Mad Hedge Technology Letter
December 31, 2018
Fiat Lux
Featured Trade:
(NEWSPAPERSÂ REALLYÂ KNOWÂ WHOÂ YOUÂ ARE),
(TPCO), (AMZN), (FB), (GOOGL), (USPS), (SFTBY)
Tag Archive for: (GOOGL)
Mad Hedge Technology Letter
December 27, 2018
Fiat Lux
Featured Trade:
(THEÂ HIGHÂ COSTÂ OFÂ DRIVINGÂ OUT
OURÂ FOREIGNÂ TECHNOLOGISTS),
(EA), (ADBE), (BABA), (BIDU), (FB), (GOOGL), (TWTR)
There is only so much juice you can squeeze from a lemon before nothing is left.
Silicon Valley has been focused mainly on squeezing the juice out of the Internet for the past 30 years with intense focus on the American consumer.
In an era of minimal regulation, companies grew at breakneck speeds right into families' living quarters and it was a win-win proposition for both the user and the Internet.
The cream of the crop ideas was found briskly and the low hanging fruit was pocketed by the venture capitalists (VCs).
That was then, and this is now.
No longer will VCs simply invest in various start-ups and 10 years later a Facebook (FB) or Alphabet (GOOGL) appears out of thin air.
That story is over. Facebook was the last one in the door.
VCs will become more selective because brilliant ideas must withstand the passage of time. Companies want to continue to be relevant in 20 or 30 years and not just disintegrate into obsolescence as did the Eastman Kodak Company, the doomed maker of silver-based film.
The San Francisco Bay Area is the mecca of technology but recent indicators have presaged the upcoming trends that will reshape the industry.
In general, a healthy and booming local real estate sector is a net positive creating paper wealth for its local people and attracting money slated for expansion.
However, it's crystal clear the net positive has flipped and housing is now a buzzword for the maladies young people face to sustain themselves in the ultra-expensive coastal Northern California megacities.
The loss of tax deductions in the recent tax bill makes conditions even more draconian.
Monthly rental costs are deterring tech's future minions. Without the droves of talent flooding the area, it becomes harder for the industry to incrementally expand.
It also boosts the costs of existing development/operations staffers whose capital feeds back into the local housing market buying whatever they can barely afford for astronomical prices.
Another price spike ensues with first-time home buyers piling into already bare-bones inventory because of the fear of missing out (FOMO).
After surveying HR tech heads, it's clear there aren't enough artificial intelligence (A.I.) programmers and coders to fill internal projects.
Compounding the housing crisis is the change of immigration policy that has frightened off many future Silicon Valley workers.
There is no surprise that millions of aspiring foreign students wish to take advantage of America's treasure of higher education because there is nothing comparable at home.
The best and brightest foreign minds are trained in America and a mass exodus would create an even fiercer deficit for global dev-ops talent.
These U.S.-trained foreign tech workers are the main drivers of foreign tech start-ups.
Dangling carrots and sticks for a chance to start an embryonic project in the cozy confines of home is hard to pass up.
Ironically enough, there are more A.I. computer scientists of Chinese origin in America than there are in all of China.
There is a huge movement by the Chinese private sector to bring everyone back home as China vies to become the industry leader in A.I.
Silicon Valley is on the verge of a brain drain of mythical proportions.
If America allows all these brilliant minds to fly home not only to China but everywhere else, America is just training these workers to compete against American workers.
A premier example is Baidu co-founder Robin Li who received his master's degree in computer science from the State University of New York at Buffalo in 1994.
After graduation, his first job was at Dow Jones & Company, a subsidiary of News Corp., writing code for the online version of the Wall Street Journal.
During this stint, he developed an algorithm for ranking search results that he patented, flew back to China, created the Google search engine equivalent, and named it Baidu (BIDU).
Robin Li is now one of the richest people in China with a fortune of close to $20 billion.
To show it's not just a one-hit-wonder type scenario, three of the top five start-ups are currently headquartered in Beijing and not in California.
