(TWTR) Archives - Page 6 of 12 - Mad Hedge Fund Trader

How Twitter Knocked it Out of the Park

Twitter (TWTR) shares have really been explosive in the last 5 trading days moving higher in excess of 15%.

Speculation has been coalescing around a new project that is in the works that has Twitter launching a subscription service.

The social media juggernaut posted a job advert for engineers to develop a subscription platform.

“We are building a subscription platform, one that can be reused by other teams in the future,” the listing stated and investors took that cue to buy shares by the bucketful.

The new web engineers will be deployed on the company’s Gryphon team, which collaborates closely with the payroll team and the Twitter.com group.

An employee close to the discussion said the company is exploring “alternative revenue sources.”

The social media firm currently generates about 85% of its revenue from advertising, and it is safe to say they are a one-trick pony like Facebook.

Therefore, a subscription service would help diversify as businesses rein in their marketing budgets amid ongoing uncertainty.

The aggressiveness on show by Twitter’s CEO Jack Dorsey and his fellow management team is unsurprising.

Don’t forget that it was just in March that vulture fund investor Elliot Management, who owns a good chunk of Twitter, vowed to overthrow Dorsey after he announced plans to run both his creations, Twitter and Square, in Africa.

Running two Silicon Valley firms at the same time from Africa remotely stretched Elliot’s patience a tad thin and they hoped to go in for the kill and remove him cleanly.

Dorsey relented to Elliot’s demand and agreed to sideline his African safari and focus on juicing up its ad business.

Well, push comes to shove and Dorsey has decided on rolling out the time-honored way of tech companies making money – subscription as a service (SAAS).

Simply put, Twitter isn’t profitable enough and the buck stops at Dorsey.

Despite Twitter adding 14 million new users in the first quarter, its revenues rose just 3% from the March 2019 quarter, the smallest increase in over two years.

There is a substantial chance that the firm would be more likely to launch an offering utilizing its data and analytics, rather than moving to paid tiers for Twitter usage.

At the bare minimum, they will bring out some type of high-level tools to give ad buyers a way to pull away from the competition and that is worth paying for.

Twitter quickly changed the language of the job ad to make it look less conspicuous.

This isn’t out of left field.

In 2017, former CFO and COO Anthony Noto (now CEO of online lending start-up SoFi) had discussed the idea of adding premium services to TweetDeck, while acknowledging the separation of Twitter remaining a free-to-use service.

Global ad spending has been damaged due to the pandemic and investors are clamoring for more growth for a company that has several levers at their disposal.

They are finally putting these levers to work, and as global growth starts to slowly make a comeback, Twitter will be even better positioned than before.

Dorsey did agree with Elliot Management that Twitter should achieve a target to grow monetizable daily active users (mDAUs) by 20% in 2020 while accelerating revenue growth.

It is clear that Elliot Management is becoming impatient with Dorsey and will most likely look to make some waves in 2021 and finally replace the co-creator of Twitter.

Elliot Management is ruthless, but I do commend them on their magic in creating shareholder value even if they ruffle some feathers.

They have a track record of raising the profiles of other tech stocks and one that comes to mind is eBay.

Unfortunately for Dorsey, Elliot Management’s time-honored strategy usually comes in the form of wholesale changes in management boding poorly for Dorsey to cling on to his job through 2021.

Twitter is a great tech company, a unique asset in the tech ecosphere and Elliot simply believes Dorsey isn’t pressing the right keys on the piano right now.

This is a way of telling Dorsey that he is on thin ice and he is responding with some last-ditch efforts that could save his job.

However, I would like to point out that tech companies are benefitting from a once-in-a-generation tailwind of the coronavirus accelerating the migration to digital.

This essentially means that mediocre tech firms should have an easy time hitting expected targets even if they are lofty.

Just look at Thursday’s trading and the Dow index fell 360 points while the Nasdaq finished the day up 55 points.

The relative outperformance is just the beginning of tech’s dominance.

