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Tag Archive for: (WMT)

MHFTR

The Race Down to Zero

Tech Letter

It seems time after time, entire industries get flipped on their heads without notice.

The modern-day hyper-acceleration of technology is creating tectonic shifts in the economy that only some can truly understand.

There is the good, the bad, and the ugly.

The functionality of technology has helped enhanced our daily lives infinitely, yet there is a dark side of technology that has reared its ugly head threatening the future existence of mankind.

One industry next in line to be smashed to bits will have the effect of unimaginably reshaping Wall Street as we know it.

Gone are the days of brokers shouting from the trading pits, a bygone era where pimple-faced traders cut their teeth rubbing shoulders with the journeymen of yore.

The stock brokerage industry is at an inflection point with the revolutionary online stock brokerage Robinhood on the verge of shaking up an industry that has needed shaking up for years.

A common thread revisited by this newsletter is the phenomenon of broker apps being low-quality tech.

These apps can be built by a pimple-faced freshman college student in his dorm.

A broker ultimately serves little or no value to the real players among the deal, usually extracting huge commissions.

Technology and now blockchain technology vie to completely remove this exorbitant layer from the business process.

Well, for the stock brokerage industry, that time is now.

Robinhood is an online stock brokerage company based in Menlo Park, Calif., trading an assortment of asset classes including equities, options, and cryptocurrencies.

So, what's the catch?

Robinhood does not charge commission.

That's right, you can invest up until the $500,000 threshold protected by the Securities Investor Protection Corporation (SIPC) and you can go along with your merry day trading for free.

The online brokerage industry has been getting away with murder for years.

How did the online brokers get away with this in a technological climate where industries such as the transportation sector are being flipped on their head?

They got comfortable and stopped innovating - the death knell of any company.

Effectively, high execution costs reaping massive profits were the norm for brokers, and nobody questioned this philosophy until Robinhood exposed the ugly truth - unreasonably high rates.

Peeking at a monthly chart of brokerage costs will make your stomach churn.

For instance, a trader frequently executing trades with an account of $100,000 would hand over $1836 in commission in 2017 if their account was with Fidelity.

On the cheaper side, Interactive Brokers would charge $854 for its brokerage services to habitual traders per month.

The outlier was Tradier, a start-up brokerage founded in 2014 using the powerful tool of an API (Application Programming Interface), which charged $213 per month to trade frequently.

An API is described as a software intermediary allowing two applications to communicate with each other.

This model helped cut costs for the online brokerage because Tradier did not have to focus its funds on the trading platform that was delegated to various third-party platforms.

Tradier is largely responsible for the aggregation of data and charts thus employing an army of developers to meet their end of the business.

This model is truly the democratization of the online brokerage industry, which has been coming for years.

Cost are cut to a minimum with equity trades at Tradier costing investors $3.49 per order and option contracts costing $0.35 per contract with a $9 options assignment and exercise fee.

Technology has defeated the traditionalist again.

Day traders will tell you their largest worry is keeping a lid on execution costs.

Volume traders plan their strategies according to bare bones commission.

Marrying technology with online brokerages has the deflation effect that Amazon (AMZN) deftly took advantage to perfection.

Brokerages do not pay higher costs for an incremental bump in trading volume. Costs are mainly fixed.

If you hold an account in one of these legacy brokers charging an arm and a leg to trade with them, jump ship and join the revolution.

So how does Robinhood generate revenue if the broker trades for free?

Hawk ads? No.

They are not rogue ad sellers as is Facebook (FB).

The plethora of accounts opened with Robinhood earn interest, and Robinhood collects the earned interest as revenue.

Also, Robinhood has one paid service for sale.

Robinhood Gold is a subscription allowing traders to use margin. The margin accounts will set traders back $10 per month adding up to $120 per year, and they won't be charged interest on the funds.

This is peanuts compared to what other traditional brokerages are charging clients for margin account interest.

This is also a data grab with the proprietary data building up profusely turning into a potential Masayoshi Son SoftBank Vision fund acquisition.

Robinhood has already registered more than 5 million accounts for a company that started its operations in 2013.

The rise of these 5 million accounts coincided with the explosion of the price of bitcoin breaching the $20,000 level.

This price surge inspired a whole generation of millennials to get off the sofa and start trading cryptocurrencies.

More than 80% of Robinhood's accounts are owned by millennials.

Trading cryptocurrencies acts as a gateway asset to springboard into other asset classes such as equities and derivative contracts.

Vlad Tenev, co-CEO of Robinhood, indicated that Robinhood will have to modify its radical business model to monetize more of the business in the future, but he is comfortable with the current business model.

But Tenev has already seen fruit borne with the likes of Robinhood applying fierce pressure to the legacy brokerages' pricing models.

The traditionalists are locked in a vicious pricing war with each other slashing their commission rates to stay competitive.

