Mad Hedge Technology Letter
March 13, 2019
Fiat Lux
Featured Trade:
(NVIDIA STEPS UP ITS GAME),
(NVDA), (INTC), (MSFT), (ANET), (CSCO), (MCHP), (XLNX)
Mad Hedge Technology Letter
March 13, 2019
Fiat Lux
Featured Trade:
(NVIDIA STEPS UP ITS GAME),
(NVDA), (INTC), (MSFT), (ANET), (CSCO), (MCHP), (XLNX)
Nvidia (NVDA) was right to pull the trigger – that was my first reaction when I first learned that they had aggressively acquired Israeli chip company Mellanox for $6.9 billion.
The fight to seize these assets were fierce triggering a bidding war -American heavyweights Intel and Microsoft were also in the mix but lost out.
CEO of Nvidia Jensen Huang touted the importance of the deal by explaining that “the emergence of AI and data science as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world's data centers."
Therefore, satisfying this demand will require holistic architectures that connect massive numbers of fast computing nodes over intelligent networking fabrics to form a giant datacenter-scale compute engine.
Mellanox and its capabilities cover all the bases for Nvidia and will nicely slot into its portfolio offering, an added bonus of cross-selling and upselling opportunities to existing clients.
The strategic motives behind the deal are plentiful with increased importance of connectivity and bandwidth enhancing Nvidia's ability to provide datacenter-scale computing across the full stack for next-generation high-performance computing and AI workloads.
The agreement is the result of the company's shift toward next-gen technology as adoption of cloud, AI, and robotics ramps up and Nvidia will be at the forefront of this massive migration.
As the fourth industrial revolution advances, Nvidia is best of breed of semiconductor companies and the imminent adoption of 5G will aid the likes of Microchip Technology (MCHP) and Xilinx (XLNX).
Technology is rapidly changing, and the data center is the segment that is accelerating at a faster clip than in previous years translating into de-emphasizing current revenues of gaming and autonomous on a relative growth basis.
These segments will be secondary to the addressable opportunity in data center and signing up Mellanox is a key strategic initiative to exploit this growth opportunity.
Missing the boat on this compelling opportunity could have dragged Nvidia into an existential crisis down the road as the missed opportunity costs of lucrative data center revenues would begin to bite, and with no quick fix on the horizon, Nvidia’s growth drivers would be potentially disarmed.
Investors need to remember that Nvidia derives half of its revenue from China and up until this point, gaming had been a huge tailwind to its total revenue, however, the Chinese communist party has identified gaming addiction in young adults as a national crisis and have been refusing to deliver new gaming licenses to gaming creators.
As the data center via the cloud begins its next ramp-up of insatiable demand, Nvidia was acutely aware they could not miss the boat and to grab a foot hole against larger player Intel.
Almost overpaying to have more skin in the game does not do justice to what the ramifications would have been if Intel or even Microsoft were able to hijack this deal.
The two-fold victory will in turn boost sales of Nvidia's data center products long term while depriving Intel of extending the lead in data center.
And after the lack of recent underperformance in the prior quarter, Nvidia needed a gamechanger to cauterize the blood flow.
Nvidia's total revenue plunged more than 24% YOY in Q4 of 2018, and shareholders have been looking for remedies, especially after the once mythical cryptocurrency business blew up and the company was stuck with a glut of inventory.
The purchase of Mellanox will help Nvidia start competing with other dominant players like Cisco Systems (CSCO) and Arista Networks (ANET).
Mellanox is one of a handful of firms selling hardware that connects devices in the data center through network cards, switches, and cables.
The deal still needs regulatory approval and could be a stumbling block if Chinese authorities drag this into the orbit of the trade war and make it a bullet point in negotiations.
The net result is positive to the overall business model, and this move will breathe oxygen into Nvidia’s long-term narrative with a flow of revenue set to come online once the 5,000 Mellanox employees are integrated into Nvidia’s levers of operation.
Shares should be the recipient of short-term strength and after getting smushed by a poor last quarter, there is substantial room to the upside.
A dip back to $150 would serve as a good entry point to strap on a short-term bullish trade in Nvidia shares.
Mad Hedge Technology Letter
February 25, 2019
Fiat Lux
Featured Trade:
(THE CLEANEST INTERNET PLAY OUT THERE),
(GDDY), (WIX), (CSCO),
Check out GoDaddy (GDDY).
It’s a general bet on more people using the internet.
This trade dovetails nicely with my broader thesis of the dramatic migration to digital.
Brick and mortar stores will have no choice but to create a unique website and one of the most prominent web hosting services is GoDaddy.
The Mad Hedge Technology Letter is even powered by its services.
Lately, I’ve been all about this digital migration mantra and we are in the early innings of this seminal trend.
I gave you Cisco (CSCO) as a hot pick which is a bet on an increase in enterprise software business.
This is more of a question of how fast than if or when.
Are you ready for 5G?
The technology is on the verge of rolling-out to select cities around the US, and it will juice of web usage simply because users can navigate around more in a smaller time window.
GoDaddy was established by fellow Marine Bob Parsons in Baltimore 22 years ago and before GoDaddy, Parsons sold off his financial software services company, Parsons Technology to Intuit for $65 million.