The most powerful industry in America's economy is just a transient training hub for foreign nationals before they go home to make the real moola.
More than 70% of tech employees in Silicon Valley and more than 50% in the San Francisco Bay Area are foreign, according to the 2016 census data.
Adding insult to injury, the exorbitant cost of housing is preventing burgeoning American talent from migrating from rural towns across America and moving to the Bay Area.
They make it as far West as Salt Lake City, Reno, or Las Vegas.
Instead of living a homeless life in Golden Gate Park, they decide to set up shop in a second-tier American city after horror stories of Bay Area housing starts to populate their friends' Instagram feeds and are shared a million times over.
This trend was reinforced by domestic migration statistics.
Between 2007 and 2016, 5 million people moved to California, and 6 million people moved out of the state.
The biggest takeaways are that many of these new California migrants are from New York, possess graduate degrees, and command an annual salary of more than $110,000.
Conversely, Nevada, Arizona, and Texas have major inflows of migrants that mostly earn less than $50,000 per year and are less educated.
That will change in the near future.
Ultimately, if VCs think it is expensive now to operate a start-up in Silicon Valley, it will be costlier in the future.
Pouring gasoline on the flames, Northern California schools are starting to fold like a house of cards due to minimal household formation wiping out student numbers.
The dire shortage of affordable housing is the region's No. 1 problem.
A 1,066-sq.-ft. property in San Jose's Willow Glen neighborhood went on sale for $800,000.
This would be considered an absolute steal at this price but the catch is the house was badly burned two years ago. This is the price for a teardown.
When you combine the housing crisis with the price readjustment for big data, it looks as if Silicon Valley has peaked or at the very least, it's not cheap.
Yes, the FANGs will continue their gravy train but the next big thing to hit tech will not originate from California.
VCs will overwhelmingly invest in data over rental bills. The percolation of tech ingenuity will likely pop up in either Nevada, Arizona, Texas, Utah, or yes, even Michigan.
Even though these states attract poorer migrants, the lower cost of housing is beginning to attract tech professionals who can afford more than a burned down shack.
Washington state has become a hotbed for bitcoin activity. Small rural counties set in the Columbia Basin such as Chelan, Douglas, and Grant used to be farmland.
The bitcoin industry moved three hours east of Seattle for one reason and one reason only -Â cost.
Electricity is five times cheaper there because of fluid access to plentiful hydro-electric power.
Many business decisions come down to cost, and a fractional advantage of pennies.
Globalization has supercharged competition, and technology is the lubricant fueling competition to new heights.
Once millennials desire to form families, the only choices are regions where housing costs are affordable and areas that aren't bereft of tech talent.
Cities such as Las Vegas and Reno in Nevada; Austin, Texas; Phoenix, Arizona; and Salt Lake City, Utah, will turn into hotbeds of West Coast growth engines just as Hangzhou, China-based Alibaba (BABA) turned that city into more than a sleepy backwater town with a big lake at its center.
The overarching theme of decentralizing is taking the world by storm. The built-up power levers in Northern California are overheated, and the decentralization process will take many years to flow into the direction of these smaller but growing cities.
Salt Lake City, known as Silicon Slopes, has been a tech magnet of late with big players such as Adobe (ADBE), Twitter (TWTR), and EA Sports (EA) opening new branches there while Reno has become a massive hotspot for data server farms. Nearby Sparks hosts Tesla's Gigafactory 1 along with massive data centers for Apple, Alphabet, and Switch.
The half a billion-dollars required to build a proper tech company will stretch further in Austin or Las Vegas, and most of the funds will be reserved for tech talent - not slum landlords.
The nail in the coffin will be the millions saved in state taxes.
The rise of the second-tier cities is the key to staying ahead of the race for tech supremacy.
Mad Hedge Technology Letter
December 24, 2018
Fiat Lux
Featured Trade:
(THE CLOUD FOR DUMMIES)
(AMZN), (MSFT), (GOOGL), (AAPL), (CRM), (ZS)
If you've been living under a rock the past few years, the cloud phenomenon hasn't passed you by and you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape or form.