The longer the likes of Charles Schwab (SCHW) feel it necessary to charge $4.95, down from the January 2017 cost of $8.95, the better the chances are that Robinhood can build its account base rapidly.

Charles Schwab has more than 10 million accounts, only double the number of Robinhood, after being founded in 1971.

The 42-year head start over Robinhood has not produced the desired effect, and it is ill-prepared to battle these tech companies that enter the fray.

Robinhood has been able to add a million new accounts per year. If Charles Schwab relatively performed at the same rate, it would have 47 million accounts open today.

It doesn't and that is a problem, because the company can be caught up to.

The lack of urgency to combat the tech threat is astounding. Companies such as Walmart (WMT) have taken the initiative to transform the narrative with great success.

The race to zero is a grim reality for the Fidelities (FFIDX) of the world, and adopting a Robinhood approach will be the playbook going forward.

Brokerages and a slew of other industries are turning into a legion of top-level developers fighting tooth and nail to stay relevant.

The transportation industry has grappled with this harsh reality lately, but the economy is on the cusp of many other industries digitizing to the extreme.

My guess is that Robinhood starts rolling out a slew of subscription services catering toward specific investors.

The age of specialization is upon us with full force, and customer demand requires care and diligence that never existed before.

Robinhood continues to enhance its offerings of various products adding Litecoin and Bitcoin Cash to the crypto lineup.

Only Bitcoin and Ethereum were offered before.

The company is not without headline investors boasting the likes of Andreessen Horowitz, the venture capitalist firm based in Menlo Park, Calif., Box (BOX) CEO Aaron Levie, and hip-hop mogul Snoop Dogg.

Expect Robinhood to pile the funds into improving the technology, data accuracy while offering a new mix of hybrid products.

The enhancements will attract another wave of adopters spawning another wave of panic from the legacy brokers.

To visit the pricing information at Robinhood, please click here.

 

 

 

________________________________________________________________________________________________

Quote of the Day

"When something is important enough, you do it even if the odds are not in your favor," - said Tesla founder and CEO Elon Musk.

 

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MHFTR

July 26, 2018

Diary, Newsletter

Global Market Comments
July 26, 2018
Fiat Lux

AMAZON SPECIAL REPORT

Featured Trade:
(SO WHERE DID THOSE AMAZON EARNINGS REALLY COME FROM
AND WHERE ARE THEY GOING?),
(AMZN), (WMT)

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MHFTR

So Where Did Those Amazon Earnings Really Come from and Where Are They Going?

Diary, Newsletter, Research

Amazon earnings come out after the close today so it's a good time to bone up on the history of the online retail giant. Forewarned is to be forearmed.

Is to time to cash in on the huge profits you have already attained or is it time to load the boat some more?

Jeff Bezos, born Jeff Jorgensen, is the son of an itinerant alcoholic circus clown and a low-level secretary in Albuquerque, New Mexico. When he was three, his father abandoned the family. His mother remarried a Cuban refugee, Miguel Bezos, who eventually became a chemical engineer for Exxon.

I have known Jeff Bezos for so long he had hair when we first met in the 1980s. Not much though, even in those early days. He was a quantitative researcher in the bond department at Morgan Stanley, and I was the head of international trading.

Bezos was then recruited by the cutting-edge quantitative hedge fund, D.E. Shaw, which was making fortunes at the time, but nobody knew how. When I heard in 1994 that he left his certain success there to start an online bookstore, I thought he'd suffered a nervous breakdown, common in our industry.

Bezos incorporated his company in Washington state later that year, initially calling it "Cadabra" and then "Relentess.com." He finally chose "Amazon" as the first interesting word that appeared in the dictionary, suggesting a river of endless supply. When I learned that Bezos would call his start-up "Amazon," I thought he'd gone completely nuts.

Bezos funded his start-up with a $300,000 investment from his parents who he promised stood a 50% chance of losing their entire investment. But then his parents had already spent a lifetime running Bezos through a series of programs for gifted children, so they had the necessary confidence.

It was a classic garage start-up with three employees based in scenic Bellevue, Washington. The hours were long with all of the initial effort going into programming the initial site. To save money, Bezos bought second-hand pine doors, which stood in for desks.

Bezos initially considered 20 different industries to disrupt, including CDs and computer software. He quickly concluded that books were the ripest for disruption, as they were cheap, globally traded, and offered millions of titles.

When Amazon.com was finally launched in 1995, the day was spent fixing software bugs on the site, and the night wrapping and shipping the 50 or so orders a day. Growth was hyperbolic from the get go, with sales reaching $20,000 a week by the end of the second month.

An early problem was obtaining supplies of books when wholesalers refused to offer him credit or deliver books on time. Eventually he would ask suppliers to keep a copy of every book in existence at their own expense, which could ship within 24 hours.