Dorsey just isn’t delivering the “growth” that comes to be expected from tech firms of Twitter’s caliber in the stage it’s at.

Hopefully, this will be the final wake up call because he certainly has the capacity to deliver what the vulture investors want, it will boil down to if he can apply the focus needed to acquire those mandated results.

twitter

July 1, 2020

Tech Letter

Mad Hedge Technology Letter
July 1, 2020
Fiat Lux

Featured Trade:

(HOW THE “SPLINTERNET” IS TAKING OVER)
(TIKTOK), (FB), (GOOGL), (TWTR), (AMZN)

How the “Splinternet” is Taking Over

Tech Letter

The balkanization of the internet is spiking in the short-term, knocking off the value of multiple Fortune 500 companies in one fell swoop.

In technology terms, this is frequently referred to as “splinternet.”

A quick explanation for the novices can be summed up by saying the splinternet is the fragmenting of the Internet, causing it to divide due to powerful forces such as technology, commerce, politics, nationalism, religion, and interests.

What investors are seeing now is a hard fork of the global tech game into a multi-pronged world of conflicting tech assets sparring for their own digital territory.

The epicenter of balkanization is now heart and center in West Asia polarizing the Indian and Chinese tech economy after a skirmish along the shared border.

This is fast becoming a winner-take-all affair.

India had to do something after 20 dead Indian soldiers felled by the Chinese Army stoked a wave of national outcry against regional rival China.

The backlash was swift with the Indian government banning 59 premium apps developed by China citing “national security and defense.”

The ban includes the short-form video platform TikTok, which counts India as its biggest overseas market.

TikTok was projected to easily breeze past 300 million Indian users by the end of 2020 and was clearly hardest hit out of all the apps.

India is the second biggest base of global internet users with nearly half of its 1.3 billion population online.

The government rolled out the typical national security playbook saying that the stockpiling of local Indian data in Chinese servers undermines national security.

The ruling will impact roughly one in three smartphone users in India. TikTok, Club Factory, and UC Browser and other apps in aggregate tally more than 500 million monthly active users in May 2020.

Highlighting the magnitude of this purge - 27 of these 59 apps were among the top 1,000 Android apps in India last month.

China dove headfirst into the Indian market with their smartphones, apps, and an array of hardware equipment. Now, that is all on hold and looks like a terrible mistake.

Chinese smartphone makers command more than 80% of the smartphone market in India, which is the world’s second largest.

One of the reasons Apple (AAPL) could never make any headway in China is because they were constantly undercut by predatory Chinese phone makers with stolen technology.

TikTok is also being eyed-up for bans in Europe and the United States recently as it constantly curries to Beijing’s every whim by banning content unfavorable to the Chinese communist party and rerouting data back to servers in China.

I am surprised it hasn’t happened yet with an abundant phalanx of Chinese hawks in the conservative administration.

To be fair, China has rolled out the same playbook before when the state spews out nationalist narratives triggering local furor that resulted in bashing Japanese-made cars or shuttering Korean supermarket.

Chinese tech is clearly the main loser for their government’s “distract its own people at all costs” campaign to shield themselves from the epic contagion of the lingering pandemic.

What does this mean for American tech?

For one, India will strengthen ties with the U.S., being the biggest democracy in Asia, meaning a massive foreign policy loss and loss of face for the Chinese communist regime.

The resulting losses for Chinese tech will usher in a new generation of local Indian tech with Silicon Valley being the next in line playing the role of a wingman.

Even though the U.S. avoided the carnage from this round of balkanization, the situation in Europe is tenuous, to say the least.

Fault lines will compound the problem of a multinational tech revenue machine and the relationship with France is on the verge of becoming fractious.

I believe if the relationship worsens with the Europeans - France, Germany, and Britain could ban big tech companies like Facebook (FB), Twitter (TWTR), Google (GOOGL).

This would be a massive blow to not only revenue streams but also global prestige for American tech.

