“I know that you must be passionate, unreasonable, and a little bit crazy to follow your own ideas and do things differently.” – Said CEO and Founder of Salesforce Marc Benioff
Mad Hedge Technology Letter
June 30, 2021
Fiat Lux
Featured Trade:
(BIG TECH WINS IN THE COURTROOM)
(AAPL), (AMZN), (GOOGL), (FB), (MSFT)
Federal court dismissed antitrust lawsuits against Facebook that the Federal Trade Commission (FTC) and 48 states seek to pin on the digital ad company.
This isn’t only a feather in the cap for FB, but it’s great news for Google, Snapchat, Twitter and the who’s who of selling digital ads and any tech company that might be perceived as “dominant.”
Many would have been led to believe that big tech and these ad giants were on the cusp of being controlled by legislation, only for the federal court to not even bother with advancing the case.
It means that the law is firmly on the side of big tech and it will be almost impossible to pin charges against big tech unless the law is changed to accommodate a situation that is more conducive to proving that American tech companies abuse their positions in the US economy.
Personally, I do believe they have a monopolistic position against its competitors, but to prove that in court is a different animal with arguments needing to hold up against the test of time.
There is no doubt that the company has a dominant share of the market in the “personal social networking” industry, but market dominance just means they are incredibly good at what they do which is serving ads to targeted audience.
Nothing they do is explicitly illegal and that is the tough part and they do provide “free” services.
Not only that, but Facebook users can also simply not use social media and its various platform as a choice because they can drop it altogether or use a different platform entirely.
The court also dismissed a supplementary complaint by the FTC with the judge ruling that the states had taken too long to take issue with Facebook’s acquisition of Instagram and WhatsApp, which were acquired in 2012 and 2014, respectively.
The ruling made the government’s FTC look bad and tardy.
They also are late to the game, unable to understand the tech of our time and enforce borderline fringe behavior.
This is why anti-trust, which many believe is big tech’s largest existential risk, is not really a risk when politicians fail so miserably at even understanding what they do until 9 years later.
Most tech companies are happy to know they have 9 years to skirt the law and aggressively push their business models until the FTC move their finger an inch.
Might as well bet the ranch, right?
Certainly, there will be another wave of amended filed complaints against Facebook within 30 days, which the court will re-review.
But after some convicting loss, prospects look poor for the FTC.
The way in which the law is worded today means that Facebook has to be on the radar of investors as a premier buy the dip trade now that one of the bigger risks is off the table.
Facebook's valuation has more than doubled since the onset of the pandemic as more people use its diversified network of apps to stay in touch with friends and family in a socially distant world.
The social network had over 2.85 billion monthly active users in Q1 2021 and join other tech firms over $1 trillion such as Apple, Microsoft, Amazon, and Alphabet.
I would execute a bullish position in Facebook after a retracement from the 4% pop on the good news.
Tech is expensive and has had another resurgence over the past few weeks.
It continues to be an industry you cannot bet against and that is why you have to be patient for entry points to come to you.
“By giving people the power to share, we're making the world more transparent.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
June 28, 2021
Fiat Lux
Featured Trade:
(HOW TO STOP RANSOMWARE-AS-A-SERVICE)
(CRWD)
The world has changed, and protecting one’s network has been thrusted to the top of every CEO's checklist and the CFO is there to make it happen smoothly as well.
Just how to protect the most critical computer networks is still a work in progress; many firms still haven’t got a clue.
Just recently, oil pipeline operator Colonial Pipeline revealed that it had opted to pay hackers a $4.4 million ransom to regain control of its infrastructure.
Another headline rattler, major meat company JBS learned they, too, had been hacked.
The ultimate cost of all this hacking?
Cybersecurity Ventures currently pegs the annual figure at around $6 trillion, though further estimates that the ransomware "business" will be worth $10.5 trillion by 2025.
Threat actors are well resourced and becoming more sophisticated as we speak.
Crazily enough, ransomware-as-a-service sites are making it simpler for even novice e-criminals to run successful and lucrative campaigns, which is contributing to the proliferation of ransomware activity.
This is highly illegal yet actors from abroad feel almost immune wielding their power from offshore authoritarian strongholds where dictators usually chuckle on the news that western companies have been hacked again.
The 2020 CrowdStrike Global Security Attitude Survey revealed that more than half of organizations surveyed worldwide had suffered a ransomware attack within the previous 12 months.
A scary fact is that many of these ransomware attacks, failures and successes, are not publicly reported because companies don’t want the negative publicity and the accompanying stock sell-off with it.
Some hacks are just too big to hide under the carpet.
At the same time, organizations need to transform their businesses in order to keep up with evolving business needs such as work from anywhere and moving their critical applications and workloads to the cloud.
Naturally, this is the perfect time for hackers, new and old, to pounce on the transitory nature of deploying networks into a work-from-home set-up.
CrowdStrike’s Falcon platform is at the epicenter of restoring trust to the security apparatus of companies worldwide.
The integration of threat intelligence and threat hunting into the Falcon platform provides deep insight into the adversaries and how they operate.
Extensive capabilities of the Falcon platform significantly set CrowdStrike apart from both legacy and next-gen vendors.
This includes their acquisition of Preempt and Humio, which could not have been timelier as companies are discovering new ways to shore up protection of their active directories, stop lateral movement and have even greater real-time visibility and search into their endpoints, identities, applications, network edge and cloud from a single data layer.
CRWD was also recognized as the best cloud computing security solution and best managed security service at the 2021 SC Awards where Shawn Henry, president of services and chief security officer, received a Security Executive of the Year award as well.
