(BBY) Archives - Page 2 of 2 - Mad Hedge Fund Trader

Tag Archive for: (BBY)

The Big Technology Trends of 2019

As an astute purveyor of technology, it is my job to share with you the upcoming tech trends of 2019.

Some might be easily discernable and some might be a headscratcher, but all must be tabbed up and considered in the current tech outlook that is unpredictable and fluctuating, to say the least.

Part of the moody tech sentiment has been influenced by a changeable macro landscape - the tech sector’s winter freeze was woefully volatile and unfairly capsized good companies with the bad.

There is no means to get around it – the administration's delicate situation as it relates to Beijing and the American tech sector is front and center, and any movement of tech stocks must carefully absorb the ongoings from this complicated relationship.

The number of obstacles that confront this sensitive situation means that the 90-day window granted to solve the trade quagmires appear too brief of a timeframe to really knock out every single disagreement on the table.

The uncertainty over trade policy has really ruffled some of tech’s strongest feathers such as America’s pride and joy Apple (AAPL).

Apple is a great long-term story, but it does not preside over many short-term positive catalysts that can resuscitate the stock.

Analysts' downgrade after downgrade has been most harrowing for the chip components that make up Apple and other consumer electronic devices such as televisions and tablets.

This scenario is expected to extend into 2019 with Bank of America Merrill Lynch (BAC) slashing their price target by nearly 30% on electronics retailer Best Buy (BBY) then sticking the fork in them by downgrading it to underperform.

The premise behind this downgrade was that Best Buy carved out 25% of revenue from television sales and even though Adobe (ADBE) analytics has calculated record online sales in the holiday season, the follow-through has largely been without television sales participating in the seasonal bonanza.

Piggybacking on this trope, I believe electronic device sales could be hard-pressed to eke out growth next year and are set up for a rude awakening.

Therefore, it is sensible to extrapolate this idea out and assume that smart hardware competing against the big boys such as smart speaker firm Sonos (SONO), who I urged readers to stay away at $16 in September, is set up for a painstaking 2019.

To reread the story, please click here.

The stock is now trading at $11 and a mix of weakening consumer device demand layered with the domination that is the Amazon Alexa has pushed up this company’s risk-reward levels to untold heights.

Rounding out the negatives is that content streaming platform Roku has also debuted its own version of a smart speaker.

Roku (ROKU) is one of my favorite long-time tech plays but has been dragged down by the broader trade war because a portion of its revenue is still captured by hardware such as the new speakers and Roku OTT boxes.

Differing from Apple, Roku earns most of their revenue from targeted ads on their proprietary platform, and this is its reason why most investors are in this stock that is set to capture a secular migratory wave of cord-cutters traversing to online streaming.

However, Roku TVs made by Chinese company TCL still draw in small portion of revenue and even though the China revenue is not as high on a relative basis as Apple’s 20%, the stock has floundered in the short-term.

If disruptors such as Roku can get hit savagely with a small portion of revenues from China, then I am convinced that any tech investor going into 2019 should stay away from hardware and hardware that is made in China.

The consensus is that the drawn-out trade war could become the X-factor in the 2020 election because the Chinese are willing to wait for the next guy on the carousel searching for a better deal.

If you thought Chinese supply chains had a tough time of it in 2018, then 2019 is poised to be even more treacherous.

What 2018 convincingly demonstrated was that the late economic price action is getting into later and later stages boding negative for tech stocks.

To construct a healthy tech portfolio going into 2019, the change in the tech partiality has made the pivot towards software much more important.

Investors need to mitigate Chinese supply chain risk and seek out domestic software plays.

That should be the playbook as tech investors are on pins and needles going into the new year.

The domestic economy is robust and tech investors should be attracted to top-quality cloud-based enterprise stocks that are profitable.

The FANG story collapsing in our face signaled to investors that it is time to cautiously consider whether to invest heavily into deep loss-maker tech growth stories.

A healthy rotation to premium quality tech with superior cash flow is one way to lock up stocks and slyly deflect the external factors shaking up the tech momentum.

PayPal (PYPL) is a stock that has large international exposure mainly in Europe, but none in China whose 3-year EPS growth rate is 26% and still driving sequential sales in the mid-20% range.

This is just one example of a stock that has the correct make-up in a harsh and brutal tech environment planted with invisible booby traps.

