“Microsoft isn't evil, they just make really crappy operating systems.” – Said Finnish-American software engineer Linus Benedict Torvalds who is the creator of Linux, Android, and Chrome OS
Mad Hedge Technology Letter
October 4, 2021
Fiat Lux
Featured Trade:
(IT WILL JUST TAKE LONGER)
(ROKU), (TSLA), (FB), (AMZN), (AAPL)
The “Buy the Dip” strategy in tech stocks hasn’t failed — it will just take longer than it used to.
Much of this Nasdaq rally has been represented by the resiliency of large cap tech stocks — every mini dip was bought with a vengeance.
This go-to playbook drove tech shares higher after the March 2020 meltdown.
These past 30 days have really tested that thesis and signals that we, as market participants, have arrived at a crossroads because if the dip isn’t bought soon, we could either fall off a ledge and barrel into a harrowing correction or we could initiate a sideways correction and trade in a fixed range.
It’s hard to ignore the near-term weakness in many of the household names like Apple (AAPL), Amazon (AMZN), and Facebook (FB).
The upper echelon of tech leadership is signaling imminent decelerating growth and tightening financial conditions.
I do believe much of it is in the price, yet it’s cognizant to know there could be meaningful spillover from the Evergrande debt implosion in China into other asset classes.
External events are shaping the narrative around the Nasdaq dip buyers.
It also doesn’t help that a Facebook whistleblower came forward to tell the press about its malpractices and less than ideal tendencies to put profit over safety, but everyone already knew that about Facebook.
What I am surprised about is that investors usually look through the bad Facebook press and prioritize the metrics which hasn’t been happening the past month.
Facebook shares are still waiting to be bought after the dip.
The lack of Facebook shoppers on the pullback is definitely one area of concern because the U.S. government still has done very little to stop Facebook in its stubborn practices.
The U.S. government will not crack down through legislation on social media companies in the short term.
Much of the negative Nasdaq price action in the short term can be attributed to the worries about China taking a machete to its susceptible tech sector and crushing it even more.
Many don’t think the cudgeling is over.
In this scenario, a flight to safety could be in the cards, which would suppress interest rates offering an olive branch for the dip-buyers.
Ultimately, I do believe it’s a matter of time before we get some recovery price action in the leadership tech stocks; but yes, it could take 1-3 weeks.
Much of this second half of the year was consolidating tech shares that overshot themselves last year.
That’s why tech firms like Tesla (TSLA) had almost a zero percent chance of repeating last year’s performance.
Take ad tech stock Roku (ROKU) for instance, shares are down 23% YTD and that doesn’t mean it’s a bad stock.
Hardly so.
When one considers that Roku shares ended 2020 up 300%, then giving back 23% or 50% in 2021 is worth the annoyances.
These stocks can’t go up in a straight line even if they almost feel like they can sometimes.
This all sets up for a brilliant 2022, as many of these high-quality names will finally have gotten through the consolidation phase and will be buttered up to initiate their next leg up in early 2022.
In the broad scheme of things, tech won the pandemic over any other sector, and 2021 is turning into a rest year.
Sometimes one needs to go backwards one step to take the next three forward.
“Creativity is just connecting things.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
October 1, 2021
Fiat Lux
Featured Trade:
(CONNECTED TV IS ON FIRE)
(TTD), (DIS), (FUBO)
One of my favorite ad tech companies has to be The Trade Desk (TTD).
They are a middleman of sorts, using an in-house platform to match the inventory of digital ads with the advertisers themselves.
They have been extremely effective at harnessing data to deliver the right ads to the right people and many major streaming companies and Fortune 500 companies are reaching out to them to figure out how to deploy ads in the most systematic way possible.
Let’s just say there is a lot of slippage going on in the linear industry where wrong ad placement is common.
Performance of late has been strong in TTD — more of the world's top advertisers and their agencies signed up or expanded their use of TTD’s platform, which just continues to validate their business strategy.
Companies are now increasingly embracing the opportunities of the open Internet in contrast to the limitations of walled gardens.
The highlight of last quarter’s performance is led by Connected TV (CTV) and premium video.
What is CTV in advertising? CTV is short form, skippable online advertising targeted to relevant content channels and/or audience groups. Connected TV (CTV) refers to any TV that can be connected to the internet and access content beyond what is available via the normal offering from a cable provider.
The CTV growth coincides with a broad move from broadcast and cable to digital on-demand content that is happening all over the world.
CTV as a percentage of TTD’s business continues to grow very rapidly and is, by far, their fastest-growing channel.
Overall, total revenue was up 101% from a year ago to $280 million, significantly surpassing in-house expectations.
Growth occurred mainly because of TTD’s latest platform launch, Solimar, which is the result of more than two years of engineering work, and it addresses many of the opportunities in front of agencies and brands today.
Just to provide some context on growth in CTV, through just the first half of this year, the number of brands spending more than $1 million in CTV to TTD has already more than doubled year over year.
And it's not just larger advertisers that are taking advantage of CTV anymore. The number of advertisers spending over $100,000 has also doubled. In total, TTD has nearly 10,000 CTV advertisers, up over 50% compared to last year.
That exponential growth speaks to how rapidly the TV landscape is evolving. The accelerated consumer shift to digital video is real, including CTV. And that shows no signs of slowing down.