Microsoft's (MSFT) pivot to its Azure enterprise business has sent its stock skyward, and it is poised to rake in more than $100 billion in cloud revenue over the next 10 years.
Microsoft's share of the cloud market rose from 10% to 13% and is catching up to Amazon Web Services (AWS).
Amazon leads the cloud industry it created and the 49% growth in cloud sales from 42% in Q3 2017 is a welcome sign that Amazon is not tripping up.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon (AMZN) relies on AWS to underpin the rest of its businesses and that is why AWS contributes 73% to Amazon's total operating income.
Total revenue for just the AWS division is an annual $5.5 billion business and would operate as a healthy stand-alone tech company if need be.
Cloud revenue is even starting to account for a noticeable share of Apple's (AAPL) earnings, which has previously bet the ranch on hardware products.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day. If you work in Silicon Valley you can triple that figure.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let's get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It's important to understand the cloud, both its strengths and limitations. Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that's where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at any time from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect, collaborative vehicle for our globalized world.
Once you start using the cloud to store a company's data, the benefits are many.
- No Maintenance
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them - a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value, without worrying about managing IT staff of prima donnas.
- Greater Flexibility
Today's employees want to have a better work/life balance and this goal can be best achieved by letting them telecommute. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services, such as Google Drive, offer exactly this kind of flexibility for employees. According to a recent survey, 79% of respondents already work outside of their office some of the time, while another 60% would switch jobs if offered this flexibility.
With data stored online, it's easy for employees to log into a cloud portal, work on the data they need to, and then log off when they're done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it's done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
- Better Collaboration and Communication
In today's business environment, it's common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document so they can stay on top of real-time changes which can help businesses to better manage workflow, regardless of geographical location.
- Data Protection
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City, forcing many websites to shut down their operations for days.
The cloud simply routes traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It's best to move data to the cloud, to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that even if one area is affected, your operations don't have to capitulate, and data remains accessible no matter what happens. It's a system called deduplication.
- Lower Overhead
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money that in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that's not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up-time and controlled environments that providers such as Amazon's AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
Mad Hedge Technology Letter
December 17, 2018
Fiat Lux
Featured Trade:
(WHY TENCENT WILL REMAIN TRAPPED IN CHINA)
(TME), (SPOT), (IQ), (GOOGL), (FB)
So you thought that Tencent Music Entertainment (TME), the Spotify (SPOT) of China, going public at $13 a share on the New York Stock exchange would mean the music streaming giant would potentially tyrannize the Western music streaming market.
Relax, it will never happen, China’s personal data laws are analogous to Facebook’s (FB) lax data guidelines multiplied by a factor of 10.
There is no possible scenario in which a Chinese content service constructed at the magnitude of Tencent Music Entertainment Group would ever get the thumbs up from American regulators.Â
The ongoing trade war has effectively barred any Chinese capital’s ability to snap up key American technological firms, as well as stymieing any Chinese tech unicorns dishing out streaming content in participating in a monetary relationship with the American consumer.
In August, the Department of the Treasury which chairs the Committee on Foreign Investment in the United States (CFIUS) rolled out an expansionary pilot program widening CFIUS’ jurisdiction to review foreign non-controlling, non-passive investments in companies that produce, design, test, manufacture, fabricate, or develop “critical technologies” within certain industries deemed paramount to national security.
Even though the amendment does not specify China, it means China.
If you had a hunch that Tencent would take over the music streaming world, then the better question is to ask yourself if Tencent Entertainment is equipped to take over the Chinese streaming world and monetize the product efficiently.
What really is (TME)?
(TME) is the Tsar of Chinese music streaming with apps that allow users to stream music, sing karaoke, and watch musicians perform live. (TME) dominates this sphere of Chinese tech with a combined 800 million monthly active users.
(TME) is a concoction of services including QQ Music, Kugou, Kuwo, and karaoke app WeSing making up over 70% of the music streaming industry in China.
