHY I WAS WRONG ON SNAP)
(SNAP), (ZNGA)
Snap (SNAP) is a stock that I have bashed relentlessly from the onset of the Mad Hedge Tech Letter.
But things are different now.
Recent events have made me stand back and take notice.
This company has really turned the proverbial corner.
Now I can say with conviction that Snap is a buy and hold.
The snapback in shares of more than 110% from March lows is no joke as well and could be the beginning of a roaring melt-up in share appreciation that won’t stop until the next “big” macro event.
Much of this has to do with the average revenue per user climbing as they have not been able to ramp up the volume of the userbase which is a headwind that many of the social media companies are currently facing.
I fully expect annual revenue per user to jump around 22% by the end of 2020 because of Snap’s new ad technology called Dynamic Ads.
Initial data suggests that ad buyers are clamoring for this new technology.
The new design allows clients to upload their product catalogs to Snap and automatically generate ads, versus manual versions that fit Snapchat’s vertical ad format.
Snap has also delivered optimal analytic tools to better understand how effective ad dollars are.
They have also rolled out a new ad format for the map component of Snapchat that target small and medium businesses.
Digital ad delivery, design, and maintenance is really the deep core of these social media platforms and how they earn revenue, but the attractiveness of gaming to social media brought to us from the side effects of the coronavirus cannot be underestimated as well.
As lockdowns and second waves reared its ugly head, mobile gaming popularity went through the roof.
Snap didn’t hold back - they attacked this opportunity by layering themselves deeper into the gaming ecosystem.
Snap entered into a multi-game partnership with mobile game giant Zynga (ZNGA) that integrated the niche gaming asset into Snap resulting in more time spent for each Snapchat user.
Zynga has performed handsomely since the pandemic hit.
Shares have doubled since March lows and the firm stayed aggressive by acquiring gaming company Peak for $1.8 billion.
Zynga has mastered a full steam ahead acquisition strategy for the past several years that includes the purchases of Gram Games and Small Giant Games.
These two buys meant that Zynga effectively topped up with another 12 million gamers.
This strategy makes sense considering that Silicon Valley has had access to cheap capital for the last generation and is incentivized to keep users paying around in their unique walled gardens.
Zynga has also turned into quite a trendy buy call from stock analysts lately after being in the doldrums for years.
The company has parlayed its gaming machine into an ad juggernaut and expects to take in $90 million in ad sales just through one of its popular titles called Peak in 2020.
I do believe that gamers won’t bolt from the stable after the summer sun draws people out of their homes.
There is staying power in the cross-pollination of video games and social media. They complement each other quite well to the point where they are a match made in heaven for computer junkies.
I am from a different breed where I throw up ad blockers at each digital turn, but not everyone is averse to digital ads.
Social media and internet gaming had no retention problems before the pandemic, and the health crisis has exaggerated every single digital trend from cloud adoption to remote working, and social media gaming is no exception.
Mad Hedge Technology Letter
March 27, 2020
Fiat Lux
Featured Trade:
(THE COMING AD HIT FOR GOOGLE AND FACEBOOK)
(FB), (GOOGL), (TWTR), (SNAP)
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.
Mad Hedge Technology Letter
December 6, 2019
Fiat Lux
Featured Trade:
(AUGMENTED REALITY IS HEATING UP),
(AAPL), (LITE), (QCOM), (NVDA), (ADSK), (FB), (MSFT), (SNAP)
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)