Venture capital rounds followed, eventually raising $200 million. Early participants all became billionaires, gaining returns of 10,000-fold or more, including his trusting parents.

Bezos put the money to work, launching into a hiring binge of epic proportions. "Send us your freaks," Bezos told the recruiting agencies, looking for the tattooed and the heavily pierced who were willing to work in shipping late at night for low wages. Keeping costs rock bottom was always an essential part of the Amazon formula.

Bezos used his new capital to raid Wal-Mart (WMT) for its senior distribution staff, for which it was later sued.

Amazon rode on the coattails of the Dotcom Boom to go public on NASDAQ on May 15, 1997 at $18 a share. The shares quickly rocketed to an astonishing $105, and in 1999 Jeff Bezos became Time magazine's "Man of the Year."

Unfortunately, the company committed many of the mistakes common to inexperienced managements with too much cash on their hands. It blew $200 million on acquisitions that, for the most part, failed. Those include such losers as Pets.com and Drugstore.com. But Bezos's philosophy has always been to try everything and fail them quickly, thus enabling Amazon to evolve 100 times faster than any other.

Amazon went into the Dotcom crash with tons of money on its hands, thus enabling it to survive the long funding drought that followed. Thousands of other competitors failed. Amazon shares plunged to $5.

But the company kept on making money. Sales soared by 50% a month, eventually topping $1 billion by 2001. The media noticed Wall Street took note. The company moved from the garage to a warehouse to a decrepit office building in downtown Seattle.

Amazon moved beyond books to compact disc sales in 1999. Electronics and toys followed. At its New York toy announcement Bezos realized that the company actually had no toys on hand. So, he ordered an employee to max out his credit card cleaning out the local Hammacher Schlemmer just to obtain some convincing props.

A pattern emerged. As Bezos entered a new industry he originally offered to run the online commerce for the leading firm. This happened with Circuit City, Borders, and Toys "R" Us. The firms then offered to take over Amazon, but Bezos wasn't selling.

In the end Amazon came to dominate every field it entered. Please note that all three of the abovementioned firms no longer exist, thanks to extreme price competition from Amazon.

Amazon had a great subsidy in the early years as it did not charge state sales tax. As of 2011, it only charged sales tax in five states. That game is now over, with Amazon now collecting sales taxes in all 45 states that have them.

Amazon Web Services originally started out to manage the firm's own website. It has since grown into a major profit center, with $17.4 billion in net revenues in 2017. Full disclosure: Mad Hedge Fund Trader is a customer.

Amazon entered the hardware business with the launch of its e-reader Kindle in 2007, which sold $5 billion worth in its first year. The Amazon Echo smart speaker followed in 2015 and boasts 71.9% market share. This is despite news stories that it records family conversations and randomly laughs.

Amazon Studios started in 2010, run by a former Disney executive, pumping out a series of high-grade film productions. In 2017 it became the first streaming studio to win an Oscar with Manchester by the Sea with Jeff Bezos visibly in the audience at the Hollywood awards ceremony.

Its acquisitions policy also became much more astute, picking up audio book company Audible.com, shoe seller Zappos, Whole Foods, and most recently PillPack. Since its inception, Amazon has purchased more than 86 outside companies.

Sometimes, Amazon's acquisition tactics are so predatory they would make John D. Rockefeller blush. It decided to get into the discount diaper business in 2010, and offered to buy Diapers.com, which was doing business under the name of "Quidsi." The company refused, so Amazon began offering its own diapers for sale 30% cheaper for a loss. Diapers.com was driven to the wall and caved, selling out for $545 million. Diaper prices then popped back up to their original level.

Welcome to online commerce.

At the end of 2018, Amazon boasted some 306,000 employees worldwide. In fact, it has been the largest single job creator in the United States for the past decade. Also, this year it disclosed the number of Amazon Prime members at 100 million, then raised the price from $80 to $100, thus creating an instant $2 billion in profit.

The company's ability to instantly create profit like this is breathtaking. And this will make you cry. In 2016, Amazon made $2.4 billion from Amazon gift cards left unredeemed!

In 2017, Amazon net revenues totaled an unbelievable $177.87 billion. It is currently capturing about 50% of all new online sales.

So, what's on the menu for Amazon? There is a lot of new ground to pioneer.

1) Health Care is the big one, accounting for $3 trillion, or 17% of U.S. GDP, but where Amazon has just scratched the surface. Its recent $1 billion purchase of PillPack signals a new focus on the area. Who knows? The hyper-competition Bezos always brings to a new market would solve the American health care crisis, which is largely cost driven. Bezos can oust middle men like no one else.

2) Food is the great untouched market for online commerce, which accounts for 20% of total U.S. retail spending, but sees only 2% take place online. Essentially this is a distribution problem, and you have to accomplish this within the prevailing subterranean 1% profit margins in the industry. Books don't need to be frozen or shipped fresh. Wal-Mart (WMT) will be target No. 1, which currently gets 56% of its sales from groceries. Amazon took a leap up the learnings curve with its $13.7 billion purchase of Whole Foods (WFC) in 2017. What will follow will be interesting.

