Mad Hedge Technology Alerts!
Google Translate, Alphabet's (GOOGL) free, multilingual machine, foreign language translation service, translates an unimaginable143 billion words per day.
These were one of the pearls divulged in the conference call from Google's CEO Sundar Pichai.
A bump in usage coincided with the 2018 World Cup in Russia, and in the age of low-cost airfare and overpopulation, it could be Alphabet's new cash cow.
Google Translate has the potential to morph into one of the premier foreign language applications used by anyone and everyone.
Forget about the Amazon effect, the Alphabet effect could be just as pungent, albeit away from the trenches of e-commerce.
Thank goodness the application is still ad-free.
No doubt it would be inconvenient to sit through a 15 second ad while interacting with a concierge at a bed and breakfast in the South of France.
Analysts did not sound out Pichai's plans for Google Translate, but he did mention there are some monetization opportunities on the horizon.
The latest earnings report is the most recent indication that the FANGs along with Microsoft are pulling away from the rest.
The equity price action in 2018 vindicates this fact with more than 80% of the gains spread around just a few high caliber tech names.
Is this fair? No. But life isn't fair.
The too slow too late regulation that was supposed to put a cap on the vaunted FANG group has had the opposite effect, squeezing the small guy out of the picture.
The runway is all clear for the FANGs, and the only way they will be stopped is if they stop themselves or an antitrust ruling.
This all adds up to why Alphabet has been a perennial recommendation for the Mad Hedge Technology Letter.
Duopolies are few and far between and monopolies even rarer.
They are great for earnings and as the global digital ad pie grows, it falls down to Google's bottom line.
On the news of stellar earnings, Facebook shares jumped higher in aftermarket trading and powered on to trade around 5% the following day.
Expect a great earnings report from Facebook with robust ad revenue growth.
Nothing less would be a failure of epic proportions.
The migration to mobile is real and investors need to understand analysts cannot keep up with the rising year-end targets in these shares.
Alphabet had a high bar over which to pole vault, and it still managed to beat it handily.
And the $5 billion fine for bundling its in-house apps on Android fell on deaf ears.
Alphabet has $102 billion in the coffers, and $5 billion will do nothing to materially affect the company.
The cash reserves are up from $34 billion in 2010.
The market trampled on any sniff of a risk-adverse sentiment and powered into the green with the Nasdaq reaching another all-time high.
Let's not get too carried away. Alphabet's bread and butter is still its digital ad business with Alphabet CFO Ruth Porat confirming this fact saying, "One of the biggest opportunities for investment continues to be in our ads business."
Alphabet still breaks off 86% of revenue from its distinguished ad business.
"Other" is a category commingling Google Cloud, Google Play, and hardware that only comprised 13 percent of total revenue.
"Other Bets" brings up the rear with 1% of total revenue comprising Waymo, Alphabet's self-driving unit, which is an industry leader putting Tesla and Uber in their place.
Waymo plans to shortly roll out a massive commercial operation. Along with Google Translate, it could carve out a nice position in Alphabet's portfolio going forward.
The most important metric was Alphabet's total ad revenue, which it locked in at $28.1 billion, a 23.9% YOY improvement.
Aggregate paid clicks, a model in which the advertiser pays Google for a user to click an ad, has been steadily rising to 58%, up from 52% from the same time last year.
The masterful efficiency circles back to Google's ad tech team, which is by far the best in the business and has outstanding management.
The Cloud is an area that Alphabet highlights as a place for improvement.
Alphabet's cash war chest allows the company to throw hoards of cash at a problem. When mixed with brilliant management it usually works out kindly.
CFO Porat mentioned that costs were particularly higher in the quarterly head count because of large investments in cloud talent.
Google is tired of playing third fiddle to Amazon (AMZN) and Microsoft (MSFT), and views enhancing the enterprise business as imperative.
This explains Alphabet's head count surge to more than 89,000 employees, sharply higher than the 75,600 employed a year earlier.
Every FANG and high-tier tech company is spending its brains out to compete with each other.
Expanding data centers is not cheap. Neither are the people to deploy it.
Alphabet has the cash to compete with the Amazons and Apples (AAPL) of the world.
They do not have to borrow.
The potential trip wire in Alphabet's earnings report was Google's traffic acquisition cost (TAC).
Alphabet's (TAC) is described as money paid to other companies to direct user traffic to its suite of Google products.
(TAC) went up to $6.4 billion, which is 23% of Google's ad revenue but down on a relative percentage basis of 24%.
