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Fintech in 2020 is Too Hot to Handle

I’ve been kicking myself that I missed the boat this year on a stock that I spent last year hyping like no other after I predicted a tsunami of bullish action from fintech players.

I pigeonholed PayPal (PYPL) as one of the rising stars of the fintech industry and they certainly have delivered in spades.

But even I didn’t see this coming.

PayPal has more than doubled since the tech wreck in March and shares are trading north of $200.

A quick double of the stock has more than 20 analysts raising price targets for the stock since earnings came out, and most reiterated conviction buy ratings on the shares.

PayPal’s monetization engines take from both sides of its consumer and merchant platforms.

I expect growth on the top line to speed up and margins to increase if the rapid digitization of payments turns out to be here to stay, which I wholeheartedly believe it will.

PayPal’s business model has leaned on e-commerce payments, but now is the perfect time to invest in so-called frictionless payments, as well as consumer banking.

They hope to roll out QR code functionality in the US.

PayPal recently announced a partnership with CVS Health (CVS) to roll out QR-code payment options in more than 8,200 pharmacy stores in the fourth quarter.

The better-than-expected second-quarter results were solid across the board stemming from net new additions to the client (and merchant) count, TPV growth, Venmo growth, revenue growth, margins, and cash flow.

That is a whole lot of positives to work from!

Now, there is considerable evidence of sustainability of the underlying behavioral changes that are producing the growth.

Management’s decision to raise and increase estimates it had withdrawn demonstrates the company’s confidence.

There is bullish case for an opportunity for a new margin profile for the company longer term.

PayPal is about the shrug off the end of the eBay operating agreement and start harvesting volumes from several of its multi-year investments (Paymentus, MELI, Uber, Facebook, Honey acquisition).

PayPal is well-positioned in a market that could add up to $5 trillion even excluding online bill-payment services, in-store payments, and the Chinese market.

In mid-2020, it is clearly the most atrocious macroeconomic backdrop any of us have seen, with major parts of business travel and events on the back burner, and PayPal is still pulling off miracles by producing record numbers.

I attribute PayPal’s success to a multipronged, diverse platform scaled across the world that allows users to invest in this environment and shape the outcome, rather than sitting back and being a recipient.

The number that sticks out most is the more than 21 million net new active customers across its platform in the June quarter, a bigger number than in some entire years.

The bullish case for PayPal will outlast the health crisis as consumers are now tied to using PayPal during the crisis and will continue to do so long after because the product delivers the security and convenience that others don’t.

The outperformance certainly has something to do with a high level of trust and security that goes with it to boost the legitimacy of the brand and that is especially salient for new joiners.

No doubt that PayPal is hardly the only digital payment option, and competition is fierce, but they are good at what they do.

This is an inflection point in e-commerce and digital payments; the trends were pulled forward by two or three years, but the most fundamental difference right now is the new and expanded addressable market in the offline world.

The market has increased exponentially, in a world where digital payments are a major slice of all payments, PayPal is fully expected to continue to outperform.

There is the case that shares are too far out over its skis in the short-term, but for good reason.

I would put this stock on the high alert list ready to put new money to work in shares as soon as there is a medium-sized pullback.

August 7, 2020 - Quote of the Day

Tech Letter

“When I first went into financial services, people told me not to be too over-optimistic about change.” – Said CEO of PayPal Dan Schulman

August 7, 2020 - MDT Pro Tips

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more

August 7, 2020

Diary, Newsletter, Summary

Global Market Comments
August 7, 2020
Fiat Lux

Featured Trade:

My 20 Rules for Trading in 2020

August 6, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
August 6, 2020
Fiat Lux

Featured Trade:

(THE DOCTOR WILL SEE YOU NOW)
(TDOC), (MRNA), (PFE), (AZN)

The Doctor Will See You Now

Biotech Letter

With everything that has been happening in 2020, it is difficult to foresee what will transpire for the rest of the year. Although the major indexes have been trading at virtually record highs again, what is in store for the market in the second half remains a mystery.

Since the COVID-19 pandemic broke out, several businesses have shut down. However, some companies managed to survive with others even thriving in this unpredictable economy.

One of the businesses that exploded during this pandemic is Teladoc Health (TDOC).

Lockdowns and physical social distancing protocols have pushed people to find alternative ways to still go about their lives, and this is where Teladoc comes in.

With the growing fear of infection from the virus, more and more patients are opting for virtual care offerings instead of risking contamination in public.

The exponential rise for this demand was underscored in the second-quarter earnings report of Teladoc.

The company’s revenue jumped by 85% year-over-year to hit $241 million, which blew past the estimated $220.7 million projected by analysts earlier. This substantial increase was primarily fueled by the 203% year-over-year climb of visits.

As for its fee-only visits, Teladoc recorded a whopping 125% increase in the US to hit 21.8 million. Its total visits reach 2.76 million, reporting an over threefold jump from last year.

Teladoc’s paid membership total soared 92% year-over-year in the US alone, reporting 51.5 million members so far.

While this is great news to its investors, Teladoc’s outlook for the third quarter is even more promising.

The company anticipates its third-quarter revenue to be somewhere between $275 million and $285 million, showing off an approximately 103% year-over-year growth.

In terms of its 2020 earnings report, Teladoc is expected to rake in $980 million to $995 million in revenue, with a net loss somewhere between $1.45 and $1.36 for each share.

Based on its preliminary outlook, Teladoc’s growth could slow down next year. However, the company is still estimated to reach a 30% to 40% increase in revenue in 2021.

Riding the momentum of the demand for its services, Teladoc completed the $600 million acquisition of virtual care competitor InTouch Health in July.

This move is anticipated to give a boost to the company’s top line and expand the reach of Teladoc around the world. InTouch is estimated to contribute roughly $80 million in revenues.