The U.S. is still licking its wounds after the EU announced a travel ban on American tourists who hoped to re-enter the Schengen Zone on its reopening on July 1st.

Not only do Silicon Valley leaders see a murky future outside its borders, but digital territories are also getting carved out as we speak domestically.

Amazon (AMZN)-owned Twitch and Twitter have clamped down on U.S. President Donald Trump’s account.

This could quickly spiral into a left-versus-right war in which there are competing apps for different political beliefs and for every subgenre of apps.

This would effectively mean a balkanization of tech assets within U.S. borders and division is the last thing Silicon Valley wants.

Silicon Valley wants products sold to the largest addressable market possible.

The balkanization of the internet is now turning into an equally high risk as the antitrust and regulatory issues.

The issues keep piling up, but nothing has been able to topple big tech yet as they lead the broader market out of the pandemic.

The key point to understand is that these are growing risks until they blow up in front of your eyes and become the next black swan like Covid-19.

Let’s hope that never happens.

SUPERCHARGING THE BALKANIZATION OF THE INTERNET

May 29, 2020

Tech Letter

Mad Hedge Technology Letter
May 29, 2020
Fiat Lux

Featured Trade:

(TRUMP’S TWITTER ATTACK WILL GO NOWHERE),
(TWTR), (FB)

Trump's Twitter Attack Will Go Nowhere

Tech Letter

I am convinced that Facebook (FB) and Twitter and other social media platforms will suffer minimal damage as a result of the administration cracking down on social media platforms.

The executive order could make it possible for social media companies to become liable for content posted on their platform.

The issue came about after Twitter decided to fact check two of Trump’s tweets.

To read more about Twitter’s decision, click here.

Trump views the fact checks as a personal attack against him and a threat to his ambitions in the political arena.

Section 230 refers to Section 230 of Title 47 of the United States Code (47 USC § 230). It was passed as part of the controversial Communication Decency Act of 1996.

Section 230 says that “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

To read more about the law from Harvard Law Review, click here.

Facebook’s CEO Mark Zuckerberg condemned Twitter’s action saying that social media companies shouldn’t be the “arbiter of truth.”

What I see is President Donald J. Trump putting a massive premium on his Twitter account as the focal point to disperse his opinions and thoughts in the run-up to the U.S. presidential election.

This could be the difference between winning or losing!

This election will be fought tooth and nail on digital platforms and in the realm of global social media, Twitter is one of the most important platforms which is why I am incredibly bullish on the stock.

U.S. Democratic nominee Joe Biden understands the role of digital media in the upcoming election the hard way by being forced to be rooted in front of a webcam instead of rallying the masses at in-person live events.

Unable to round the circuit is an outsized blow for Biden and his digital response to it will be measured up to the Republican’s controversial response to the health crisis.

Trump has Twitter at his disposal and is much more adept at wielding it for his personal and career interests than Biden.

This U.S. election could become a Twitter contest to an extreme degree.

Twitter intruding into Trump’s daily flow of tweets and the backlash resulting from it is a clear signal that Trump is adamant that he can say whatever he wants through his Twitter account and in his mind, that will springboard him to re-election.

Facebook has benefited the most from Section 230 by Zuckerberg building his tech firm into a $650 billion company. Google’s YouTube platform is another outsized winner too.

This is the very law that undergirds Facebook’s entire competitive advantage since the company doesn’t actually produce anything, not even its own content.

Remember that Facebook effectively profits off of other’s personal data by giving digital ad companies the ability to post ads to a specific audience of Facebook subscribers.

I understand that Zuckerberg doesn’t consider this selling personal data and the difference at most comes down to technical verbiage.

I believe it will not devolve to a litigious stage.

This is merely a hands-off warning by Trump who wants control over his Twitter account and destiny up until the November election without any distractions or tech firms playing boss.

Zuckerberg wants Twitter CEO Jack Dorsey to shut his mouth and continue with the status quo which would mean higher stock prices and extreme wealth generation for everyone involved.

