Global Market Comments
February 13, 2020
Fiat Lux
Featured Trade:
(I HAVE AN OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(MAD HEDGE FUND TRADER CELEBRATES ITS 12-YEAR ANNIVERSARY)
Tag Archive for: (AMZN)
Mad Hedge Technology Letter
February 12, 2020
Fiat Lux
Featured Trade:
(UBER’S DARK FUTURE)
(UBER), (LYFT), (FB), (AMZN), (NFLX), (GOOGL)
Autonomous or bankrupt; that is the ultimate fate of Uber (UBER).
In the short-term, Uber is a master at moving the goalposts in order to breathe life in the stock.
CEO of Uber Dara Khosrowshahi can only pray that the Fed will continue to pump cheap money into the market because without artificially low-interest loans, tech firms like Uber would implode.
Is it really time to give Uber the benefit of the doubt?
No more hype, just profits? Is the calculus to profits legitimate?
That's what we call a bubble. Bubbles always burst. Here's the scary part.
Many people are counting on the continued existence of Uber and Lyft to provide "cheap transportation."
Commuters will have to get suddenly unused to it.
There are many companies today that are running the same scheme as Uber in the “gig economy.”
It’s true that management loves to use a lot of flowery language to disguise a lack of profitability.
But as the conditions are ripe for a leg up in tech, the tide rises, and even Uber’s boat rises with it.
I have yet to see even one realistic analysis of how Uber or Lyft is going to become profitable - not even basic math!
I have met a plethora of drivers for both companies, and hope they do well, but there is only so long that one can put lipstick on a pig.
So here we are, Uber in the green everyday because they moved the goalposts yet again and promise us earlier than expected profitability but still losing billions of dollars.
Lyft and Uber have apparently increased revenues somewhat by reducing promotional discounts to riders, but that does not project to even a breakeven point and the unit economics tell me no even if my heart says yes.
The only trick up their sleeve seems to be fare increases, but where is the roadmap detailing this treacherous path?
Once we get to the point in time when Uber is supposed to be profitable, I bet that management will call in another trick play and move the goal posts yet again.
It is quite laughable when so called “tech experts” want Uber to join the ranks of Facebook Inc. (FB), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Alphabet Inc.’s Google (GOOGL) as part of a FANGU acronym.
Reasons for this new bundle is thought to be because of the ability to take advantage of its massive scale while working toward profitability.
Uber is the global ridesharing leader and is becoming the global food delivery leader, but do they really add value?
What if the local government finally got their finger out and built a proper transport system?
They are merely taking advantage of a broken system and passing on the costs of paying drivers to the drivers themselves by designating them as hourly workers.
Are we supposed to celebrate when Uber becomes more “rational?”
Meaning that players have limited their attempts to undercut one another with the sorts of pricing and big discounts that had at one time suggested the business might be a race to the bottom.
Uber projected a lower loss than analysts were expecting for 2020, does less loss mean profits in 2020?
And I do agree that it is encouraging that the company is finally disclosing more data, but shouldn’t they be doing that in the first place?
Love it or hate it, there is a “war” going on between profitability and growth at Uber as the company manages the trade-offs.
Uber had previously talked up that it would become Ebitda profitability by the end of 2021, but Khosrowshahi now forecasts profitability for the fourth quarter of this year.
He says it is possible because Uber initiated a “belt-tightening program” in the last half of 2019, exiting unprofitable ventures and laying off about 1,000 employees.
For instance, Uber sold its food-delivery business in India to a local startup, Zomato, in return for a 9.9% stake in that company.
I do believe that they haven’t done enough to build credibility with investors and the stock’s price action is behaving as we should trust Uber’s management with whatever comes out of their mouths.
The lack of visibility and uncertainty around trends in ridesharing and Eats outside the U.S. continue to be hard to quantify.
So that sounds great! Uber is more serious than ever about becoming profitable and investors have backed them up with the stock flying to the moon.
The trend is your friend and I would suggest readers to get out of the way of this one because you could get trampled on just like the Tesla bears.
And I do support Uber in making steps in the right direction and it also can be said that stocks appreciate the fastest when they transform from a horrible company to a less horrible company.
But there is no way that I am giving Khosrowshahi a pass for Uber’s current situation and no chance I am praising him to the hills.
It is what it is, and Uber is less bad than before, and if they don’t meet their targets, I don’t think investors will believe Khosrowshahi version of a spin doctor forecast anymore.
Uber will rise in the foreseeable future and if they fail to become profitable by 4th quarter, expect a massive drawdown.
