Mad Hedge Technology Alerts!
Target (TGT) is partnering with e-commerce specialist Shopify (SHOP) to expand its marketplace for third-party merchants.
This is a big deal so don’t diminish this news.
I honestly applaud this maneuver by Target, because it adds e-commerce footprint without paying a premium for it.
Everyone knows that everything is a total rip-off these days like adding an incremental addressable audience at a tech company.
Target has a lot to do to catch up with Amazon, but that’s the direction they should be headed in.
In the future, there is a highly likelihood that TGTs digital business will determine whether they succeed or fail as a tech company.
Everyone is going digital now. Adapt or die.
Shopify is a powerful back-end ecommerce foundation and integrating that with Target appears as a win-win decision moving forward.
We only need to look at competitor Walmart (WMT) which presides over a booming e-commerce business.
That is by decision as they launched a digital-first strategy and have made serious inroads into picking up e-commerce market share.
This partnership also on boards Target into a whole load of new products that they could only dream of selling and the process was rather painful.
Target Plus operates on an invite-only basis for merchants and currently offers more than 2 million items through more than 1,200 sellers.
Online marketplaces can also be launch pads for profitable advertising businesses, with merchants paying for prominent placement in front of shoppers.
Target more than doubled the number of sellers and products on its marketplace over the past year.
The company plans to maintain its invite-only model and continue vetting sellers on the platform.
Curating the selection — for example, allowing only one vendor to offer any given item — is a strategy that will let Target stand out.
Target’s partner, Shopify, makes software that helps vendors quickly set up online stores and process payments.
The company says it works with millions of merchants in about 175 countries. Globally, shoppers will spend $282 billion this year on stores managed with Shopify software. That’s more than double Target’s projected sales for the year.
We are at the late stage of the tech cycle that has been long in the tooth.
It’s not a shocker at this point for tech models to be petering out and management looking for that extra juice to kick-start revenue growth for however long the rest of the business cycle lasts.
Clearly, debt financing isn’t an option these days and I do believe this is a time when management showed their worth as conditions have been extraordinarily tight for the last 2 years.
There is also no guarantee that business conditions will reverse and go back into that pre-pandemic goldilocks phase.
The jury is still out but higher interest rates could be in the mix for the foreseeable future.
Therefore, it is clever by TGT and SHOP to strike up a partnership in which TGT expands their offerings and SHOP merchants get a crack at a new audience.
These opportunities are limited in fashion, but tech in 2024 isn’t about an unlimited addressable audience.
Tech in 2024 is more about efficiency and staying lean because the past 2 years have really been about cutting the bloat.
Target obviously has the more upside in this relationship and I expect them to add other partners that can move the needle.
TGTs share price has been flat for the past 6 months and migrating further into a digital strategy could be the formula to nudge that share price back into high gear.
The stock price is now at $150 per share and I do believe TGT has the chance to grind higher closer to $200 per share by year-end.
Mad Hedge Technology Letter
June 21, 2024
Fiat Lux
Featured Trade:
(CUPERTINO NEEDS A REBOOT)
(AAPL), (PYPL), (SQ)
Fintech used to be the shiny new car and in the last year or two, the sub-sector has entirely reversed.
Look at stock like PayPal (PYPL) or Square (SQ), their market cap is only 20% of what it was in 2021.
The fintech hype didn’t match the results and it definitely wouldn’t be something that Steve Jobs would be interested in getting into.
Getting into the weeds a little, the fintech industry has been saturated.
Too many vendors chasing after the same customers with the same homogenous products doesn’t seem like something Apple is usually associated with.
Almost as if the behavior suggests a mea culpa, Apple officially stopped issuing loans through Apple Pay Later, its buy-now-pay-later program that launched last year.
The move comes after Apple said it would start allowing installment loans later this year in its Apple Pay checkout process through third-party companies, such as Affirm, and credit and debit cards from issuers, such as Citigroup.
This Apple product certainly would have turned into a buy now – pay never platform.
I won’t say that Apple should stay in their lane – they certainly shouldn’t.
The reason is that they are a one-trick pony hoping to pivot into another lucrative cash cow business like the iPhone business. They desperately need to become a two-trick pony but they can’t find that special sauce yet.
Apple also recently announced they are putting their Apple Vision VR goggles on the backburner.
It is sad to see Apple go from project to project with such little follow-through.
They are Apple and many still think that brand still carries a lot of weight.
In the short term, they will get a pass for contracting some terrible projects, but only for so long.
One could argue that wearables like the Apple Watch and the iPad have been somewhat successful and I do acknowledge they have had some stickiness in terms of revenue.
However, the already saturated fintech payments business is a head-scratcher.
Sometimes it’s best to let fintech be fintech and allow them to experience the race to zero.
Apple is bigger and better – their customers deserve something that delivers higher value.
Clearly, the management at Apple at the highest levels is lacking the creative juices to push through something trendsetting or cutting edge and now that is starting to become a serious threat to future cash flows.
The OpenAI partnership was a copycat move and I am not sure if they have really planned how they will seemingly integrate this new tool into their products.
Remember, OpenAI could destroy some of Apple’s products because AI is still rife with errors and can even cause major losses to the share price.
What if the CEO of Apple Tim Cook wakes up one day and AI has deleted half of Apple’s internal software or emailed all of Apple’s intellectual property to a fierce rival?
What if AI magically wires $100 billion of Apple’s war chest to a 3rd world bank under the banner of improving world hunger or balancing income inequality?
Remember that AI has no common sense and that could be very dangerous.
Kids who grew up in front of computers all day are also notorious for having little common sense and the end of the day results show.
Nobody knows what will happen, but Apple sure appears defensive and that is always big trouble in Silicon Valley in an industry where you need to know what will happen in the future.