The exorbitant costs associated with auditing content of over 2 billion people keep Zuckerberg up at night.

Artificial Intelligence cannot identify the next threat and its backdated database can only identify what was assumed malicious in the past.

There is simply no way to ensure that 100% of content flowing through these digital arteries is mainstream enough to be deemed acceptable and social media platforms would open themselves up to lawsuits.

The lead up to the 2020 U.S. presidential election will most likely experience record social media engagement and these powerful platforms like Facebook and Twitter are the last tech stocks investors should go bearish on in the short-term.

Trump’s panic at the Twitter fact check is a stamp of approval for Twitter and Facebook.

Buy them on the dip.

May 8, 2020

Diary, Newsletter, Summary

Global Market Comments
May 8, 2020
Fiat Lux

Featured Trade:

(MAY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(UNG), (UAL), (DAL), (INDU), (SPY), (SDS),
(P), (BA), (TWTR), (GLD), (TLT), (TBT)

May 6 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 6 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: What broker do you use? The last four bond trades I couldn’t get done.

A: That is purely a function of selling into a falling market. The bond market started to collapse 2 weeks ago. We got into the very beginning of that. We put out seven trade alerts to sell bonds, we’re out of five of them now. And whenever you hit the market with a sell, everyone just automatically drops their bids among the market makers. It’s hard to get an accurate, executable price when a market is falling that fast. The important point is that you were given the right asset class with a ticker symbol and the right direction and that is golden. People who have been with my service for a long time learn how to work around these trade alerts.

Q: Is there any specific catalyst apart from the second wave that will trigger the expected selloff?

A: First of all, if corona deaths go from 2 to 3, 4, 5 thousand a day, that could take us back down to the lows. Also, the market is currently expecting a V-shaped recovery in the economy which is not going to happen. The best we can get is a U-shape and the worst is an L-shape, which is no recovery at all. What if everything opens up and no customers show? This is almost certain to happen in the beginning.

Q: How long will the depression last?

A: Initially, I thought we could get out of this in 3-6 months. As more data comes in and the damage to the economy becomes known, I would say more like 6-9, or even 9-12 months.

Q: In natural gas, the (UNG) chart looks like a bullish breakout. Does it seem like a good trade?

A: No, the energy disaster is far from over. We still have a massive supply/demand gap. And with (UNG), you want to be especially careful because there is an enormous contango—up to 50 or 100% a year—between the spot price and the one-year contract price, which (UNG) owns. Once I saw the spot price of natural gas rise by 40% and the (UNG) fell by 40%. So, you could have a chart on the (UNG) which looks bullish, but the actual spot prices in front month could be bearish. That's almost certainly what’s going to happen. In fact, a lot of people are predicting negative prices again on the June oil contract futures expiration, which comes in a couple of weeks.

Q: What about LEAPS on United (UAL) and Delta (DAL)?

A: I am withdrawing all of my recommendations for LEAPS on the airlines. When Warren Buffet sells a sector for an enormous loss, I'm not inclined to argue with him. It’s really hard to visualize the airlines coming out of this without a complete government takeover and wipeout of all existing equity investors. Airlines have only enough cash to survive, at best, 6-8 months of zero sales, and when they do start up, they will have more virus-related costs, so I would just rather invest in tech stocks. If you’re in, I would get out even if it means taking a loss. They don’t call him the Oracle of Omaha for nothing.

Q: Any reason not to do bullish LEAPS on a selloff?

A: None at all, that is the best thing you can do. And I’m not doing LEAPS right now, I’m putting out lists of LEAPS to buy on a selloff, but I wouldn't be buying any right now. You’d be much better off waiting. Firstly, you get a longer expiration, and secondly, you get a much better price if you could buy a LEAP on a 2,000 or 3,000 point selloff in the Dow Average (INDU).