3) Banking is another ripe area for "Amazonification," where excessive fees are rampant. It would be easy for the company to accelerate the process through buying a major bank that already had licenses in all 50 states. Amazon is already working the credit card angle.

4) Overnight Delivery is a natural, as Amazon is already the largest shipper in the U.S., sending out more than 1 million packages a day. The company has a nascent effort here, already acquiring several aircraft to cover its most heavily trafficked routes. Expect FedEx (FDX), UPS (UPS), DHL, and the United States Post Office to get severely disrupted.

5) Amazon is about to surpass Wal-Mart this year as the largest clothing retailer. The company has already launched 76 private labels, with half of them in the fashion area, such as Clifton Heritage (color and printed shirts), Buttoned Down (100% cotton shirts) and Goodthreads (casual shirts) as well as subscription services for all of the above.

6) Furniture is currently the fastest growing category at Amazon. Customers can use an Amazon tool to design virtual rooms to see where new items and colors will fit best.

7) Event Ticketing firms like StubHub and Ticketmaster are among the most despised companies in the U.S., so they are great disruption candidates. Amazon has already started in the U.K., and a takeover of one of the above would ease its entry into the U.S.

If only SOME of these new business ventures succeed, they have the potential to DOUBLE Amazon's shares from current levels, taking its market capitalization up to $1.8 trillion. Amazon will easily win the race to become the first $1 trillion company. Perhaps this explains why institutional investors continue to pour into the shares, despite being up a torrid 83% from the February lows.

Whatever happened to Bezos's real father, Ted Jorgensen? He was discovered by an enterprising journalist in 2012 running a bicycle shop in Glendale, Arizona. He had long ago sobered up and remarried. He had no idea who Jeff Bezos was. Ted Jorgensen died in 2015. Bezos never took the time to meet him. Too busy running Amazon, I guess. Worth $160 billion, Bezos is now the richest man in the world.

 

 

 

 

 

From a Garage to This

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MHFTR

July 19, 2018

Tech Letter

Mad Hedge Technology Letter
July 19, 2018
Fiat Lux

Featured Trade:
(AVOIDING THE BULLY),
(MSFT), (AMZN), (WMT), (GME), (ORCL), (GE), (CPB)

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MHFTR

Avoiding the Bully

Tech Letter

A bully stealing your lunch is not fun.

Partnering up to subdue a bully isn't only happening on the school playground.

Walmart (WMT) is doing it now, too.

Let me explain.

The Amazon (AMZN) effect is understood as the disruption of traditional brick-and-mortar business by Amazon's domination in e-commerce sales.

This phenomenon was all about how Amazon would take over, and by all means they are, and in brisk fashion.

That is why Amazon trade alerts from the Mad Hedge Technology Letter are nestled away in your email inbox.

Desperate times call for desperate measures.

Amazon competitors are facing an existential crisis they have never seen before.

The newest member of the FANG group, Walmart, is transforming into a tech company, and this metamorphosis is picking up steam.

To read my recent story about Walmart's headfirst dive into India, the newest battleground country, by way of its purchase of Indian e-commerce juggernaut Flipkart, please click here.

The second part of its strategy was revealed by announcing that Walmart would partner with Microsoft's (MSFT) cloud platform Azure to tap into the deep A.I. (artificial intelligence) and machine learning expertise.

If you can't beat them, find another competitor to help you change the status quo.

The five-year deal is a game changer in a coveted cloud industry pitting David vs. Goliath.

Amazon's footprint is wide reaching and bosses 33% of the cloud market it invented, far and away surpassing runner-up Microsoft, which garners just 13% market share.

Microsoft is catching up fast and that 13% was just 10% in 2016.

Microsoft and Walmart have a common foe that haunts them in their dreams.

These companies feel they are better served combining forces than being isolated from each other.

In an exclusive Wall Street Journal interview with Satya Nadella, Microsoft's CEO, Nadella directly confirmed what people already knew.

This strategic move "is absolutely core to this (Amazon threat)."

Walmart will use Microsoft's advanced cloud technology to optimize its operations from managing inventory, selecting the most suitable products to display, and running its equipment efficiently.

In 2016, Walmart's purchase of e-commerce company Jet.com was thoroughly integrated onto the Microsoft Azure. This further cooperation will help boost a company that has been aggressively vocal about its tech exploits.

High-quality products sell themselves and the story has played itself over again.

Microsoft is a master at luring in business through the front door, and padlocking the front gate procuring business for decades.

This case is no different and a vital reason the Mad Hedge Technology Letter has pinned down Microsoft as a top three tech stock.

