(GOOGL) Archives - Page 46 of 77 - Mad Hedge Fund Trader

Data Tells the Whole Story

Behavioral trends have a sizable say in which tech companies will outperform the next and a recent report from SimilarWeb offers insight into how much users navigate around the monstrosity known as the internet.

The optimal way to comprehend the trends are from a top-down method by absorbing the divergence between desktop traffic and mobile traffic.

It’s no secret that the last decade delivered consumers a massive leap in mobile phone performance in which tech companies were able to neatly package applications that acted as monetization platforms by offering software and services to the end-user.

Thus, it probably won’t shock you to find out that desktop traffic is down 3.3% since 2017 as users have migrated towards mobile and the trend has only been exaggerated by the younger generations as some have become entirely mobile-only users.

All told, the 30.6% expansion in mobile traffic has penalized tech firms who have neglected mobile-first strategies and one example would be Facebook (FB), who even though has a failing flagship product in Facebook.com, are compensated by Instagram, who is showing wild growth numbers.

The fact that mobile screens are smaller than desktop screens means that users are staying on web pages not as long as they used to – precisely 49 seconds to be exact.

This trend means that content generators are heavily incentivized to frontload content and scrunch it up at the top of the page. This also means that sellers who don’t populate on Google’s first page of search results are practically invisible.

The high stakes of internet commerce are not for the faint of heart and numerous companies have complained about algorithm changes toppling their algorithm-sensitive businesses.

Even using a brute force analysis and investing in companies that are in the top 15 of internet traffic, then the companies that scream undervalued are Twitter (TWTR) and eBay (EBAY).

Twitter is a company I have liked for quite a while and is definitely a buy on the dip candidate.

The asset is the 7^th most visited property on the internet behind the likes of Instagram, Google, Baidu, Wikipedia, Amazon, and Facebook.

This position puts them just ahead of Pornhub.com, Netflix, and Yahoo.

And if you take one step back and analyze traffic from the top 100 sites, traffic is up 8% since 2018 and 11.8% since 2017 averaging 223 billion visits per month.

Rounding out the top 15 is eBay who I believe is undervalued along with Twitter - these two are legitimate buy and holds.

Ebay was the recipient of poor management for many years and they are now addressing these sore points.

Certain content is suitable for mobile such as adult sites, gambling sites, food & drink, pets & animals, health, community & society, sports, and lifestyle.

And just over the last year or two, other categories are gaining traction in mobile that once was dominated by desktop such as news and media, vehicle sites, travel, reference, finance, and others.

Many consumers are becoming more comfortable at doing more on mobile and spending more to the point where people are making large purchases on their iPhones.

The biggest loser by far was news - they are losing traffic in droves.

Traffic at the top 100 media publications was down 5.3% year-over-year from 2018 to 2019, a loss of 4 billion visits, and down by 7% since 2017.

Personally, I believe the state of the digital news industry is in shambles, and Twitter has moved into this space becoming the de facto news source while pushing the relevancy of news sites down the rankings.

Facebook and Twitter are essentially undercutting the news by forcing news companies to insert them between the reader and the news company because they have strategized a position so close to the user’s fingertips.

The negative sentiment in news is broad based on popular news, entertainment news and local news all showing decreases of more than 25%.

Finance and women’s interest news categories are the only ones showing positive traffic growth.

The state of internet traffic growth supports my underlying thesis of the big getting bigger and the subsequent network effect stimulating further synergies that drop straight down to the bottom line.

The top 10 biggest sites racked up a total of 167.5 billion monthly visits in 2019, up 10.7% over 2018 and the remaining 90 largest sites out of the top 100 only increased 2.3%.

This has set the stage for just five gargantuan tech firms to become worth more than $5 trillion or 15.7% of the S&P 500’s market value and 19.7% of the total U.S. stock market’s value.

Now we have real data backing up my iron-clad thesis and these cornerstone beliefs underpins my trading philosophy.

Many of the biggest wield a two-headed monster like Google who has Google.com and YouTube video streaming and Facebook, who have Facebook.com and Instagram.

It doesn’t matter that Facebook has lost 8.6% of traffic over the past year because Instagram compensates for Facebook being a poor product.

And if you are searching for another Facebook growth driver under their umbrella of assets then let’s pinpoint chat app WhatsApp who experienced 74% year-over-year traffic.