Q: Would you add the 2X ProShares Ultra Short S&P 500 (SDS) position here if you did not get on the original alert?

A: I would, I would just do a single 10% weighting. But don’t expect too much out of it, maybe you'll get a couple of points. And it’s also a good hedge for any longs you have.

Q: What happens if the second wave in the epidemic is smaller?

A: Second waves are always bigger because they’re starting off with a much larger base. There isn't a scientist out there expecting a smaller second wave than the first one. So, I wouldn't be making any investment bets on that.

Q: Pfizer (P) and others seem close to having a vaccine, moving on to human trials. Does that play into your view?

A: No, because no one has a vaccine that works yet. They may be getting tons of P.R. from the administration about potential vaccines, but the actual fact is that these are much more difficult to develop than most people understand. They have been trying to find an AIDS vaccine for 40 years and a cancer vaccine for 100 years. And it takes a year of testing just to see if they work at all. A bad vaccine could kill off a sizeable chunk of the US population. We’ve been taking flu shots for 30 years and they haven’t eliminated the flu because it keeps evolving, and it looks like coronavirus may be one of those. You may get better antivirals for treatment once you get the disease, but a vaccine is a good time off, if ever.

Q: Is this a good time to buy Boeing (BA)?

A: No, it’s too risky. The administration keeps pushing off the approval date for the 737 MAX because the planes are made in a blue state, Washington. The main customers of (BA), the airlines, are all going broke. I would imagine that their 1,000-plane order book has shrunk considerably. Go buy more tech instead, or a hotel or a home builder if you really want to roll the dice.

Q: How can the market actually drop to the lows, taking massive support from the Fed and further injections into account?

A: I don’t think we will get to new lows, I think we may test the lows. And my argument has been that we give half of the recent gains, which would take us down to 21,000 in the Dow and 2400 in the (SPX). But I've been waiting for a month for that to happen and it's not happening, which is why I've also developed my sideways scenario. That said, a lot of single stocks will go to new all-time lows, such as in retailers (RTF) and airlines (JETS).

Q: Would you stay in a Twitter (TWTR) LEAP?

A: If you have a profit, I would take it.

Q: What about Walt Disney (DIS)?

A: There are so many things wrong with Disney right now. Even though it's a great company for the long term, I'm waiting for more of a selloff, at least another $10. It’s actually rallying today on the earnings report. Around the low $90s I would really love to get into LEAPS on this. I think more bad news has to hit the stock for it to get lower.

Q: Are you continuing to play the (TLT)?

A: Absolutely yes, however, we’re at a level now where I want to take a break, let the market digest its recent fall, see if we can get any kind of a rally to sell into. I’ll sell into the next five-point rally.

Q: Any reason not to do calls outright versus spreads on LEAPS?

A: With LEAPS, because you are long and short, you could take a much larger position and therefore get a much bigger profit on a rise in the stock. Outright calls right now are some of the most expensive they’ve ever been. So, you really need to get something like a $10 or $15 rise in the stock just to break even on the premium that you’re paying. Calls are only good if you expect a very immediate short term move up in the stop in a matter of days. LEAPS you can run for two years.

Q: Is gold (GLD) still a buy?

A: Yes, the fundamental argument for gold is stronger than ever. However, it has been tracking one for one with the stock market lately. That's why I'm staying out of gold—I’d rather wait for a selloff in stocks to take gold down; then I’ll be in there as a buyer.

Q: Should I take profits on what I bought in April and reestablish on a correction?

A: Absolutely. If you have monster profits on a lot of these tech LEAPS you bought in the March/early April lows, then yes, I would take them. I think you will get another shot to buy these cheaper, and by coming out now and coming in later, you get to extend your maturity, which is always good in the LEAPS world.

Q: Would you buy casinos, or is it the same risk as the airlines?

A: I would buy casinos and hotels—they have a greater probability of survival than the airlines and a lot less debt, although they’re going to be losing money for years. I don’t know exactly how the casinos plan on getting out of this.