Its daily active users (DAUs) spend over 70 minutes per day on the platform and have inked exclusive deals with elite Western artists.
Tencent Music's revenue nearly doubled YOY to $2 billion during the first nine months of 2018, and its net income more than tripled to $394 million.
The social entertainment services aspect has been a massive revenue driver for them including income from virtual gifts on WeSing, a platform where fans gift virtual items to favorite singers, and sign up for premium memberships giving users access to exclusive concerts.
This collection of clever services mixed with social media has been successful, and the reason why it comprises 70% of total revenue.
Paid membership has grown 24% YOY to 9.9 million while paid users only make up 4.4% in China. This is a huge change in the tech climate from the past when Chinese netizens would never pay for internet content. This has allowed the average revenue per user (ARPU) to creep up to $17.22 per paid user.
The other 30% of revenue can be attributed to its ad-less music service which is not ad-less for free users.
So, in fact, the 30% of the business that mirrors Spotify is its Achilles heels echoing the painstaking task of monetizing pure music content.
No company has ever shown that a pure music streaming internet model can be profitable, the music streaming graveyard is littered with the failed attempts of companies from the past.
The unit registered a mere $1.24 in average revenue per paid user during the third quarter, paltry compared to (TME)’s social media products.
(TME)’s combination of social media and music entertainment weighted towards virtual gifts’ income is a weak business model in the west and would not extrapolate in the western world.
It is a supremely China model only unique to China and other Asian countries.
Therefore, I would point out that even if this arm of Tencent could migrate to America, management knows better than to put square pegs in round holes.
That being said, its potential in China is its long runway and most Chinese content companies haven’t been able to crack the western market.
The only types of Chinese companies that have had any remnant of success in the west are hardware companies and look what happened to telecommunication equipment companies Huawei and ZTE recently – taken out by the western regulatory sledgehammer.
It’s crystal clear that the Chinese understanding of personal data and IP regulation simply don’t marry up with western standards, and that is why I suggested that these two massive tech worlds are in for a hard splintering dividing these two competing models.
There has been some intense jawboning going on behind the scenes as Huawei, who is in the lead to develop 5G technology, still needs Qualcomm’s radio access technology to make 5G a reality.
The scenario of a hard fork between western and Chinese 5G becomes more real each passing day.
Part of Tencent Music’s ability to perform revolves around its swanky position installed in the center of the most popular chat app in China called WeChat.
Using this position as a fulcrum, Tencent Music plans to invest 40% of the capital raised from its IPO on expanding its music library, 30% on product development, 15% on marketing, and the last 15% on M&A.
For right now, there is an elevated emphasis on growing the number of paid users and converting its free users to premium subscriptions.
Ironically enough, Spotify has a 9% stake in Tencent Music and Tencent has a 7.5% holding in Spotify. Just by having stakes in each other is enough reason to avoid migrating into the same competitive markets with each other.
If you read between the lines, the stakes seem more a pledge of trading expertise in developing each other’s business as you see traces of each other in both unicorns.
Would I invest in Tencent Music?
One word – No.
There are almost 1,000 pending lawsuits alleging copyright infringement, not a huge surprise here.
Tencent concedes around 20% of the music content is not licensed.
Pouring fuel on the fire, a Tencent Music executive is also being sued by a seed investor claiming he was bullied into selling his stake ahead of its IPO.
There are question marks surrounding this company and that might have been part of the justification of tapping up the American public markets to prepare for this next stage of uncertainty.
As it is, Spotify cannot make money because of the elevated royalty costs eroding its business model, (TME) probably can if it steals most of its music, but that is a suicide mission waiting to happen.
Fortunately, Tencent is a hybrid mix of not only pure music streaming but of social media fused with music apps through gift giving gimmicks and karaoke-themed services.
These higher margin drivers are the reason why Tencent is profitable and Spotify is not, plus the giant scale of servicing 800 million Chinese users that give credence to the freemium model.
However, it’s entirely feasible that Tencent Music could use a good portion of the $1.1 billion from the IPO to battle the slew of pending lawsuits waiting around the corner.
