“Artists work best alone.” – Said Co-Founder of Apple Steve Wozniak
Mad Hedge Technology Letter
March 19, 2021
Fiat Lux
Featured Trade:
(TAKE A PASS ON THE NEWEST TECH SPAC eTORO)
(FTCVU)
The spike in retail investing has been a boon for online brokerage platform eToro.
The Israeli-headquartered company went public through an SPAC (special purpose acquisition company).
Shares of FinTech Acquisition Corp V (FTCVU), which eToro will trade under, rose over 30% on the news.
Let’s look into the investment thesis of eToro.
The secular trends are highly supportive with a confluence of circumstances — the acceleration of digital technologies, commission-free stock investing, and low-interest rates — increasing retail engagement in the capital markets.
In a way, this brokerage celebrates the rise of the retail investor.
How do eToro’s numbers look?
eToro had 147% annual revenue growth from 2019 to 2020 indicating that the surge of voluminous trading was real.
That spike coincided with the shelter-at-home economy.
People were just sat at home with nothing to do with even sports betting offline and online trading became the new sports betting.
The platform boasts over 20 million registered users from more than 100 countries.
Five million of those were added last year alone as retail engagement rose worldwide.
eToro already offers crypto services in the U.S. and plans to launch stock investing in the second half of 2021.
From 2016 to the end of 2020, revenue rose 1,000% highlighting the astronomical growth in its products.
eToro’s projections are ambitious predicting a rise of revenue of 150% from the start of 2020 to 2025.
To reach their 2025 targets, the tech company would need to grow around 30% per year.
So what are the key takeaways from this “social investment network” trading business?
Well, I love that total revenue grew 147% in the past year, but I hate the -34% annual revenue growth the year prior to that in 2018.
That is a massive red flag.
Another overwhelming ding against them is that eToro has minimal business in the lucrative U.S. market, and most of its revenue is procured from Asia and Europe.
They just announced their foray into U.S. equities, and I must ask, why didn’t they do this years ago?
In an interview with a major television network, eToro CEO Yoni Assia, when asked if there is potential in the US market, he began his answer with eToro’s exploits of creating a cryptocurrency platform for the U.S. market and claimed the North American revenue grew “triple digits” last year but failed to offer any real numbers.
This is another red flag.
His first inclination should not be hyping up a North American cryptocurrency platform, and instead should have focused his intentions on building a stable business on the equity, bonds, and mutual fund side which has more stable cash flow.
Claiming a “triple-digit” growth rate, to me, means that eToro’s North American business is so minimal that the puniest of growth translates into a quadrupling or quintupling of growth or whatever you want to call it.
Another overstep is that the company claims it’s a “social trading network” hoping to hype itself up by attaching it to a branch of social media which is really a step too far.
eToro is grasping at many straws because they are more of an imposter than the real deal.
Another worrying sign that this trading platform is targeting the wrong revenue stream is if you browse eToro’s official American website by clicking (https://www.etoro.com/en-us/), visitors are met with an oversized graphic of Hollywood actor Alec Baldwin pointing to a phone that has the bitcoin logo on it.
A serious trading platform would never, in a million or trillion years, decide to post Baldwin as the first graphic potential customers would see visiting their homepage, forcing me to believe that the company is eyeing the high churn rate but short-term pump and dump of a customer type of strategy.
This strategy is very high risk and EXTREMELY LOW QUALITY.
Usually, the strategy coalesces around an underlying thesis of selling it before the wheels fall off but reaching for any type of growth in the short term.
I cannot in good faith recommend eToro as a sound tech investment.
There are better tech companies out there to invest in for the long haul and any short-term appreciation in eToro will be temporary.
I admit this is a legitimate tech company, but the way they do business is off-putting.
Selling the idea that a trading platform can be buoyed by crypto is beggar’s belief.
It’s still only a small sliver of the real money out there.
Don’t get thrown off by the glitzy marketing, hyped-up numbers, and vague rhetoric from upper management.
Oh yeah, lastly, why invest in eToro when its stronger competitor with a large footprint in the U.S. is planning to go public themselves?
Take a pass on eToro for the betterment of your wallet.
“We've arranged a civilization in which most crucial elements profoundly depend on science and technology.” – Said American astronomer and cosmologist Carl Sagan
Mad Hedge Technology Letter
March 17, 2021
Fiat Lux
Featured Trade:
(THE ANYWHERE ECONOMY)
(DOCU)
DocuSign (DOCU) is a U.S. cloud company providing e-signature solutions that enable businesses to digitally prepare, execute, and act on agreements and DocuSign’s CEO Dan Springer has described the current state of the economy by calling it the “anywhere economy.”
What does this mean?
Ultimately, now and over the coming years, he believes the trend will continue toward the option of doing anything from anywhere.
Springer has labelled the products and services supporting this trend the “anywhere economy”.
He believes the company he runs, DocuSign, is a critical piece to this anywhere economy, and it's only just beginning.
Springer wants investors to know that we are just in the first period of this hockey match and there’s a lot of ice time left.
The first period has been pretty good to DOCU and last year validated that by DOCU signing off 2020 nearly 50% bigger than they were in 2019 with almost $1.5 billion in revenue.
They gained new customers, expanded their existing relationship with others, and experienced a surge in adoption of DOCU products as accelerating digital trends already underway literally caught on fire.
The digital transformation of agreements is still fluid and progressing and this transformation not only allows agreements to be prepared, signed, act on, and managed from anywhere. It also allows greater speed and efficiency than manual paper-based processes.
