Mad Hedge Technology Alerts!
In 2014, the juicy sound clips recorded by NFL legend Chris Carter at the annual NFL rookie symposium would be enough for those at league headquarters to have nervous breakdowns.
During a keynote speech, Chris Carter recommended that every rookie about to kick-start a sports career should find a "fall guy" just in case they found themselves on the wrong side of the law.
Carter later rescinded his comments and sincerely apologized for insinuating marginal tactics.
Lo and behold, it seems the most attentive listeners at the symposium weren't the players but the swashbuckling chauffeur-share service that has become the "fall guy" of Big Tech, none other than Uber.
The great thing (read: sarcastic here) for Uber about killing a pedestrian with autonomous vehicle technology is that it does not need to change its Silicon Valley mind-set of "move fast and break things."
Everything Uber touches seems to turn to mush. At least lately.
This revelation is extremely bullish for the other big players in the A.I. (Artificial Intelligence) driverless car space, mainly Waymo and General Motors (GM).
Granted, Uber came late to the party, but that cannot be an excuse for the myriad of shortcuts it promotes to build its business.
Waymo, the autonomous subsidiary of Google (GOOGL), has been honing its software, algorithms, and sensors for the past nine years like a sage samurai swordsmith from Kyoto. This type of detailed nurturing has led Waymo to rack up more than 5 million miles of testing on live roads.
The company recently commenced the first niche ride-hailing service in Phoenix, AZ, and just announced that it will purchase up to 20,000 electric cars from Jaguar Land Rover in a $1 billion deal to outfit with its cutting-edge technology.
Every day is a joyous day for Waymo because the first mover advantage is in full effect.
GM, another laggard, though considered in the top three, won't commence its robotic car fleet until late 2019. However, by that time, Waymo could be on the verge of mass rollouts if there are no setbacks.
The cherry on top for Waymo is Uber's knack of making a dog's breakfast of anything it pursues, magnifying an insurmountable lead for Waymo to possess.
Granted, the autonomous vehicle brain trust expected casualties, and the firm that made news for this mishap would be stuck with this label along with suspended operations.
Waymo missed a direct hit thanks to Uber and Tesla.
Tesla also took a direct hit when it announced that Walter Huang, an Apple engineer, sadly was killed in a Model X accident last weekend while his car was on autopilot.
It capped a horrible week by announcing a comprehensive recall of every Model S made before April 2016 for a faulty part. After fighting tooth and nail to maintain the $300 support level, Tesla swiftly sold off down to $250.
The disruption fetish permeating the ranks of the tech industry has its merits. Often the end result manifests through cheaper prices and better consumer services.
However, Uber's over-aggressiveness has placed it at the forefront of the regulation backlash along with Facebook (FB).
Google has certainly been playing its cards right, and having not run over a pedestrian consolidates its leading position
Luckily, the National Transportation Safety Board does not punish every participant using this technology.
No news is good news.
An extensive review of internal processes will hit team morale, and the burden of blame with fall upon the engineers.
The fallout from the tragic incidents will set back Tesla and Uber at least three to six months.
The suspension of their operations is akin to a white flag because Waymo is currently leaps ahead and plans to ramp up the mass rollout in the next two years with technology that is best of breed.
The running joke in the industry is that Uber's autonomous vehicle engineers are comprised of Waymo rejects.
Waymo already has more than 600 for-profit vehicles in operation in Arizona. And as every day without a fatality is considered a success, the Jaguars are next in line to be tricked-out with sensors and software.
Unceremoniously, Waymo has focused on safety as the pillar of its autonomous driving operation. Its conservative attitude toward danger will serve it well in the future. Waymo even spouted that its technology would have avoided the Uber accident.
Waymo has no desire to physically produce cars, but it aspires to sell licenses to the technology that could be installed in trucks and delivery vehicles, too.
The licenses could act as de-facto SaaS (software as a service) reoccurring revenue that has catapulted cloud companies to untold heights.
Google would also be able to integrate Google Maps, Google Docs, and all Google services into the robot-cab experience. The robo-taxi would merely serve as an incubation chamber to use the plethora of Google services while being transported from point A to point B.
And with Uber temporarily wiped off the map, Waymo seems like a great bet to monetize this segment at massive scale.