With Teladoc’s share price skyrocketing to over 150%, none of its investors could ever find a reason to complain about the company’s performance this year so far.

With the accelerated adoption of telehealth services in various sectors and the growing number of consumers eager to receive treatment, Teladoc is expected to continue reaping the rewards.

Since the COVID-19 crisis has encouraged more people to avail of the telehealth service, it would no longer come as a surprise if most of them decide to become more permanent subscribers of the platform.

This is expected to remain the case even when the growth from this health and financial crisis starts to taper off.

Given the company’s market-leading role in this quickly multiplying virtual care market, Teladoc is well-positioned to dominate the sector in years to come. After all, being the market leader in any industry offers tremendous advantages as seen in the tight COVID-19 vaccine race among Moderna (MRNA), Pfizer (PFE), and AstraZeneca (AZN).

Although Teladoc shares do not come cheap, especially with its ever-growing popularity during the pandemic, the stock’s premium valuation is well warranted.

Teladoc is a stock for investors who are prepared to withstand the considerable volatility that oftentimes accompanies the majority of growth stocks in the biotechnology and healthcare sector. For those uncertain but are curious to own shares of this telehealth platform, the ideal move would be to start with a small position until you feel comfortable investing larger sums.

August 6, 2020 - MDT Pro Tips

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more

August 6, 2020

Diary, Newsletter, Summary

Global Market Comments
August 6, 2020
Fiat Lux

Featured Trade:

(HOW TO FIND A GREAT OPTIONS TRADE)

August 5, 2020

Tech Letter

Mad Hedge Technology Letter
August 5, 2020
Fiat Lux

Featured Trade:

(MICROSOFT GOES FROM STRENGTH TO STRENGTH)
(MSFT), (GOOGL), (FB), (AMZN)

Microsoft Goes from Strength to Strength

Tech Letter

Microsoft (MSFT) is on the cusp of becoming the best tech company in America and that is the reward they get for staying out of the data privacy quagmire that the other tech titans find themselves in.

A TikTok acquisition would offer a major platform to rival Facebook and Google-owned YouTube and will revamp its image with young people.

TikTok itself will grow into a $300 billion company in the next 5-7 years just by itself.

This purchase is a massive blow to Facebook (FB) and Google’s (GOOGL) prospects as their once-fortified duopoly morphs into a 4-way race between Microsoft, Amazon (AMZN), Google, and Facebook (FB).

This would make up for all the prior missteps with Nokia’s handset business and Skype.

This could be described as the "crown jewel" snapped up at a discount.

This is essentially an asset with 100 million users, massive momentum, engagement, advertising revenue, and something they could cross-sell into the broader Microsoft base.

The treasure trove of data is what makes this deal a can’t-miss proposition.

Think about Microsoft in building software and hardware projects, and not just Xbox. For the first time, it would have proprietary data on a level that they can understand consumer behavior and not just with their enterprise customers.

Data privacy is Microsoft’s biggest selling point to the Trump administration which is concerned about TikTok’s ties to the Chinese government.

TikTok, which is currently owned by a Chinese company, has come under scrutiny and investigation in the U.S. over allegations it is supplying user data to Beijing, a charge that company officials have denied, but have no way to prove that they don’t bend to the whims of the Chinese Communist Party.

This episode follows on the heels of the U.S. effectively banning Chinese telecom giant Huawei in the U.S.

TikTok represents the dual threat of destroying America's edge in technological dominance.

TikTok has become the fastest-growth social platform in history and its inception as a Chinese technology threatens the U.S. reputation.

What specific data is TikTok able to aggregate from U.S. users?

Personal location, app usage, behavioral trends, thematic trends, and economic indicators.

This personal data could be used to take advantage of the American population through military or economic means.

India was first to ban TikTok and didn’t allow a sale of the Indian data to a local firm. They didn’t want money flowing back into Chinese hands.

China is notorious for the mishandling of data and most of the data is resold infinitely inside of mainland China.

How will Microsoft earn dollars from TikTok?

Digital ads.

TikTok would boost Microsoft’s share of the U.S. digital display ad market.

This year, eMarketer predicts Microsoft to hold just 1.5% of that market, slightly ahead of Snapchat but well behind Facebook’s 42% and Google’s 10.4%.

That is about to change.

Just how popular is TikTok?

TikTok is a disruptive force in social media and video.

In the second quarter, TikTok had 30% penetration of U.S. respondents 18 and older in a survey of 2,500 U.S. consumers.

Among respondents 18 to 24, TikTok's popularity is even greater, at about 42%, versus 65% for Facebook, 78% for Instagram and 63% for Snapchat.

Along with this, Microsoft finally gets the “cool factor” they have been missing for generations.

What are the chances of Microsoft buying TikTok?

I would put it at 85%-90%.

ByteDance needs to seal a deal or they leave the table with zilch and at the same time kicked out of America.

The company, a massive social media player in China, is valued at about $100 billion, half of which is due to TikTok.

The deadline gives Microsoft the added effect of increased negotiating leverage and it will be interesting to see what concessions they get from TikTok.

No other major tech company has been given the green light to make the deal and Microsoft has plenty of cash available to make this deal happen.

The deal could be especially beneficial for Microsoft because the TikTok business in the U.S. is valued in the $40-billion range but could eventually reach $300 billion if they nurture it properly.

I would be shocked if Microsoft flubs this golden opportunity to add a trophy asset to put in their trophy cabinet.

CEO Satya Nadella is too shrewd to let this once-in-a-lifetime chance to cement Microsoft as the top dog go to waste.

I was highly bullish on Microsoft before this news, and I can easily say now that this is not only the best American tech company but the best company overall in the world.