I was a little taken aback by the content and attitude of boutique investment fund CEO and CIO of Ark Invest Cathie Woods as I watched her podcast -- set in a palatial estate with vaulted ceilings.
The line that stuck out to me was when she began to explain that the ARK Innovation ETF (ARKK) is made up of “real companies with real revenue.”
Well, so is the liquor store down the street and that doesn’t mean we should all bandy together with each other, sing kumbaya and bet the ranch on this ETF fund that dabbles in ultra-high growth tech stocks.
She continued to praise her strategy by comparing ARKKs relative success with the dot com crash where companies were based on thin air and accrued massive valuations for nothing.
That’s a bad comparison because it was a different era and time, and just because that market then was frothy, it has nothing to do with a higher ARKK stock price in the short term.
She then explains to us viewers that she has never been so convinced by companies like Teledoc (TDOC) and this is a company that has experienced about a 400% drop in share price in the past 365 days.
The reason she gives support for TDOC is because they do $2 billion in annual revenue and then she followed that up by saying how great Zoom Video (ZM) is because their revenue has gone up “4-fold during the coronavirus” but fails to mention that their stock is down about 400% since October 2020.
She laments that these stocks have recently been treated as “stay at home” stocks and I believe that giving such an excuse to why these stocks have been performing poorly lately makes her look like she doesn’t know what she is doing.
If she champions TDOC for doing $2 billion in annual revenue, then why not invest in Alphabet (GOOGL) which does $180 billion of revenue per year. According to her math, GOOGL is a 90X better investment than TDOC.
In her video interview, she starts to explain the inflationary monster which of course, she has an incentive to downplay. Low rates mean a better environment for growth stocks to operate in.
She continues to explain that used car prices are up 60% but that “bubble has burst” because sales are down 4 recently.
Again, she is grasping for straws here because she has an incentive to.
Another data point she tries to spin off as anti-inflationary is the increase in average wages and explains that a 0.6% increase is the “lower end of the guidance” so that certainly will trend down.
Again, nominal wages have exploded in all industries, and this is again proof she likes to reverse engineer stats to fit her own interests.
During this interview or fireside chat, Woods appears to be an expert at cherry-picking data points that are in her best interest.
She fails to acknowledge that her timing of equity purchases is just as important as the type of stocks bought, and her recent timing has been terrible.
Her response to the underperformance was to blame the market and pontificate that the “dismissal (of her ARKK fund ETF) is misplaced” and “analysts and investors aren’t doing their homework.”
Her attempt to shift blame on the market is comical and the real traders in the room know that the market decides the prices of assets and not anyone or any organization can dictate the market to the market.
Showing a little humility might do her a little good as Ark Innovation ETF suffered an outflow of $352 million Wednesday, the biggest one-day drop since March.
She explains the Fed policy towards higher rates as just “jawboning” and begins to explain how she is seeing some anti-inflationary data coming down the pipeline imminently.
I will tell Woods that this “jawboning” isn’t just that, it’s real. The Fed is poised to react to combat inflation and not raising interest rates as fast as she thought doesn’t mean the narrative immediately evolves into something even close to anti-inflationary.
We are so far from that sentiment and her reaction is to dismiss anything that is a threat to her fund.
Sadly enough, she wants things how it was in 2020, massive amounts of quantitative easing for that capital to flow into her ARKK fund.
I am not saying that won’t ever happen again, but the zeitgeist must overcome the higher rates narrative that has completely consumed the broader market which is why tech growth has been hammered lately.
Her failure to act has meant her investors are down 50% in the last 13 months. Buying at tops are dangerous and even more important, she doesn’t describe the current market and describes only what she wants to happen in the future as it relates to higher ARKK prices.
I wouldn’t call that breaching her fiduciary responsibilities, but she is playing a snake oil saleswoman at her finest.
This could be a case of her thinking that she is playing with houses’ money, a longer time frame shows that ARKK is still up more than 300% since 2017.
If you ever feel like getting into high tech growth, avoid this fund, just buy the stocks you like outright.
This is an example of how ETFs will not work in today’s climate, as ETFs only function properly if they go up every year.
The markets could spend the first third of the year grappling with higher rates, and there will be another time to buy tech growth. For Woods to completely ignore her failure of timing the tech growth market, it shows she isn’t looking out for your best interest as an investor.
Avoid tech growth today until we get through the short-term challenges.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-01-14 16:02:342022-01-24 01:08:31Avoid ARKK Innovation Like the Plague
Below please find subscribers’ Q&A for the January 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: What’s a good ETF to track the Russell 3,000 (RUA)?
