Mad Hedge Technology Letter
April 8, 2022
Fiat Lux
Featured Trade:
(BEYOND MEAT CAN’T CATCH A BID)
(BYND), (K)
Food tech was on a run when quantitative easing was generous, and many thought those times would never end.
QE even had the added bonus of propping up zombie companies that were hopeless at turning a profit and in tech, there are many that fit that bill.
With a crashing thud, food tech is going through a cringe-worthy reckoning as a drip of data points suggest that food tech’s growth phase could be in the rear-view mirror.
It’s pretty much inexcusable that something like this happens so early in the growth cycle.
This must be a kick in the teeth for the company Beyond Meat (BYND) which produces the plant-based burger called Beyond Burger.
Total revenue in 2021 of $465 million and a loss of $182 million is hard to swallow.
Exposed at the worst possible time while capital markets close off the spigots means that management will need to turn around this company without the tailwind of low rates.
This could go from bad to worse for BYND and that is why the stock has felt the full force of the pessimism with the stock pulling back from $200 in 2019 to $43 today.
There simply is a reduced appetite for growth tech and food growth tech is on the outer edge of what would be considered reasonable in terms of the risk paradigm.
Investors have deserted this stock in unison, and I expect a cold winter for BYND’s stock as investment research firm Piper Sandler just released its latest teen survey, and it contained a barrage of highly negative news for BYND.
Not only are teens losing interest in plant-based meat alternatives, they also don’t have much of a preference for branded plant-based meat.
Piper analyzed the results of the firm’s survey work with more than 7,000 teens and found that 43% either eat plant-based meat or are willing to, down from 47% last fall and 49% in the spring of 2021.
Of the teens who don’t eat faux meats, 34% said they were willing to try it, down from 38% in the fall, when Piper Sandler last polled consumers.
This huge reversal means that people actually do like eating real animal-based meat instead of the fake stuff ,or the technology morphing plants into fake meat is not good enough.
I believe it’s a mixture of the two.
People want that cow-based steak or burger and there simply isn’t a substitute for it.
The incremental case for eating a Beyond burger is now null and void, consumers might as well microwave some frozen chicken nuggets.
There is no advantage for the Beyond burger and it appears as if BYNDs management got a little too arrogant with their product that isn’t up to snuff.
Limitations are hard to stomach but I should say the truth: plant-based burgers just aren’t that good, period.
Beyond Meat is still the No. 2 preferred brand, just behind privately held Impossible Foods, and ahead of Kellogg’s (K) Morningstar Farms.
While Beyond Meat’s scale is a positive, given it has the resources to develop new products and partner with high-profile partners, a lack of loyalty means it may not be enjoying much of a first-mover advantage.
Often, it can be hard to turn around such negative sentiment.
I would advise investors to not believe in this reversal at this point in the economic cycle.
The Fed is more hawkish by the day and that doesn’t scream to me that investing my money into food tech is a great idea.
The cold winter for food tech is here and better to wait it out and watch from the sidelines.
“It's simple science: exercising creates endorphins and endorphins make us happy. On the most basic level, Peloton sells happiness.” – Said CEO of Peloton John Foley
Mad Hedge Technology Letter
April 6, 2022
Fiat Lux
Featured Trade:
(THE RISKS THAT COME WITH THE METAVERSE)
(FB), (RBLX)
The word “metaverse” is a popular word recently and it has to do with a world from science fiction.
It refers to a future version of the internet accessed through immersive technologies such as virtual-reality and augmented-reality headsets.
Metaverse could be a $13 trillion market by 2030 according to a prominent research firm.
The internet built around decentralized technologies and virtual worlds is a novel idea.
The definition of the metaverse need to go beyond sticking to virtual worlds, like gaming and applications in virtual reality.
A comprehensive vision of the metaverse includes smart manufacturing technology, virtual advertising, online events like concerts, as well as digital forms of money such as cryptocurrencies like bitcoin.
The metaverse could see 5 billion unique internet visitors by the end of the decade, funneling trillions of dollars in revenue in this next-generation of the internet.