In fact, TTD reached more households via CTV in the U.S. today than are reachable through linear TV. Today, TTD reaches more than 87 million households. Those trends are now well established.
MoffettNathanson recently reported that the ad-supported video-on-demand market is growing from $4.4 billion in 2020 to about $18 billion as early as 2025.
And every major ad-supported platform, whether it's Disney's Hulu, Peacock, Discovery Plus, ViacomCBS' Paramount and Pluto, FOX's 2B or fuboTV and many others, all are reporting record viewership or ad spend figures.
Broadcasters recognize that the traditional upfront process is a mismatch. It doesn't work in a digital world where data and personalization are required to succeed.
The legacy upfront process is really hard to run in an environment with lots of change and lots of uncertainty. I believe that this year will mark a turning point in how the process is managed. In today's fragmented TV environment, linear audiences continue to erode, linear supply is shrinking and the prices are rising simply because of the scarcity. This year, broadcasters use that scarcity to their advantage and lock up commitments as the demand for growth intensifies.
When compared to parallel linear TV ad campaigns, CTV delivered a 51% incremental reach and a four times improvement when analyzing cost per household reach. These are not isolated cases.
Retail is a point of emphasis this year with Walmart integrating Walmart shopper data on TTD’s platform. This is a leading example of how TTD is working with advertising customers to help unlock the value of retail data estimated at $100 billion to $200 billion market.
This is a highly volatile stock and 2021 has been a year of consolidation.
If TTD comes down to $60 from the $70 today, that should represent an optimal entry point into one of the hottest sub-industries in tech.
“The AI technology will keep you out of harm's way. That is why we believe in an AI car that drives for you.” – Said CEO of Nvidia Jensen Huang
Mad Hedge Technology Letter
September 29, 2021
Fiat Lux
Featured Trade:
(THE NEW PAYPAL OR SQUARE)
(SOFI), (PYPL), (SQ)
SoFi Technologies (SOFI), a recent SPAC, is a one-stop fintech platform that provides loan refinancing, private student loans, personal loans, auto loans, mortgage loans and investments, as well as insurance products for renters, homeowners, automobiles and others.
They are a fintech company at a time when fintech companies are fetching premiums.
That’s always a great place to be.
Fintech's outsized attention stems from the position they sit at in today’s world — they truly exist at the intersection of the future and technology.
SoFi’s stock reacted poorly from the missed earnings-per-share estimates, and the stock is down roughly around 20% since the Aug. 12 release.
Volatility is a familiar pain point for emerging tech stocks and the investing backdrop continues to be fickle and frothy.
What do I like about SoFi today?
They are making progress on their overall strategic vision and show signs they might live up to the hype.
Total revenue in the technology division declined from the sequential quarter, while total revenue in the lending segment grew a respectable 12.4%.
But in the financial services segment, which is by far the smallest of the three in terms of revenue, total revenue of more than $17 million grew 164% from the first quarter of 2021 and more than 600% from the second quarter of 2020.
Experiencing green shoots in new businesses gives investors hope that they can turn divisions into cash cows.
The company is seeing a boost coming from new members on its online brokerage, SoFi Invest, as well as from the new equity capital markets and advisory services offerings introduced during the quarter.
SoFi is also getting in on the crypto space, allowing investments in equities, cryptocurrencies, fractional shares, and robo-investing services.
I also love that SoFi is in the process of obtaining an official bank charter — this also opens the door to many new opportunities that require deposits.
It would be accurate to say they are heading down the path of PayPal (PYPL) and Square (SQ), and there are plenty of green pastures to till in this space.
Just look at these two firms’ stock performance and one will understand there are worse places to be in the economy.
Eventually, the company will be able to unearth cross-selling opportunity, along with the SoFi Money checking account product, as members will be easily able to transfer funds to and from their checking and brokerage accounts.
SoFi Invest also doesn't currently offer options trading. In 2020, the online brokerage, Robinhood generated 46% of its total revenue from options trading, so it certainly could be a boost if SoFi eventually offers the feature.
By providing consumers with free access to high-frequency products and lower costs, SoFi eases consumers into the ecosystem.
Then, with the help of a simple UI/UX, customers are drawn toward ancillary products.
The vision they are beholden to is that of insatiable user growth that will nudge the incremental investor into buying more shares of SoFi.
Another reason to get behind SoFi is due to the company bringing market-leading deployable digital platform that is rapidly gaining traction in today’s economy.
In this current climate, growth stocks don’t have the same appeal that they did last year, or even in 2012.
The Nasdaq is frothy and looking for new drivers to take us a leg higher and obviously higher interest rates do a lot to diminish the narrative for stocks like SoFi.
I will say that if SoFi’s stock comes down to $14 which would represent a remarkable discount from the $25 the stock was trading in February, then I would pull the trigger at that point.
This isn’t a stock worth chasing because it’s susceptible to missing forecasts, earnings, EPS, and revenue targets.
SoFi has a hard slog ahead of itself to become the next PayPal or Square, but if they achieve a fraction of the success the aforementioned did, then it will become a $30 stock.
“It's not about working harder; it's about working the system.” – Said Co-founder and CEO of the American social media company Snap Evan Spiegel