A: I use the Russell 2,000 (IWM) which is really only about the Russell 1500 because 500 companies have been merged or gone bankrupt and they haven't adjusted the index yet. This is the year where value plays and small caps should do better, maybe even outperforming the S&P500. These are companies that do best in a strong economy.
Q: Should I focus on value dividends growth, or stick with the barbell?
A: I think you have to stick with the barbell if you’re a long-term investor. If you’re a short-term trader, try and catch the swings. Sell tech now, buy it back 10% lower. Keep financials; when they peak out you, dump them and go back into tech. It’ll be a trading year, but if a lot of you are just indexing the S&P500 or doubling up through a 2x ETF like the ProShares ultra S&P 500 (SSO), it may be the easiest way to go for this year.
Q: Will higher rates sabotage tech, particularly smaller companies?
A: They’ve already done so with PayPal (PYPL) down 44% in six months—I’d say that’s sabotaged. Same with Square (SQ) and a lot of the other smaller tech companies. So that has happened and will continue to happen a bit more, but we’re really getting into the extreme oversold levels on a lot of these companies.
Q: Should we cash out on the iShares 20 Plus Year Treasury Bond ETF (TLT) summer 150/155 put spread LEAPS?
A: No, because you haven't even realized half of the profit in that yet since there is so much time value left in those options. As long as you stay below $150 in the (TLT), which I'm pretty sure we will, you will get your full 100% profit on that position. On the six month and one year positions, they don’t really move very much because they have so much time value in them. Once you get into the accelerated time decay, which is during the last 3 months before expiration, they catch like a house on fire. So, if you're willing to keep a safe long-term position, this thing will write you a check every day for the next six months or a year to expiration. I know we have absolutely everybody in these deep in the money TLT puts; some people even did $165-$170’s—you know, my widows and orphans crowd—and they are doing well, but not as much as if you’d had a front month.
Q: What scares you most for the next 12 months?
A: Another variant that is more fatal than either Delta or Omicron. Unlikely, but not impossible.
Q: Do you expect Freeport McMoRan (FCX) to break out to the upside?
A: I do, I did the numbers over the vacation for copper production to meet current forecast demands for electric vehicle production. Global copper has to increase 11 times, and that can’t be done, so prices are going to have to go up a lot. One of my concerns with these lofty EV projections (that even I make) is that there aren’t enough commodities in the world to make all these cars with the current infrastructure. And you’re not going to find a replacement for copper—it's just too perfect of an electrical conductor. So, that means higher prices to me—you increase demand 11 times on a stable supply, and it takes 10 years to bring a new copper mine online.
Q: Do you have any open trades?
A: No, and one reason is that I figured they would probably crash the market on the last trading day of the year, which they did. If I had positions, they would have crushed them on the last year and my performance. And all hedge fund traders do this; they try to go 100% cash at the end of the year to avoid these things. And whatever you lost on Friday you made back on Monday morning at the expense of last year's performance. But you have to wait 15 months to get paid on today's performance, and, that is the reason I do that. So, looking for higher highs to sell, lower lows to buy.
Q: Should I be buying NVIDIA (NVDA) and Tesla (TSLA) on the dip?
A: Absolutely yes, but Tesla's prone to 45% corrections—we had one last year and the year before—and Nvidia tends to have 25% corrections. So yes, NVIDIA could well be the stock of the decade, but you don’t want to buy it right now. It’s starting to lose steam already.
Q: Will ProShares Ultra Technology (ROM) be under pressure?
A: Keep your position small now, take some profits, look to buy on a bigger dip. If the big techs drop 10%, (ROM) will drop 20% and get you below $100.
Q: Do you offer trade alerts on small caps for short term traders?
A: No, because you can’t execute those trades. A lot of them are just so illiquid, you can’t even trade one share unless you want to pay a huge spread. Keep in mind, when I worked at Morgan Stanley (MS), I covered the Rockefeller Foundation, the Ford Foundation, George Soros, Paul Tudor Jones, the government of Abu Dhabi, California State Pension Fund, and a lot of other huge funds; and the last thing they’re interested in is short term trades for the small-cap stocks. So, I don't really know much about those, but they tend to change the names every year anyway. And it really is a beginner trader type area because the volatility is so enormous. You can get 10x moves one day going to zero the next. It is also an area full of scams, cons, and pump and dump schemes.