And the most tell-tale sign that the American economy is in for an all-out software frenzy is the number of head-spinning investments from big tech companies looking to expand their footprint into new talent spots around the country.

First, the farcical Amazon beauty pageant came to an end with the e-commerce giant announcing a three-part package deploying new operations in New York, Washington D.C., and Nashville as the next phase of digital growth ramps up.

Google (GOOGL) followed that up by plopping a software office in New York City devouring a huge chunk of the Chelsea neighborhood aimed at doubling the 7,000 employees already there.

Then it was Apple’s turn choreographing a significant investment in Austin, Texas that will cost them $1 billion along with juicing up operations in Seattle, San Diego, and Los Angeles.

They weren’t finished there and promised to double down its presence in Pittsburgh, New York and Boulder, Colorado over the next three years.

It’s clear that big tech has finally understood that it’s not invincible and milking the China supply chain for all its worth is now a taboo business practice that has bipartisan support firmly against it.

Like I said before, the trade war came 1-2 years too early for Apple, and these headline-grabbing talent investments in data centers and its staff underscore the sense of urgency to fully and comprehensively pivot towards a software and services company.

The transition has certainly been an excruciating process exposing the weak spots at a brilliant company at the worst possible time.

I blame CEO of Apple Tim Cook who is the operations expert in the building grappling with Apple overextending themselves in the Middle Kingdom that has come back to haunt him at night.

You would have thought that with the troves of big data on their hands, Apple’s consultants might have found a country allied with America to invest in such a massive supply chain.

This leads me to communicate with conviction that Microsoft (MSFT) is my favorite tech stock going into 2019 because it is the purest, scalable, high-quality software name with minimal hardware drag devoid of weak spots in its armor.

That was what the investment in GitHub for $7.5 billion was about, highlighting the value of owning the meeting place for coders, literally buying up a stash of over 28 million users and 57 million coding repositories in which 28 million are public.

Microsoft has also bought up six video game studios in 2018 attempting to capture a bigger piece of the pie for the video game market that has been throttled by Fortnite.

If the Microsoft baby gets thrown out with the bathwater, then the tech bear market is upon us in full force.

If you didn’t really believe content is king in 2018, then you will really feel the phenomenon further embedded into the economy and society in 2019.

Next year, almost all tech investments will result in more data centers and software engineers in the hope of pumping out the best content and data, whether it’s enterprise software, video games, or pure data storage.

In 2019, I am bullish on companies with a cloud-based bedrock able to grind out the best content in the world, backed by a strong balance sheet that dovetails nicely with a lack of China-based revenue exposure.

The uber-growth models could be taking a rest boding negatively for Uber, Lyft, and Airbnb who must convince a more skeptical tech audience with tighter purse strings as they inject yet another unique dimension into the tech world next year.

Summary - Tech LetterNovember 21, 2018

Tech Letter

Mad Hedge Technology Letter
November 21, 2018
Fiat Lux

Featured Trade:

(FIVE TECH STOCKS TO SELL SHORT ON THE NEXT RALLY)
(WDC), (SNAP), (STX), (APRN), (AMZN), (KR), (WMT), (MSFT), (ATVI), (GME), (TTWO), (EA), (INTC), (AMD), (FB), (BBY), (COST), (MU)

Five Tech Stocks to Sell Short on the Next Rally

Tech Letter

Next year is poised to be a trading year that will bring tech investors an added dimension with the inclusion of Uber and Lyft to the public markets.

It seemed that everything that could have happened in 2018 happened.

Now, it’s time to bring you five companies that I believe could face a weak 2019.

Every rally should be met with a fresh wave of selling and one of these companies even has a good chance of not being around in 2020.

Western Digital (WDC)

I have been bearish on this company from the beginning of the Mad Hedge Technology Letter and this legacy firm is littered with numerous problems.

Western Digital’s structural story is broken at best.

They are in the business of selling hard disk drive products.

These products store data and have been around for a long time. Sure the technology has gotten better, but that does not mean the technology is more useful now.

The underlying issue with their business model is that companies are moving data and operations into cloud-based products like the Microsoft (MSFT) Azure and Amazon Web Services.

Why need a bulky hard drive to store stuff on when a cloud seamlessly connects with all devices and offers access to add-on tools that can boost efficiency and performance?

