Mad Hedge Technology Letter
September 3, 2021
Fiat Lux
Featured Trade:
(TWITTER MAKING MOVES TO BOOST EARNINGS)
(TWTR)
Mad Hedge Technology Letter
September 3, 2021
Fiat Lux
Featured Trade:
(TWITTER MAKING MOVES TO BOOST EARNINGS)
(TWTR)
When one looks at the 7 billion people in the world who don't use Twitter yet, and then looks at the 300 million who are in the United States, Twitter obviously has ample runway to add whole groups of people who look just like those that use the service today, whether they're in the US or in other parts of the world.
When one considers the product roadmap, it's right-sized to help all of them to get better usage out of Twitter.
The top of the marketing funnel continues to be robust and consistent and gives Twitter confidence that people can find what they're looking for and feel safe being a part of the conversation.
That’s a lot of what these new Twitter features are about and I do believe these changes signal a new wave of earnings’ success on the short-term horizon.
Let’s roll through them.
Twitter users who purchase a subscription, known as Super Followers, will receive a public badge that is highlighted under their name whenever they interact with the creator who they are paying a subscription to. That gives the creator an opportunity to pay more attention to subscribers if they wish.
The feature — which is currently only available to a limited group of US and Canada users on Apple devices — lets Twitter users charge others $2.99, $4.99, or $9.99 per month to follow them.
Twitter users who offer super follows will get a special pink badge on their profiles. They will be able to keep up to 97% of super follow revenue up to $50,000 after fees, then up to 80% past that mark.
Only users who have at least 10,000 followers, have used the site for at least three months and have posted at least 25 tweets over the past 30 days will be eligible to charge a toll for their tweets, according to Twitter’s rules.
The news comes as various online platforms like Patreon, Substack and OnlyFans compete to offer internet users ways to make money from the content they create.
Creating Super Follows content is for anyone who brings their unique perspectives and personalities to Twitter to drive the public conversation, including activists, journalists, musicians, content curators, writers, and so on.
Twitter said it would launch a safety feature that allows users to temporarily block accounts for seven days for using harmful language or sending uninvited replies.
Putting in new privacy-related features aimed at giving users greater control over their follower lists and who can see their posts and likes, an effort to make people more comfortable interacting and sharing on the social network.
Among features being considered is the ability to edit follower lists, and a tool to archive old tweets so that they’re no longer visible to others after a specific amount of time designated by the user.
All of these improvements to the inner workings of the platform set the stage for Twitter to dive straight into Bitcoin as the currency of choice.
Why?
If the Internet has a native currency, a global currency, Twitter is able to move faster with products such as Super Follows, e-commerce, Subscription, Tip Jar and we can reach every single person on the planet because of that and sort of going down a market by market approach.
If everyone is using Bitcoin, transactions get easier instead of dealing with dollars, rubles, pesos, and liras and getting a whole division to manage these odds and ends.
Ultimately, Daily Active Users (DAU) has been remarkably consistent and healthy in every geography.
In the US as news cycles come and go, as habits evolve hopefully, people are still merging their pre-pandemic habits with their new habits.
For many people, that means that they're new on Twitter and they're sorting out all kinds of different things that have changed in their lives.
I believe that plays out positively for Twitter in the form of accelerating revenue, increasing earnings, and a larger moat around their unique business which is increasing its scarcity value.
I am highly bullish on Twitter in the short and long term and deploying capital through dollar cost averaging would be a great way to play this.
Buying Twitter today at $64 would make sense.
Mad Hedge Technology Letter
August 16, 2021
Fiat Lux
Featured Trade:
(HOW TO BE A TECH ANGEL INVESTOR)
(FB), (PINS), (LYFT), (TWTR), (BTC)
It’s not easy to be the genius who doled out early seed money to Facebook (FB), Foursquare, GitHub, Pinterest (PINS), Lyft (LYFT) and Twitter (TWTR), among others.
These investments turned out to be highly successful. If someone even miraculously hit on one of these, your grandchildren would know about it.
This person even acquired a majority stake in Skype for $2.75 billion which was considered highly risky at the time and offloaded it to Microsoft in 2011 for $8.5 billion.
Not everyone can do this like Silicon Valley tech investment maestro Marc Andreessen.
Behind the public markets is angel investing and the data says that these investments fail over 50% of the time for the best of breed like Andreesen.
There are simply too many variables that can derail these profit models which nobody can predict.
