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
Mad Hedge Technology Letter
September 27, 2021
Fiat Lux
Featured Trade:
(A SHORTENED RUNWAY FOR SILICON VALLEY)
(AAPL), (FB), (WIC), (SME)
I’m not going to go so far as to claim the Silicon Valley tech story is over — that’s too premature.
But—and a very big but—I will say that the runway has been significantly shortened for the aircraft taking off.
In an everchanging zig-zagging tech climate — it’s my job to take the pulse of it and correspond it to the reader.
I would characterize myself as concerned with the latest developments in technology, and I specifically mean for those business models that many of you have poured your hard earned cash into.
I have gone on record saying that Silicon Valley suffers from a lack of imagination and the gravitas shortage in which to sort this out is starting to stick out like a sore thumb.
What we have is what we have.
Dynastic, hegemonic tech companies who, instead of taking the reins and helping the industry develop in terms of paradigm shifts, have chosen the way of incremental development to suck the marrow dry via the capitalistic model of short-term profits that manifest themselves in higher stock prices.
I have no problem with that at any level—higher stock prices have given my readers a chance to enrich themselves with generational wealth.
And yes, I agree with you, investing for paradigm shifts isn’t cheap, and who wants to be on the hook for this bill anyway when this gravy train isn’t over yet?
Recent signals are emblematic of the narrowing paths to profits for tech companies; they are increasingly required to pull off 4th quarter heroics to get ahead, and we are starting to rub up against the extreme limits.
Exhibit A — Facebook.
The company has confronted sharp criticism from lawmakers and users for its plan to develop an Instagram for kids and said it was pausing work on the project.
Facebook said it will re-evaluate the project at a later date as a damning expose by the Wall Street Journal.
This latest app was intended for children aged 10 to 12.
One internal Facebook presentation said that among teens who reported suicidal thoughts, 13% of British users and 6% of American users traced the issue to Instagram.
Remember that Facebook bought Instagram because Facebook, its flagship platform, was dropping users left and right.
Instagram was the savior.
I would argue that Facebook would be a $200 stock without this asset.
The next question investors should ask is, if Facebook “kids” was going to be the next growth sub-sector for Facebook, what does it do now?
It’s an uncomfortable question for Facebook shareholders and rightly so.
Again, this screams lack of innovation to me—shareholders cannot just tolerate Instagram for 8–10-year-olds, then Instagram for 6–8-year-olds, only to be followed up by the Instagram for 4-6-year-olds.
Crazy as it sounds, that was the path Facebook intended to go down.
Now, it’s time for a reset while their metaverse project isn’t ready.
Silicon Valley's Exhibit B — Apple.
Apple's earnings for Greater China in Q2 2021 were up 87.5% from this time last year, to $17.7 billion.
During its latest earnings call, Apple has announced dramatically increased revenues from Greater China for the three months ending March 2021. At 87.5% year-on-year, the percentage rise exceeds all other territories bar the rest of Asia Pacific.
On a standalone basis, higher revenue is great for the stock, and here at the Mad Hedge Tech Letter, we love higher tech shares.
The problem is that Apple’s biggest growth driver is China revenue.
I am sure that many readers have started to notice the calm before the storm in China.
If it wasn’t the real estate problems there, then sure, that’s a different industry but worrying.
However, Chairman of China Xi Ji Ping has gone on an aggressive defanging of the Chinese tech sector.
From imprisoning executives to massive fines — he is really stirring up the pot.
Apple readers also must ask themselves — how long will Apple be immune to the whims of Chairman Xi?
The answer is that it’s increasingly starting to seem like not long.
Just this last weekend, some of the biggest names in China’s tech industry made an appearance at the World Internet Conference (WIC) in Wuzhen to pledge support for the country’s “common prosperity” and small and medium-sized enterprises (SMEs) nearly a year after the government began an extensive crackdown on the sector.
There’s a legitimate risk that Apple’s immunity pass won’t be valid for much longer.
Remind yourself that Apple just came out with iPhone 13 and is on the path to make iPhone 14, 15, 16, and up to 100 because they make good money doing it.
Also remind yourself that Android phones are now just as good for half the price so in terms of relative competition, if they didn’t have a loyal base, people might not buy iPhones anymore.
Reality sucks, doesn’t it?
The defanging of Silicon Valley is a when and not if proposition; they will be forced to bet on the next paradigm shift and if they choose correctly, they will also be the winner of it so they might as well enlarge the budget for it.
“When I was first getting started, I told myself that there's two people in the world when it came to technology: There's the people who created it and there's everybody else.” – Said Tech Investor and Owner of an NBA Franchise Mark Cuban
Mad Hedge Technology Letter
September 24, 2021
Fiat Lux
Featured Trade:
(NOT THE SEXIEST TECH STOCK — BUT HIGHLY RELIABLE)
(EBAY)