Beside the news sites, other outsized losers were Yahoo’s web traffic shrinking by 33.6% and Tumblr, which banned adult sites in 2018, leading to a 33% loss in traffic.

If I can sum up the data, buy the shares of companies who are in the top 15 of internet traffic and be on the lookout for any dip in eBay or Twitter because they are relatively undervalued.

February 12, 2020

Tech Letter

Mad Hedge Technology Letter
February 12, 2020
Fiat Lux

Featured Trade:

(UBER’S DARK FUTURE)
(UBER), (LYFT), (FB), (AMZN), (NFLX), (GOOGL)

Uber's Dark Future

Tech Letter

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 4^th 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.

February 10, 2020

Tech Letter

Mad Hedge Technology Letter
February 10, 2020
Fiat Lux

Featured Trade:

(THE MODERN AGE TECH FORCE MULTIPLIER)
(GOOGL)

The Modern Age Tech Force Multiplier

Tech Letter

In a blink of an eye – I missed my entry point again!

The earnings report gave us mixed messages, but the weakness in shares will naturally be short-lived.

Sometimes, people really forget to understand how powerful and dominant Google (GOOGL) really is.

As the stock kept running away from me and the math looked less and less appetizing, I decided to wait for the next go-around to execute a call spread on Google.

Even though sometimes Google gets slapped on the wrist for some minor blemishes on its earnings report, this time around they gave us new revenue disclosures and higher-than-expected share buybacks.

The stock cratered 2.82% to $1,440 a share in early trading last Tuesday but is still up around 25% year-over-year.

Google’s earnings per share of $15.35 was more than enough to beat expectations, but revenue was $46.08 billion, missing expectations of $46.94 billion.

Google's operating margin of 20% missed by 1%.

Google has been notoriously private about their revenue hoard but they did chime in with some more color when Google's CFO Ruth Porat, said, "to provide further insight into our business and the opportunities ahead, we’re now disclosing our revenue on a more granular basis, including for Search, YouTube ads and Cloud."

Google is still and will be at the forefront of any technological innovation of this generation buttressed by a staunch digital ad business to fund anything they want to do.

I looked into buying a call spread last Tuesday and the stock took off like a scalded chimp muddying option prices.

My big-picture thesis is unchanged, and I tell anyone and everyone in the aisles of Whole Foods to buy Google on any short-term weakness.

It’s uncanny ability to drive engagement and monetization across its 9 products with 1 billion plus users is a rare phenomenon.

Even though the law of large numbers creeps up to hurt the company, it still has strong engagement, advertiser value, and monetization possibilities.

Disclosure will give investors a more transparent way to calculate the monetization engines like Maps, Discover, and e-commerce suite of products.

What did we find out?

YouTube did $15 billion of revenue in 2019.

Google Cloud does $9 billion of annual revenue growing 50% year-over-year.

Google’s cloud business is practically the same size as Amazon Web Services (AWS) in 2016, but expanding slower than AWS did at that time.

The company has such a strong balance sheet that share repurchases were higher than expected at $6.1 billion vs. $4.0 billion.

Another sore point would be that headcount and capex in data centers, servers continue to be on the high side.

Google revealing numbers for YouTube and cloud for the first time is clearly because they felt comfortable in doing so.

I believe that they will start disclosing more detail going forward especially as the cloud division continues to ramp up and contribute meaningfully to its earnings.

And remember that it was only in July that Google said its cloud unit had just reached $8 billion in annualized revenue and planned to triple its sales force over the next few years.

Combined with installing Sundar Pichai as the new Alphabet CEO, this is a conscious move to provide more transparency to put its revenue drivers in the shop window.

Former Alphabet CEO and Google founder Larry Page and co-founder Sergey Brin stepped down from the positions last December, leaving Pichai as the big boss with power to make all game-changing decisions.

The aforementioned two still retain voting shares in the company.

The last talking point is that Google has been under intense scrutiny by federal and state regulators hoping to prove anti-competitive behavior.

A collection of 50 attorney generals from different states are investigating Google’s ad business.

But many experts believe that Google has a good chance of winning or stalling the feds, yet, the most likely outcome is that Google will be able to keep its business model but pay another massive fine which is a net positive.

Basically, Google’s narrative is intact, and any selling should be met by a wave of buying.

