Mad Hedge Technology Letter
July 2, 2018
Fiat Lux
Featured Trade:
(THE CLOUD FOR DUMMIES)
(AMZN), (MSFT), (GOOGL), (AAPL), (CRM), (ZS)
Tag Archive for: (GOOGL)
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 the 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 anytime 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 through 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 work flow, 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.
_________________________________________________________________________________________________
Quote of the Day
"Life is not fair; get used to it," said founder of Microsoft Bill Gates.
Mad Hedge Technology Letter
June 25, 2018
Fiat Lux
Featured Trade:
(IT'S NOT HEAVEN FOR ALL CLOUD STOCKS)
(ORCL), (MSFT), (AMZN), (CRM), (GOOGL)
The year of the Cloud takes no prisoners.
Cloud stocks have been on a tear resiliently combating the leaky macro environment.
Many of my cloud recommendations have been outright winners such as Salesforce (CRM).
However, there are some unfortunate losers I must dredge up for the masses.
Oracle (ORCL) announced quarterly earnings and it was a real head-scratcher.
I have been banging on the table to ditch this legacy tech company since the inception of the Mad Hedge Technology Letter.
It was the April 10, 2018 tech letter where I prodded readers to stay away from this stock like the black plague.
At the time, the stock was trading at $45, click here to revisit the story "Why I'm Passing on Oracle."
The first quarter was disappointing and abysmal guidance of 1% to 3% for annual total revenue topped off a generally underwhelming cloud forecast.
Investors spotlight one part of the business requiring the utmost care and nurturing - its cloud business.
The second quarter was Oracle's chance to revive itself demonstrating to investors it is serious about its cloud direction.
What did management do?
They announced a screeching halt to the reporting of cloud revenue and it would avoid reporting on specific segments going forward.
Undoubtedly, something is wrong behind the scenes.
To withdraw financial transparency is indicative of Oracle's failure to pivot to the cloud and this has been my No. 1 gripe with Oracle.
It is simply getting pummeled by the competition of Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT).
Stuck with an aging legacy business focused on database software, transformation has been elusive.
To erect a giant cloak around its cloud business means that growth is far worse than initially thought to the point where it is better to sweep it under the carpet.
Instead of taking a direct hit on the chin, management decided to wriggle itself out of the accountability of bad cloud numbers.
A glaringly bad cloud business should be the cue for management to kitchen sink the whole quarter and start afresh from a lower base.
The preference to shroud itself with opaqueness is bad management. Period.
Instead of turning over a new leaf, Oracle could be penalized on future earnings reports for the way it reports financials for the simple reason it confuses analysts.
Wars were fought for less.
Bad management runs bad companies. The stock has floundered while other cloud stocks have propelled to new heights - another canary in the coal mine.
Amazon and Netflix are two examples of tech growth stocks that have celebrated all-time highs.
Even rogue ad seller Facebook broke to all-time highs lately.
The champagne is flowing for the top-level tech companies.
As expected, Oracle was punished heavily upon this news with the stock down almost 8% intraday to $42.70, and it sits throttled at $43.60 as I write this.
Diverting attention from the cloud will mire this stock in the malaise it deserves. Shielding its investors from the only numbers that really matter will give analysts a great reason to label this dinosaur stock with sell ratings.
Analysts are usually horrific stock predictors, but they will be able to wash their hands of this beleaguered stock.
Even if the stock goes up, analysts will still be geared toward sell ratings.
Oracle reported a $1.7 billion in total cloud revenue last quarter, a disappointing 9% increase QOQ.
Oracle's cloud revenue is only up 25% YOY.
For an up and coming cloud business, the minimum threshold to please investors is 20% QOQ, and the 9% QOQ expansion will do nothing to get investors excited.
The deceleration of growth is frightening for investors to stomach and Oracle's admission the cloud business is uncompetitive will detract many potential buyers from dipping in at these levels.
In short, Oracle is not growing much. There is no reason to buy this stock.
I always divert subscribers into the most innovative tech stocks because they are most in demand from investors.
