Mad Hedge Technology Letter
March 17, 2021
Fiat Lux
Featured Trade:
(THE ANYWHERE ECONOMY)
(DOCU)
DocuSign (DOCU) is a U.S. cloud company providing e-signature solutions that enable businesses to digitally prepare, execute, and act on agreements and DocuSign’s CEO Dan Springer has described the current state of the economy by calling it the “anywhere economy.”
What does this mean?
Ultimately, now and over the coming years, he believes the trend will continue toward the option of doing anything from anywhere.
Springer has labelled the products and services supporting this trend the “anywhere economy”.
He believes the company he runs, DocuSign, is a critical piece to this anywhere economy, and it's only just beginning.
Springer wants investors to know that we are just in the first period of this hockey match and there’s a lot of ice time left.
The first period has been pretty good to DOCU and last year validated that by DOCU signing off 2020 nearly 50% bigger than they were in 2019 with almost $1.5 billion in revenue.
They gained new customers, expanded their existing relationship with others, and experienced a surge in adoption of DOCU products as accelerating digital trends already underway literally caught on fire.
The digital transformation of agreements is still fluid and progressing and this transformation not only allows agreements to be prepared, signed, act on, and managed from anywhere. It also allows greater speed and efficiency than manual paper-based processes.
Ultimately, DOCU's premium e-signing tools will force companies to never go back to paper even after the pandemic ameliorates.
DOCU also does not believe life will go back to the way it was before.
Of course, many in-person activities will be welcomed back.
But when consumers discovered optimal solutions during the pandemic, DOCU believes those will continue and flourish unfettered, whether it's total or partial work from home, virtual visits to medical professionals, or getting a document notarized remotely.
People aren't going back to paper.
They're not going back to manual processing.
What is the real question then?
The thing to ask now is whether the rate of new people coming to DOCU will change with the reopening of the society, economy, and the world?
This could possibly pull back the momentum in the demand environment, but DOCU has telegraphed to investors that a potential drawback would be temporary before the digital transformation reignites.
And let me get straight at this point, yes, DOCU hasn't seen a change yet and demand is following through greasing the revenue machine as we speak.
How is performance at DOCU?
Revenue growth of 57% and billings growth of 46% year over year.
DOCU onboarded more than 70,000 new customers last year, bringing the total to nearly 892,000 customers worldwide.
Their customers even displayed the robustness of their wallet with DOCU experiencing their strongest expansion and up-sell rates yet, driving their dollar net retention to a record 123%.
New customers were tripping over themselves to join DOCU with DOCU experiencing a customer addition rate more than double that of fiscal '20, edging them ever closer to the 1 million customer mark.
The use cases for DOCUs e-signature services are growing and it’s not just HR, procurement, customer service, and in-branch onboarding needs, there is way more left in the pipeline.
DOCU transactions took less than a minute to complete on average, delivering a rapid ROI.
And DocuSign went from a crisis response solution last year to a business-as-usual solution today.
One of DOCUs pipeline is international and last year just scratched the surface with international revenue increasing a head-turning 83% year over year to $89 million in the fourth quarter.
For the full year, international revenue grew over 67% to $287 million, reflecting accelerated expansion across geographies.
To give you a sense of the magnitude of DOCUs overperformance last year, they added nearly the same number of customers this past year as they had in total at the time they went public.
As part of that, DOCU added 11,000 new direct customers in Q4 for a total of over 50,000 for the year.
A first quarter guide follows much of the same rhetoric of explosive growth and DOCU expects total revenue of $432 million to $436 million in Q1 or growth of 45% to 47% year over year.
At the end of the day, all I hear from CIOs (Chief Investment Officers) are they've got a backlog of things they need to get done because the pandemic made it very difficult for them to get certain projects done.
And at the same time, they acknowledge their achievement last year couldn’t be possible without the blind digital transformation they undertook, and they want more of it with DOCU at its core.
So as I write this tech letter, I do predict another re-acceleration of the digital transformation story once the novelty of normalizing the world takes place.
And this normalization doesn’t even need to take place for a considerable cross and up-sell opportunity this year, and those incremental customers, significant customer new additions that drive DOCU's bottom line.
Many renewals will come up after the first year of DOCUs offerings, and I believe not only should it be a great cross-sell opportunity, but they will be happy to renew DOCU's products in full without question.
Long term, this is a great tech company to buy and hold, but the tech sector is near all-time highs and trying to digest higher interest rates and higher inflation expectations.
After we absorb this, the next move is up.
Global Market Comments
March 17, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP)
(THE MAD HEDGE DICTIONARY OF TRADING SLANG)
The Mad Hedge Summit videos are up from the March 9,10, and 11 confab. Listen to 27 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here, select CURRENT SUMMIT REPLAYS in the upper right-hand corner, and then choose the speaker of your choice.