If they succeed, expect a vigorous wave of new players to buy into Uber shares.
The stakes have never been higher for Uber and Khosrowshahi.
Global Market Comments
February 10, 2020
Fiat Lux
Featured Trade:
(LEARN MORE ABOUT ME THAN YOU PROBABLY WANT TO KNOW),
(GOOG), (AMZN), (AMGN)
(WHO SAYS THERE AREN’T ANY GOOD JOBS?),
(TESTIMONIAL)
As you may imagine, the most interesting man in the world is impossible to shop for when it comes to Christmas and birthdays.
So, it was no surprise when I opened a box and found a DNA testing kit from 23 and Me. So, I spit into a small test tube to humor the kids, mailed it off, and forgot about it.
I have long been a keeper of the Thomas family history and legends, so it would be interesting to learn which were true and which were myths.
A month later, what I discovered was amazing.
For a start, I am related to Louis the 16th, the last Bourbon king of France who was beheaded after the 1789 revolution.
I am a direct descendant from Otzi the Iceman who is 5,000 years old and was recently discovered frozen in an Alpine glacier. He currently resides in mummified form in an Italian museum.
Oh, one more. The reason I don’t have any hair on my back is that I carry 346 gene fragments that I inherited directly from a Neanderthal. Yes, I am part caveman, although past girlfriends suspected as much.
There were other conclusions.
I have a higher than average probability of getting prostate cancer, advanced macular degeneration (my mother had it), celiac disease, and melanoma.
The service also offered to introduce me to 1,107 close relatives around the world who I didn’t know, mostly in New York, California, and Florida.
The French connection I already knew about. During the 16th century, my ancestors rebelled against the French kings over the non-payment of taxes and were exiled to Louisiana. Fleeing a malaria epidemic, they moved up the Mississippi River to St. Louis and stayed there for 200 years. When gold was discovered in California in 1849, they joined a wagon train west. We have been here ever since.
I am half Italian and have birth certificates going back to 1800 to prove it. But 23 and Me says that I am only 40.7% Italian (see table below). It turns out that your genes show not only where you came from, but also who invaded your home country since the beginning of time.
In Italy’s case that would include the ancient Greeks, Vikings, Arabs, the Normans, French, Germans, and the Spanish, thus making up my other 9.3%. Your genes also reflect the slaves your ancestors owned, for obvious reasons, as well as many of the servants who may have worked for them.
It gets better.
All modern humans are decended from a single primordial “Eve” who lived in Eastern Africa 180,000 years ago. Of the thousands of homo sapiens who probably lived at that time, the genes of no other human made it into the modern age. We are all decended from a single “Adam” who lived 275,000 years ago. Obviously, the two never met, debunking some modern conventions.
Around 53,000 years ago, my intrepid ancestors cross the Red Sea to a lush jungle in the Sinai Penninsula probably pursuing abundant game. 53,000 years ago, they moved on the vast grasslands of the Cental Asian Steppes. As the last Ice Age retreated, they moved into the warmer climes of South Europe. We have been there ever since.
23 and Me was founded in 2006 by Anne Wojcicki, wife of Google founder Sergei Brin. It is owned today by her and a few other partners. Its name is based on the fact that humans' entire DNA code is found on 23 chromosomes.
23 and Me and other competitors like Ancestry.com, MyHeritage, and Living DNA have sparked a DNA boom that has led to once unimaged economic and social consequences. DNA promises to be for the 21st century what electricity was to the 20th century. The investment consequences are amazing.
Talk about unintended consequences with a turbocharger.
A common ancestor going back to the early 1800s enabled Sacramento police to capture the Golden State killer. Unsolved for 40 years, it took a week for them to find him after a DNA sample was sent to a DNA database.
Thirty and 40-year cold cases are now being solved on a weekly basis. Long ago kidnapped children are being reunited with parents after decades of separation.
California just froze all executions. That’s because DNA evidence showed that approximately 30% of all capital case convictions were of innocent men. That was enough for me to change my own view on the death penalty. The error rate was just too high. Dozens of men around the country have been freed after new DNA evidence surfaced, some after serving 30 years or more in prison.
23 and Me had some medical advice for me as well. They strongly recommended that I get tested for diabetes and high blood pressure as these maladies are rife among my ancestors. They even name the specific guilty gene and haploid group.
This explains why major technology companies, like Amazon (AMZN) and Apple (AAPL), are pouring billions of dollars into genetic research.