Innovative inertia has reverberated through the corridors at its massive complex in Redwood City, California.
A major shake out in product development and business strategy is vital for Oracle clawing back to relevance.
This is the fourth sequential quarter with unhealthy guidance.
Much of the weakness comes from Amazon siphoning business out of Oracle.
Completed surveys suggest the conversion to AWS has one clear loser and that is Oracle.
Cloud vendors are now ramping up their smorgasbord of cloud offerings attracting more business.
The second and third cloud players, Alphabet and Microsoft, have been particularly active in M&A, attempting to make a run at AWS for pole position.
It is most likely that Oracle's capital spending will dip from $2 billion in 2017 to $1.8 billion in 2018.
Considering Salesforce spent $6.5 billion on MuleSoft, a software company integrating applications, an annual $1.8 billion capital expenditure outlay is a pittance and shows that Oracle is functioning at a pitiful scale.
Oracle won't be able to make any noteworthy transactions with such a miniscule budget.
Without enhancing its cloud offerings, Oracle will fall further behind the vanguard exacerbating cloud deceleration.
Oracle pinpointed data center expansion as the targeted cloud segment after which they would chase. Oracle will quadruple two data centers in the next two years.
One of the data centers will be placed in China collaborating with Tencent Holdings Limited to satisfy government rules requiring outsiders partnering with local companies.
Saudi Arabia is locked in for a data center, desperate to attract more tech ingenuity to the kingdom.
Saudi Arabia's iconic state-owned oil giant will form an "Aramco-Google partnership focused on national cloud services and other technology opportunities."
It will be interesting going forward to analyze the stoutness of the data center commentary considering foes such as Alphabet are boosting spending.
Alphabet quarterly spend tripled to $7.56 billion QOQ including the $2.4 billion snag of New York's Chelsea Market skyscraper Google will spin into new offices.
Alphabet has splurged on $30 billion on digital infrastructure alone in the past three years.
That bump up in infrastructure spending is to support the spike in computer power needed for the surging growth across Alphabet's ecosystem.
Apparently, Oracle is not experiencing the same surge.
If investors start to question global growth, investors will migrate into the top-grade names and the marginal names such as Oracle will be taken behind the woodshed and beaten into submission.
Oracle is much more of a sell the rally than buy the dip stock fueled by its growth deceleration challenges.
_________________________________________________________________________________________________
Quote of the Day
"If you don't have a mobile strategy, you're in deep turd," - said Nvidia CEO Jensen Huang.
Mad Hedge Technology Letter
June 20, 2018
Fiat Lux
Featured Trade:
(GOOGLE'S GRAND CHINA PLAY),
(BABA), (JD), (GOOGL), (AAPL), (BIDU), (AMZN), (NFLX)
There is light at the end of the tunnel.
A glimmer of hope is better than nothing.
Stolen IP was yesterday's story.
The administration's attempts to stick China with the bill is a waste of time.
The stock market is forward-looking and that is what I focus on when writing the Mad Hedge Technology Letter.
American tech companies want to turn over this bitter page of history and construct a fruitful future.
Ironically, it could be no other than American large tech companies that solves this trade misunderstanding by embracing Chinese tech instead of dragging them through the embers of political chaos.
That is what this groundbreaking partnership between Alphabet (GOOGL) and China's second largest e-commerce company JD.com (JD) is telling us.
If American and Chinese tech agree to fuse together through different M&A activity, strategic partnerships, and engineering projects, slapping penalties on your own interests would be without basis.
Albeit gone are the yesteryears of complete ownership on the other's turf, a medium ground could be found to satisfy both parties.
Alphabet's $550 million investment will give it 27 million shares of JD.com Class A shares equating to a 1% stake in JD.com.
JD.com products will now be hawked on Google Shopping, a platform giving users a chance to compare different price points from various sellers.
JD.com's fresh links with Silicon Valley's original powerhouse is timely because its business-to-consumer retail sales have slightly dipped in form from 27% last year to an underwhelming 25% in the first quarter of 2018.