To lose over half the time and claim to be an outsized winner means relying on those 10 or 100-baggers or might I even say 1,000-baggers to drag up the portfolio performance.
These are the guys who were buying bitcoin (BTC) at 10 cents on the dollar.
Truthfully, investing in startup companies is not for everyone considering there is over a 50% chance a company will end at a 0 or pennies on the dollar.
However, it can be highly gratifying if and when the investments do pay off and investors get a front seat to the forefront of the tech innovation cycle, which you simply don’t get by trading Facebook and Google from your Fidelity account on your computer screen.
These investors can also get direct access to the chatter while creating a rich network of tech know-how; and I do believe that’s half the value in it too, since it can propel angel investors to the next super app or guy behind the next super app.
I mean who could have ever predicted a global health crisis that’s going into its 3rd year soon? And who will be able to nail the knock-on effects of climate change.
That is why risking losing one’s shirt is a real possibility if they bet the ranch on an unknown entity.
Everybody wants the next Tom Brady to quarterback their team, but who knows who the next Tom Brady is at 18 years old?
Even though Andreessen hits on less than 50% of his ideas, the industry median is around 17%, showing how superior his performance is.
He definitely has this thing figured out on relative terms.
Let’s define Angel Investor.
An angel investor is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.
The funds that angel investors offer could be one-off investments to help the business get off the ground or in drip injection form to support and carry the company through its difficult early stages, which means burning cash.
Most of these companies don’t make money for the first 10-years and that time is usually a referendum on the quality of the idea; very few stand the test of time.
The potential to make 100-baggers is out there with subsectors like fintech already worth half a trillion dollars in 2020 and with a predicted annual growth rate of 35%.
Angel investors typically require a 35-40% return on the money they invest in a company minus costs and inflation to call it a winner.
But Venture Capitalists may take even more, especially if the product is still in development. For example, an investor may want 50% of the business to compensate for the high risk it is taking by investing in a startup.
Angel investors do the jobs of banks.
Traditional banks would never lend to an entity based on a half-built product or even a genius idea.
Proof of income and debt to income ratios are realities at banks.
When net profits are negative, the balance sheet is too ugly for banks to even think about doing any business with these startups.
Therefore, there are limited pathways for entrepreneurs to find capital, and many turn to Angel investors to help startups take their first steps.
Who Can Be an Angel Investor?
Angel investors are normally individuals who have gained "accredited investor" status, but this isn’t a prerequisite. The Securities and Exchange Commission (SEC) defines an "accredited investor" as one with a net worth of $1M in assets.
Essentially these individuals both have the finances and chutzpah to provide funding for startups. This is welcomed by cash-hungry startups who find angel investors to be far more appealing than other, more predatory, forms of funding.
These private funds usually draw up opportunities for a defined exit strategy, acquisitions or initial public offerings (IPOs).
Liquidity events is what makes everyone happy at the end except for the investors who missed the boat.
It’s even possible that an angel investor only sees growth in the first 5 years and unloads the “idea” to another private investor for a profit.
Private market deals are common because of the excess of liquidity brought on by the U.S. Central Bank lowering interest rates for a prolonged amount of time.
What I do know is that America is the framework within which almost all unicorns prosper, and I do not envision any monumental shift to Europe or China, these other places simply have more problems than the U.S.
How does the normal Joe get it on the action?
Andreesen has said the only way he usually does business is with a “warm” introduction which can be hard to come by if one doesn’t rotate in the same social circles as these heavy hitters.
Scoring a warm introduction also means getting boots on the ground in California which is ebbing and flowing between its colossal wildfires and public health issues like many other places.
Honestly speaking, if might be difficult to get the best of the best angel opportunities even if the gunpowder is loaded.
It’s accurate to believe that probably guys like Andreesen get the best of the best ideas in front of them and if they pass on it, the likes of Sequoia, Benchmark, and Softbank have very smart people as well who get similar type of presentations and opportunities.
Like you correctly guessed, this private group of capital is quite incestuous and tight-knit. It’s a copycat league of the ages.
The one avenue that might be of interest is a platform that has democratized angel investing who on the last count had close to 1,000 companies looking for start-up capital.
This platform is called https://angel.co/angel-investing and some are even actively hiring on the same platform.
I won’t stand here saying this is the cream of the crop because it’s not, but I will say that sometimes companies are overlooked, or the industry consensus has shifted too far in one direction offering undiscovered dark horses a chance.
Lastly, this forum of angel companies on offer does give analysts insight into where money is funneled to and the current hot sub-sector of the tech industry.