Q: What is your advice when it comes to the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Short term, take the profits—you just got a $14 point rally in your favor. Short term traders, take profits on bonds here, cover your shorts. Long term investors keep it, the cost of carry is only about 4% right now, not that high, so I would keep it for a great year-end move for 2.5% yields on the ten-year.
Q: I hate oil (USO) because it’s going to zero. Should I keep trading in it?
A: Very few are nimble enough to trade oil, it’s really an insider’s game. No new capital is moving into the oil industry and oil companies themselves won’t invest in their own businesses anymore.
Q: Would you put on a new position on the iShares 20 Plus Year Treasury Bond ETF (TLT) today?
A: No, you don’t sell short things after they move down $14 points. You put them on before that. If I were to do a short-term trade in (TLT) I would be a buyer, I’d maybe buy it for a countertrend rally of maybe $4 or $5 points.
Q: What should I do with my FCX 2023 LEAP?
A: There is enough time on it, so I would keep running it along as is—don’t get greedy. Keep the LEAPS you have and you should do well by it.
Q: Could the iShares 20 Plus Year Treasury Bond ETF (TLT) bottom out in the near term?
A: Yes, it could, on a short-term basis. $141 is the nine-month low for the (TLT), so a great place to take short term profits. (TLT) is right now at $142.56, so we’re approaching that $141 handle closely. Every technical trader on the market’s going to cover their shorts on the $141 or $142 handle, so just congratulate yourself going into this move short, and take the money and run. You take every $14 point move in your favor in the (TLT); and let it rally 5 points and then reestablish, that’s how you trade.
Q: Do you think there will be a delay in the first interest rate hike due to COVID?
A: Yes, Jay Powell is the ultra-dove—any excuse to delay rate hikes, he’ll do it. And the way you’ll know is he’ll delay the end of other things which you don’t see, like daily mortgage bond purchases, daily US Treasury purchases, and other backdoor forms of QE. We’ll know well in advance if he’s going to raise or not by March or even June. We watch this stuff every day, we talk to people at the Fed every week. And remember, the Treasury Secretary Janet Yellen is a good friend of mine, I get a good handle on these things; this is why 99% of my bond trades make money.
Q: What if I have the $135-$140 put spread in January?
A: Sell it now, take what you can, take the hit; because that’ll expire at zero unless we break down to new lows on the (TLT) in the next ten days or so. That's not a good bet, especially on top of a $14 point drop. Capture what you can on that one and keep the cash for a better entry point. That’s exactly what I did—I sold all my January positions yesterday no matter what they were, because when you get to two weeks to expiration the moves become random.
Q: Do you think inflation will last longer than expected?
A: No, I think it will last shorter than expected because I think at least half of the inflation rate, if not more, are caused by supply chain problems which will end within the next six months, and therefore lead to the over-order problem that I was talking about earlier.
Q: What’s your outlook on energy this year?
A: It could go higher. On the way to zero, you’re going to have several double, tripling’s, even 10x increases in the price of oil, like we saw in the last 18 months. We went from negative numbers to 80, and what happens is oil becomes more volatile as the supply becomes more variable, that's a natural function. But trading this is not for non-professionals.
Q: Since sector rotation is happening, do you think we should sell all tech positions?
A: Short term yes, long term no. Tech will still lead with earnings, and even if they have a bad five months coming, they have a terrific long-term view. For the last 30 years, every sale of tech has been a mistake, especially in Apple (AAPL). So if you’re a trader, yes, you should have been selling since November. If you’re a long-term investor, keep them all.
Q: Is the ProShares UltraShort S&P 500 (SDS) a good position to buy up when the market timing index goes into sell territory?
A: Yes it is, and that will probably work better this year than it did last year because narrow range volatile markets are much more technically oriented than straight-up markets or long term bull markets. Pay close attention to those markets, you could make a lot of money trading them.
Q: Do Teslas have good car heaters for climates up North in -25 or -30?
A: You plug them in. When it gets below zero you actually get a warning message on your Tesla app telling you to plug it in, and then the car heats itself off of the power input. Otherwise, if you get to below zero, the range on the car drops by half. If you have a 300-mile range car like I do and then you freeze it, it drops to like 150 miles. In Tahoe, I keep my car plugged in all the time when I'm not using it, just to keep it warm and friendly.
Q: Is Zoom (ZM) a good buy here?
A: No, I think they’re going to keep punishing these overpriced small cap techs like they have been. We’re a long way from value on small tech. That was a 2020 story.
Q: What about Berkshire Hathaway (BRKB)?