He then launched Jomax Technologies which later morphed into GoDaddy in 1999 when employees were collaborating to change the company name and someone jokingly shouted out, "How about Big Daddy?"
Sadly, when the company found out that domain name had already been registered, Parsons replied, "How about Go Daddy?" and that was that.
What do I like about GoDaddy’s financials?
Better than expected profitability.
EPS forecasts were beaten handily with the company posting 24 cents, almost a double of the forecasted 13 cents.
Estimates of $693.5 million for the top line were marginally beaten by $2.3 million.
The company gave positive all-important guidance indicating robust momentum.
The firm is expecting $3 billion in 2019 sales and that is after doing $2.23 billion of sales in 2017.
Management has kept sales growth strong with a 3-year sales growth rate of 19%.
Customer renewal strength and higher average revenue per user (ARPU) growth is resonating with investors, and fused with higher operating margin could propel this firm’s shares higher.
ARPU mushroomed to $148.00 up 7% YOY while total customers rose 7% bringing the total customer base to over 18.5 million.
In 2018, over 1 million new customers were lured into the ecosystem.
The reason for this successful rise in domestic ARPU is enhanced site and product experiences, interactions focused on details and conversational marketing.
In a tech climate where a good portion of company outlooks are tepid at best, GoDaddy didn’t mince its words offering a better than expected positive outlook.
The financials look solid but allow me to explain a little more about its core products.
Almost 35% of websites on the internet is already constructed using WordPress’s platform and GoDaddy is the biggest host of paid WordPress at the end of last year.
GoDaddy’s supported WordPress offering automates the entire process of operating a secure WordPress website making it easy to use and highly popular to its customer base.
The role GoCentral's, GoDaddy’s flagship DIY website building product, plays is expanding as its numerous features increase and efficient performance is a consistent highlight for the firm.
The journey started in 2017 when GoDaddy established this service as a simple website building tool.
Concrete foundations were set and this service was integrated across a myriad of relevant third-party platforms while boosting product functions that are seeing outsized growth.
Daily entrepreneurs can now produce robust websites and carry out syndicate marketing across the e-commerce landscape.
The tandem of WordPress and GoCentral are growing subscriptions more than 40% YOY.
North America and Canada are the main revenue drivers, but international business is a wide-open opportunity waiting for management to pick off whether that's Latin America, Asia, or even in the Middle East.
The strategy for Europe is extracting the capability and product portfolio of North America, whether it be conversational marketing or features like security, backup, malware scans, plug-ins, and proactively migrate it to Europe because the model in America is obviously working and using that model will be a great development point.
Mexico and Brazil possess great growth potential and Asia continues to be about customer adds because the willingness to pay is different.
Competitor Wix (WIX) lately announced a shift in strategy, removing Domain Connect, and some of the low-end products and saying that they're going to come after WordPress.
But Chief Executive Officer of GoDaddy Scott Wagner is not worried about this nascent threat and is sure that this is the case of GoDaddy is in control of its own destiny than Wix being a viable threat.
As long as the company reinvests in its offerings and maximizes the user experience, Wix has a long way to go to compete with WordPress and are substantially smaller than GoDaddy.
And as GoDaddy keeps working on offering great value propositions and expanding the ecosphere with integrated and high-quality software, the stock is bound to jump further.
The momentum is palpable with this website hosting service a top player in its industry.
Wait for a pullback to buy some shares.
Global Market Comments
December 31, 2018
Fiat Lux
Featured Trade:
(WILL SYNBIO SAVE OR DESTROY THE WORLD?),
(XLV), (XPH), (XBI), (IMB), (GOOG), (AAPL), (CSCO), (BIIB)
Global Market Comments
May 4, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MAY 9 GLOBAL STRATEGY WEBINAR),
(A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (TLT), (TBT), (FXE),(GLD), (GDX), (USO),
(AMLP), (STBX), (NFLX), (DIS), (AAPL), (GM)
Global Market Comments
May 3, 2018
Fiat Lux
Featured Trade:
(STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
(DON'T BE SHORT CHINA HERE),
($SSEC), (FXI), (CYB), (CHL), (BIDU),
Global Market Comments
May 1, 2018
Fiat Lux
Featured Trade:
(FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON)
(ANATOMY OF A GREAT TRADE)
(TLT), (TBT), (SPY), (GLD), (USO),
(CYBERSECURITY IS ONLY JUST GETTING STARTED),
(PANW), (HACK), (FEYE), (CSCO), (FTNT), (JNPR), (CIBR)
Global Market Comments
April 3, 2018
Fiat Lux
Featured Trade:
(TUESDAY, JUNE 12, NEW ORLEANS, LA, GLOBAL STRATEGY LUNCHEON),
(MARCH 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (FXY), (GS), (FCX), (CSCO), (INTC), (NEM),
(RIGHTSIZING YOUR TRADING)
Global Market Comments
April 2, 2018
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOODBYE THE QUARTER FROM HELL),
(SPY), (INTC), (AMZN), (CSCO),
(MONDAY, JUNE 11, FORT WORTH, TEXAS, GLOBAL STRATEGY LUNCHEON),
(THE HARD/SOFT DATA CONUNDRUM)
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