“I know that you must be passionate, unreasonable, and a little bit crazy to follow your own ideas and do things differently.” – Said CEO and Founder of Salesforce Marc Benioff
MongoDB’s latest earnings’ results validate the concept open source software as a rival to the opposed closed-source software grid.
A keen rival of MongoDB’s RedHat was also acquired by IBM (IBM) a few years ago showing the vitality of the sub-sector.
Don’t sleep on these companies as another one Cloudera (CLDR) were taken private by private equity firms KKR and Clayton, Dubilier & Rice.
These are highly valuable assets and I’m not the only one shouting from the rooftops.
How did this all first start?
The first open-source projects were not really businesses, they were counter attacks against the unfair profits that closed-source software companies were reaping.
Microsoft (MSFT), Oracle (ORCL), SAP (SAP), to name a few, were enforcing monopoly-like “rents” for software that were substandard in quality.
The latest evolution of open source came when developers evolved the projects with two important elements.
The first is that the open-source software is now developed largely within the confines of businesses.
Often, more than 90% of the lines of code in these projects are written by the employees of the company that commercialized the software.
Second, these businesses offer their own software as a cloud service from inception.
In a sense, these are Open Core / Cloud service hybrid businesses that can obtain multiple pathways to monetize their product and that is exactly what MongoDB did.
By offering the products as SaaS, these businesses can interweave open-source software with commercial software so customers no longer have to worry about which license they should be taking.
MongoDB Atlas is a great example of this evolution and can become the dominant business model for software infrastructure.
This is their hottest product which is a fully-managed cloud database and Atlas handles all the complexity of deploying, managing, and healing deployments on the cloud service provider of your choice like Amazon or Google.
MongoDB changed how open-source software is licensed, and they introduced the new cloud service that required them and partners to compete with the largest cloud providers.
Looking quickly at second-quarter financial results, they generated revenue of $199 million, a 44% year-over-year increase and above the high-end of guidance. They grew subscription revenue 44% year over year.
Mongo Atlas revenue grew 83% year over year and now represents 56% of revenue, and they had another strong quarter of customer growth, ending the quarter with over 29,000 customers.
Businesses that can develop software faster are able to ultimately outgrow their competition.
MongoDB’s results are a clear indication that customers view MongoDB as a critical platform to accelerate their digital innovation agenda.
Customers of all types are choosing MongoDB because they can develop so much faster using this platform to build new applications and replatform legacy applications across a broad range of use cases to drive business forward.
Even though MongoDB open-source software is lower cost per unit, it makes up the total market size by leveraging the elasticity in the market. When something is cheaper, more people buy it. That’s why open-source companies have such massive and rapid adoption when they achieve product-market fit.
The model now is that companies are venturing as far as actually open sourcing all their software but applying a commercial license to parts of the software base. The premise being that real enterprise customers would pay whether the software is open or closed, and they are more incentivized to use commercial software if they can actually read the code.
Observing how airline JetBlue deployed MongoDB is how these new approaches and improved products manifest themselves in the topline revenue.
JetBlue came to the decision to overhaul their core e-commerce app, and JetBlue chose the MongoDB application data platform.
MongoDB's flexible data model allowed JetBlue to build a dynamic customer experience with modern ticketing applications, as well as predictive analytics in real-time.
An avalanche of firms is leveraging the tools of MongoDB tools to up their digital game.
Management has steered the narrative to include the ease of use and expanding the capabilities of the MongoDB platform to make it more compelling for customers to standardize on MongoDB.
For example, a serverless, customer can get started with MongoDB without having to pick a specific machine type or size. The application connects to Atlas, and they handle the elastic scaling of compute and storage seamlessly, whether an application scales fast or becomes popular. Customers no longer must do capacity planning or manual intervention to adjust the size of the deployment.
The verdict is in and deploying MongoDB to harness in-house developers to build unique commercial applications has been a winning formula.
Not only are they sheltered from rigid closed-source software, but customers can even integrate the code first, then pay later when it is deployed, and this licensing model has been extremely beneficial for developers who need to test out whether certain code is valuable or not.
Atlas is now the cash cow for MongoDB and forecasts predict acceleration in top-line growth.
Yes, this company is still small procuring revenue of just $166 million in 2018, but 2023 will see annual revenue surpass $1 billion which is why everyone wants to hop on MondoDB’s train.
I would consider any dips to deploy capital in MongoDB, I would call it a rising star of the software world, and a gem in the developers’ world.