I have long had a personal connection with DNA research. I worked on the team that sequenced the first ever string of DNA at UCLA in 1974. It was groundbreaking work. We obtained our raw DNA from Dr. James Watson of Harvard who, along with Francis Crick, was the first to discover its three-dimensional structure. As for my UCLA professor, Dr. Winston Salser, he went on to found Amgen (AMGN) in 1980 and became a billionaire.
The developments that are taking place today then seemed to us like science fiction that was hundreds of years into the future. To see the paper created by this work, please click here.
As research into DNA advances, it is about to pervade every aspect of our lives. Do you have a high probability of getting a disease that costs a million dollars to cure and is counting on getting health insurance? Think again. That may well bring forward single-payer national healthcare for the US, as only the government could absorb that kind of liability.
And if you can only hang on a few years, you might live forever. That’s when DNA-based monoclonal antibodies and gene editing are about to cure all major human diseases. DNA is about to become central to your physical health and your financial health as well.
To learn more about 23 and Me please visit their website here.
Maybe the next time I visit the Versaille Palace outside of Paris, I should ask for a set of keys now that I’m a relative? Unfortunately, it’s much more likely that I’ll get the keys to my Neanderthal ancestor’s cave.
Mad Hedge Technology Letter
February 3, 2020
Fiat Lux
Featured Trade:
(CAN’T HOLD DOWN AMAZON)
(AMZN)
The recent Chinese pandemic over the coronavirus is overshadowing a sensational start to tech earnings.
The big have only gotten bigger!
Apple, Microsoft, and now Amazon and Founder Jeff Bezos have clearly tweaked the business into a well-oiled machine.
I won’t lie – expectations were a little shaky going into the earnings’ report because of expense worries on turning the 2-day free shipping for Amazon Prime members into a 1-day affair.
The narrative was whether Amazon could deliver enhancements that could overcome the high cost of making Amazon Prime better.
It’s not cheap to make the logistical improvements in the warehouses and transportation functions.
A lot of money has been poured into air cargo transport efficiency and last-mile developments as well.
Profitability was supposed to bear the brunt of the expense surge, but just take a peek at EPS performance of $6.47 per share vs. expectations of $4.03 per share, and rejoice in relief that expense worries were overblown.
The only conclusion that I can make is that the spoils from investments into logistics have outweighed the costs of the investments.
In total, revenue expanded 21% to $87.44 billion for the quarter which is a robust growth trajectory for a company as gargantuan as Amazon.
Amazon unleashed the head turner metric this time around too sharing that Amazon already has over 150 million Amazon Prime members.
That is almost the equivalent of half of the U.S. population paying Amazon $119 per year.
The higher logistic costs were deemed necessary to stay in front of the rest and expectedly ballooning costs showed up in the earnings report with shipping expenses up 43% year over year to $12.9 billion.
Other segments of the business have been just as prolific as Kansas City Chief’s quarterback Patrick Mahomes.
Streaming and subscriptions pulled in a massive $5.24 billion for the quarter, up 32% from the year-ago period.
Amazon’s cloud business AWS was up 19% to almost $10 billion last quarter.
The 19% represents a significant slowdown from the 35% they grew during the 3rd quarter of last year but still brings in the lion's share of the profits.
Are there any other dark horse growth drivers in Amazon’s arsenal?
Certainly, Amazon’s advertising segment can be pigeonholed as the rising star and generated $4.8 billion in revenue during the quarter, a 41% increase from the year-ago period.
Amazon is also bullish on the Amazon’s “stores,” allowing the company to customize and curate a multipage digital storefront.
Stores are getting a refresh and the company has added features like shoppable images and the ability to schedule updates like new releases or seasonal changes.
Other advertising tools like the ability for brands to create posts, which consumers can view to discover products and brands through a curated feed, will help the company become an advertising juggernaut.
The company launched “Posts” in beta last year which shows that Amazon plans to double down in marketing.
The marketing space serves as a critical area for incremental growth potential and profitability flow-through.
This is because the marketing space is the largest and least penetrated total addressable market, ahead of retail, cloud, and business-to-business segments.
Amazon is a sure-fire buy and hold tech company because it simply is the second-best tech company behind Microsoft.
There will also be opportunities to trade this short-term from the long side, but the volatility might turn off some investors.
Mad Hedge Technology Letter
January 22, 2020
Fiat Lux
Featured Trade:
(THE HOLLOW VICTORY FOR TECH IN THE CHINA TRADE DEAL)
(MSFT), (AMZN), (HUAWEI)
The Davos World Economic Forum is the optimal place to get a snapshot of the state of the American technology sector and apply its underpinnings to an overall trading strategy for 2020.
