Mad Hedge Technology Letter
June 24, 2020
Fiat Lux
Featured Trade:
(WHY I WAS WRONG ON SNAP)
(SNAP), (ZNGA)
Posts
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 30, 2020
Fiat Lux
Featured Trade:
(THE NEW CROWN JEWELS OF SOCIAL DISTANCING)
(DOCU), (SIRI), (ZNGA), (NOK), (AMZN), (WORK), (MSFT), (ZM)
The second tier of social distancing tech stocks will do well in this brave new world in which digital lives have superseded physical ones.
Sure, most of you already know that Amazon (AMZN), Slack (WORK), Microsoft (MSFT), Zoom Communications (ZM), and Teladoc Health (TDOC) are the crown jewels of current social distancing tech stocks, but there is another group that should also outperform.
Here are 4 that you should take a look at with DocuSign being the best of the bunch:
DocuSign (DOCU)
Teleconferencing and other niches have come front and center and consummating deals have migrated to one place since people cannot physically sign their name from pen to paper.
Electronic signatures were basically a cottage industry when it came out, but it is here to stay and this company has investors buzzing. Although the volume of business agreements being signed globally may temporarily slip, those that are continuing to work are enabled by DocuSign to close agreements without meeting eye to eye.
I expect resiliency in the type of products DocuSign provides and the remote implementation options.
DocuSign is well-positioned within the defensive category of digital transformation spend. Their recent acquisition of Seal Software will help boost DocuSign’s ability to leverage the power of artificial intelligence in the domain of contract analytics.
The opportunity to mitigate time spent on manual workflows through the addition of Seal to the portfolio can bolster the value proposition and drive ROI (return on investment) for customers.
The trajectory of the company was validated by DocuSign’s strong fourth-quarter earnings results with adjusted earnings increasing 12 cents per share which is a 100% increase year over year.
Just as impressive, DocuSign posted quarterly revenue of $274.9 million, an increase of 38%. As the data suggests, the signals all point to this company continuing its outperformance.
The e-document market has been monopolized by DocuSign with competition shut out, and as business goes 100% virtual in the current environment, this should have a positive network effect that will resonate when the world opens back up.
The next 3 stocks aren’t growth companies like DocuSign but are cheap stocks under $10 that might be worth a look.
Sirius XM Holdings (SIRI)
With all the extra time at home, satellite radio has hit the jackpot, making their services much more appealing.
Since Sirius and XM Radio merged in 2008, the combined Sirius XM Holdings has enjoyed a near-monopoly on satellite radio.
Sirius built on that with the 2018 acquisition of Pandora, the music streaming product, helping to fill the sails again with rapid revenue growth; its audio products now reach more than 100 million people.
Sirius' situation is appearing healthy and added a further 1.1 million subscribers in 2019 alone, bringing its total paying subscribers to roughly 30 million. The company's audacious strategy of partnering with auto manufacturers to pre-install SiriusXM in new models should help steadily grow the business.
Zynga (ZNGA)
This video game stock is cheap and could be a beneficiary of the stay at home revolution.
Zynga's portfolio of popular games, combined with hyper-charged growth, makes it one of the best cheap stocks to buy under $10.
Last quarter, the social gaming developer behind franchises like Words With Friends, Zynga Poker, CSR Racing, and FarmVille set new company revenue records up 48%.
While growth is likely to decelerate quickly from such temporary coronavirus catalysts, I expect double-digit revenue growth in 2020.
Still, Zynga is holding up remarkably well, especially in the COVID-19 era, as people increasingly turn to mobile devices for entertainment.
Nokia Corp. (NOK)
Nokia's expected earnings growth is impressive with Wall Street looking for an 8% bump in 2020 and roughly 30% profit growth in 2021.
Cheap stocks to invest in under $10 don't often come in the form of well-oiled global corporations valued at $15 billion.
The Finnish communication equipment telecom is one of the rare exceptions against the rule.
Sales have grown 14% annually for the last five years. Nokia may end up one of the 5G stocks to watch in the coming years because of the stigma of Huawei forcing many Europeans to go with brands closer to home.
Nokia pays a hefty 8% dividend as well and will never need a last-second bailout.