Walmart also has made it crystal clear that a prerequisite for doing business with them is not doing business with Amazon Web Services (AWS), Amazon's lucrative cloud division.

Any profit dropping down to the (AWS) bottom line is used to wield against the retail landscape, damaging Walmart's prospects.

The Amazon effect is starting to work against Amazon, as the threat is forcing other businesses to adopt the same mind-set as Walmart.

Snowflake Computing, a private data firm focused on warehouse databases established by Bob Muglia in 2014, was exclusively available on the AWS platform.

However, more and more retailers such as Walmart started banging on Snowflake Computing's door demanding that it offer its cloud services on a cloud platform that is not its competitor.

Snowflake Computing obliged and is now up and running on Microsoft Azure.

Can you imagine the competition being able to sift through troves of data understanding every strength and weakness?

It's a one-way street to bankruptcy court.

Perhaps that explains why GameStop (GME) is such a poor performer, as its operations are entirely on (AWS).

GameStop is a stock that I am bearish on, because selling video games as a middleman is a legacy business.

Kids just download everything direct from the manufacturer from their broadband connection, making GameStop's business model obsolete.

It has a turnaround plan, apparently Oracle (ORCL) has one too, but it's barely begun.

Microsoft is a bad choice as well for GameStop, which is heart and center in the video game industry as well.

There are many alternatives; someone should notify recently installed GameStop CEO Daniel A. DeMatteo about one.

(AWS)'s dominance is benefitting Microsoft Azure explaining the rapid pace of cloud market share advancement.

This is just the tip of the iceberg. Walmart has some other irons in the fire.

Enter Project Kepler.

This is Walmart's response to Amazon Go stores, a partially automated retail store with no cashiers or checkout station, which currently has one functional location in Seattle.

Project Kepler is being developed by Jet.com co-founder and CTO Mike Hanrahan. And guess who is providing the technology for this alternative retail experience store - Microsoft.

Microsoft poached a computer vision specialist from Amazon Go who will help develop the appropriate sensors and computer vision algorithms necessary to get this store up and running.

These same sensors can be found in autonomous driving technology.

Shopping cart cameras could also be added to the mix to ensure quality and hopefully avoid the teething pains new technology grapples with.

Microsoft Azure CTO Mark Russinovich commented lately saying firms are on the front foot utilizing "A.I. and machine learning to automate processes to get insights into operations that they didn't have before."

Microsoft is perfectly set up to harvest many of these new contracts.

The deals have started to roll in.

Microsoft is successfully broadening its relationship with GE (GE), using the Azure data analytics capabilities to transform GE Digital's industrial IoT solutions.

This week also saw Microsoft scoop up Campbell Soup Company (CPB) as a new client, which decided on Microsoft Azure to modernize its IT infrastructure.

Campbell Soup will deploy Azure for real-time access to critical operations data, offering deeper intelligence for Campbell's senior management team.

This robust business activity is all because Microsoft is not Amazon, along with having a stellar product about which companies gloat.

Retailers have chosen Microsoft as the cloud platform of choice and expect the majority of retailers to tie their futures to Microsoft.

That's not the only iron in the fire.

Jetblack is another experimental retail service that Walmart is testing as we speak.

The service is still in beta mode in Manhattan targeting urban, high net worth mothers.

It emphasizes a personalized shopping experience in a narrow segment of goods that include household products, cosmetics, health and beauty products.

Shoppers will be able to snap photos of products and send them to Jetblack, receiving them at home with free shipping.

Customer service will be carried out by a high-quality lifelike bot, and Walmart intends to charge a membership fee to take part in this specialized shopping experience.

Microsoft subsidiary LinkedIn has also been leaning more on its parent company's technology lately.

LinkedIn software engineer Angelika Clayton wrote in her blog that "dozens of languages" are being converted into English via Microsoft Translator Text application programming interface, ballooning the candidate database for English speaking headhunters.

Could foreign language learning soon go way of the dodo bird and woolly mammoth?

Machine learning and A.I. have that type of power.

Tech analysts on the street must avoid issuing reports boasting that "everything is priced in," because these tech behemoths are driving innovation faster than people can understand it.

Walmart has turned into one of the most innovative companies around.

Who would have imagined this development a few years ago?

Nobody, not even Walmart itself.

Everything Microsoft touches lately turns into gold, along with being one of the more trusted tech titans out of the motley crew that has ruffled a few feathers this year.

Walmart is aggressively experimenting, systematically attempting to hop on new trends in retail hoping one or two will catch fire.

The credit must go to CEO Doug McMillon who has brought a tech first approach since being installed as CEO in 2014.

Even though conservative Walmart investors have penalized Walmart for the heavy spending, they must come to terms that Walmart's model is plain different now.

It's either spend or die in 2018.

Microsoft is in store to report its status on its pursuit of AWS, and I expect the company to inch closer with each earnings report.