Alibaba (BABA), the Amazon of China, is the 800-pound gorilla in the room and has a stranglehold on this market, carving out a robust 60% of sales from business to consumer retail.
Chinese companies have never worried about foreign companies seizing market share in China because they know the rigid operating environment mixed with "cultural" barriers will lead to a rapid demise.
Chinese firms are channeling their distress toward local competitors that understand the market as well as they do and number in the 100s in any one industry.
This is also a huge bet on the Chinese consumer who has put the world economy on its back creating the lions' share of global growth for the past 10 years.
Do not bet against China and the Chinese consumer.
Alphabet is taking this sentiment to the bank by integrating part of a premium Chinese tech firm into its own top line performance.
This investment would not happen if Alphabet believed the trade war could turn draconian cannibalizing each other's profit engines.
Alphabet has obviously been reading the tea leaves from the Mad Hedge Technology Letter as I identified China's huge competitive advantage in Southeast Asia and the huge potential for Chinese companies that migrate there.
The pivot toward Southeast Asia was the deal clincher for Alphabet and rightly so.
Alphabet has also invested in opening an A.I. (artificial intelligence) lab in Beijing showing its determination to extract a piece of the pie from China and ensuring their brand power is maintained in the Middle Kingdom.
Google search has been shut down on mainland China since 2010. Therefore, Alphabet needs to find alternative ways to benefit from the Chinese consumer and increase its presence.
The writing on the wall was when Baidu (BIDU) came to the fore with its own Chinese version of Google search.
Opportunities on the mainland have been scarce ever since the appearance of Baidu.
Apple (AAPL) has been the premier role model in China successfully juggling the complexities of the Chinese market. A big part of its staying power is offering local Chinese jobs.
Not just a few jobs, but millions.
As of April 2017, an Apple press release stated, "Apple has created and supported 4.8 million jobs in China" which is almost three times more than in America.
Apple deploys much of its supply chain around the mainland and taking down Apple in a trade war would strip millions of Chinese jobs in one fell swoop.
Not only that, Apple has deeply invested in data centers located in China and opened research centers in Shanghai and Suzhou.
Foxconn, a company responsible for assembling iPhones in mainland China, employs 1.2 million alone.
Alphabet would be smart to follow in the same footsteps, effectively, morphing into a hybrid Chinese company employing locals in droves and allowing millions of Chinese to earn their crust of bread through local factories.
Let me be clear: This would not hurt its business back at home.
It is also wrong to say that China is saturating because the 6.8% annual growth rate in China is a firm vote of confidence for Chinese discretionary spenders.
However, instead of competing head to head under the scrutiny of Chinese regulators, it is much more sensical to copy SoftBank's Masayoshi Son's lead when he invested $25 million in Jack Ma's Alibaba in 1999.
SoftBank's 1999 investment is now valued at more than $30 billion as of the current share price today.
Yahoo later joined the party in 2005, investing $1 billion into Alibaba and that stake is worth many times over.
Instead of fighting through cultural norms and fighting against the throes of an exotic business environment, paying for a stake and leaving its nose out of it has shown to be demonstrably effective.
Partnerships complicate the relationship, but if management can lock down each side's commitment to the very T, collaboration could spur even more innovation benefiting both countries and bottom lines.
China has draconian Internet controls put in place. American tech companies aren't up to snuff with cultural maneuverability to navigate through these shark-infested waters.
Better to pay for a stake and pick up the check after the market close.
Another winner in this deal is tech valuations, which has been the Cinderella story of 2018.
Although American tech companies will probably never be able to own 100% of a Chinese BAT. However, allowing these types of investments to go ahead is certainly bullish for equities.
Tech is still the sector lifting the heavy weight stateside and promoting innovation through collaboration will do a great deal to win the hearts and minds of Chinese people, companies and government.
As much as China hates the stain to its image of this nebulous trade war, it still deeply respects and admires large-cap American tech companies.
Chinese Millennials particularly have a deep love affair with Tesla's Elon Musk. They are captivated by his braggadocio, which they find appealingly exotic and captivatingly un-Chinese.