Google is truly on a roll as of late, even finding the perfect fall guy for the big data leak that has roiled the tech world, inducing a wicked tech sell-off - Facebook.
Instead of extracting data from user-posted content, Google's search builds a profile on users' search tendencies, and it is just as culpable in this ordeal.
Ironically, all the heat is coming down on Facebook's plate, and Mark Zuckerberg's lack of tactical PR noise is cause for investor concern.
The mountains of cash vaulted up over the years has made barriers of entry into new fields simple.
For example, Amazon's desire to lead health care came out of left field, and 10 years ago nobody ever thought the iPod company would make smart watches.
The interesting development in broader tech is the disintegration of unity that once supported the backbone of these firms.
Tim Cook, chief executive officer of Apple, railed on Facebook's business model and trashed Mark Zuckerberg's blatant disregard for privacy in order to profit from people's personal lives.
Large cap tech has never had as much overlap as it does now, and the new normal is throwing others under the bus.
If Google is dragged into the Facebook regulatory orbit, the silver lining is that the world's best autonomous driving technology will soon transform its narrative and put its incredibly profitable search business on the back burner.
Markets are forward looking and reward outstanding growth stories.
Tech is growth.
Morgan Stanley issued a report claiming the repercussions of mass-integrating this technology would be to the tune of about half a trillion dollars. That includes the $18 billion saved in annual health costs to automotive injuries. Also, 42% of police work ignites from a simple traffic stop. This would vanish overnight as well as concrete parking garages that blight cities. Car insurance is another industry that will be swept into the dustbin of ancient history.
Yes, tech has evolved that fast when Google can start claiming its revered search business as the daunted L word - legacy business.
The fog of war is starting to burn off and the visible winner is Waymo.
The shaping of its autonomous vehicle business is starting to take concrete form and although this won't affect earnings in the next few years, it will be a game changer of monumental proportions.
Uber is seriously in the throes of having an existential problem because of Waymo's outperformance. Venture capitalists heavily invested in Uber because of the promises of autonomous vehicle technology.
This is its entire growth story of the future.
Without it, it is a simple taxi company run on an app. There is no competitive advantage.
Waymo is on the verge of creating a scintillating growth business that is effectively Uber without a driver while simultaneously destroying Uber.
Ouch!
It speaks volumes to the ascendancy. And if Waymo miraculously capitulates, Google can always call Chris Carter and find another "fall guy."
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Quote of the Day
Asked what he would do if he was Mark Zuckerberg, Apple CEO Tim Cook said, "I wouldn't be in this situation."
Mad Hedge Technology Letter
April 2, 2018
Fiat Lux
Featured Trade:
(WHY THERE WILL NEVER BE AN ANTITRUST CASE AGAINST AMAZON)
(AMZN), (WMT), (MSFT), (FB), (DBX), (NFLX)
POTUS's Amazon tweet of March 29 has given investors the best entry point into Amazon (AMZN) since the January 2016 sell-off. Since then, the stock has essentially gone up every day.
Entry points have been few and far between as every small pullback has been followed by aggressive buying by big institutional money.
The 200-point nosedive was a function of the White House's dissatisfaction of leaked stories that would find their way into the Washington Post owned by Amazon CEO Jeff Bezos, my former colleague and good friend.
Although there are concerns about Amazon's business model, notably its lack of actual profits, there is no impending regulatory action. And, if there is one company that's in hotter water now, it's Facebook (FB), which inadvertently sells every little detail about your personal life to third-party Eastern European hackers.
Amazon's e-commerce business does not violate the Federal Trade Commission Act of 1914 of "deceptive" or "unfair practices."
The American economy has rapidly evolved thanks to hyper-accelerating technology, and the jobs required to support the modern economy have changed beyond all recognition.
The Clayton Antitrust Act of 1914 addressing harmful mergers that destroy competition hasn't been breached either since Amazon has grown organically.
Analyzing the most comprehensive law, the Sherman Antitrust Act of 1890, which was originally passed to control unions, espouses economic freedom aimed at "preserving free and unfettered competition as the rule of trade."
And, in a way, Amazon could be susceptible, but it would be awfully difficult to persuade the U.S. Department of Justice (DOJ) Antitrust Division and would take a decade.