It’s a no-brainer for most companies and the efficiency effects are ratcheted up for large companies that can cohesively marry up all branches of the company onto one cloud system.

Even worse, (WDC) also manufactures the NAND chips that are placed in the hard drives.

NAND prices have faltered dropping 15% of late. NAND is like the ugly stepsister of DRAM whose large margins and higher demand insulate DRAM players who are dominated by Micron (MU), Samsung, and SK Hynix.

EPS is decelerating at a faster speed and quarterly sales revenue has plateaued.

Add this all up and you can understand why shares have halved this year and this was mainly a positive year for tech shares.

If there is a downtown next year in the broader market, watch out below as this company is first on the chopping block as well as its competitor Seagate Technology (STX).

Snapchat (SNAP)

This company must be the tech king of terrible business models out there.

Snapchat is part of an industry the whole western world is attempting to burn down.

Social media has gone for cute and lovable to destroy at all cost. The murky data-collecting antics social media companies deploy have regulators eyeing these companies daily.

More successful and profitable firm Facebook (FB) completely misunderstood the seriousness of regulation by pigeonholing it as a public relation slip-up instead of a full-blown crisis threatening American democracy.

Snapchat is presiding over falling daily active user growth at such an early stage that usership doesn’t even pass 100 million DAUs.

Management also alienated the core user base of adolescent-aged users by botching the redesign that resulted in users bailing out of Snapchat.

Snapchat has been losing high-level executives in spades and fired a good chunk of their software development team tagging them as the scapegoat that messed up the redesign.

Even more imminent, Snapchat is burning cash and could face a cash crunch in the middle of next year.

They just announced a new spectacle product placing two frontal cameras on the glass frame. Smells like desperation and that is because this company needs a miracle to turn things around.

If they hit the lottery, Snap could have an uptick in its prospects.

GameStop (GME)

This part of technology is hot, benefiting from a generational shift to playing video games.

Video games are now seen as a full-blown cash cow industry attracting gaming leagues where professional players taking in annual salaries of over $1 million.

Gaming is not going away but the method of which gaming is consumed is changing.

Gamers no longer venture out to the typical suburban mall to visit the local video games store.

The mushrooming of broad-band accessibility has migrated all games to direct downloads from the game manufacturers or gaming consoles’ official site.

The middleman has effectively been cut out.

That middleman is GameStop who will need to reinvent itself from a video game broker to something that can accrue real value in the video game world.

The long-term story is still intact for gaming manufactures of Activision (ATVI), EA Sports (EA), and Take-Two Interactive (TTWO).

The trio produces the highest quality American video games and has a broad portfolio of games that your kids know about.

GameStop’s annual revenue has been stagnant for the past four years.

It seems GameStop can’t find a way to boost its $9 billion of annual revenue and have been stuck on this number since 2015.

If you do wish to compare GameStop to a competitor, then they are up against Best Buy (BBY) which is a better and more efficiently run company.

Then if you have a yearning to buy video games from Best Buy, then you should ask yourself, why not just buy it from Amazon with 2-day free shipping as a prime member.

The silver lining of this business is that they have a nice niche collectibles division that hopes to deliver over $1 billion in annual sales next year growing at a 25% YOY clip.

But investors need to remember that this is mainly a trade-in used video game company.

Ultimately, the future looks bleak for GameStop in an era where the middleman has a direct path to the graveyard, and they have failed to digitize in an industry where digitization is at the forefront.

Blue Apron

This might be the company that is in most trouble on the list.

Active customers have fallen off a cliff declining by 25% so far in 2018.

Its third quarter earnings were nothing short of dreadful with revenue cratering 28% YOY to $150.6 million, missing estimates by $7 million.

The core business is disappearing like a Houdini act.

Revenue has been decelerating and the shrinking customer base is making the scope of the problem worse for management.

At first, Blue Apron basked in the glory of a first mover advantage and business was operating briskly.

But the lack of barriers to entry really hit the company between the eyes when Amazon (AMZN), Walmart (WMT), and Kroger (KR) rolled out their own version of the innovative meal kit.

Blue Apron recently announced it would lay off 4% of its workforce and its collaboration with big-box retailer Costco (COST) has been shelved indefinitely before the holiday season.

CFO of Blue Apron Tim Bensley forecasts that customers will continue to drop like flies in 2019.