“The computer is my favorite invention. I feel lucky to be part of the global village. I don't mean to brag, but I'm so fast with technology. People think it all seems too much, but we'll get used to it. I'm sure it all seemed too much when we were learning to walk.” – Said Japanese Singer Yoko Ono
“Failure is not an option here. If things are failing, you are not innovating enough.”- Said Founder and CEO of Tesla Elon Musk
Mad Hedge Technology Letter
July 16, 2021
Fiat Lux
Featured Trade:
(THE CLOUD)
(AMZN), (GOOGL), (CRM)
Chinese regulators announced on our Independence Day that they were banning downloads of Uber’s China DiDi in the app stores in the country because it poses cybersecurity risks and broke privacy laws.
This was after DiDi raised $4.4 billion by listing its shares in New York.
However, unnamed sources leaked that China's cybersecurity watchdog suggested to DiDi that it delay its IPO before it happened.
Delaying a wealth generating event like the IPO is controversial.
At this point, DIDI, the Uber of China, is worth a speculative trade at $1 and that’s if the Chinese tech firm doesn’t delist before that.
No — scratch that — it’s not even worth your time at $1 if you hold currency denominated in USD or anything even half as credible.
But if you’re from somewhere like Venezuela wielding infamous bolivars then take a wild stab around $1 or double up at $0.50 for a trade.
There is a reason that I have never in the history of the Mad Hedge Technology Letter recommended buying a Chinese technology stock.
The astronomical risk isn’t justified.
The evidence is now out in public with Chinese big tech and the Chinese Communist Party (CCP) airing their dirty laundry.
Most sensitive business dealings are usually dealt with in-house in the land of pan-fried dumplings and Beijing roasted duck, so things must be spiraling out of control on the inside.
No doubt that inflation spikes are causing chaos everywhere, but China is particularly vulnerable because of the high volume of Chinese living in poverty.
It’s unrelated to this IPO, but another valid reason why Chinese “growth” is weakening fast.
Stateside, cashing out is normal for tech growth companies who want to reward earlier seed investors, their own management teams, and in this case the early-stage investors were Japanese Softbank (21.5%), Silicon Valley’s Uber (12.8%), and China’s Tencent (6.8%).
This was pretty much a big middle finger to these three along with the other Chinese investors which were about to profit big.
This is on the heels of the CCP nixing the Jack Ma Alipay IPO.
Chinese big tech has gone from darlings to pariahs in a short time proving that in the U.S., you get too big to fail, but in China, you get too big to exist.
Silicon Valley tech princelings are also validated for leaving China such as Facebook (FB), Google (GOOGL), Amazon (AMZN) and Netflix (NFLX).
If local Chinese tech can’t flourish in China, then forget about foreign tech in China.
It’s a non-starter.
Apple (AAPL) is the only exception because they are grandfathered in when China had no smartphone and now they provide too many local jobs to be kicked out.
There is definitely a plausible case that U.S. retail investors who were part of that $4.4 billion holdings should be refunded their capital because DiDi didn’t truthfully disclose the risk of potential Chinese regulations properly.
There is also the logic that Chinese companies should never be able to list in New York in the first place which would be sensible.
As it stands, Chinese companies don’t need to follow U.S. GAAP accounting standards and cannot be prosecuted by the U.S. legal system if they commit fraud, embezzlement, or any other financial crime and decline to leave Chinese soil.
This incentivizes Chinese companies listed in the U.S. to cheat U.S. investors with fraudulent accounting and deceitful behavior because they aren’t accountable at the end of the day.
The Invesco Golden Dragon China ETF (PGJ), which tracks the performance of US-listed Chinese stocks, has lost more than one-third of its value since February.
I can tell you from close friends who call themselves frontier investors that investing in China is not worth your time and the fear of missing out (FOMO) rationale is all marketing chutzpah and nothing much else.
China’s economy hasn’t had any positive growth in the past 10 years according to Chinese insiders off record.
This FOMO narrative is often peddled by Wall Street “professionals” who are making exorbitant fees for selling retail investors Chinese junk stocks masquerading as real companies.
Out of many financial pros I have talked to, China leads in terms of horror stories from foreign investors.
The Chinese financial system is a hoax created to lure foreign capital in and for it to never leave often viewed as a free lunch for the local recipients.
And I am not only talking about Chinese tech, but this phenomenon also extends to every reach of the financial system there.
At the end of the day, China’s tech aristocracy wished they originated in the United States which is why they went public here because our markets work and theirs don’t.
They got to New York in the first place by marketing false numbers to U.S. investors and concealing regulatory issues, and U.S. investors must not fall for this trap.