This isn’t the only source labelling the metaverse and web3 a trillion-dollar opportunity. In research published in December, Goldman Sachs put a $12.5 trillion number on the space, in a bullish outlook that assumed one-third of the digital economy shifts into virtual worlds and then expands by 25%.
So far, the metaverse has been a cash guzzler with not much to show for it.
With a huge amount of money already flowing into companies addressing the space and not much revenue, companies face years of poor revenue showing.
This money has been used to create the infrastructure of the metaverse and there hasn’t been the same type of return one would expect from Google’s ad business.
Profits are supposedly years away which could lead to many investors waiting for it on the sidelines while the engineers get their act together.
For example, leading metaverse plays have performed poorly with Roblox (RBLX), a video game company that is a platform for building and experiencing virtual worlds tanking by 30% this year.
What are the Metaverse risks?
That it doesn’t stick because it’s only tolerable for a few minutes.
There’s definitely a real risk that the metaverse never goes from the “fake it until you make it” to the real killer app that every consumer is clamoring for.
Just take for instance the art of a business meeting.
One might argue that using VR for meetings is less enticing than familiar technologies such as Zoom.
Would you rather see a real version of someone on a video or a fake avatar of someone up close?
In its fourth-quarter earnings report Meta said its new metaverse business lost $10 billion and its user base shrank for the first time in its history.
The metaverse could turn out to be just hype and nothing more because the leaders of these companies building it are surrounded by yes men who tell them it’s a great idea.
Many analysts have mentioned that Meta’s version of the virtual now is “terrible.”
Many also chime in saying “it’s been tried many, many times over the past four decades and it's never worked."
Even if Meta does improve on the technology and it does become more advanced, it still could be mediocre.
Clearly, the internet in the form we have now is running out of juice for public trading companies.
The metaverse would give many companies a new chance to rejuvenate their revenue engines.
But I am not entirely convinced that it is a good idea.
If many can remember, we were already supposed to have self-driving cars 3 years ago and that never happened.
A lot of this failed technology has a tendency to just fall by the wayside never to be talked about again.
There is still a risk that metaverse is an utter failure and Meta is forced to look at something different to save their failing company.
“Innovation distinguishes between a leader and a follower.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
April 4, 2022
Fiat Lux
Featured Trade:
(HOW TO BE AN ELITE TRADER?)
(TWTR), (TSLA), (SPACEX)
How to be an elite stock market trader?
Easy.
First, be the richest guy in the world.
Shell out $3B on a 9.2% stake in a publicly-traded tech stock that you often use.
Grab a bag of popcorn and watch the SEC filing announced and the stock soar 26%.
Make an instant $780M appreciation in your purchase, flip it if you want to right away for a profit, or hold it to most likely make another double or triple in your investment.
It seems like it’s that easy for guys like Tesla (TSLA) founder and CEO Elon Musk who announced a monster purchase in the social media messaging company Twitter (TWTR).
Making money isn’t that easy for most people, but Elon isn’t most people.
He has more gunpowder than anyone else and deploying it at this moment is an unequivocal buy signal for tech in the short term.
He usually is the smartest guy in every room and Twitter has been beaten down quite badly in the short-term going from $77 per share down to $31.
Buy low and sell high.
This formula has worked for many people.
Twitter will instantly go from a tech company rough around the edges to now an Elon Musk company.
The brand difference is immense.
First on the cards will most likely be the changing of CEO Parag Agrawal who must be responsible for the acceleration of digital ads you see on Twitter lately.
Agrawal is not Musk’s chosen man and Musk’s decision to dive into Twitter also has an activist investor element to it.
Let me remind readers that it was only just a few days ago that Elon Musk said he is “giving serious thought” to creating a social media platform that would compete with Twitter, saying that the latter has been stifling free speech.
“Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?” Musk tweeted in a Twitter poll.
The next day, Musk took it a step further, writing: “Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done?”
In the same thread, a Twitter user asked the Tesla CEO about possibly “building a new social media platform” that would boast “an open-source algorithm.”
The user proposed that the new platform would be one “where free speech and adhering to free speech is given top priority” and where “propaganda is very minimal.”
There will be an inquisition into the “best practices” at Twitter to see who is behind the mechanisms that lead to what Musk believes is the stifling of censorship.