A: Berkshire Hathaway is doing a major breakout because they own financials up the wazoo and they’re all breaking out. And YOU should be long up the wazoo on these things because I’ve been recommending them for the last 4 months.
Q: What do you think of Robinhood (HOOD)?
A: Robinhood I like long term, but it is high risk, high volatility. It is down 78% from the IPO so it is busted. Kind of tempting down here, but again, all the non-earning overvalued stocks are getting their clocks cleaned right here; I'm not in a rush to get involved.
Q: When you enter a LEAP, is the straight call or call spread?
A: It’s a call spread. You finance the high cost of one-year options by selling short a call option against it further out of the money. And that way you can get enormous leverage for practically nothing, 10 or 20 times in some cases, depending on how you structure the strikes.
Q: Best stock to play Copper?
A: Freeport McMoRan (FCX). I’ve been recommending it since it was $4.00.
Q: Oil is the pain train until EVs actually take over.
A: That’s true, and they haven’t. EVs have about a 6% market share now of new car sales worldwide, but that could rapidly accelerate given all the subsidies that EVs are getting. Also, we have many future recessions to worry about, during which oil could easily drop 290% like it did last year. If you can hack that kind of volatility, go for it, but I find better things to do quite honestly. And I think my next oil trade will be a short, especially if we go over $100.
Q: What about Bitcoin?
A: It could go sideways in a range for a while. If we can’t hold the 200-day, we’re going back down to the high 30,000s, where we were at the start of the year—we could give up the entire year of 2021. Bitcoin also suffers from rising interest rates since they don’t yield anything.
Q: Is this recorded?
A: Yes, the webinar recording goes out in about 2 hours. Log into the madhedgefundtrader.com website and go to my account, where you’ll find it with all the different products you’ve purchased.
Q: I just closed out my (TLT) 150 put option for the biggest single trade profit in my life; I just made 20% of my annual salary alone today. Thank you, John!
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The last 2 years haven’t been a walk in the park for tech traders.
Before March 2020, the bull market and the trading patterns that followed were largely predictable.
Sure, there were our run-of-the-mill selloffs, but nothing like the Covid selloff of 2020.
Then the ensuing reversal that took us to new highs was a sugar high Fed-induced bounce that we are still buoying from, and that boost is largely wearing off.
As we near the end of 2021, it’s hard to believe that it’s been almost 2 years since the daily trading headline became a health care-driven headline.
There is the growing consensus that in the latter part of 2022, a synchronized global recovery story will emerge as the strongest plausible scenario.
This means that day-to-day business conditions which include international travel could revert back to what we had prior to March 2020 or a competing version of it.
I won’t get into the vaccine semantics of it, but a moderate health solution is only positive for tech stocks.
The “shelter at home” tech trade of 2020 was a one-off drawn-out event, and with normalization around the corner, we will return to the catalysts that originally drove tech shares — earnings growth, revenue growth, and financial engineering.
The lingering effects of this latest variant could start to wind down by early spring which will give way to the world of higher interest rates and costlier financing, but higher interest rates solving the inflation crisis.
Naturally, many things could side-swipe this scenario like another covid variant deadlier than the ones spreading around now.
If there is some iteration of normalization involved next year, a tech stock that will squarely harvest the gains from its strategic position at the intersection of the internet and remote working is accommodation sharing platform Airbnb (ABNB).
Airbnb will blast off from the biggest developing trend in the global economy today: workplace flexibility.
Like with Zoom (ZM) video conferencing tech making it possible to work from home. Airbnb makes it possible to physically work from any home, anywhere, and anytime.
While it’s not fair to draw a direct correlation from workplace flexibility to increasing Airbnb profits, it is clear that the company is poised to grow alongside the Web 3.0 revolution which will focus on decentralization, openness, and greater user utility.
As this new iteration of the internet takes hold and continues to spread, Airbnb's unique business structure will result in revenue produced from the sheer number of workers doing staycation remote working adventures.
This is a real thing.
Workers now go somewhere for a month then change their location to take in a different environment.
Riding this ongoing revolution and the steady reopening of global travel, Airbnb posted record revenue of $2.2 billion during its third quarter, which was 36% above Q3 2019.
If you want to look at the red-headed stepchild of the accommodation sharing platform services, then take a look at Booking.com (BKNG).
It’s not nearly as useful a platform as Airbnb and their exorbitant commission becomes quite prohibitive to hosts and users.
No wonder they do not grow their host volume like Airbnb.
