Mad Hedge Technology Letter
February 16, 2022
Fiat Lux
Featured Trade:
(AIRBNB SURGES AHEAD)
(ABNB)
Better book your summer vacation this year right now as home-sharing rental platform Airbnb (ABNB) revealed growth surpassing pre-pandemic performance and global travel is back with vengeance.
It’s highly likely that travel restrictions continue to fall by the wayside, opening up what could become the most furious travel season in the history of the human race.
This has spurred consumers to book their summer vacation rental many months in advance and it appears that no amount of supply will satisfy the summer travel season of 2022.
People have been dreaming about international travel for the past 2 years.
Airbnb has capitalized from their position as the nimble option, along with not having to provide the hardware to the final product.
They are just an internet platform that owns no houses.
Hotel companies like Marriott and Hilton have had empty hotels sitting idly while consumers choose to stay in a more rural setting for the past 2 years, within driving distances of big cities.
Another positive trend is Airbnb users choosing more expensive accommodations, which I understand with business travel reformatting itself to go straight into an Airbnb-based house or apartment.
The highest cost also relates to bigger unit sizes as home offices need to be absorbed into living situations.
Hotels have the handicap of needing to renovate their existing stock of rooms since the hotel layout is simply not as attractive as it once was.
Airbnb has a massive advantage here that will lead to margin expansion.
Customers need fast Wi-Fi, a kitchen to at least make their morning coffee, and more amenities that a personal home might offer such as a washing machine.
Even if there is another pandemic on the horizon, the work from home narrative will fortify itself for good with no back-to-office plans in sight.
Airbnb would benefit as Airbnb-hosted units are the best choice for remote workers.
I have noticed that Airbnb hosts have really improved the internet connection at their houses to adjust for the change in connectivity demand.
Airbnb has reimagined itself since the beginning of the pandemic when the company cut thousands of jobs and considered delaying its initial public offering as travel crumbled to a halt around the world.
After the initial pain, business boomed as workers no longer had to be in traditional offices five days a week and could work from anywhere.
Almost half of the number of nights booked in the fourth quarter were for stays of a week or longer and one in five were for stays of a month or more.
This validates my thesis of Airbnb being a sticky product, because they have essentially bolstered their product to perform better during a health crisis relative to competition.
Longer and more expensive stays also mean higher commissions for Airbnb.
Taking a small sample of January 2022, bookings were 25% higher than in 2019, which bodes well for the rest of 2022 as everyone I know is itching to not only travel but to spend more and to make visits to far-flung places.
Pointing to margins as another signal of success – Airbnb has increased them from minus 5% back in 2019 to 27% in 2021.
The company has explicitly said that the growth of incremental supply won’t come from institutional investors, but individual retail units that realize inflation is so bad that they need the extra $10,000 per year to supplement their life standard.
With all the positivity, it is no surprise that Airbnb’s stock has responded to this improving sentiment and shares are up 25% in the last three weeks.
I would wait for a pullback to put new capital to work in this company, but Airbnb is poised to roar ahead in 2022 if international travel opens up and mask mandates are dropped, which appear inevitable.
“You may think using Google's great, but I still think it's terrible.” – Said Co-Founder of Google Larry Page
Mad Hedge Technology Letter
February 14, 2022
Fiat Lux
Featured Trade:
(THE STRATEGIC WINNER OF TECH)
(NVDA), (TDOC), (ZM)
Nvidia (NVDA) is one of the best buy-the-dip tech candidates after the pullback from around $350.
This is one of the premier tech stocks of our generation and readers shouldn’t be fooled by the recent weakness.
NVDA simply has been dragged down with the rest of the best as technology still tries to find some footing after a rough January that was sideswiped by exogenous shocks out of NVDA’s control.
Tech growth stocks have been pigeonholed as one broad category, and even though NVDA boasts a sterling balance sheet that achieved $4.33 billion in profits in 2021, they are penalized with the general category of growth stock.
The rotation into energy and commodities has been swift, but make no mistake, this company is no Teladoc (TDOC) or Zoom Video (ZM), unequivocally not.
NVDA sits at the heart of every cutting-edge technology today by its production of high-quality CPUs and GPUs that are required for businesses as broad as data centers to the metaverse which includes gaming to automotive driving.
NVDAs stock accelerated too fast too soon which made them vulnerable to significant headline risk.
So headlines like war with Ukraine and Russia don’t really have much bearing over the trajectory of Nvidia’s business at all, but since index funds contain NVDA, NVDA gets heaped into the risk-off moves.
The stock further sold off after news leaked of the dead acquisition between British chip company ARM due to antitrust concerns.
At a broader level, semiconductor chips have possibly never been in such high demand, yet supply is painfully constrained.
The U.S. Commerce Department has recently emphasized the precarious nature of the global semiconductor supply chain in 2022.
However, the agency also expressed the possibility of new manufacturing capacity coming online as early as the second half of 2022, which may help somewhat in reducing the chip shortages.
With Intel, Taiwan Semiconductor Manufacturing, and Samsung having already planned huge investments in capacity expansion, we may see increased pricing pressures in the semiconductor industry in the next few years.
Even with new supply coming to market, the world and the semiconductor industry will fail to satisfy the world’s insatiable demand for chips which has forced many end products to delay finishing products for the foreseeable future.
How well is NVDA really doing?