If you look at the Shanghai Stock Exchange Composite Index ($SSEC), it’s gone nowhere in the past year and rightly so.
Even Chinese investors don’t buy Chinese stocks because there is no trust in their financial system. They buy property instead or buy U.S. tech stocks.
Don’t be the next sucker.
“The AI technology will keep you out of harm's way. That is why we believe in an AI car that drives for you.” – Said CEO of Nvidia Jensen Huang
Lordstown Motors Inc. (RIDE), an EV startup that recently went public, lacks the money to build a debut pickup truck and might go out of business if funding dries up in the next 12 months.
That’s what you get if you go for the “cheap” tech that offers some pipedream of fantasy managed by charlatans.
The company believes that its current level of cash and cash equivalents are not sufficient to complete the development of its electric vehicles and launch the Endurance pickup.
Investors should have seen this coming from a million miles away.
Lordstown went public through a SPAC and numerous have gone through upheaval as analysts critique their business practices.
Some, like Nikola Corp. (NKLA) and Velodyne Lidar Inc. (VLDR), have had their founders ousted.
Lordstown now has balance sheet problems.
In the filing, Lordstown said it has approximately $587 million in cash and an accumulated deficit of $259.7 million as of March 31, after reporting a first-quarter net loss of $125.2 million.
Going public gifted RIDE $675 million, but the company has burned through that quickly.
Let’s run down the list of red flags I have seen pop up at this supposed EV producer.
The company has no revenue and no sellable product, and they have most likely misled investors on both its demand and production capabilities.
The company has consistently pointed to its book of 100,000 pre-orders as proof of insatiable demand for its proposed EV truck.
Lordstown recently announced a 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales.
But E Squared is based out of a small residential apartment in Texas that doesn’t operate a vehicle fleet.
Another 1,000-truck, $52.5 million order comes from a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store.
Lordstown has thrived off the notion that the faster the pre-orders arrive, the greater investors’ confidence would be in the company and the faster funds would flow in and subsequently lift shares for long enough that management can cash out.
What management has failed to tell us is that these pre-orders are non-binding letters of intent, require $0 as a reservation payment, do not require an actual purchase.
Do I have other gripes about the company?
Yes.
Despite claims that battery packs would be manufactured in-house, the product is definitely not.
Former employees revealed that the company has completed none of its needed testing or validation, including cold-weather testing, durability testing, and Federal Motor Vehicle Safety Standards (FMVSS) testing required by the NHTSA.
Lordstown only went public in October 2020, but in that brief time, executives and directors have unloaded around $28 million in stock.
It seems awfully plausible that management is unloading stock because they think the company will ultimately fail and the stock will go to 0.
The pre-orders representing over $5 billion in future revenue couldn’t be further from the truth.
So basically this is an EV company out of the mold of Nikola that has no product but tout some marketing gimmicks as empirical evidence that should nudge investors to believe they are on the brink of full-out mass production.
It’s possible no company has ever done just on the basis of hyping up their non-binding, zero dollars down pre-orders and RIDE is still living off of these fumes.
Ultimately, the company isn’t even close to producing a car and any capital thrown at it is dead money that will disappear into a black hole.
It’s plausible that this is a sign of froth when marginal tech firms like RIDE can pull off their act for this long.
It almost makes sense as the market-altering retail army funnels capital to spin into meme trades and make a mockery of the real traders who try to treat this seriously let alone value investors.
I doubt that Reddit’s retail army will save RIDE since the word is out of their business practices.
It’s not too far-flung to consider that the same mysticism brought to the EV industry by Elon Musk is being deployed nefariously to excite the incremental investor that RIDE is about to strike it rich with the “next Tesla.”
The truth is that there is only one Tesla and there will be only one Tesla because they thread the needle through the hole popularizing the EV when there was no competition.
And now the conglomerates have closed that gap and are chasing after Tesla, meaning it’s impossible that there could even be another Tesla in 2021.
And by competition, I first mean GM, then the tier after that of Toyota, Ford, and European players who allowed Tesla to take the lead.
I would say that any reader mustn’t believe that charlatans masquerading as the “next Elon Musk” could be just as good as the real thing.
Take these words with a grain of salt.
Capital should not be considered in any of these unless there’s a real product and proof of product success.
And I am not even talking about accelerated earnings reports yet, or consistent outperformance, this is way off of that.
There are some instances where a premium is paid for potential, especially if it will shift the paradigm in the industry, but if it smells like a rat, the rat should prove he isn’t a rat and not vice-versa.