Naturally, it appears that Musk will be hellbent on securing a board seat and this could be the precursor to additional investments into Twitter that might have him secure majority ownership.
Musk will turn Twitter into what he sees is good for democracy and sadly for investors in the short term, which could plausibly be bad for the share price.
However, if this becomes his pet project, he will want it to succeed in the long-term like everything else he touches which turns into gold and failure is not an option.
Just imagine being part of the umbrella that is Twitter management right now, Musk will most likely push for wholesale management changes at every level.
This is also an indictment of how bad Twitter management has been.
Musk is about to remake Twitter in his own image and what does that mean for tech stocks?
In a world of high uncertainties, this offers an ironclad green light to buy tech stocks.
Certainly, Musk wouldn’t buy Twitter at this time because he believes it is at a high point.
I loaded up last Friday in tech and I believe much of the short-term bad news in technology stocks is priced into shares and we have a lull before earnings season in which there is a chance for tech stocks to make up lost ground.
The last nugget I want to throw out to readers is that Twitter could become the vehicle in which Musk develops his passion for cryptocurrency.
This would dovetail nicely with Musk’s tendency to pull workers from Tesla and Space X in order to harness synergies.
Mad Hedge Technology Letter
April 1, 2022
Fiat Lux
Featured Trade:
(THE CREATIVE CLOUD IS OVERSOLD)
(ADBE), (AAPL), (GOOGL)
Creative software giant Adobe (ADBE) has ironclad support at $440 on a technical basis and I am willing to go on a 13-day excursion with the underlying stock.
That being said, the macroeconomic picture leaves a lot to be desired and one could literally say that 100 times.
Many of the risks have yet to be unlocked if one rolls through the list of them like hyperinflation, spiking energy costs, the military conflict, rising rates, poor global government, and the list really could be added to for infinity at this point.
No need to beat a dead horse.
However, this breathtaking relief rally has turned into something that is probably more than just a relief rally and has told us investors one thing.
There is still way too much liquidity in the system and it’s still sloshing around.
And although I missed the bottom of the relief rally, I seek to benefit off the next stage of it with ADBE and GOOGL which are two highly sought-after tech stocks with a proven track record and whose technical picture looks positive in the short-term.
The cheat sheet for this exam is Apple (AAPL) whose bounce from $150 to $180 really summed up what’s going on in the tech ecosystem.
The best of breed is harvesting the bulk of the gains, and instead of fighting it from the other side, I’ll just traverse on the side of Apple and ride it up with them.
The dip-buying has been almost violent in this rally and although I do believe there will be some reduction in the pace of the up moves, it’s almost impossible to go completely bearish against tech right now.
Another key insight into recent stock movement is that the nominal size of the stock market at this point is so gigantic in terms of market cap that the leverage inside of it is causing volatility to go nuts.
I don’t think this will resolve itself in the near future and this sets the stage for some series of epic up moves moving forward to the second half of the year as a large swath of negativity has been priced into the news.
Tech could go back to its overshooting the rest of the market narrative and names like ADBE and GOOGL will perform splendidly with this type of boost.
Let’s get into the weeds and explain why I really do like ADBE as a standalone company?
The massive slide over the past few months was nothing structural. ADBE posted market-beating earnings for the first quarter, growing cloud revenue, one of the biggest markets in the tech world, to more than $2 billion. The firm has also been steadily shot up the digital subscription revenue ladder.
Yes, their product lines are slowing but they are at the cutting edge of digital innovation which with its terrific brand has great pricing power.
ADBE has transformed itself into a software behemoth, more than tripling its revenue since 2010. The company is famous for its namesake PDF-reader and photo-editing software Photoshop.
However, ADBE’s bread and butter is a full suite of software products monetized through a recurring subscription model.
ADBE transitioned from selling boxed software to recurring subscriptions in 2013 and revenues have gone parabolic since.
Readers must be practical at this point and not focus attention on the low end of tech.
Tightening conditions in the capital markets mean that there will be less resources to throw at the poor-quality tech names.
Practicality should be the foot forward with readers piling into the best of tech like APPL, AMZN, GOOGL, ADBE, and MSFT.
Don’t get too cute here.
Traders never go bankrupt from taking a profit.