This was enough to keep investors from sounding the alarm and was welcomed by analysts.
Alphabet pulled out all the stops this quarter and the momentum is palpable.
Top-line growth from its core ad business shows no sign of slowing.
Acceptable (TAC) was the cherry on the sundae for the quarter at a time when many industry insiders thought it would be around 25% or higher.
Hardware offered less punch than before, which is what all high-quality tech companies desire.
There were no obvious weaknesses and the 34 straight quarters of 23% YOY growth is hard to top.
Google pulls in 10% of all global digital ad dollars in one business.
Other highlights were Waymo eclipsing the 8-million-mile mark of self-driving on public roads as it is the next business to come to the fore.
Google cloud is at an inflection point attempting to win over corporate management.
It has already won contracts with heavy hitters such as Twitter (TWTR) and Disney (DIS).
Pichai mentioned Target (TGT) as a key new cloud client that just signed on with Google last quarter.
More importantly, Alphabet's brilliant quarter bolsters the macroeconomic picture heavily reliant on tech earnings to usher the market through the gauntlet.
Regulation has proved irrelevant. Whatever fine they are slapped with does not change that Google reaps the benefits from its market position as one of the duopolies in the global ad business.
Alphabet has been trading from the bottom left to the upper right via a consistent channel.
Do not chase the new all-time high of $1,270. Use any weakness around the $1,100 level to initiate new positions.
Owning a company this dominant has little downside. The regulatory burden was a myth and Pichai has handled this operation beautifully.
I am bullish on Alphabet and its partner in crime Facebook.
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Quote of the Day
"Man is still the most extraordinary computer of all," said the 35th President of the United States John F. Kennedy.
Mad Hedge Technology Letter
July 24, 2018
Fiat Lux
Featured Trade:
(SECURE THE GATES),
(FTNT), (PANW)
Does it give you the creepy-crawlies to know that while you are meandering around on your favorite website, nefarious forces are preying on your every click?
An entire industry is devoted to defending your needs, to ensure you can roam and frolic aimlessly on the World Wide Web.
The global cybersecurity industry aimed at protecting the end user is on pace to mushroom, surpassing $180 billion in revenue by 2023, a monstrous uptick in business activity from the $114 billion in 2017.
Recent political sable rattling and aggressive posturing underscores the seriousness of defending proprietary trade secrets and vital data, which are propelling these businesses to outperform.
The multitude of security breaches has fueled a security spending binge in 95% of firms.
And this is just the beginning.
Hyper-accelerating technology has augmented big data as the new oil, and this data is useless if hackers can infiltrate a system leaving it a shell of its former self, then selling it on to the highest bidder on the dark web.
Corporations are furiously spending on the newest cutting-edge fortifications.
CEOs have awoken and realize getting nicked of a precarious treasure trove of data is a sackable offense.
The trend in global cybersecurity spending augurs well for Fortinet (FTNT), a company I have touted in the past. To read my recommendation for this stock click here. Please note you must be logged in to read the article.
I urged readers to dip their toe in this stock when shares were trading at $54 in the middle of March.
The ensuing price action has been nothing short of spectacular with frequent antagonistic macroeconomic headlines boosting the stock.
Fortinet is trading at $68 today, levitating over 20% since I recommended it barely four months ago.
Fortinet has the pulse on the cybersecurity industry and provided some insight to the industry combat zone from its 30,000-foot perch as one of the leading lights of the industry.
This is what it deals with on a daily basis.
Intrusion methods are constantly transforming to keep the cybersecurity forces off-kilter.
The game of cat and mouse has become a zero-sum proposition deploying massive scale. This newfound acceleration is forcing cybersecurity companies to up their game.
The latest data from Fortinet illustrates cybercriminals malware usage has crept up in sophistication relying on formulating modern zero-day vulnerabilities, better understood as attacks exploiting previously unknown security vulnerabilities, operating with lighting quick speed and mammoth scale.
Unique exploit detections surged by 12%, and from these intrusions, 73% of firms were materially damaged.
These aren't your father's cybercriminals.
The newfound mainstream popularity of cryptocurrency has caused a new wave of fiat money to funnel through Internet checkpoints into their crypto brokerage accounts.
This fashionable asset class for Millennials has coincided with a major increase in "cryptojacking," the theft of crypto assets.
The aforementioned malware is becoming uber complex undetectable to the unexperienced cybersecurity professional.
The migration into cryptomining has given cybercriminals another platform to strike it digitally rich.