Stepping back, one clear theme is the lasting effects of the trade war and how that will manifest itself in the broader tech sector.
We got some serious sound bites from CEO of Microsoft Satya Nadella at Davos who is convinced that mutual economic saber-rattling between the US and China will show up in higher costs because of the misallocation of resources.
The most critical point of contention is the development in the semiconductor space as we move into the 5G world and this $470 billion industry which realizes cost savings from scaling by global supply is splintering off as we speak into two separate industries.
This just translates into higher costs to source components for your Microsoft Surface laptop or your Apple Ear Buds.
The follow-through effect is ultimately bludgeoning global growth rates and tech intermediaries will be forced to pick up the extra tab or face the looming decision to pass costs on to the consumer.
As we move forward, the administration is considering more limits to US semiconductor companies’ access to the Chinese consumer market.
The scaremongering fueled by the rise and threat of Huawei has reached fever pitch.
Remember that even with the aggression of the American administration hoping to cap Huawei’s revenue explosion, Huawei still managed to grow sales 18% last year to $122 billion.
I can tell you that if the U.S. administration came after the Mad Hedge Technology Letter guns blazing, we wouldn’t be sitting here growing 18% annually!
The U.S. administration hasn’t stopped at Huawei and is putting in shifts attempting to convince other nations to avoid using Chinese infrastructure equipment for the 5G revolution.
The “Phase One” of the trade agreement is largely seen as a moot point in the technology community and in some cases can be argued as a net negative to component makers whose access to the local Chinese market has narrowed.
The agreement signed also delivered no meaningful protection to intellectual property for US technology companies working with China which was largely viewed as the main catalyst provoking a geopolitical fight.
The trade war has sped up the bifurcation of internets, better known as “splinternet,” and I believe that sometime in the near future, you will need to download Chinese software and platforms to function inside of China.
Much of these misunderstandings stem from the lack of trust that has accumulated between the two parties.
The American tech sector and Wall Street have indirectly subsidized China’s technological rise to this point and now they must go head-to-head in every future technology such as artificial intelligence, 5G, fintech, augmented reality, and virtual reality.
This appears to be the new normal - a frosty and adversarial tech relationship.
There is now zero good will between each other.
The trust of tech on American shores could almost be ironically argued that it is worse than the trust level with China.
Edelman’s 20th annual trust barometer surveyed more than 34,000 adult respondents in 38 markets around the world.
It found that 61% of participants said the pace of change in technology is too fast and government does not fully understand emerging technologies enough to regulate them efficiently.
Trust in tech from 2019 to 2020 declined the most significantly in France, Canada, Italy, Russia, Singapore, the U.S. and Australia.
Much of the narrative has been about the domination of American tech by a handful of actors that has seen American companies go up against foreign governments.
France and America recently announced a temporary truce after the French President Emmanuel Macron reached out by phone to President Trump hoping to end the threat of tariffs while they work out a broader accord on digital taxation.
The French leader agreed to postpone until the end of 2020 a tax that France levied on big tech companies last year and in turn, the U.S. will delay the counter-tariffs that were in the works set to be levied on the French.
And it’s not just the French.
India has taken heed from the brooding trouble between the encroachment on sovereignty and American tech giants by adopting an aggressive stance towards Amazon.
Amazon CEO Jeff Bezos' lowlight of a recent India work trip came in the form of being snubbed by the Indian government.
India’s commerce minister Piyush Goyal said, “It’s not as if they (Amazon) are doing a great favor to India when they invest a billion dollars.”
He called Amazon a capital guzzler equating its mounting losses up to “predatory pricing or some unfair trade practices.”
India is on the verge of turning protectionist on foreign tech and this flies in the face of the tech atmosphere even just a few years ago.
Governments have come to realize that America’s FANGs are too dominant and entrenched often resulting in a net negative to the local populace.
More often than not, American tech found ways of rerouting local revenue to coffers of a few billionaires while paying zero local tax.
The easy money has been made and now the Tim Cooks and Sundar Pichais of the world will have to fight tooth and nail with not only the U.S. antitrust regulators, but foreign governments.
This is why a handful of tech companies this dominant has been the outsized winners over the past generation as their share prices have gone from the lower left to the upper right but now command minimal consumer trust.
The ultimate Davos message is that big tech continues to grind higher, but alarm bells have started to ring.
There’s only so much friction they can handle before investors pull the rug.
Mad Hedge Technology Letter
January 15, 2020
Fiat Lux
Featured Trade:
(THE TRADE ALERT DROUGHT EXPLAINED)
(GOOGL), (AMZN), (MSFT), (FB), (JPM)