This platform even offers an Angel index fund if a reader wants to take the aggregate performance of 150-200 companies with a $50,000 minimum.
If a reader wants access to facilitate angel investing by a deal-by-deal offer from the Angel list as a professional investor, then $500,000 is required.
Mad Hedge Technology Letter
June 4, 2021
Fiat Lux
Featured Trade:
(RIDING THE COATTAILS OF ELLIOT MANAGEMENT)
(DBX), (TWTR), (EBAY), (CRM), (BOX)
Renowned Vulture Fund Elliott Management is at it again, looking to feast on the frail like the predator fund it is.
It was recently announced they own a large stake in cloud provider Dropbox (DBX) and has been holding private discussions with the file-sharing service provider for some time.
The hedge fund owns a stake of more than 10% which is valued at more than $800 million, the source said, declining to reveal the exact size of the investment.
Dropbox currently has a market cap of around $11 billion.
This is a cloud company that allows users to store documents, videos, and photos online, listed its shares in March 2018 at $21 a share.
Elliott has previously gotten their way at other tech companies like Twitter (TWTR) and eBay (EBAY).
Now Elliott Management is assumed to own the second biggest holding in Dropbox after CEO Drew Houston.
Elliot’s previous 13-F filing form has shown they are scooping up shares of Dropbox.
Dropbox shares also gained in March on news of a potential takeover that never came to fruition, and it smells a lot like that was Elliot.
I have heard other analysts mention Dropbox as a short-listed acquisition candidate for a handful of big players.
An acquisition looked close especially after Salesforce (CRM) announced the purchase of Slack Technologies and it’s logical that Dropbox could have been a retaliation purchase for a bigger tech company looking to keep pace with Salesforce's acquisitive thirst.
Elliot Management overtook Vanguard Group Inc. as the largest shareholder outside of Houston. Vanguard had a stake just below 10% as of March 31, according to Bloomberg.
The hedge fund has not made it clear whether it is seeking board seats on Dropbox’s board or other changes at the company.
But I will tell you there is a standard playbook that Elliot loves to roll out each time they buy into a tech company.
These changes almost always revolve around switching management and squeezing out more efficiencies in operations.
They even threatened Founder and CEO of Twitter Jack Dorsey to become more attuned to revenue acceleration so he could keep his job.
There are those who want to play the moral compass card out there, but I can say that almost any tech company Elliot Management has bought into experience a significant boost in asset appreciation 3-6 months after the acquisition.
Elliot is hyper-targeted in what they do, and they usually seek out management who has become too comfortable in their routine.
I believe they do not go after tech companies if they feel they cannot boost the underlying stock shares by 30% within a year.
They have a brilliant track record and any tech investor who doesn’t want to overcomplicate tech investing buys the same tech companies Elliot acquires.
Why?
Because changes are in the pipeline and every management or board seat change is usually met with a 5-7% surge in share price.
What’s not to like about that?
Then there are many up days on the operational front from cutting costs, and forcing through other changes that are first and foremost beneficial for the stakeholders of the company.
Other vulture fund specialists do this too like Starboard Value when they launched a proxy fight earlier this year at Box (BOX), where it has nominated four directors for the three seats that are coming available this year.
To play it simple, buy into Dropbox on the next dip and hold onto shares for the first part of the turnaround.
Once the pace of changes starts to plateau, by then, you should already have a decent-sized profit and can dump the shares.
Mad Hedge Technology Letter
May 7, 2021
Fiat Lux
Featured Trade:
(TWITTER LOOKING MORE ATTRACTIVE AFTER THE DIP)
(TWTR)
Selling off from $77 — Twitter is an internet stock to put on the watchlist.
Twitter is a unique asset that is enriching and powerful, especially for the long tail of niche topics.
If I had to point to one area that will accrue a meaningful impact on people’s experience, and business as a whole, this would be it.
Topics and interests are good for businesses on Twitter too, especially for local small businesses, as they contribute stronger signals around intent, and Twitter profits by serving relevant ads, which will ultimately lead to a transaction like a donation, subscription, or purchase.
These ads that are distributed and embed around the tweets are called Twitter’s Mobile App Promotion (MAP) business.
This division was up more than 50% year over year revenue growth in the fourth quarter of 2020 thanks to the public health situation making Twitter more relevant than ever.
Twitter is taking steps to make the platform more attractive now. For instance, take audio rooms, which they call Spaces, and long-form newsletters, made possible by the acquisition of Revue.