The company has chosen to focus on higher-spending customers, meaning their total addressable market has been slashed and 2019 is shaping up to be a huge loss-making year for the company.

The change, in fact, has flustered investors and is a great explanation of why this stock is trading at $1.

The silver lining is that this stock can hardly trade any lower, but they have a mountain to climb along with strategic imperatives that must be immediately addressed as they descend into an existential crisis.

Intel (INTC)

This company is the best of the five so I am saving it for last.

Intel has fallen behind unable to keep up with upstart Advanced Micro Devices (AMD) led by stellar CEO Dr. Lisa Su.

Advanced Micro Devices is planning to launch a 7-nanometer CPU in the summer while Intel plans to roll out its next-generation 10-nanometer CPUs in early 2020.

The gulf is widening between the two with Advanced Micro Devices with the better technology.

As the new year inches closer, Intel will have a tough time beating last year's comps, and investors will need to reset expectations.

This year has really been a story of missteps for the chip titan.

Intel dealt with the specter security vulnerability that gave hackers access to private data but later fixed it.

Executive management problems haven’t helped at all.

Former CEO of Intel Brian Krzanich was fired soon after having an inappropriate relationship with an employee.

The company has been mired in R&D delays and engineering problems.

Dragging its feet could cause nightmares for its chip development for the long haul as they have lost significant market share to Advanced Micro Devices.

Then there is the general overhang of the trade war and Intel is one of the biggest earners on mainland China.

The tariff risk could hit the stock hard if the two sides get nasty with each other.

Then consider the chip sector is headed for a cyclical downturn which could dent the demand for Intel chip products.

The risks to this stock are endless and even though Intel registered a good earnings report last out, 2019 is set up with landmines galore.

If this stock treads water in 2019, I would call that a victory.

September 18, 2018

Tech Letter

Mad Hedge Technology Letter
September 18, 2018
Fiat Lux

Featured Trade:
(THE DANGERS OF PLAYING TECH SMALL FRY),
(FIT), (AAPL), (CRM), (FTNT), (SQ), (SNAP), (BBY)

The Dangers of Playing Tech Small Fry

Tech Letter

The No. 1 complaint the Mad Hedge Fund Technology Letter receives is that I focus too much on the tech behemoths, and do not allocate much time for the needle-in-the-haystack inspirations aiming to disrupt the status quo.

Let’s get this straight – both are important.

And when a gem of a company riding the coattails of monstrous secular tailwinds comes to the fore, I do not hesitate to usher readers into the stock at a market sweet spot.

Fortunately, many of the lesser-known companies I have recommended have hit their stride such as Salesforce (CRM), Fortinet (FTNT), and Square (SQ), while I alerted readers to avoid Snap (SNAP) like the plague.

There are a lot of moving parts to say the least.

The most recent annual Apple (AAPL) product release event was emblematic of why I cannot go to the well and recommend the minnows of the tech world on a constant basis.

In 2017, Apple registered more than $229 billion in gross revenue. And under this umbrella of assets is a finely tuned operational empire that stretches like the Mongol empire of yore from best-in-class hardware to innovative software services.

Last year brought Apple a king’s ransom of profits to the tune of more than $48 billion.

Many of these upstart firms are fighting tooth and nail to surpass the $100 million gross sales mark, which is peanuts for the intimidating large tech companies.

In the process of expanding their dominion far and wide, the net they cast extends further by the day.

I hammer home the fact that these cash-rich stalwarts have an insatiable drive to initiate new businesses as a way to position themselves at the heart of each groundbreaking trend and capture fresh markets.

Some decisions are rued and some – brilliant.

At the very least, they can afford a few hits.

Algorithms, which suck up voluminous amounts of data, carry out the best decisions that software can buy.

Managers wield these finely tuned algorithms to make precise bets.

These myriads of algorithms are tweaked every day as the level of tech ingenuity snowballs incrementally with each passing day.

Enter Fitbit (FIT).

This company was first known as Healthy Metrics Research, Inc., a decisively less sexy name than its current name Fitbit.

Healthy Metrics Research, Inc. unglamorously began as did most tech companies - with little fanfare.

Its cofounders James Park and Eric Friedman identified the opportunity to jump into the sensor industry, as they saw a monstrous addressable market for future sensors in wearable smart devices.