Through this partnership, JD.com will learn heaps about cutting-edge ad-tech and is guaranteed to apply the know-how to its home user base. In return, Alphabet will get deep insights of how JD.com controls the entire logistical experience and how a Chinese tech behemoth operates its supply chain.
The nuggets of information pocketed will help Alphabet compete more with Amazon back at home.
This is a win-win proposition.
Adding even more cream on top, enhanced brand awareness by joining together with Google could catapult JD.com into the shop window of America's consciousness.
Up until today, JD.com is hardly known about in the West except for specialists that avidly follow technology like the Mad Hedge Technology Letter.
I reiterate my stance of not buying into Chinese tech companies, and readers would be better served buying Microsoft (MSFT), Amazon (AMZN), and Netflix. (NFLX)
It makes no sense to trade stocks mired in the heart of a trade war.
As much as I love Alibaba as a company, it has been trading in a range because of the whipsawing headlines released in the press.
However, I can stand from afar and admire how the Chinese BATs have advanced in such a short amount of time.
If American tech and Chinese tech merge to the point of unrecognizability, consolidation could create a super tech power comprising of mixed Chinese and American interests.
Instead of bickering at each other, other solutions look to be more compelling.
The world's economy needs a healthy Chinese economy and vibrant Chinese consumer.
If the Chinese economy ever fell off a cliff, you can kiss this nine-year equity bull market goodbye, and the Mad Hedge Technology Letter would turn extremely bearish in a blink of an eye.
Therefore, America has a large stake in not alienating the Mandarins to the point of disgust.
I am still bullish on equities, but vigilance is the name of the game for short-term traders.
Package Delivery!
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Quote of the Day
"My belief is that one plus one equals three. The pie gets larger, working together," Apple CEO Tim Cook said about its operations in mainland China and working with the Chinese Communist government.
Mad Hedge Technology Letter
June 18, 2018
Fiat Lux
Featured Trade:
(DON'T WORRY ABOUT THE BATS),
(BIDU), (BABA), (AMZN), (AAPL), (MGI), (NVDA), (AMD), (GOOGL), (FB)
The Chinese BATs (Baidu, Alibaba, and Tencent) are China's response to the American FANG group.
It's one of few sectors outperforming the vigorous American tech sector, and valuations have soared in the past year.
Former English teacher Jack Ma founded the Amazon (AMZN) of China named Alibaba in April 1999, which has grown to become one of the biggest websites on the Internet.
This company even has a massive cloud division that acts in the same way as Amazon Web Services (AWS).
Alibaba also has Alipay on its roster, the fintech and digital payments subsidiary of Alibaba.
Baidu, led by Robin Li, is the de-facto Google search of China and is entirely tailored for the Chinese market without English language support.
Tencent, created by Ma Huateng, has an assortment of businesses from social media, instant messaging, online gaming, and digital payments.
Tencent's WeChat platform is the lynchpin acting as the gateway to the robust Tencent eco-system.
The BATs have heavily invested in autonomous vehicle technology set to roll out in the coming years.
These companies are some of the biggest venture capitalists in the world throwing around capital like Masayoshi Son's SoftBank.
Alibaba has seen its share price rocket from $135 in June 2017 to $206.
Baidu has also seen huge gyrations in its share price elevating from $174 in June 2017 to $270.
Tencent, public on the Hong Kong Hang Seng Index, has gone from $273 HKD (Hong Kong dollars) to $412 HKD.
And this is all just the beginning!
An economy growing a stable 6.5% per year with companies able to scale to a mind-boggling 1.3 billion people is something of which to take notice.
China hopes to wean itself from its industrial heritage betting the ranch on a rapidly expanding tech sector.
Does this put China on a collision course steamrolling toward the American FANGs?
Highly possible but not yet.
Even though the BATs modus operandi has been to follow in the footsteps of the FANG's business model, they do not directly compete.
Ant Financial, the fintech arm of Alibaba, was blocked from purchasing MoneyGram International (MGI), effectively, closing any doors leading to the lucrative American digital payments industry.