It’s easy to imagine starting with a tweet, moving a conversation to real-time audio, and recapping the conversation with long-form text.
It’s this in-between interaction that will prove to be powerful. The same is true for revenue-generating products, as more accessible advertising models will encourage the use of commerce tools and loop back into more advertising.
On the technical side of it, Twitter simply got ahead of itself on the stock chart but cemented its broad strength with an emphatic beat of total revenue reaching $1.04 billion, up 28% year-over-year.
Total ads revenue grew 32% year-over-year, driven by strong brand advertising in March and accelerating year-over-year growth in MAP revenue.
Interestingly enough, topics like sports betting, crypto, and personal investing gained traction in an accelerated way, and these MAP advertisers, who advertise into those areas benefit from a surge in app downloads for crypto or investing or betting.
These specific categories received 10X higher spend in Q1 relative to what they spent last year, demonstrating how Twitter is cleaning up from strong secular trends and with an enormous growing audience.
This active and pertinent conversation around the topic simply allows Twitter to turn on the cash spigots and this ad format delivers relevant ads.
Strength in these MAP advertisers means crypto ads won’t be going away anytime soon and it appears as if these topics have become a bigger conversation in everyday American life among consumers perhaps than they were in years past because the price of bitcoin is at an all-time high.
Also, legal betting is coming to the leagues in the United States, and mainstreaming will cause full-scale adoption, meaning the betting tweets are about to snowball.
Expect a lot more sports betting ads along with your garden variety crypto app download ads on Twitter.
I am optimistic that these are secular trends that can continue for a long time especially when you consider the Millennials' stranglehold on American demographics.
This pivot is also indicative of Twitter’s ability to deliver for advertisers at the right moment aligning the right conversation on Twitter.
Twitter’s tough comparable data to last pandemic season made a selloff in shares inevitable — Q2 2021 metrics will perform poorly against Q2 2020’s.
Management had no choice but to guide down and expect Monetizable Daily Active User (mDAU) growth rates to be “in the low-double digits on a year-over-year basis in Q2, Q3, and Q4, with the low point likely in Q2.”
A period of consolidation is upon us in Twitter, and they will be retooling the wagon.
Another headwind to note that along with Facebook, Twitter has been actively preparing for the changes that Apple just released as part of iOS 14.5 update.
Twitter’s outlook for Q2 and 2021 assumes a “modest impact from the rollout of changes” associated with iOS 14.5 across owned and operated ads.
The covid surge added about 5 million mDAUs in the U.S. and Europe or North America and Europe, to 38 million from 33 million.
The answer is that I do believe that Twitter will retain the cohort that entered with Covid even if Covid will end.
They will stick with the platform because the use case for it enriches their business, personal life, and keeps their pulse on the on-goings in the world and the U.S.
That is very powerful.
Losing this group would mean another leg down for the stock into the low 40s, which would be a no-brainer buy.
What is Twitter’s short-term roadmap?
They plan to double development velocity by the end of 2023, resulting in doubling the number of features per employee that directly drives either mDAU or revenue.
Second, they have a goal of at least 315 million mDAU in the fourth quarter of 2023, which requires continued compounding growth at about 20% per year from the base of 152 million mDAU reported in the fourth quarter of 2019.
Lastly, Twitter’s goal is to more than double total annual revenue to over $7.5 billion in 2023.
This requires Twitter to gain market share with performance ads, grow brand advertising, and expand products to small and medium-sized businesses.
If the investors sniff out they are on the right track to achieve these three initiatives, I do believe Twitter stock will be well over the last peak of $77 in 2022.
Expect Twitter’s shares to appreciate into the year-end.
It’s right to consider a period of consolidation as a reversion to the mean. This was inevitable after the opportunistic covid surge, but the handoff back to 20% growth is not as easy to communicate as it seems.
Twitter is still a great stock to get into if it drops to the $40-$50 range.
Mad Hedge Technology Letter
January 6, 2021
Fiat Lux
Featured Trade:
(THE INSATIABLE GROWTH OF THE MOBILE BASE STATION MARKET)
(MRVL), (NOK), (KRX: 005930)
Mad Hedge Technology Letter
January 4, 2021
Fiat Lux
Featured Trade:
(SPLINTERNET GOES FROM BAD TO WORSE IN 2021)
(AMZN), (APPL), (TIKTOK), (TWTR), (MSFT), (GOOGL), (FB)
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