In one word, fantastic.
Nvidia's revenues and free cash flow have more than doubled while gross margin and operating margin are up big.
This terrific growth has been mainly driven by increasing demand for the company's graphics cards and artificial intelligence (AI) processors in gaming and data center segments.
Nvidia currently accounts for almost 80% of the gaming GPU market. The company's GeForce RTX-powered laptops are being increasingly used not only in gaming but also in areas such as esports, digital content creation, and streaming.
Many of my key employees are using PC-based NVDA GPUs to support and service the company.
Nvidia saw its gaming revenues jump 72% year over year to $9 billion last quarter.
In the first nine months of fiscal 2021, the company's data center revenues soared by 53% year over year to $7.4 billion. Increasing revenue exposure to the data center segment is also helping improve the company's gross margin profile.
The next big business could be the car business.
The company offers a complete platform solution, which includes hardware, software, and infrastructure (servers, computing power, and data centers) required to support autonomous vehicles.
Many car shoppers are quickly realizing that cars are starting to appear like an iPad on wheels.
Lastly, Nvidia is also well placed to secure a big portion of the evolving metaverse opportunity, estimated to be around $30 trillion.
The company's high-throughput GPU chips, data center CPU, and next-generation Bluefield data processing unit will play a major role as the hardware technology needed to support the metaverse.
No matter what anyone says, it is hard to construct a case in which NVDA is one of the losers of future and tech.
Not only do they boast the metrics of a growth company, but their brand recognition almost falls into the top tier of tech companies.
The real tech people will tell you this stock is a long-term keeper and despite the high volatility, don’t let that dissuade you from betting big on NVDA.
“I couldn't imagine a more incompetent politician than myself.” – Said Founder and Co-CEO of Salesforce Marc Benioff
Mad Hedge Technology Letter
February 11, 2022
Fiat Lux
Featured Trade:
(THE GROWING CLOUT OF TWILIO)
(TWLO), (ADBE), (CRM), (GOOGL), (AAPL)
Twilio (TWLO) cranked the ball out of the ballpark in its latest quarterly performance.
For a company that’s been burning cash for years, such as 2021’s performance of negative $950 million, analysts expected another few years of losses.
That’s not the only loss, the years before were saddled with unprofitable times like the $490 million burnt in 2020 and they still haven’t recorded a single profitable year yet.
So for Chief Executive Officer of Twilio Jeff Lawson to tell us that he expects Twilio to be profitable in 2023 is a gamechanger.
This guy has elevated Twilio to the dominant provider of business-to-consumer communications tools, powering messages such as the Uber notification you receive after ordering a ride, into an estimated $79 billion market for software to help optimize customer experiences.
Busting out the “P word” when many analysts were expecting to count the losses is a big deal for growth tech and TWLO can expect a new breed of institutional investors to enter the fold because of their positive signaling.
It’s not only them.
They have been tactical in a series of aggressive moves adding new companies to their core like Segment.
Segment, the customer data platform provider that Twilio purchased in 2020 for $3.2 billion is one of the reasons why the juice might be worth the squeeze.
It was the company’s biggest acquisition to date and the most-watched by investors.
The integration of Segment is expected to enhance the bulk of Twilio’s product portfolio.
It effectively functions as a repository of continually updated first-party customer information that businesses can use to improve marketing and support, with the goal of fostering loyalty and higher sales.
The timing of the deal was critical given Apple’s (AAPL) stricter data treatment and Google’s (GOOGL) narrowing of its web-tracking software.
At the same time, the acquisition of Segment nudged Twilio towards the direction of competing with Silicon Valley stalwarts like Salesforce (CRM) and Adobe (ADBE).
A key difference between Twilio and its rivals is the ability for developers within businesses to conveniently build customized programs on top of the company’s base tools.
Not only did management indicate that profitability is arriving next year, but they signaled strong revenue growth of over 30% for the next three years.
Easily said, TWLO is morphing into an indestructible force that is harnessing soon-to-be profitability, growth, and future success all wrapped into one company.
In this era, it’s hard to get all broad strategies working simultaneously because most tech firms will sacrifice profits for growth.
On top of that, management shared that they fully expect gross margins to surpass 60% in the long-term translating into a highly profitable company.
That’s the beauty of the software as a service (SaaS) model, the scalability works well inside the financial parameters which is why companies like Adobe and Salesforce bust out such great metrics.
Three other acquisitions Lawson believes will make a difference are Engage for the marketer, which is still very early in its cycle, most recently, a software called Frontline, which can be used by frontline workers and even sales teams to be more efficient, and lastly, Flex for the contact center.
All indications show this is nowhere near a “pandemic stock” and the fourth-quarter revenue jumping to 54% to $842.7 million while guiding for $865 million next quarter validates that.
This communication as a software company is sticky as can be and has a valid use case in many different apps that need to link the back-end interfaces with customer functionality.
TWLO will move from strength to strength going forward and this software company has a real chance to make its mark as not just a company considered second tier, but even a flight to safety type of tech stock which are few and far between.
The stock is still highly volatile which makes it easy to add on the big dips, but readers should avoid the small dips.
I am bullish TWLO.
“I want to put a ding in the universe.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
February 9, 2022
Fiat Lux
Featured Trade:
(THE TELEHEALTH TRADE GETS CROWDED)
(TDOC), (AMZN)