February 5, 2020

Diary, Newsletter, Summary

Global Market Comments
February 5, 2020
Fiat Lux

Featured Trade:

(A NOTE ON OPTIONS CALLED AWAY),
(MSFT), (TLT), (BA), (GOOGL), (SPY)

January 27, 2020

Tech Letter

Mad Hedge Technology Letter
January 27, 2020
Fiat Lux

Featured Trade:

(HOW TO PLAY THE CHINESE PANDEMIC)
(TRIP), (TCOM), (GOOGL), (EXPE)

How to Play the Chinese Pandemic

Tech Letter

Am I going to rant about Peloton today?

No, I’ll save that for another day.

Let’s get straight to the chase – the epidemic from Wuhan is crushing tech stocks.

If you want a way to play the Chinese coronavirus outbreak, then look no further than Trip.com Group Limited (TCOM).

This company owns a series of reputable Chinese travel apps from Trip.com, Skyscanner, and Ctrip.com.

The Mad Hedge Technology Letter doesn’t tend to do tech alerts on Chinese companies listed in America as American depository receipts.

We rather not expose readers to the high risk of one of them suddenly being kicked off of one of the exchanges.

American investors have zero rights of recouping any losses if Alibaba or Baidu delists or even announces to switch its listing on the Shenzhen tech exchange.

Remember that founder of Alibaba Jack Ma signed over the PayPal of China Alipay to himself without even telling Yahoo about it.

Yahoo was also locked out of any profits from the decision as well even though they were seed investors in Alibaba.

That is China in a nutshell for you!

So what’s happening now? Tourists are staying home in droves and the ones that support the economy which are the Chinese ones during the peak travel season of Chinese New Year.

Cities are getting quarantined left and right in China and the mainland has ordered all travel agencies to suspend sales of domestic and international tours.

Chinese shares have felt the pain with shares of China Southern Airlines Co. – the carrier most exposed to the site of the outbreak – cratering 20% since the second death from the virus was confirmed.

If the situation unfolds like the SARS outbreak of 2003, things could turn bleak quickly.

Remember that in just one month of the SARS outbreak, Chinese air passenger traffic fell 71%, and Trip.com was rerated and has fell off the face of the earth.

I am predicting the same type of devastating numbers to the online travel world.

Trip.com has struggled to keep up with competition from digital rivals like Meituan Dianping and Alibaba, and even if the virus is conquered, business might never come back.

Despite the trade war and Hong Kong’s protests, the world has been held up by the Chinese tourist.

108.39 million Chinese overseas trips were taken last year, a 9.5% gain, after surging 11.7% in 2018.

Flight volume was brimming along nicely until the virus, but the hotel-booking sector is getting crowded.

Meituan Dianping has recently overtaken Trip.com as China’s top site, and now has 47% of China's market, 13% higher than Trip.com.

Now, Meituan is moving further onto Trip.com’s turf with luxury hotels, while chains like Marriott International Inc. are pushing for direct booking on their China websites.

Alibaba said part of the $13 billion it raised from its Hong Kong listing in November would go toward fliggy.com, its online travel group site.

The way the Mad Hedge Technology Letter is playing the sudden drop in overseas travel confidence is through the travel app I dislike the most – TripAdvisor (TRIP).

I actually don’t have a personal problem with the functionality, but the business behind it is terrible.

That was the main reason I strapped on a put spread and I can’t see TripAdvisor outperforming dramatically in the next few weeks in the face of a global pandemic.

This was a short-term trade that TripAdvisor won’t rise 11% in 30 day

I didn’t like this company before the coronavirus and now that Chinese tourists are home sitters for the Chinese New Year, this could put a dent into TripAdvisor’s new China initiative.

Trip.com Group had taken the lead in the day-to-day running of TripAdvisor China. It owns the majority share, with TripAdvisor claiming a 40 percent stake.

Chinese were supposed to increasingly travel the world while its customer base is also becoming more global, in particularly with Trip.com and Skyscanner.

But that is all on hold now.

Yes, it is possible that there could be a dead cat bounce in shares if the virus is tamed, but the 2-week travel season is something you can’t get back once it’s over for TripAdvisor.

I believe this will come out in the numbers along with details about Google’s algorithms further destroying TripAdvisor’s relevancy in the online travel industry.

Then take into account that the company just announced a 200-employee purge for the explicit reason of increased competition from Google and things seem to be going from bad to worse.

The company has done a proverbial deal with the devil by positioning itself to be utterly tied to Google’s search algorithm while Google is going head-to-head with them.