Would you want to invest in a company that went public just to fund their legal defense?
Definitely not.
Look at its streaming cousin iQIYI (IQ), shares peaked over $40 in June after its IPO and have swan-dived ever since going down in a straight line and is trading around $17 today.
In general, most Chinese tech stocks have been collateral damage of a wider trade war pitting the maestros of crude geopolitical strategies against each other.
This year has not been kind to Chinese tech shares, and considering most of Tencent’s music library has been stolen, investors would be crazy to invest in this company.
I am surprised this company held up as well as it did on IPO day because the timing of the IPO couldn’t have been worse in a segment of tech that is awfully difficult to become profitable in a country whose economy is softening by the day in an insanely volatile stock market.
And to be honest, I would have stopped listening about this company after knowing they face pending lawsuits of up to 1000.
As for Spotify, yes, they are the industry leader in music streaming but investors need concrete proof they can become profitable. I like the direction of increasing operating margins, but that all goes to naught if it’s in a perpetual loss-making enterprise. I would sit out on both these stocks with a much negative bias towards its ticking time bomb Chinese music version.
Regulation and the trade war have taken a huge swath of tech off the gravy trade such as semiconductors, Google, social media, hardware, American tech who possess supply chains in China and I would smush in Chinese tech ADR’s on that list too.
Stay away like the plague.
Mad Hedge Technology Letter
November 26, 2018
Fiat Lux
Featured Trade:
(WILL THE FAANGS FINALLY KILL OFF TELEVISION?)
(AMZN), (DIS), (FOX), (ROKU), (FB), (AAPL), (GOOGL)
Mad Hedge Technology Letter
November 19, 2018
Fiat Lux
Featured Trade:
(ROKU’S UNASSAILABLE LEAD)
(TIVO), (ROKU), (NFLX), (AMZN), (CHTR), (DISH), (FB), (AAPL), (GOOGL)
Shake off the rust.
That is exactly what management of a fast-growing tech company doesn’t want to hear.
Losing money isn’t fun. And investors only put up with it because of the juicy growth trajectories management promises.
Without the expectations of hard-charging growth, there is no attractive story in a world where investors need stories to rally behind.
Setting the bar astronomically high in the approach to management’s execution and product development will always be, the single most important element in a tech company.
This is the secret recipe for thwarting entropy and rising above the rest.
You might be shocked to find out that most tech firms die a harrowing death, the average Joe wouldn’t know that, with constant headlines glorifying our tech dignitaries.
Just look at the pageantry on display that was Amazon’s (AMZN) quest to find a second headquarter.
According to Apex Marketing, the hoopla that coalesced around Amazon’s year-long search netted Amazon $42 million in free advertising by tracking the absorbed inventory of exposure from print, TV, and online.
Social media traffic by itself rung up $8.6 million of freebies.
These days, tech really does sell itself, and I didn’t even mention the billions in tax breaks Amazon will harvest from their Willy Wonka and the Chocolate Factory style headquarter search.
The only thing I would have changed would have been extending the contest into the second year.
Amazon’s brand is probably the most powerful in the world, and that is not because they are in the business of only selling chocolate bars.
One company that might as well sell chocolate bars and has been stymied by the throes of entropy is TiVo (TIVO).
TiVo was once the darling of the technology world.
It was way back in 1999 when TiVo premiered the digital video recorder (DVR).
It modernized how television was consumed in a blink of an eye.
Broad-based adoption and outstanding product feedback were the beginning of a long love affair with diehard users wooed by the superior functionality of TiVo that allowed customers to record full seasons of television shows, and, the cherry on top, fast-forward briskly through annoying commercials.
The technology was certainly ahead of its time and TiVo had its cake and ate it for years.
The stock price, in turn, responded kindly and TiVo was trading at over $106 in August of 2000 before the dot com crash.
That was the high-water mark and the stock has never performed the same after that.
TiVo’s cataclysmic decline can be traced back to the roots of the late 90’s when a small up and coming tech company called Netflix (NFLX) quickly pivoted from mailing DVD’s to producing proprietary online streaming content.