This also meant curtains for WeChat, the multi-functional app that half of the Chinese use as a digital wallet, in the digital payments space.
The Committee on Foreign Investment in the United States (CFIUS) has made it crystal clear that BAT's capital will be scrutinized more than ever before because of China's open policy of transferring Western technology expertise to the mainland for the purpose of leading the world in technology.
China cannot have its cake and eat it.
The first stumbling block is that the American market does not suit the BAT's FANG business model with Chinese characteristics.
For example, the only other market Baidu search operates in is Brazil.
It has leveraged itself to the Chinese consumer whose purchasing power has spiked from its burgeoning middle class.
Another headwind is the lack of innovation caused by a rigid education system punishing freedom of thought in favor of rote memorization.
Innovation is American tech's bread and butter and investors pay up for this ingenuity that cannot be found elsewhere in the world.
This is also the reason why the BATs need to buy American technology and not the other way around.
Original concepts such as Uber and Airbnb were made in America first and Didi Chuxing and Tujia are rip-offs of these American companies.
The list is endless.
The BATs understand they cannot go head to head with American talent, but that does not mean they won't win out in the end.
To make matters worse, global tech talents do not want to work in China if they are reliant on America to develop something and copy it.
Why not just go work in Silicon Valley for a higher salary?
This was highlighted when the only tech talent to cross over to the other side quit in a blaze of glory.
Hugo Barra was poached from Alphabet in 2013, where he worked as vice present for the Android mobile operating system.
He was installed as the vice president of international development for smartphone maker Xiaomi, the Apple (AAPL) of China.
Barra suddenly threw in the towel at Xiaomi in 2017, offering a harsh critique stating, "What I've realized is that the last few years of living in such a singular environment have taken a huge toll on my life and started affecting my health."
Not exactly the stamp of approval the Mandarins were looking for.
In turn, China has focused its effort on recruiting Chinese-Americans who understand the working environment better and have roots or even family on the mainland.
The dire tech talent shortage is worse in China than Silicon Valley because Chinese tech companies have zero access to non-Chinese talent.
Even with a reverse in immigration policies by the administration, America continues to be the holy grail of tech jobs.
That is why you see hoards of Chinese, Indians, Russians, and every other country's best and brightest waiting in line to make the move.
Taiwanese American CEOs lead some of Silicon Valley's best companies such as the CEO for Nvidia (NVDA), Jensen Huang, and the CEO of Advanced Micro Devices (AMD), Dr. Lisa Su.
Only 1% of Baidu's revenues is extracted from American soil underscoring the BAT's China-first business model. Tencent isn't much better at 5%, and Alibaba heads the list at 11%.
Compare these statistics with Alphabet (GOOGL) making 53% and Facebook (FB) earning 56% of revenue from international sales.
Amazon is still very much an American business but 32% of revenue comes from international sales.
The bulk of this revenue is mainly from Europe where American large-cap tech companies are staunch mainstays.
China has focused on building out its business in Southeast Asia instead.
Those governments are cozy with Beijing and are willing to relinquish some sovereign influence to develop its poor digital infrastructure.
The nail in the coffin for potential BAT companies doing business in America is the total lack of data protection in China.
If you think what Facebook is doing doesn't make you sleep at night, the BATs are running riot with personal data in China.
Expect multiple attempts of hackers breaking into your email while your phone number is constantly harassed by spam messages and robo-calls galore.
This is a normal day in the life of a Chinese national and they are used to it.
China understands they are not ready to eclipse the juggernaut that is Silicon Valley.
The BATs are biding their time organically growing by investing into American tech firms helping their overall products and services.
The past five years have seen a gorge of American investment amounting to 95 deals totaling $27.6 billion.
However, this smash-and-grab investment party is effectively over because CFIUS has clamped down on exporting local technology.
Consequently, the BATs will continue to focus on what they know best - the Chinese market.
Southeast Asia is also ripe to become the next stomping ground for the BATs. Expect them to dominate in this region for years to come.