Q: Should we exit ProShares ultra short 20+ year Treasury Bond Fund (TBT) now?

A: No, that’s more of a longer-term trade. I would hang on to that—you could get from $16 to $20 or $25 in the foreseeable future if our down move in bond continues.

Good Luck and Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

March 27, 2020

Tech Letter

Mad Hedge Technology Letter
March 27, 2020
Fiat Lux

Featured Trade:

(THE COMING AD HIT FOR GOOGLE AND FACEBOOK)
(FB), (GOOGL), (TWTR), (SNAP)

The Coming Ad Hit for Google and Facebook

Tech Letter

Expect lower revenues from Facebook (FB) and Google (GOOGL) because ad revenue has taken a hit.

It makes no sense to spend ad money on Facebook and Google ads for restaurants and hotels during times like this and that’s if they even still exist today.

The accumulative effect of the bankruptcies in other parts of the economy will shrink Google and Facebook’s ad dollar coffers.

The two internet giants together could see more than $44 billion in worldwide ad revenue evaporate in 2020, but that doesn’t mean these companies won’t be profitable.

For 2020, Google's total net revenue is now projected to be about $127.5 billion, down $28.6 billion for the year.

Facebook’s management said there was “a weakening in the ads business in countries taking aggressive actions to reduce the spread of COVID-19.”

Facebook’s overall usage has increased during the pandemic, with data up more than 50% over the last month in countries hit hardest by the virus, but the spike in volume isn’t in a form in which they can monetize it.

In 2021, Facebook’s advertising business is projected to recover growing 23% year-over-year to $83 billion.

I now expect Google to generate $54.3 billion in operating income (43% adjusted EBITDA margin) and Facebook will make $33.7 billion (49% margin), in 2020.

Digital platforms have felt the abrupt halt in spending, given the relative ease of stopping ad spend.

Secondary ad companies are also performing worse than expected with forecasted revenue for Twitter (TWTR) down by 18% (to expected revenue of $3.2 billion) while Snap (SNAP) ad revenue is expected at $1.66 billion, 30% lower.

Amazon’s ad business boasts a fortified moat because their revenue comes from product searches and those have experienced a surge in demand because of the coronavirus.

Facebook-owned WhatsApp has increased by 50% and that number is up 70% in Italy as the Italians go through a severe outbreak and lockdown.

Another side effect from the virus is the reduction of video streaming quality to ease the strain on internet networks, as YouTube and Netflix (NFLX) have also done.

Facebook is monitoring usage patterns in order to make the system more efficient, and add further capacity as required.

To help ameliorate potential network congestion, they temporarily reduced bit rates for videos on Facebook and Instagram in certain regions.

Facebook is conducting tests and further preparing to respond to any problems that might arise with network services.

Facebook and Google’s weakness proves that even the largest of Silicon Valley tech companies are battling with revenue restructuring while waiting for the U.S. economy to open up.

Although this is terrible news for Facebook and Google, the Nasdaq index is in the process of bottoming out.

The 3.28 million U.S. jobless claims were unprecedented but could very well represent a flushing out of the horrible news as the Nasdaq index spiked by 4% intraday.

Tech shares have had this job claim number baked into the share price for quite a while and we knew it was going to drop like an atomic bomb.

Some estimates had 4 million unemployed and the pain on main street is real, just search on Twitter – hashtag #lostmyjob.

The anecdotes stream down about individuals coming to grips with a sudden sacking and new reality of zero income.

This is just the first phase of job removals and the silver lining is that tech companies largely avoided the worst of the firings partly because many tech jobs can be moved remotely unlike many hospitality jobs.

The other silver lining is that the health scare is supercharging the digital ecosystem as society has effectively been moved online.

Any short-term weakness in tech companies will only be brief as tech stock will lead the recovery as the economy starts to open up again and the record amount of fiscal stimulus breathes life into hobbled companies.

Tech investors should prepare to pull the trigger.