Its outperforming Azure cloud business is in the first stages of a marathon, and sometimes it's not always salubrious to be the schoolyard bully because everybody starts avoiding you like the plague.

 

 

 

 

________________________________________________________________________________________________

Quote of the Day

"They broke the law on several occasions after being warned," said Larry Kudlow, director of the United States National Economic Council, when asked about Chinese company ZTE, which sold telecommunications equipment to Iran and North Korea.

 

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MHFTR

June 21, 2018

Tech Letter

Mad Hedge Technology Letter
June 21, 2018
Fiat Lux

Featured Trade:
(WHY NETFLIX IS UNSTOPPABLE),

(NFLX), (CAT), (AMZN), (CMCSA), (DIS), (FOX), (TWX), (GM), (WMT), (TGT)

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MHFTR

Why Netflix is Unstoppable

Tech Letter

Trade war? What trade war?

Apparently, nobody told Netflix (NFLX) that we are smack dab in a tit-for-tat trade war between two of the greatest economic powers to grace mankind.

No matter rain or shine, Netflix keeps powering on to new highs.

The Mad Hedge Technology Letter first recommended this stock on April 23, 2018, when I published the story "How Netflix Can Double Again," (click here for the link) and at that time, shares were hovering at $334.

Since, then it's off to the races, clocking in at more than $413 as of today, a sweet 19% uptick since my recommendation.

It seems the harder I try, the luckier I get.

What separates the fool's gold from the real yellow bullion are challenging market days like yesterday.

The administration announced a new set of tariffs on $200 billion worth of Chinese imports.

The day began early on the Shanghai exchange dropping a cringeworthy 3.8%.

The Hong Kong Hang Seng Market didn't fare much better cratering 2.78%.

Investors were waiting for the sky to drop when the minutes counted down to the open in New York and futures were down big premarket.

Just as expected, the Dow Jones Index plummeted on the open, and in a flash the Dow was down 410 points intraday.

The risk off appetite toyed with traders' nerves and American companies with substantial China exposure being rocked the hardest such as Caterpillar (CAT).

After the Dow hit an intraday low, a funny thing happened.

The truth revealed itself and U.S. equities reacted in a way that epitomizes the nine-year bull market.

Tar and feather a stock as much as you want and if the stock keeps going up, it's a keeper.

Not only a keeper, but an undisputable bullish signal to keep you from developing sleep apnea.

In the eye of the storm, Netflix closed the day up a breathtaking 3.73%. The overspill of momentum continued with Netflix up another 2% and change today.

This company is the stuff of legends and reasons to buy them are legion.

As subscriber surveys flow onto analysts' desks, Netflix is the recipient of a cascade of upgrades from sell side analysts scurrying to raise targets.

Analysts cannot raise their targets fast enough as Netflix's price action goes from strength to hyper-strength.

Chip stocks have the opposite problem when surveys, portraying an inaccurate picture of the 30,000-foot view, prod analysts to downgrade the whole sector.

That is why they are analysts, and most financial analysts these days are sacked in the morning because they don't understand the big picture.

Quality always trumps quantity. Period.

Netflix has stockpiled consecutive premium shows from titles such as Stranger Things, The Crown, Unbreakable Kimmy Schmidt, and Orange is the New Black.

This is in line with Netflix's policy to spend more on non-sports content than any other competitors in the online streaming space.

In 2017, Netflix ponied up $6.3 billion for content and followed that up in 2018, with a budget of $8 billion to produce original in-house shows.

Netflix hopes to increase the share of original content to 50%, decoupling its reliance on traditional media stalwarts who hate Netflix's guts with a passion.

A good portion of this generous budget will be deployed to make 30 new anime shows and 80 new original films all debuting by the end of 2018.

Amazon's (AMZN) Manchester by the Sea harvested two Oscars for its screenplay and Casey Affleck's performance, foreshadowing the opportunity for Netflix to win awards next time around, potentially boosting its industry profile.

It will only be a matter of time because of the high quality of production.

Netflix's content budget will dwarf traditional media companies by 2019, creating more breathing room against the competitors who have been late to the party and scrambling for scraps.

This is what Disney's futile attempts to take on Netflix, which raised its offer for Fox to $71.3 billion to galvanize its content business.

Disney's (DIS) bid came on the heels of Comcast Corp. (CMCSA) bid for Disney at $65 billion.

The sellers' market has boosted all content assets across the board.

Remember, content is king in this day and age.

In 2017, Time Warner (TWX) and Fox (FOX) spent $8 billion each and Disney slightly lagged with a $7.8 billion spend on non-sports programming.

Netflix will certainly announce a sweetened content outlay of somewhere close to $9.5 billion next year attracting the best and brightest to don the studios of Netflix.

What's the whole point of creating the best content?

It lures in the most eyeballs.

Subscriber growth has been nothing short of spectacular.