The activity of cryptomining malware has shot up doubling the amount of malware permeating through the system.
Cryptomining malware has demonstrated a vast array of variations of malware. This brand of stealthier, fileless malware deploys infected, undetectable code into browsers.
Hackers aren't just targeting one type of cryptocurrency. They are going after the alternative currencies such as Dash and Monero that knock about in the crypto asset ecosphere.
Monero is a favorite of the North Korean state hacker team.
Hackers are employing a trial and error strategy, aggregating the industries' best practices to mold into an even more deadly weapon.
These dark forces aren't just spraying around attacks mindlessly. To cause maximum damage, hackers are growingly deploying their venom in a targeted fashion, pinpointing the exact weakness in a system, providing a timely entry point into a gateway allowing them to open a Pandora's box when inside.
Worldwide events are magnets to this bombardment of attacks, and these hackers are routinely carrying out diligent reconnaissance work to lay the groundwork for a laser-like, designed attack.
These digital Ocean's 11 are hard to stop unless you call on Fortinet.
The scope of damage is increasing over time with hackers directing malware to disperse laterally throughout a network before triggering the most vicious phase of the attack.
The Olympic Destroyer malware and the SamSam ransomware rearing its ugly head in Q1 2018, demonstrate how cybercriminals fused together a designer attack with a destructive payload for devastating results.
Some examples of the rapid escalation in expertise are GandCrab ransomware that turned up in January. It was the first ransomware demanding Dash cryptocurrency as a payment.
Complicating the matter, attacks aren't just pointed at one direction. A multifaceted pronged attack has proved effective for expert hackers and mobile is becoming a habitual point of entry.
Hackers would target routers or Internet hardware exploiting these soft spots contributing to 21% of corporations being blindsided by malware, a sharp increase from 7%.
The explosion of IoT devices such as Amazon Echo and Apple's HomePod will be a battleground arena for this industry to stop probing hackers from extracting the treasure trove of data.
Unpatched software and hardware are also ripe for penetration.
Microsoft ranked as the most targeted firm. The other avenue for attacks mainly fell to routers that garnered a substantial portion of malware volume.
Botnets are described as a network of private computers infected with malware while controlled without the owners' knowledge.
Logically, the longer the botnets are in the system, the more havoc they cause.
Same-day detection and removal of botnets came in at 58.5% of infections.
Unfortunately, it took two days to get rid of 17.6% and three days to oust 7.%.
Further down the time horizon, it took more than a week to dispose of 5%.
One glaring example was the Andromeda botnet removed in Q4 2017, but it was still running riot prominently in Q1 2018.
An elixir to solve the problem is not always perfect, but Fortinet manages to successfully smother potential carnage leading to a slew of massive contracts.
All of these aforenoted dangers are on what Fortinet clamps down.
It does its best to put a muzzle on the hideous activity. Then the review and enhancement of products will only help them generate a flurry of sales going forward.
The cybersecurity sector is relatively new and swiftly evolving to the forefront of corporate governance.
The speed of change in technology is outstripping the development of academic qualifications for cybersecurity experts.
Consequently, an acute scarcity of qualified technicians could stifle the effort to combat these wicked forces. Reports suggest a substantial number of middle-tier specialist positions cannot be found causing strain further down the pecking order.
Fortinet uses the most modern A.I. (artificial intelligence) algorithms to address these hyper-critical security threats, whether in networks, applications, cloud, or mobile environments.
The company is the industry leader along with Palo Alto Networks Inc, (PANW), hawking premium firewall technology, end-point security software, and cloud protection solutions.
They have been consistently growing the top line while expanding their hybrid-solutions product lineup.
Just four years ago Fortinet took home $770 million of revenue Fast-forward to 2017, and Fortinet ended the year with $1.49 billion in revenue.
Fortinet continues to hit all-time highs as its stock is on fire.
Its total addressable market maintains robust, and Fortinet is well placed to reap the benefits moving forward.
Its revenue mix is slowly changing from a reliance on hardware to a pivot to software and services boding well for the future.
Gross margins are healthy ticking higher to 77% in Q1 2018, a small increase of 2% YOY.
Revenues are set to blow past $3 billion by 2022, and Fortinet is an all-around great company.
Shares have run too far too fast. Wait for shares to drop anywhere close to the 50-day moving average to put new money to work in this high-caliber cybersecurity stock.
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Quote of the Day
"A company shouldn't get addicted to being shiny, because shiny doesn't last," - said Amazon founder and CEO Jeff Bezos.