They soon caught a bid and $400,000 flew into its coffers. They promptly marketed designs to potential investors with nothing more than a circuit board in a wooden box.

Oh, how the wearable smart device market has advanced since those early days…

All in all, the idea was good enough for some initial seed money.

At the first tech conference marketing their new sensors, they were hoping to eclipse 50 orders.

Fortuitously, the upstart firm received more than 2,000 pre-orders, and a reset upward in expectations.

With momentum at their backs, the cofounders now had the sticky situation of physically delivering the end-product to the end-user.

This involved scouring Asia for reasonable suppliers for three-odd months with “7 near death experiences” mixed in the middle of it.

Highlighting the unglamorous nature of incubation stage firms were the cofounders once quick fix sticking a “piece of foam on a circuit board to correct an antenna problem."

Somehow and some way they debuted their product at the tail end of 2009, delivering 5,000 orders with a backlog of additional orders to boot, offering the company some stress relief.

Fitbit had the best product in an industry that barely existed, and everything was rosy at their headquarters in San Francisco.

Best Buy (BBY) even adopted its products, and Fitbit watches were flying off the shelves like hotcakes.

Margins were gloriously high. The lack of threats around the corner made the company the gold standard for smartwatches.

In short, the company was having its cake and eating it, too.

In 2011, Fitbit was furiously adding to the best smartwatch on the market installing an altimeter, a digital clock and a stopwatch to its premium product.

Then came embedded Bluetooth technology: able to track steps, distance, floors climbed, calories burned, and sleep patterns.

After being embroiled in several law quagmires over big data, momentum was still at their back, and Fitbit still managed to go public.

The IPO was a roaring success and then some.

The share price rocketed to almost $50, and the firm sat pretty in the middle of 2015.

Then the company’s shares fell to pieces in one fell swoop.

Fitbit’s stock cratered more than 50% in 2016. To inject new life into the company, CEO James Park trumpeted Fitbit’s imminent face-lift that would transform the young company from a "consumer electronics company" to a "digital healthcare company."

Bad news for Fitbit. Apple planned to do the same exact thing but do it better than Fitbit.

The readjustment to Fitbit’s grand plan was to combat the original Apple smartwatch that debuted on April 24, 2015 – three years ago.

The Apple smartwatch rapidly became the dominant smartwatch in the wearable industry, selling more than 4.2 million units in just one quarter alone.

Fitbit is now trading just a smidgen over $5 today, and the devastation is far from over.

Fitbit’s shares are down almost 1,000% from its 2015 peak, stressing the dangers that minnow tech companies face getting outgunned by companies that have superior talent, unlimited resources, and top-grade management.

Not only that, Apple can integrate any wearable device linking it with the rest of its ecosystem in a heartbeat.

Even better, it does not need to develop an operating system from scratch because it can use what it already has in place - iOS.

Even if it were to run into development troubles, it would be able to throw around a wad of capital to find someone to solve idiosyncratic issues that pop up.

Yes, Tim Cook has not been the second incarnation of Steve Jobs, but he has demonstrated a natural ability to become a trustworthy steward, advancing the interests of the company, its shareholders, and most importantly its lineup of ultra-premium products.

Fitbit was enjoying its beach promenade stroll and walked into a doozy of a tsunami with little warning.

Spearheading a revival is even more daunting.

For David to outdo Goliath takes an emphatic sum of capital and a master plan to go with it.

Fitbit has neither.

The most recent Apple product launch event introduced a gem of a smartwatch, and Fitbit’s shares once again are on life support.

With each passing Apple smartwatch iteration, Fitbit experiences a new dramatic leg down in the share price.

It is almost curtains for this company.

It will be unceremoniously laid to rest in what is now quite an expansive tech graveyard of futility.

The best-case scenario is possibly salvaging itself by drastic reinvention.

It is easier said than done.

Add this company to your list of small companies obliterated by the phenomenon known as FANG, and this story gives credence to investors trying to be cute with their tech investments.

On paper it looks great until the company becomes steamrolled.

And the paper Fitbit was written on doesn’t even look all that hot with Fitbit poised to lose money until 2021.

It sounds cliché, but the network effect cannot be underestimated.

Without this powerful effect, tech investors are exposed to a demonstrably higher level of risk.

The risk of extinction.

Stay away from Fitbit shares and any dead cat bounces that shortly arise.