Expectations were elevated, and Netflix delivered in spades last quarter adding quarterly total subscribers to the tune of 7.41 million versus the 6.5 million expected by analysts.

Not only a beat, but a blowout of epic proportions.

Inside the numbers, rumors were adrift of Netflix's domestic numbers stagnating.

Consensus was proved wrong again, with domestic subscribers surging to 1.96 million versus the 1.48 million expected.

The cycle replays itself over. Lather, rinse, repeat.

Quality content attracts a wave of new subscribers. Robust subscriber growth fuels more spending, which paves the way for more quality content.

This is Netflix's secret formula to success.

Netflix has executed this strategy systemically to the aghast of traditional media companies that are stuck with legacy businesses dragging them down and making it decisively difficult to compete with the nimble online streaming players.

Turning around a legacy business is tough work because investors expect profits and curse the ends of the earth if companies spend big on new projects removing the prospects of dividend hikes.

Netflix and the tech darlings usually don't make a profit but have a license to spend, spend, and spend some more because investors are on board with a specific narrative prioritizing market share and posting rapid growth.

The cherry on top is the booming secular story happening as we speak in Silicon Valley.

Effectively, all other sectors that are not tech have become legacy sectors thanks in large part to the high degree of innovation and cross-functionality of big cap tech companies.

The future legacy winners are the legacy stocks and sectors reinventing themselves as new tech players such as General Motors (GM), Walmart (WMT), and Target (TGT).

The rest will die a miserably and excruciatingly slow death.

The Game of Thrones M&A battle with the traditional media companies is a cry of desperate search for these dinosaurs.

They were too late to react to the Netflix threat and were punished to full effect.

Halcyon days are upon Netflix, and this company controls its own destiny in the streaming wars and online streaming content industry.

As history shows, nobody executes better than CEO Reed Hastings at Netflix, which is why Netflix maintains its grade as a top 3 stock in the eyes of the Mad Hedge Technology Letter.

 

 

 

_________________________________________________________________________________________________

Quote of the Day

"I got the idea for Netflix after my company was acquired. I had a big late fee for Apollo 13. It was six weeks late and I owed the video store $40. I had misplaced the cassette. It was all my fault," - said cofounder and CEO of Netflix Reed Hastings.

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 MHFTR https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png MHFTR2018-06-21 01:05:582018-06-21 01:05:58Why Netflix is Unstoppable
MHFTR

June 7, 2018

Tech Letter

Mad Hedge Technology Letter
June 7, 2018
Fiat Lux

Featured Trade:
(THE NEW TECHNOLOGY PLAY YOU'VE NEVER HEARD OF),
(GM), (UBER), (WMT), (GOOGL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 MHFTR https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png MHFTR2018-06-07 01:06:492018-06-07 01:06:49June 7, 2018
MHFTR

The New Technology Play You've Never Heard of

Tech Letter

Welcome to the new cutting-edge high-tech play - General Motors (GM).

The tectonic shifts permeating through the tech landscape seem like there is no end.

Another blockbuster announcement hit the airwaves melding together a brand-new partnership between SoftBank and GM's self-driving unit Cruise.

SoftBank invested an eye-popping $2.25 billion into Cruise for a 19.6% stake, adding to its scintillating arsenal of big data assets focusing on transportation including Uber, India's Ola, China's DiDi, and Southeast Asia's Grab.

GM disclosed it will divvy up a further $1.1 billion into the deal.

The Mad Hedge Technology Letter has been an astute follower of the autonomous driving technology race because the technology will be the next proprietary technology to change the world, creating enormous windfalls for the few involved.

The timeline commences later this year, when Waymo, a subsidiary of Alphabet (GOOGL), rolls out a robo-taxi commercial service.

General Motors is right on Waymo's heels rolling out its own commercial service "sometime in 2019."

This momentous investment by SoftBank solidifies (GM) as the No. 2 industry player going forward.

This is a huge victory.

The historic shift symbolizes the next gap up in the technology movement.

Tech stocks have been on a tear of late leaving other equities in the dust.

Waymo was the first mover and confidently never relinquished the top-dog position while avoiding any big disasters along the way.

The unparalleled success of Waymo's self-driving unit has led analysts to put a valuation figure ranging anywhere from $75 billion to $125 billion.

GM paid a measly $1 billion for Cruise in 2016, which is peanuts in today's thriving tech landscape.

Analysts estimated the valuation of Cruise at $4 billion just before the SoftBank investment. The almost 20% stake for $2.25 billion puts the new valuation number over $11 billion, three times more than analysts initially speculated.

Tech acquisitions have exploded in 2018 and show no signs of slowing down.

The hallmarks of Waymo's operation hinge on safety-first initiatives, which went a long way to upholding its industry leader position.

The safety-second attitude led Uber to attempt to short circuit its way to the top from a position of weakness to ill effect.