Airbnb’s products also sell itself with the name of the company becoming a verb, while Booking.com is still reliant on spam-like internet searches using Google search to ramp up engagements.
This turns into an expensive marketing spend while Airbnb spends minimal to attract the next incremental customer.
ABNB shares have experienced a recent 20% pullback on the omicron threat, and I believe it’s a good time to start dollar cost averaging here into ABNB shares in the case that a bigger travel load 6 months from now follows through.
The upside to ABNB shares could be quite large if the business world somewhat normalizes next year because this scenario isn’t priced into ABNB shares yet.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/12/bloomberg-economics.png502936Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-12-13 16:02:062021-12-19 15:59:13The Potential Normalization of 2022
Higher inflation is something this tech bull cycle hasn’t dealt with, and it’s starting to rear its ugly head in the form of volatility and spades of it.
The Fed will have to increase interest rates or face runaway inflation that will crash the economy, but increasing interest rates will also make lives harder for tech companies.
As we try to understand the pace of interest hikes, certain tech companies will fare much better in this inflationary environment than others. To deduce the winners from the losers, investors should understand exactly how inflation affects each particular tech company.
Talk has gone from the Fed moving early to raise short-term rates, to the Fed moving even in early spring which in turn is spooking risk markets from cryptocurrencies, the S&P, and the Nasdaq.
Fed Chair Jerome Fed has done a poor job communicating his sudden hawkish tone and the market has had to quickly reprice risk assets because of the surprising nature of the hawkishness.
In the short-term, tech stocks will need some time to digest this new expectation, which I see as quite healthy, but short-term tough to swallow.
Fed Cleveland President Loretta Mester told the media she is “very open” to scaling back the Fed’s asset purchases at a faster pace so it can raise interest rates a couple of times next year if needed so this isn’t just one guy in Powell trying to move the needle.
Clearly, the Fed is moving in unison, and they threaten to become a major force in moving markets which is all we care about.
All that pressure is causing component and labor costs to rise. Companies that don't have enough pricing power to pass those costs on to their customers will likely see their gross and operating margins shrink.
This matters because tech companies offer some of the most generous salaries in the U.S. and substantial increases in pay hurts them the most.
Higher interest rates attract more consumers and businesses to put more money in higher-yield bonds and savings accounts.
There are 3 ways that higher rates are actually a gut punch to tech growth companies.
First, they increase the costs of borrowing incremental capital to expand a business. In more cases than not, tech growth companies rely on borrowed money because their operation is not yet sustainably profitable. That's bad news for high-growth tech companies, which are burning cash with widening losses.
Second, it reduces the long-term estimates for a company's earnings and free cash flow (FCF) growth meaning their underlying stock price is rerated downwards in the anticipation of this new reality.
Loss accruing tech companies commonly suffer an exodus as their underlying shares are repriced to reflect higher costs.
Just this morning we saw Roku (ROKU), Zoom Video Communications (ZM), Snap (SNAP), Twilio (TWLO), Square (SQ) breach 52-week lows.
The breadth of the market has been hollowed and the goalposts have indeed narrowed because of the hawkish tone at the Fed.
Lastly, higher interest rates drive institutional money into fixed income.
They do this largely by taking profits from crypto, tech stocks, or moving their stash on the sidelines then resurfacing the money into “safer” assets that anticipate weakening bond yields at the longer end of the curve.
So I won’t sit here and say sell all and every tech stock, it’s more nuanced than that.
I executed one position in December and that was Microsoft (MSFT) and it got pulled down with the broader market.
More importantly, I didn’t bet the ranch.
Ultimately, we still bask in the ideology that the tech bull market isn’t over yet because it isn’t, but this aggressiveness out of the blue has forced the overall tech market to temporarily rest with growth tech suffering major drawdowns.
In doing that, the ceiling for a Santa Claus rally is somewhat capped to the upside.
The Fed could have waited until January.
Sure, there will still be winners in tech and the odds of these winners are driven firmly behind the biggest and best like Microsoft, Amazon, Google, and Apple.
These are the type of companies that have the pricing power to raise prices and get away with it because consumers will be willing to pay it.
Other potential winners include cloud service giants like Salesforce (CRM) and Adobe (ADBE). These again are top-quality software stocks that can pass up higher enterprise software costs to the firms that can pay for it.
It’s entirely possible that the Fed could end up walking back some of these aggressive stances in the interest-raising process next year.