The Apple watch series 5 could be the dagger that finishes the walking wounded.

As an endnote, the next potential Fitbit creeping closer to the eye of the FANG storm could be the smart speaker company Sonos (SONO).

Sometimes the calm before the storm can be awfully quiet.

Not Good Enough In 2018

________________________________________________________________________________________________

Quote of the Day

“The best way to predict the future is to create it,” said influential philosopher Peter Drucker.

April 19, 2018

Tech Letter

Mad Hedge Technology Letter
April 19, 2018
Fiat Lux

Featured Trade:
(HOW ROKU IS WINNING THE STREAMING WARS),
(ROKU), (FB), (AMZN), (NFLX), (GOOGL), (BBY), (DIS)

How Roku is Winning the Streaming Wars

Tech Letter

The whole digital ad industry dodged a bullet.

Facebook (FB) CEO Mark Zuckerberg's wizardry on Capitol Hill will stave off the data regulation hyenas for the time being.

One company in particular is perfectly placed to reap the benefits.

The Facebook of online streaming - Roku (ROKU).

Roku is a cluster of in-house, manufactured, online streaming devices offering OTT (over-the-top) content in the form of channels on its proprietary platform.

The company has two foundational drivers propelling business - selling hardware devices and selling digital ads.

It pays dividends to be entrenched at the intersection of two monumental generational trends of cord cutters' mass migration to online streaming, and the disruption of the digital ad revolution that is shaking up traditional media giants.

The percentage of American homes paying for an online streaming service ripped higher to 55% of households, which is up from 49% the previous year.

This $2.1 billion per month spend on streaming service is specifically as a result of access to premium content at an affordable price relative to traditional cable bundles.

Roku is a microcosm of the healthy climate for quality technology stocks in 2018.

It is among countless other firms that leverage large-scale data or cloud tools to capture profits.

Roku is best of breed of smart TV platforms and is in the early stages of robust growth.

This year will be the first year Roku's ad revenue surpasses hardware sales, indicating strong platform growth.

Roku pinpointed building account user growth, top-line gross revenue, and enhancing the platform capabilities as ways to move the business forward.

This year will also be the first year Roku posts an overall profit.

Active accounts grew 44% YOY to 19.3 million.

Roku offers consumers a cheap point of entry selling its Roku express box for only $29.99.

Its device is even free with a two-month purchase of Sling TV, which is the best online substitute to a legacy cable package. It has two sets of unique bundles available, charging $20 per month and $40 per month.

Once the Roku home screen populates, users can choose content through a la carte streaming options.

There is no monthly fee to operate Roku, and the device is used primarily by millennials.

More than 60% of 18- to 29-year-olds watch TV from online streaming, according to a Pew survey.

The quality and easy-to-use interface aids user navigation across the ecosystem.

It's the most convenient avenue to subscribe to multiple online streaming services all on one platform. It entices finicky users with extra mobility - those who love to jump around to different services based on particular upcoming content loaded up in the pipeline.

Many of these services offer no contract, cancel-anytime models that millennials love rather than the "old-school" rigid rules of cable providers that mostly charge a cancellation penalty of $300.

It is shocking how far traditional media fell behind the curve, but they are in rapid catch-up mode now.

Remember that content is king, and the overall boost in content quality has really shaken Hollywood executives to their core.

The golden age of streaming continues unabated with a Netflix 2018 annual content budget of $8 billion.

Roku does not create original content and it desires no skin in the game.

Content is expensive, and Roku would rather become the best place to host it.

Netflix's 2017 total revenue was a staggering $11.69 billion in 2017, and content costs will easily surpass 50% of total revenue in 2018. Overnight, it has become one of the biggest players in Hollywood, as its presence at the Emmy Awards amply demonstrates.

Exorbitant content costs are the new normal in 2018, and Spotify has reason to moan about the cost of content being 79% of total revenue.

Heightened content costs are the main reason why firms relying on content creation lose money each year.

However, as the overall pie grows, there is room for the tide to lift all boats. Being the premier platform to host premium content is why Roku's business model is eerily similar to Facebook's hyper-targeting ad model.

They make money the same way.

The incessant demand for online streaming functionality and smart TV operating systems show no signs of waning with Amazon (AMZN) announcing a new partnership with frenemy Best Buy (BBY) to produce smart TVs with Best Buy's in-house TV brand Insignia.