The runway is long in domestic China. The 6.5% annual growth is entirely biased toward these three companies to prolong their hearty growth trajectories.
The communist party even has a seat on the board at each of these companies highlighting another area of conflict if these companies dive head into the American market.
Let's just say corporate governance in China is a shell of what it is in America.
One day there could be an all-out battle for tech supremacy, but these Chinese companies would need some assurances they would likely come out on top.
That is hardly the case yet and they make way too much money by copying Silicon Valley.
_________________________________________________________________________________________________
Quote of the Day
"The leader of the market today may not necessarily be the leader tomorrow," - said Tencent founder and CEO Ma Huateng.
Mad Hedge Technology Letter
June 13, 2018
Fiat Lux
SPECIAL ACRONYM ISSUE
Featured Trade:
(FB), (AMZN), (GOOGL), (NFLX), (BABA), (BIDU), (TWTR), (SNAP), (INTC), (QCOM), (VZ), (T), (S)
The tech industry is infatuated with acronyms.
The two-, three- and four-letter acronyms of yore have been spruced up by a new wave of contemporary terms.
There are a lot more of them now and readers will need to absorb the meaning of each term to avoid our content seeming like a Grecian dialect.
The Mad Hedge Technology Letter will break down the relevant terminology that applies to the current tech sector.
This will aid readers in their pursuit of financial satisfaction.
FANG: Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (now Alphabet) (GOOGL)
Jim Cramer, the host of CNBC's Mad Money, coined this term as this quartet became such a force to reckon with, that they deserved their own grouping. Financial commentators and analysts often refer to the FANGs that ultimately represent the developments and destiny of large cap tech. Apple is sometimes grouped in this bundle with analysts adding a second A inside the acronym.
AWS - Amazon Web Services
The cloud arm of Amazon is its cash cow. Amazon invented this business out of thin air in 2006. It offers the ability for Amazon to operate its e-commerce division close to cost by plowing profits from its thriving cloud arm. AWS is the backbone to the whole Amazon operation. Without it, Jeff Bezos would need to rethink another genius business model because current and future success hinges on this one subsidiary. AWS is the market leader in the cloud industry, carving out 33% of the total market. Microsoft is the runner-up and saw its market share surge from 10% to 13% in the latest quarter.
GDPR - General Data Protection Regulation
Europe has been a stickler concerning individual data protection, and the American companies running riot with Europeans personal data has reached its climax. On May 25, 2018, new European regulations were implemented to give the user more control of handing out their personal data. Penalties for non-compliance are steep. Companies risk being fined up to 20 million Euros or 4% of annual worldwide turnover, whichever is larger. Facebook's Mark Zuckerberg now has a reason to behave like an angel. The least regulated industry in the world is finally experiencing the bitter regulation pill most industries have felt for centuries.
SaaS - Software as a Service
A software distribution model licensing software on a subscription basis. Instead of installing many of these software programs, many of them are available through the Internet on the cloud. Most subscriptions work on an annual basis, and this recurring revenue model has carved out additional income from companies that were used to paying a one-off fee for software. This model has been highly successful. Even former legacy companies have deployed this business model to critical acclaim.
AI - Artificial Intelligence
An area of computer science that strives to deploy human intelligence into machine simulation. The four main tasks it carries out are speech recognition, learning, planning, and problem solving. A.I. has been identified as a cutting-edge tool to fuse with technology products boosting the underlying performance creating massive profits for the participants. This phenomenon is controversial with the prophecy that robots might advance rapidly and turn on their inventors. As each day passes, A.I. is starting to infiltrate deeper into our daily lives, and humans are becoming entirely reliant on their positive functions to carry out daily tasks.
IoT - Internet of Things
Internet connectivity with things. This network will connect billions and billions of devices together. Your bathtub, thermostat, and razor will be armed with sensors and processors that reroute the performance data back to the manufacturer. Deploying the data, engineers will be able to enhance products with even more precision and high quality serving the end customer needs. 5G testing is ongoing in select American cities and new hyper-fast Internet speeds will make mass adoption of IoT products a reality.