Google has upgraded its travel search tools recently to turn the screws on several trip booking websites like TripAdvisor, Booking.com and Priceline.

In its last earnings release, TripAdvisor noted that Google has placed ads at the top of its search results, forcing companies like it to buy more ads.

The company had a rough last quarter, reporting adjusted earnings of 58 cents a share, down from 72 cents a year earlier and short of analysts’ estimates of 69 cents.

Rhetoric from management was equally as disappointing with them saying, “Google (is) pushing its own hotel products in search results and siphoning off quality traffic that would otherwise find TripAdvisor via free links and generate high margin revenue in our hotel click-based auction.”

“Google has got more aggressive. We’re not predicting that it’s going to turn around.” TripAdvisor CEO Stephen Kaufer said at the time and I don’t see how our put spread will lose money in the short-term.

I will advise readers to take profits when the time comes. Be aware that TripAdvisor also has an earnings report coming up in 2 weeks that could gyrate the stock.

I expect broad-based weakness in guidance and poor performance last quarter in the report.

January 15, 2020

Tech Letter

Mad Hedge Technology Letter
January 15, 2020
Fiat Lux

Featured Trade:

(THE TRADE ALERT DROUGHT EXPLAINED)
(GOOGL), (AMZN), (MSFT), (FB), (JPM)

The Trade Alert Drought Explained

Tech Letter

Why has there been a dearth of Mad Hedge Tech trade alerts to start the year?

Let me explain.

Love it or hate it – earnings' season is about to kick off.

And now, this is the part where it starts to get ugly with consensus of a 2% year-over-year decline in fourth-quarter S&P 500 earnings.

Banks are expected to be a rare bright spot and JPMorgan (JPM) delivered us stable results as one of the first to report.

The unfortunate part of the equation is that a lot has to go right for tech shares to go unimpeded for the rest of the year.

What we have seen in the first 2 weeks of the year is a FOMO (fear-of-missing-out) environment in which valuations have lurched forward to 20 times forward earnings.

Tech is overwhelmingly carrying the load and I have banged on the drums about this thread advising readers to be acutely aware of a heavy positive bias towards the FANGs in 2020.

Well, that is already panning out in the first two weeks.

Examples are widespread with Facebook (FB) up over 8% and Apple (AAPL) already topping 6% to start the year.

It would be farfetched to believe that the tech sector can keep pilfering itself higher in the face of negative earnings growth.

However, behind the scenes, relations between China and America are improving, the threat of war with Iran is subsiding, and the Fed continues strong support tempering down risk to tech shares.

The situation we find ourselves in is that of an expensive tech sector that will again guide down on upcoming earnings’ reports telegraphing softness moving into the middle part of the year.

The ensuing post-earnings sell-off in specific software stocks will offer optimal short-term entry points.

The current risk-reward of chasing FANGs at these levels is unfavorable.

Another glaring example of the FANG outperformance is Alphabet who rose 26% last year.

They are on the brink of joining the $1 trillion club that Apple and Microsoft (MSFT) have joined.

Its market value currently sits idling at $985 billion and its surge towards the vaunted trillion-dollar mark is more of a case of when than if.

Alphabet (GOOGL), more or less, still expands at the same rate of low-20% annually that it did 10 years ago.

Sales have ballooned to $160 billion annually and they sit at the forefront of every cutting-edge sub-sector in technology from artificial intelligence, autonomous driving, and augmented reality.

The engine that drives Google is still its core advertising business and strategic premium acquisitions like YouTube and penetration into other fast-growing areas such as cloud computing.

It has rounded out into a broad-based revenue accumulator.

Apple was the first public company to surpass a $1 trillion market cap and ended the year up 86% in 2019, and it has only gone up since then currently checking in at a $1.36 trillion market cap.

Microsoft followed Apple, hitting the $1 trillion mark during the first half of 2019, and it is now worth $1.23 trillion.

Amazon fell back after surging past the $1 trillion mark but inevitably will achieve it on the next heave up.

Amazon shares have been quickly heating up since its capitulation from $2,000 in July 2019 and round out the group of overperforming tech behemoths.

Although the rush into big-cap tech stocks in the first two weeks has been a bullish signal, it still doesn’t marry up with the lack of earnings growth in the overall tech sector.

Companies beating meager expectations will experience strong share appreciation although not at the pace of last year and will still serve investors pockets of overperformance.

We will find our spots to trade shortly, but better to keep our gunpowder dry at the moment.

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