Mad Hedge Biotech & Healthcare Letter
March 16, 2021
Fiat Lux
FEATURED TRADE:
(A BARGAIN BUY STOCK)
(NVAX), (PFE), (MRNA), (JNJ), (SNY)
Biotechnology stocks have been going through a rough patch in the past weeks.
These previously unstoppable stocks have trailed the same path as the market in a sell-off, which has some of their investors fighting to keep calm.
In fact, the iShares Biotech Nasdaq ETF slid over 9% in the past month—a fall that affected some players who experienced all-time highs or enjoyed four-digit gains in 2020.
Inasmuch as all these sound discouraging, the decline might actually offer an opportunity.
Now, investors can snatch up some excellent stocks at pre-pandemic prices.
Among the biotechnology stocks that have dropped more than 28% to date from their latest high points, I find Novavax (NVAX) to be one of the most promising.
Novavax rose to over 2,700% in 2020, with the stock extending its gains well into 2021.
In the first five weeks of the year, Novavax jumped 186% following positive data from the Phase 3 trial of its COVID-19 vaccine, NVX-CoV2373, in the UK.
NVX-CoV2373 is widely anticipated to be the next COVID-19 vaccine candidate to win major regulatory approval.
Its Phase 3 study in the UK showed that NVX-CoV2373 was 96.4% effective against mild, moderate, and even severe cases of COVID-19 caused by the original strain of the coronavirus.
When tested against the “UK variant,” NVX-CoV2373 showed 86.3% efficacy.
Meanwhile, NVX-CoV2373 was found to be 55.4% efficacious against the “South African” variant.
Overall, NVX-CoV2373 proved to be 100% effective in protecting patients from hospitalization and death. More importantly, the vaccine didn’t cause severe side effects.
Despite the promising results released, the biotech stock has slipped 46% since early February.
While some investors fret over the fact that rivals like Pfizer (PFE), Moderna (MRNA), and Johnson & Johnson (JNJ) have already started production and shipment of their vaccines, the developers of NVX-CoV2373 say there’s nothing to worry about.
NVX-CoV2373 doses are readily available and can be shipped as soon as Novavax gains regulatory approval.
More reassuringly, this vaccine candidate can be stored for months without any special handling.
While it hasn’t landed as many orders in the United States as its counterparts, Novavax has been securing its spot in the international markets.
The company has landed orders for roughly 200 million doses of NVX-CoV2373 for Canada, Australia, Switzerland, New Zealand, and the UK. It also has an agreement to supply 1.1 billion doses to the Serum Institute of India.
On top of these, Novavax has signed a deal to supply over 1 billion doses to COVAX, which is a global project initiated to secure fair access to vaccines for all countries.
Novavax has been boosting its manufacturing capacity as well, with the company ramping to produce over 2 billion doses of NVX-CoV2373 every year by mid-2021.
By comparison, Moderna is estimated to produce about 700 million to 1 billion doses this year.
In terms of revenue, Novavax hasn’t definitely discussed its pricing. What we know so far is the price paid by the US, which is $16 per dose.
Back of the napkin math says that brings the total to $4.8 billion for the orders from the US and the other countries so far this year and excluding the COVAX deal since the pricing might be substantially lower.
This is a massive revenue for a biotech company that doesn’t even have a product revenue yet.
Another exciting prospect is Novavax’s pipeline.
Right now, the company has another vaccine that can become a great revenue source: NanoFlu.
Before the pandemic broke, NanoFlu was actually the major reason investors flocked towards Novavax.
With its overwhelming performance against Sanofi’s (SNY) own FluZone Quadrivalent, NanoFlu has been slated for a myriad of commercial possibilities.
These include developing it as a combination vaccine with NVX-CoV2373 as well as with Novavax’s other vaccine candidate, with its experimental respiratory syncytial virus (RSV) vaccine.
Another program is looking into combining all three vaccines together.
Riding the momentum of its success with NVX-CoV2373, Novavax is also planning to develop vaccines for other coronavirus variants.
This could include a bivalent vaccine program, which is expected to commence by June 2021.
All these programs are positioning Novavax as a dominant leader in the vaccine market.
If you haven’t considered Novavax before, then now is a good time to look into the stock. This is a company that has billions in locked-in revenues coming in this year alone.
Basically, buying Novavax stock would get you revenue in the near future, new products that will generate additional sales, and pipelines that offer growth—and if you buy the stock on the dip, you’re getting all these at a bargain.