5G - 5th generation wireless system
This is the successor to 4G and is poised to increase wireless Internet speeds up to 20 gigabits per second. Some of the traits will be low latency, high mobility, and will be able to accommodate high connection density. This technology is crucial to the development of the next generation of groundbreaking technology such as autonomous cars that need a faster Internet speed to run elaborate software. The war to develop this technology with the Chinese has turned into a heated standoff. China is stubbornly bent on becoming the global leader of technology in the future, and the communist government views 5G as the keys to the Ferrari. U.S. companies Verizon (VZ), AT&T (T) and Sprint (S) plan to roll out 5G in 2019. Other key companies are Huawei, Intel (INTC), Samsung, Nokia, Ericsson and Qualcomm (QCOM).
BAT - Baidu, Alibaba, and Tencent
This trio is the Middle Kingdom's answer to America's FANG. The nine-year domestic bull market has been led by large-cap tech, at the same time China's economy has been fueled by Baidu, Alibaba, and Tencent. Baidu and Alibaba are tradable through American depositary receipts (ADR). Tencent is public on Hong Kong's Hang Seng stock exchange, the third largest stock market in Asia. These companies are all a mix and mash of functionality that covers the same broad spectrum of the FANGs. They are the best companies in China and are on the cusp of every single cutting-edge technology from A.I. to autonomous vehicles. The Mad Hedge Technology Letter does not recommend these stocks to our subscribers because the Chinese government is on a nationalistic mission to delist Alibaba and Baidu from America and bring them back home. Initially, Alibaba wanted to list on the Hang Seng Hong Kong stock exchange, but draconian rules applied to dual-listing made the company flee to America.
NIMBY - Not In My Back Yard
Local opposition to proposed development in local areas. Although not a pure tech term, the epicenter of the NIMBY movement is smack dab in the middle of the San Francisco Bay Area where all the premium tech jobs are located. Local opposition has made it grueling for any developers to build.
What's more, the expensive cost of land has made any new building a tough proposition. This explains the 10-year drought where San Francisco experienced not a single new hotel built. The dearth of housing has caused San Francisco housing prices to skyrocket to a medium price of $1.61 million as of March 2018. Exorbitant housing prices have triggered a mass migration of Californians fleeing the Bay Area in droves. The shocking aftereffects have put highly paid Millennial tech workers spending the bulk of their salary on housing or living in dilapidated shacks. The extreme conditions we are now seeing are forcing schools around the Bay Area to close in unison as young families cannot afford to stay. Tech companies have become public enemy No. 1 in the Bay Area as locals are desperate to maintain their current lifestyle but are finding it more difficult by the day.
MAU - Monthly Active Users
Favored by social media companies to measure growth trajectories. This is how Twitter (TWTR) analyzes the health of its user numbers delivering a narrative to potential investors by hyping up user growth. If investors value this metric, this allows companies to focus on driving growth at the expense of burning cash. Thus, emerging social media companies such as Snapchat (SNAP) run huge loss-making operations for the promise of future profits after scaling.
ARPU - Average Revenue Per User
Favored by maturing social media companies, particularly Facebook, which has already grown global usership to 2.2 billion. Once the emerging hypergrowth phase comes to an end, social media companies focus on extracting more income per user through targeted ads. Facebook and Alphabet have the best ad tech divisions in all of Silicon Valley. The business model has made Facebook an inordinate amount of money as advertiser's flock to this de-facto marketplace paying more for effective ads whose price is set at an auction. It's a vicious cycle that attracts more traditional advertisers because it is the only method of selling to Millennials who are addicted to social media platforms. Cord-cutting is accelerating this trend forcing advertisers to co-exist with the Mark Zuckerberg model.
There are many more acronyms in the tech world that need explaining and that is exactly what I will do. The Mad Hedge Technology Letter will be back with another slew of technical terms to help subscribers understand the tech universe.
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Quote of the Day
"You can worry about the competition... or you can focus on what's ahead of you and drive fast," said Square and Twitter CEO Jack Dorsey.