This is the first time Best Buy has been afforded a direct route to Amazon customers.

Disney (DIS) is turning around its legacy company into an online streaming behemoth announcing its first foray into online streaming with ESPN+.

Disney has tripled down on online streaming, acquiring New York-based BAMTech in late 2017, a company focused on developing streaming technology and made famous by its production of pro baseball's MLB TV.

BAMTech exudes pure quality. Anyone who has used MLB TV streaming service understands the great end-product it offers consumers.

The outstanding success with MLB TV attracted new online streaming converts to BAMTech to execute the transition to online streaming, including the WWE, Fox Sports, PlayStation Vue, and Hulu.

HBO went to BAMTech in 2014, after botching its attempt at creating a reliable stand-alone streaming service.

Disney's BAMTech-produced online streaming service will come to market in 2019, and will certainly be available on Roku TV.

Expect new blockbuster hits to debut on this new streaming service, such as new versions of Star Wars.

It is the perfect stock to mutate into an online streaming service because it possesses amazing content especially through ESPN.

The announcement of ESPN+ levitated Roku shares by 10% because investors understand this is the first baby step to shifting more of its content online.

This was on top of the announcement that Stephen A. Cohen's Point72 Asset Management had acquired a 5.1% stake in Roku for about $14 billion.

Furthermore, every major streaming service that enters Roku's system is worth an extra 5% to 10% bump in share price because of the wave of eyeballs and digital ads that grow Roku's coffers.

It is certain that 2018 and 2019 will sway more cord cutters to adopt Roku TV as this cohort approaches 70 million in 2018 on its way to 80 million in 2019.

The critical growth lever is its digital ad business as it hopes to take home a slice of this $70 billion per year business that is 75% controlled by Alphabet (GOOGL) and Facebook.

Roku has made great strides with half of Ad Age's top 200 advertisers already on the Roku interface.

Roku is taking the playbook right out from under Facebook's nose, piling funds into further enhancing its ad-tech division.

The blood, sweat, and tears shed is showing up in the financials with ARPU (Average Revenue per User) rocketing by 48% YOY, and more than 65% of this gap up is attributed to digital ad revenue.

Total revenue was up 29% YOY to $513 million, and platform revenue grew 129% in Q4 2017 to $85.4 million.

It is estimated that ad revenue will surpass $300 million in 2018, up from around $200 million in 2017.

Roku expects total revenue to grow 32% in 2018, approaching $700 million.

Profit margins are thriving under the platform segment, pumping out a stellar 74.6% in gross margin.

Roku does not make money on the hardware. Its push into ad distribution will ramp up as its digital ad revenue beelines toward an expected $700 million windfall by 2020.

Roku has a fantastic growth trajectory relative to other tech companies. Heightened volatility will make sell-offs hard to swallow but give fabulous entry points into a budding business.

The fertile path of international user adoption has barely scratched the surface. However, Netflix's successful foray abroad will inject confidence that Roku will have no problem expanding to greener pastures overseas as domestic account growth is always first to mature.

__________________________________________________________________________________________________

Quote of the Day

"AI is one of the most important things humanity is working on. It is more profound than electricity or fire." - said Google CEO Sundar Pichai

The Death of Retail

Diary, Newsletter

I stopped at a Wal-Mart (WMT) the other day on my way to Napa Valley.

I am not normally a customer of this establishment. But I was on my way to a meeting where a dozen red long stem roses would prove useful. I happened to know you could get these for $10 at Wal-Mart.

After I found my flowers, I browsed around the store to see what else they had for sale. The first thing I noticed was that half the employees were missing their front teeth.

The clothing offered was out of style and made of cheap material. It might as well have been the Chinese embassy. Most concerning, there was almost no one there.

So I was not surprised when the company announced that it was closing 267 stores worldwide. The closures amount to only 1% of Wal-Mart?s total floor space. Some 10,000 American jobs will be lost.

The Wal-Mart downsizing is only the latest evidence of a major change in the global economy that has been evolving over the last two decades.

However, it now appears we have reached a tipping point, and a point of no return. The future is happening faster than anyone thought possible. Call it the Death of Retail.

I remember the first purchases I made at Amazon 20 years ago. The idea was so dubious that I made my initial purchases with a credit card with a low $1,000 limit. That way, if the wheels fell off, my losses would be limited.