Don’t fight the Fed and don’t expect tech growth stocks to reverse until we receive more clarity with interest rate policy, if a reverse is triggered, it will play out with Apple, Amazon, Google, and Facebook, and Microsoft leading the way higher.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-12-06 15:02:452021-12-10 03:24:06The Hawks Are Here
E-commerce is now happening absolutely everywhere except the pipes in your house, and Shopify’s (SHOP) plan is to ensure that merchants using Shopify can sell pretty much everywhere.
That’s just how it is these days.
The internet town squares of modern day are social media and that corresponds to everywhere as people take social media to the streets in droves.
And so, it's important that wherever consumers could be potentially looking to purchase that Shopify merchants continue to show up there.
And from a merchant perspective, that it all neatly feeds back into a centralized back office where they can run their business.
So whether it's Google Search or it's on Instagram or it's on all the other channel integrations Spotify has, that is essential.
Now, again, over time, you are going to see more of these surfaces show up where commerce is happening, and Shopify is also integrating there to make sure that merchants can access those customers.
It’s SHOP’s job to stay one step ahead and that’s what they are exactly doing.
And of course, as more of those services come to life, that increases the complexity of commerce and running a business, a modern-day business, and that also increased the value Shopify provides to their customers.
Shopify and its platform do internet selling at a world-class level.
And yes, there are sometimes where it's faster, better, and more effective for them to partner with another technology company. They’ve developed a solid reputation for being a company that builds incredible software and particularly are renowned for having trustful partners.
But there are other times where SPOT needs to build it themselves because it's just mission-critical, and I have full confidence in them that they can actually deliver the best product on the planet.
This story and numbers are backed up by the latest short-term performance showing that SHOP is turning into an e-commerce juggernaut.
The latest earnings showed that year-over-year GMV growth in the rest of the world actually outpaced North America in Q2 2021.
We are seeing more international merchants that are joining and are succeeding on Shopify.
And fortunately, SHOP is stepping up its growth marketing, sales, and support efforts in places like Brazil and all over the world.
It isn't necessarily any particular focus on Brazil per se, but there are merchants around the world who are looking for a retail operating system and Shopify certainly is the priority.
Revenue in the second quarter was up 57% year over year to $1.1 billion, marking the first time Shopify exceeded $1 billion in a single quarter.
This was driven by strong performance from subscription solutions and merchant solutions segments.
The combined strength in revenue, improved margin profile, and lower overall opex spend as a percent of revenue contributed to strong adjusted operating earnings in Q2 compared to the same period last year.
Adjusted operating income was $236.8 million in the second quarter compared with adjusted operating income of $113.7 million in the second quarter of 2020, as revenue growth outpaced growth in spend.
Echoing the bit I said about social media being the townhall of ecommerce — this is something management takes personally, which is why they announced a partnership with TikTok to launch new in-app shopping features.
The deal will allow a select group of Shopify merchants to add a shopping tab to TikTok profiles and link directly to their online stores for checkout.
The understanding of buying things is now transforming shopping into an experience that's rooted in discovery, connection, and entertainment, creating unparalleled opportunities for brands to capture consumers' attention.
TikTok is uniquely placed at the center of content and commerce, and these new solutions make it even easier for businesses of all sizes to create engaging content that drives consumers directly to the digital point of purchase.
Social commerce is a rapidly booming market.
Sales on social media apps will surge 34.8% to more than $36 billion in 2021, according to eMarketer.
Partnering with the wildly popular short form video platform TikTok is a brilliant move for Shopify — one that’s likely to pay off quite quickly.
Back to the stock market — the stock today sits at $1,450 and has gone through a time correction shifting sideways for the past 3 months.
These levels still mean that SHOP is trading at PE levels around 75, but they are a growth stock so who cares about PE levels!
The past quarter’s sensational performance translated into expanding revenue by 57%.
No doubt that beating the comparable data from a covid year is turning out to be arduous with almost the effect of turning 2021 into a consolidation year.
That has certainly been the case for Zoom Video (ZM) and Teledoc (TDOC).
Management indicated that revenue won’t be growing at the same pace as last year, but readers shouldn’t stress because this lack of pace doesn’t suggest anything is wrong with the business model.
As long as Shopify sustains a growth rate of over 40% for the next few years which is easily attainable for a company accruing only $3 billion of revenue per year, the stock will go up.
That will surely happen, and I am guessing they can maintain a 50% growth rate.
Once the lower growth rates are digested, I envision this stock turning the corner and will rise to $1,800 by the middle of 2022.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/09/shopify.png416904Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-22 15:02:222021-09-26 21:13:44Shop Until You Drop
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