Amazon's business model will change many times over by the time any antitrust decision can be delivered, or even entertained.
Helping Amazon's case even more is the DOJ interpretation of the three antitrust rules. It is the company's duty to first and foremost protect the consumer and ensure business is operating efficiently, which keeps prices low and quality high. Antitrust laws are, in effect, consumer protection laws.
Amazon's e-commerce segment epitomizes the DOJ's perception of these 100-year-old laws.
The controversial part of Amazon's business model is funneling profits from its Amazon Web Services (AWS) division as a way to offer the lowest prices in America for its e-commerce products.
This strategy has the same effect as dumping since it is selling products for a loss, but it is not officially dumping.
POTUS has usually delivered more bark than bite. The steel and aluminum tariffs went from no exceptions to exceptions galore in less than a week. Policies and employees change in a blink of an eye in the White House.
The backlash is a case of the White House not being a huge admirer of Amazon, but individual government workers probably have Amazon boxes stacked to the heavens on their doorsteps.
It is true that Amazon has negatively affected retail business. It is doing even more damage to traditional shopping malls, which it turns out are owned by close friends of the president. The mom-and-pop stores have disappeared long ago. But Amazon could argue this trend is occurring with or without Amazon.
In addition, Walmart (WMT) was the original retail killer, and it currently is morphing into another Amazon by investing aggressively into its e-commerce division. Does the White House go after (WMT) next?
Unlikely.
Amazon didn't create e-commerce.
Amazon also didn't create the Internet.
Amazon also does pay state and local taxes, some $970 million worth last year.
Technology has been a growth play for years.
Investors and venture capitalists are willing to fork over their hard-earned cash for the chance to own the next Google (GOOGL) or Apple (AAPL).
Many investors do lose money searching for the next unicorn. A good portion of these unicorns lose boatloads of money, too.
Spotify, slated to go public soon, is a huge loss-maker and investors will pay up anyway.
Investors went gaga for Dropbox (DBX), already up 40% from its IPO, and it lost $112 million in 2017.
The risk-appetite is hearty for these burgeoning tech companies if they can scale appropriately.
Should investors be prosecuted for gambling on these cash-losing businesses?
Definitely not. Caveat emptor. Buyer beware.
It is true that Amazon pumps an extraordinary percentage of revenues back into product development and enhancement.
But that is exactly what makes Amazon great. It not only is focused on making money but also on making a terrific product.
The bulk of its enhancement is allocated in warehouse and data center expansion. Splurging on more original entertainment content is another segment warranting heavy investment, too, a la Netflix (NFLX). Did you spot Jeff Bezos at the last Oscar ceremony?
Contrary to popular belief, Amazon is in the black.
It has posted gains for 11 straight quarters and expects a 12th straight profitable quarter for Q1 2018.
The one highly negative aspect is profit margins. It is absolutely slaughtered under the current existing model.
However, investors continually ignore the damage-to-profit margins and have a laser-like focus on the AWS cloud revenue.
Amazon's AWS segment could be a company in itself. Cloud revenue last quarter was $5.11 billion, which handily beat estimates at $4.97 billion.
Amazon's cloud revenue is five times bigger than Dropbox's.
The biggest threat to Amazon is not the administration, but Microsoft (MSFT), which announced amazing cloud revenue numbers up 98% QOQ, and has grown into the second-largest cloud player.
(MSFT) is equipped with its array of mainstay software programs and other hybrid cloud solutions that lure in new enterprise business.
(MSFT) has the chance to break Amazon's stranglehold if it can outmuscle its cloud segment. However, any degradation to Amazon's business model will not kill off AWS, considering Amazon also is heavily investing in its cloud segment, too.
Lost in the tweet frenzy is this behemoth cloud war fighting for storage of data that is somewhat lost in all the political noise.
This is truly the year of the cloud, and dismantling Amazon is only possible by blowing up its AWS segment. The more likely scenario is that AWS and MSFT Azure continue their nonstop growth trajectory for the benefit of shareholders.
Antitrust won't affect Amazon, and after every dip investors should pile into the best two cloud plays - Amazon and Microsoft.
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Quote of the Day