Arrogant and set in their old ways, TiVo failed to capture the tectonic shift from analog television viewers cutting the cord and migrating towards online streaming services.
Consumer’s viewing habits modernized, and TiVo never developed another game-changing product to counteract the death of a thousand cuts to traditional television and its TiVo box that is still ongoing as I write this.
Like a sitting duck, Charter Communications (CHTR) and Dish Network (DISH) devoured TiVo’s market share in the traditional television segment constructing DVR’s for their own cable service.
And instead of licensing their technology before their enemies could build an in-house substitute, TiVo chose to sue them after the fact, resulting in a one-time payment, but still meant that TiVo was bleeding to death.
Enter Project Griffin.
Netflix (NFLX) spent years developing Project Griffin, an over-the-top (OTT) TV box that would host its future entertainment content and poured a bucket full of capital into the software and hardware of this revolutionary product.
Making the leap of faith from the traditional DVD-by-mail distribution model that would soon be swept into the dustbin of history was an audacious bet that looks even better with each passing year.
This Netflix branded OTT box was specifically manufactured for Netflix’s Watch Instantly video service.
In 2007, Netflix was just week’s away from rolling out the hardware from Project Griffin when CEO of Netflix Reed Hastings decided to trash the project.
His reason was that a branded Netflix box would hinder the software streaming content confining their growth trajectory to only their stand-alone platform.
This would prevent their streaming service to populate on other networks.
To avoid discriminating against certain networks was a genius move allowing Netflix to license digital content to anyone with a broadband connection, and giving them chance to make deals with other companies who had their own box.
It was the defining moment of Netflix that nobody knows about.
Netflix became ubiquitous in many Millennial households and Roku (ROKU) was spun-out literally bestowing new CEO of Roku Anthony Woods with a de-facto company-in-a-box to build on thanks to old boss Reed Hastings.
Woods cut his teeth borrowing TiVo’s technology and developed the digital video recorder (DVR) as the founder of ReplayTV before he joined Netflix and was the team leader of Project Griffin.
Now, he had a golden opportunity dropped into his lap and Woods ran with it.
Woods quickly became aware that hardware wasn’t the future of technology and switched to a digital ad-based platform model allowing any and all streaming services to launch from the Roku box.
No doubt Woods understood the benefits of being an open platform and not playing favorites to certain networks in a landscape where Apple (AAPL), Google (GOOGL), Facebook (FB), and Amazon have made “walled gardens” an important part of their DNA.
Democratizing its platform was in effect what the internet and technology were supposed to be from the onset and Roku has excavated value from this premise by playing nice with everyone.
This also meant scooping up all the ad dollars from everyone too.
At the same time, Wood’s mentor Hastings has rewritten the rules of the media industry parting the sea for Roku to mop up and dominate the OTT box industry with Amazon and Apple trailing behind.
Roku was perfectly positioned with a superior finished product, but also took note of the future and zigged and zagged when they needed to which is why ad sales have surpassed their hardware sales.
By 2021, over 50 million Americans will say adios to cable and satellite TV.
The addressable digital ad market is a growing $80 billion per year market and Roku will have a more than fair shot to secure larger market share.
The rock-solid foundations and handsome growth story are why the Mad Hedge Technology Letter is resolutely bullish on Roku and Netflix.
Roku and Netflix have continued to evolve with the times and TiVo is now desperately attempting to sell the remains of itself before the vultures feast on their corpse.
What is left is a portfolio of IP assets that brought in $826 million in 2017, and they have exited the hardware business entirely halting production of the iconic TiVo box.
Digesting 100% parabolic moves up in the share price is a great problem to have for Roku and Netflix.
These two are set to lead the online streaming universe and stoked by robust momentum to go with it.
The Mad Hedge Technology Letter currently holds a Roku December 2018 $30-$35 in-the-money vertical bull call spread bought at $4.35, and it is just the first of many tech trade alerts that will be connected to the rapidly advancing online streaming industry.