This is despite the fact that I knew Jeff Bezos personally as a former Morgan Stanley colleague. And how stupid was that name, Amazon? At least he didn?t call it ?Yahoo?.

Today, I do almost all of my shopping at Amazon (AMZN). It saves me immense amounts of time while expanding my choices exponentially. And I don?t have to fight traffic, engage in the parking space wars, or wait in line to pay.

It can accommodate all of my requests, no matter how bizarre or esoteric. A WWII reproduction Army Air Corps canvas flight jacket in size XXL? No problem!

A used 42-inch Sub Zero refrigerator with a front door icemaker and water dispenser? Have it there in two days, with free shipping.

In 2000, after the great ?Y2K? disaster that failed to show, I met with Bill Gates Sr. to discuss the foundation?s investments. It turned out that they had liquidated their entire equity portfolio and placed all their money into bonds. It turned out to be a brilliant move, coming mere months before the Dotcom bust.

Mr. Gates (another Eagle Scout) mentioned something fascinating to me. He said that unlike most other foundations their size, they hadn?t invested a dollar in commercial real estate.

It was his view that the US economy would move entirely online, everyone would work from home, emptying out city centers and rendering commuting unnecessary. Shopping malls would become low rent climbing walls and paint ball game centers.

Mr. Gates? prediction may finally be occurring. Some counties in the San Francisco Bay area now see 25% of their workers telecommuting.

It is becoming common for staff to work Tuesday-Thursday at the office, and from home on Monday and Friday. Productivity increases. People are bending their jobs to fit their lifestyles. And oh yes, happy people work for less money in exchange for personal freedom, boosting profits.

The Mad Hedge Fund Trader itself may be a model for the future. We are entirely a virtual company, with no office. Everyone works at home across the country and around the world.

You may have noticed that I can work from anywhere and anytime (although sending a Trade Alert from the back of a camel in the Sahara Desert was a stretch).

The cost of global distribution is essentially zero. Profits go into a bonus pool shared by all. Oh, and we?re hiring, especially in marketing.

You can see this in the business prospects of traditional brick and mortar retailers last year, which were dire.

As a result, Macy?s (M) stock plunged by a shocking -53%, Nordstrom (JWN) by -43%, and Best Buy (BBY) by -39%. Value players have mistaken the present low prices and subterranean price earnings multiples for a ?Black Friday? sale.

It has been like leading lambs to the slaughter.

Yes, some of this was caused by record warm temperatures on the US East coast, which led many to cancel their purchases of a new winter coat. But it is also happening because the entire ?bricks and mortar? industry is getting left behind by the march of history.

Sure, they have been pouring millions into online commerce and jazzed up websites. But they all seem to be poor imitations of amazon, with higher prices. It is all ?Hour late and dollar short? stuff.

In the meantime, Amazon soared by 150%, and was one of the top performing stocks of 2015. It is thought that Amazon accounted for a staggering 25% of all the new growth in US retail sales last year.

And here is the bad news. Bricks and Mortar retailers are about to lose more of their lunch to Chinese Internet giant Alibaba (BABA), which is ramping up its US operations and is FOUR TIMES THE SIZE OF AMAZON!

There?s a good reason why you haven?t heard much from me about retailers. I made the decision 30 years ago never to touch the troubled sector.

I did this when I realized that management never knew beforehand which of their products would succeed, and which would bomb, and therefore were constantly clueless about future earnings.

The business for them was an endless roll of the dice. That is a proposition which I was unwilling to invest in. There were always better trades.

I confess that I had to look up the ticker symbols for this story, as I never use them.

However, I also missed the miracle at Amazon. I could never grasp their long tail strategy and their 100 X multiples. I have had to admire it from the sidelines. At least I wasn?t short.

You will no doubt be enticed to buy retail stocks as the deal of the century by the talking heads on TV, Internet research, and maybe even your own brokers.

It will be much like buying the coal industry (KOL) a few years ago, another industry headed for the dustbin of history. That was when ?cheap? was on its way to zero.

So the next time someone recommends that you buy retail stocks, you should probably lie down and take a long nap first. When you awaken, hopefully the temptation will be gone.

Or better yet, go shopping at Amazon. The deals are to die for.

To read ?An Evening with Bill Gates Sr.?, please click here.