This growth company has the accelerating metrics to back up its hubris.
In the first quarter, they reached a new milestone as subscription customers surpassed the 10,000 mark.
They added 1,524 net new subscription customers including the customers CRWD acquired from Humio. On an organic basis, the net new subscription customers added in the quarter grew 69% year over year. In total, they now service 11,420 subscription customers worldwide.
To sum up the positivity, the outperformance is attributed to CRWD’s Falcon platform's ability to fully utilize the power of the cloud and AI to stop breaches and provide community immunity.
Also helpful, is the ability to easily and rapidly deploy lightweight agent at scale across both endpoints and workloads without requiring a reboot, while other next-gen vendors fail to scale and require reboots.
The platform is easy to use and easy to manage all from a single user interface; and their ability to leverage the power of the cloud to collect data once and solve many real-world business problems that deliver better outcomes and immediate ROI for customers.
It is entirely possible that with the rate of ransomware accelerating, CRWD will be able to grow the service base from over 11,000 now to 100,000 in less than 2.5 years.
They should be able to achieve this while accelerating their subscription gross-margin target to 85% which would represent an acceleration of the current gross rate margin of 77%.
This company is growing faster and becoming more profitable, what’s there not to like?
In light of the strength I just mentioned, a pullback to $230 would be a great entry point to ride to over $400.
If the firm can at least deliver 70,000 customers in the next few years, the stock is easily at least $400 which would make it around a $100 billion company.
That is entirely doable for CRWD.
“All of technology, really, is about maximizing free options.” – Said Risk Analyst Writer Nassim Nicholas Taleb
Mad Hedge Technology Letter
June 23, 2021
Fiat Lux
Featured Trade:
(IGNORE THE GOOGLE COMPLAINTS)
(GOOGL), (AAPL), (MSFT), (FB), (AMZN)
Another part of the tech bull case that gets overlooked is the more than $700 billion in buyback authorizations that could manifest itself in tech shares in the near term.
Right now, that buyback authorization is holding steady at $500 billion but primed to grow.
This powerful combination of shareholder returns and continuous strong earnings are likely meaningful catalysts that could take us to higher highs in technology stocks later in the year.
Certainly, we have seen a massive rotation back into growth stocks the last few weeks that have buoyed tech shares.
The likes of PayPal (PYPL) are bouncing off technical weakness.
Just take a look at Apple which is the buyback alpha male of the S&P this year and trailing 12-months.
When you consider that apart from the dividends and buybacks, they generate over $110 billion in free cash flow, it’s hard not to like the stock.
Apple itself has authorized $90 billion in buybacks and the company is the biggest in the world.
Yes, the stock underperforms sometimes, but don’t overthink this name.
Apple is easily a $170 stock with no sweat.
The iPhone maker repurchased $19 billion of stock in the March quarter, bringing the total for the past fourth quarters to around $80 billion.
Luca Maestri, the company’s chief financial officer, said in a conference call that “we continue to believe there is great value in our stock and maintain our target of reaching a net cash neutral position over time.”
That is code for many buybacks in the near to medium term and investors must love it.
Apple had $83 billion of net cash at the end of the quarter.
Apple’s aggressive stock buyback plan is one reason that Berkshire Hathaway CEO Warren Buffett is so interested in the company.
Berkshire (BRK.A and BRK.B) holds a 5% stake in Apple and is one of its largest investors.
The same thing is happening at other tech firms.
Google repurchased a record $11.4 billion of stock in the quarter, up from $8.5 billion a year earlier, and Facebook (FB) bought back $3.9 billion, triple the total a year ago.
Apple’s share count declined by almost 4% year-over-year and by over 20% since the end of 2016.
With its elevated repurchase program, Alphabet is slicing into its share count, which fell almost 2% year-over-year in the March quarter. The buybacks are comfortably exceeding Alphabet’s ample issuance of stock compensation to employees. Alphabet authorized an additional $50 billion of stock repurchases.
Facebook’s buyback program hasn’t dented its share count, which was little changed year-over-year at 2.85 billion.
Microsoft (MSFT) is making more headway, with its buyback reducing its share count by nearly 1% in the past year. Microsoft bought back about $7 billion of stock in the March quarter and $20 billion in the first nine months of its fiscal year ending in June.
Apple and Microsoft also return cash to holders through dividends, although both now have yields under 1%. Alphabet and Facebook don’t pay dividends.
Although buybacks have not yet reached pre-health crisis levels, the trend seems to be heading in that direction.
Tech firms are ratcheting up the buybacks, meaning they are comfortable expending that cash in the current economic climate as opposed to holding onto it as reserves or using it for R&D.
There is always unpredictability in the economic environment, but these tech stocks are saying, things are a lot better than 2020 and there are many CFOs out there pulling the trigger on dividends, buybacks, and reducing share count which is a highly bullish signal to the rest of the tech market.
Since 2009, asset inflation has gripped global equity funds everywhere and the most convincing winner in terms of asset classes has to be the Nasdaq index which has experienced a 900% return during that 12-year time span.
You must believe that buybacks are just another reason why this overperformance of 900% has happened.
Tech is still where almost all earnings’ growth resides and that capital flow is being recycled into shareholders’ pockets and catalyzing tech CFOs to execute financial gymnastics by reducing share count.
It’s hard to discount that strength which is why there are always buyers on the dips whether that buyer is a domestic pension fund, short-term speculator, a multibillion-dollar family office, or a foreign hedge fund.
“The only constant in the technology industry is change.” – Said CEO of Salesforce Marc Benioff