Uber's technology failed, and the result of the Phoenix, Arizona, casualty was a suspended operation.

Game over.

To stick the blade cleanly through the back, Uber CEO Dara Khosrowshahi revealed that talks are ongoing between Waymo and Uber to add Waymo's technology to Uber's broker app service.

This revelation is interesting considering Uber infuriated Waymo. It means Uber will effectively recede itself from competing with Waymo in self-driving technology.

The company doesn't need to anymore and it burns too much cash.

The protracted court ruling revealed Uber had stolen trade secrets using poached Waymo engineers.

This time, it really is the nail in the coffin for Uber's self-driving technology.

It will change strategy and refine its core app that made them famous in the first place.

The SoftBank investment into Cruise has clear synergies with Uber.

If Waymo refuses to go into bed with Uber, the natural logical step would be for the GM Cruise technology to be integrated with the Uber platform since they are both SoftBank investments.

SoftBank's management will clearly push for this arrangement. It makes no sense to use the Lyft platform with the GM Cruise division.

The tie up with GM Cruise was the catalyst for Uber seeking "talks" with Waymo, knowing very well if talks failed, a backup plan was hatched and would be able to partner up with Cruise's technology.

This is the luxury Uber has now since it is part of the SoftBank umbrella along with the GM Cruise division.

This nullifies the existential threat Uber was anxious about as it is guaranteed a certain slice of the pie leading to material future revenue stream post IPO.

The SoftBank investment is a stamp of approval for the quality of GM self-driving technology.

SoftBank only invests in the most innovative firms.

The conundrum with legacy car companies is that the bulk of revenue is reliant on selling combustion-engine cars that will soon become obsolete.

Any large commitment to R&D, unfocused on its main profits levers, hurt margins. Investors do not buy American car manufacturers that operate at a loss.

Therefore, legacy companies are penalized for spending on new businesses that could be hit or miss.

They stick with their bread and butter through thick and thin because that is what investors expect them to do. This was why Walmart (WMT) sold off when it acquired a stake in Flipkart.

A certain type of Walmart investor would be aghast at this unexpected new direction and amount of dollars drained.

In support of Walmart, CEO Doug McMillon has been positively vocal about the pivot to tech and e-commerce.

It should not be a surprise.

Old technology gets swept into the dustbin of history. Examples are legion.

Let me explain why.

The shift from horse-drawn carriages to the automobile was an equally jaw-dropping development at the time.

Not all horse-drawn carriage manufacturers were able to make the massive leap from creating simple horse-carriage passenger vehicles to automotive vehicles with combustion engines.

When Abraham Lincoln was transported to the Ford Theatre the night of his assassination, he was rolling in a Studebaker horse-drawn carriage.

Studebaker, which was established in 1852 with $68 of capital and a tool belt, was the only top-notch horse-drawn carriage manufacturer to make the gigantic shift from horse-drawn carriage builder to automotive producer.

The other players shriveled up and waved the white flag.

Studebaker actually manufactured both horse-drawn carriages and cars from 1902-1920.

The company mutated again during World War II making military vehicles, M29, M29C, and engines for B-17 bombers.

Financial mismanagement ruined the company. In 1963 it shuttered its South Bend, Indiana, factory and then went out of business by 1967, missing out on a chance to take on Uber and Waymo by about 55 years.

Such are the annals of history.

(GM) is the first American legacy car company to make the complicated transition from traditional American car producer to self-driving technology player.

And it could be the only one.

The deal will raise the price range for the Uber IPO planned for 2019. The (GM) cruise division will report financials separately from the rest of the (GM) balance sheet, which could be the precursor to spinning it out as its own company creating more shareholder value.

No matter how you dice this up, (GM) is the real deal. Investors voted with their feet causing the stock to explode skyward closing 13% higher on the news of the investment.

Buy (GM) on the next sell-off instead of chasing the bolted stallion out of the starting gate.

 

 

 

 

_________________________________________________________________________________________________


Quote of the Day

"Indian software engineers are the best in the world; even in Silicon Valley, the best software engineers are Indians," - said CEO of Softbank Masayoshi Son

 

https://www.madhedgefundtrader.com/wp-content/uploads/2018/06/Cruise-car-image-3-e1528320620589.jpg 302 500 MHFTR https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png MHFTR2018-06-07 01:05:372018-06-07 01:05:37The New Technology Play You've Never Heard of
MHFTR

June 4, 2018

Tech Letter

Mad Hedge Technology Letter
June 4, 2018
Fiat Lux

Featured Trade:
(THE INNOVATOR'S DILEMMA),
(UBER), (WMT), (SNAP), (MSFT), (GOOGL), (AAPL), (GM), (IBM)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 MHFTR https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png MHFTR2018-06-04 01:06:432018-06-04 01:06:43June 4, 2018
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