Global Market Comments
March 16, 2021
Fiat Lux
Featured Trade:
(WHY A US HOUSING BOOM WILL CONTINUE),
(LEN), (PHM), (KBH)
(WHY SENIORS NEVER CHANGE THEIR PASSWORDS)
Mad Hedge Technology Letter
March 15, 2021
Fiat Lux
Featured Trade:
(2020 MADE THIS TECH COMPANY)
(PINS)
Do you want to invest in a tech company that added 100 million new accounts in 2020?
Well, you’ve meandered down the right alley and I will show you the way.
Clearly, in the year 2020, the pandemic obviously threw a massive wrench in everything and for a second, I too held my breath for tech companies.
But it luckily shook out the right way for us, as I understand it, tech firms throughout the mayhem evolved to drive incremental use cases for the users and that was what won out.
Pinterest (PINS), a U.S. media sharing and social media service designed to enable saving and discovery of information on the internet, was an unheralded beneficiary of this outsized pivot to lockdown and quarantines.
In fact, it was only just before the public health crisis that I believed this firm was languishing big time, unable to outperform against the big boys, but good enough to be faintly relevant.
Well, they became comparably relevant on a global scale from March 2020, and they have taken their path of opportunity and ran down it.
So how successful are we talking about?
Pinterest grew total revenue 76% year over year in 2020 with adjusted EBITDA margins of 42%.
That’s homerun stuff right there after only being able to expand in the high teens pre-virus environment.
The huge gap up in performance is also here to stay with upper management envisioning the next quarter as growth of “low 70s percent range year over year in the first quarter.”
Not too shabby, right?
Certainly, it’s an understatement to say that 2020 was the ultimate acid test to whether a public tech company could stand on its two feet or not.
No doubt they were aided by a giant sea swell of stimulus money which they are more than happy not to apologize for.
So, what’s the game plan now for the Pinterest crew?
The public health crisis uncorked the pathway to international revenue after focusing on “mature” markets for the first part of its history.
In 2020, international business grew 145% year over year on the back of strong advertising demand. International markets now represent 17% of total revenue.
The company rolled out a function able to take advantage of the “insight” into selling to consumers.
Sales and marketing teams built an insights-led go-to-market program over the course of 2020 that helped Pinterest deliver against Q4 seasonal comps.
This development helps make Pinterest more attractive to advertisers because they can understand their verticals better.
Let’s run down a few examples to show the use cases.
The LEGO Company created a holiday campaign based on popular search terms on Pinterest, seeing increasing search trends for creative kids’ gifts allowed the LEGO company to optimize and serve ads at the right moment ahead of the holiday season.
Another example is the luxury coffee company, Nespresso. They partnered with Pinterest teams to unearth key consumer trends around the holiday season, including search trends and consumer habits around holiday gifting, coffee recipes, and seasonal flavors.
With a better understanding of both auction dynamics and Pinner behavior, Nespresso delivered effective advertising campaigns that also showed positive results in a third-party brand study.
As 2021 does feel like another shelter-at-home year, I would warn investors to keep their powder dry for this one because the comparisons for mid-end 2021 will be tough to beat.
I do believe after a period of consolidation; Pinterest’s stock price will be back in full-out bullish mode.
There is just too much runway out there if you consider, these are the early innings of Pinterest transforming from an image company to a video-centric company.
There has been a significant uptick in video views and uploads. And PINS is beginning to expand that by enabling users to publish directly onto the platform.
This change will drive digital experiences for users, both in the U.S. and internationally, with some of the less mature web content ecosystems the U.S. relied upon.
That's a significant focus and makes the product more useful.
And they certainly did make the platform more useful in 2020 with enormous surge in product search that went up about 20 times last year alone.
PINS is also at the stage of supporting a diversified advertiser base and is really focused on making it easier for mid-market advertisers to manage SMBs to scale their spend.
But as they fine-tune automation, these SMB and mid-tier contracts will turn into Fortune 500 contracts like many of the larger tech sharks out there.
On the risk side, privacy issues could disrupt their rise as privacy measurements are diminished which could lessen their attractiveness to ad buyers.
This company is still a pure ad seller company where the user is the product ala Facebook.
Also, there is the risk that lockdown and quarantine measures are dismissed, and the world opens up which could damage the incremental use case for PINS that was so strong during lockdowns.
It’s hard to view that new sneaker in the shop window when the shops are closed, and I predict a 10% correction if investors feel the world is about to open up unfettered.
However, the long-term runway is healthy for PINS and I do expect a slow grind up as the company switches to predominate video and ad companies pile money into their platform because of the “brand safety” of PINS in a world where the internet is increasingly becoming a murkier place to deploy capital blindly.
2020 MADE PINS RELEVANT
“The thing that we are trying to do at Facebook is just help people connect and communicate more efficiently.” – Said Facebook Co-Founder and CEO Mark Zuckerberg