Mad Hedge Technology Letter
May 24, 2021
Fiat Lux
Featured Trade:
(THE MOST UNIQUE SOFTWARE COMPANY TODAY)
(MSTR)
Investors looking to park their cash in an emerging tech stock have to reckon with the earnings’ strength of a company like Apple (AAPL).
Eventually, any artisanal tech company hoping to deliver you a 10 bagger will need to adjust their sights that at some point in their future, they will need to directly compete with an Apple or Amazon (AMZN).
That is what is so scary for the little guys.
There were bountiful eye-popping numbers serving as ironclad proof to investors that sticking with the Goliaths is the sure-fire approach to grind your way up to more wealth.
A tech company Apple’s size expanding quarterly revenue to almost $90 billion last quarter representing a 54% year-over-year growth rate is stuff of legends.
A 54% growth rate is what us analysts give a green light for regardless of the size of the company.
Many analysts like to resort to explaining the upcoming stifling of growth in big tech as the law of large numbers.
Apple has shown they can overcome almost anything.
And this was supposed to be the company in which they have a China issue.
The consensus is that Apple is a brilliant business with an even better operational model.
Three reasons why Apple is firing on all cylinders.
First, Apple’s installed base growth has accelerated and reached an all-time high across each major product category.
Second, the number of both transacting and paid accounts on Apple’s digital content stores reached a new all-time high during the March quarter, with paid accounts increasing double digits in each of our geographic segments.
Lastly, Apple’s paid subscriptions continued to show strong growth.
This trifecta of outperformance was why revenue in the March quarter broke a record of $89.6 billion an increase of over $31 billion or 54% from a year ago.
Management saw strong double digits in each product category, with all-time records for Mac and for services and March quarter records for iPhone and for wearables, home, and accessories.
Products revenue was a March quarter record of $72.7 billion, up 62% over a year ago.
Company gross margin was 42.5%, up 2.7% from last quarter driven by cost savings, a strong product mix and favorable foreign exchange.
iPhone revenues had a March quarter record of $47.9 billion, growing 66% year over year as the iPhone 12 family continued to be in high demand.
With unmatched 5G capability, the best camera system ever in an iPhone, and advanced durability from Ceramic Shield, this family of devices is popular with both upgraders and new customers alike.
In the US, the latest survey of consumers from 451 Research indicates customer satisfaction of over 99% for the iPhone 12 family.
Turning to services. Another all-time revenue record of $16.9 billion with all-time records for the App Store, cloud services, music, video, advertising, and payment services.
Apple’s new service offerings, Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, as well as the Apple One bundle, continue to scale across users, content, and features and are contributing to overall services growth.
It was a quarter of sustained strength for wearables, homes, and accessories, which grew by 25% year over year.
Apple Watch is a global success story, and the category set March quarter records in each geographic segment, thanks to strong performance from both Apple Watch Series 6 and Apple Watch SE.
The Mac broke an all-time revenue record of $9.1 billion, up 70% over last year, and grew very strongly in each geographic segment.
This impressive performance was driven by the customer approval to new Macs powered by the M1 chip.
iPad performance was also outstanding with revenue of $7.8 billion, up 79%.
Where does Apple go from here?
First, hiring warm bodies and lots of them to try to meet all the extra incremental demand the company needs to satisfy in the near future.
Over the next five years, Apple will invest $430 billion, creating 20,000 jobs in the process.
The investments will support American innovation and drive economic benefits in every state, including a new North Carolina campus and job-creating investments in innovative fields like silicon engineering and 5G technology.
After hiring, Apple is laser-focused on shareholder return.
They were able to return nearly $23 billion to shareholders during the March quarter. This included 3.4 billion in dividends and equivalents and $19 billion through open market repurchases of 147 million Apple shares.
Apple’s board has authorized an additional $90 billion for share repurchases. They are also raising their dividend by 7% to $0.22 per share, and continue to plan for annual increases in the dividend going forward.
Lastly, management threw a damp towel on the feeling of success by removing guidance and talking about headwinds.
Management said that coming up, they would not offer specific financial guidance because of “continued uncertainty around the world in the near term.”
They also said that the sequential revenue decline from the March quarter to the June quarter will be greater than in prior years.
Second, supply constraints will have a revenue impact of 3 to $4 billion in the June quarter meaning a lack of chips.
All in all, hard to be happier if you are an Apple long-term holder. This is a no-brainer buy and hold forever. Any substantial dip should be bought.