Ultimately, DOCU's premium e-signing tools will force companies to never go back to paper even after the pandemic ameliorates.
DOCU also does not believe life will go back to the way it was before.
Of course, many in-person activities will be welcomed back.
But when consumers discovered optimal solutions during the pandemic, DOCU believes those will continue and flourish unfettered, whether it's total or partial work from home, virtual visits to medical professionals, or getting a document notarized remotely.
People aren't going back to paper.
They're not going back to manual processing.
What is the real question then?
The thing to ask now is whether the rate of new people coming to DOCU will change with the reopening of the society, economy, and the world?
This could possibly pull back the momentum in the demand environment, but DOCU has telegraphed to investors that a potential drawback would be temporary before the digital transformation reignites.
And let me get straight at this point, yes, DOCU hasn't seen a change yet and demand is following through greasing the revenue machine as we speak.
How is performance at DOCU?
Revenue growth of 57% and billings growth of 46% year over year.
DOCU onboarded more than 70,000 new customers last year, bringing the total to nearly 892,000 customers worldwide.
Their customers even displayed the robustness of their wallet with DOCU experiencing their strongest expansion and up-sell rates yet, driving their dollar net retention to a record 123%.
New customers were tripping over themselves to join DOCU with DOCU experiencing a customer addition rate more than double that of fiscal '20, edging them ever closer to the 1 million customer mark.
The use cases for DOCUs e-signature services are growing and it’s not just HR, procurement, customer service, and in-branch onboarding needs, there is way more left in the pipeline.
DOCU transactions took less than a minute to complete on average, delivering a rapid ROI.
And DocuSign went from a crisis response solution last year to a business-as-usual solution today.
One of DOCUs pipeline is international and last year just scratched the surface with international revenue increasing a head-turning 83% year over year to $89 million in the fourth quarter.
For the full year, international revenue grew over 67% to $287 million, reflecting accelerated expansion across geographies.
To give you a sense of the magnitude of DOCUs overperformance last year, they added nearly the same number of customers this past year as they had in total at the time they went public.
As part of that, DOCU added 11,000 new direct customers in Q4 for a total of over 50,000 for the year.
A first quarter guide follows much of the same rhetoric of explosive growth and DOCU expects total revenue of $432 million to $436 million in Q1 or growth of 45% to 47% year over year.
At the end of the day, all I hear from CIOs (Chief Investment Officers) are they've got a backlog of things they need to get done because the pandemic made it very difficult for them to get certain projects done.
And at the same time, they acknowledge their achievement last year couldn’t be possible without the blind digital transformation they undertook, and they want more of it with DOCU at its core.
So as I write this tech letter, I do predict another re-acceleration of the digital transformation story once the novelty of normalizing the world takes place.
And this normalization doesn’t even need to take place for a considerable cross and up-sell opportunity this year, and those incremental customers, significant customer new additions that drive DOCU's bottom line.
Many renewals will come up after the first year of DOCUs offerings, and I believe not only should it be a great cross-sell opportunity, but they will be happy to renew DOCU's products in full without question.
Long term, this is a great tech company to buy and hold, but the tech sector is near all-time highs and trying to digest higher interest rates and higher inflation expectations.
After we absorb this, the next move is up.
Mad Hedge Technology Letter
March 15, 2021
Fiat Lux
Featured Trade:
(2020 MADE THIS TECH COMPANY)
(PINS)
Do you want to invest in a tech company that added 100 million new accounts in 2020?
Well, you’ve meandered down the right alley and I will show you the way.
Clearly, in the year 2020, the pandemic obviously threw a massive wrench in everything and for a second, I too held my breath for tech companies.
But it luckily shook out the right way for us, as I understand it, tech firms throughout the mayhem evolved to drive incremental use cases for the users and that was what won out.
Pinterest (PINS), a U.S. media sharing and social media service designed to enable saving and discovery of information on the internet, was an unheralded beneficiary of this outsized pivot to lockdown and quarantines.
In fact, it was only just before the public health crisis that I believed this firm was languishing big time, unable to outperform against the big boys, but good enough to be faintly relevant.
Well, they became comparably relevant on a global scale from March 2020, and they have taken their path of opportunity and ran down it.
So how successful are we talking about?
Pinterest grew total revenue 76% year over year in 2020 with adjusted EBITDA margins of 42%.
That’s homerun stuff right there after only being able to expand in the high teens pre-virus environment.
The huge gap up in performance is also here to stay with upper management envisioning the next quarter as growth of “low 70s percent range year over year in the first quarter.”
Not too shabby, right?
Certainly, it’s an understatement to say that 2020 was the ultimate acid test to whether a public tech company could stand on its two feet or not.
No doubt they were aided by a giant sea swell of stimulus money which they are more than happy not to apologize for.
So, what’s the game plan now for the Pinterest crew?
The public health crisis uncorked the pathway to international revenue after focusing on “mature” markets for the first part of its history.
In 2020, international business grew 145% year over year on the back of strong advertising demand. International markets now represent 17% of total revenue.
The company rolled out a function able to take advantage of the “insight” into selling to consumers.
Sales and marketing teams built an insights-led go-to-market program over the course of 2020 that helped Pinterest deliver against Q4 seasonal comps.
This development helps make Pinterest more attractive to advertisers because they can understand their verticals better.
Let’s run down a few examples to show the use cases.
The LEGO Company created a holiday campaign based on popular search terms on Pinterest, seeing increasing search trends for creative kids’ gifts allowed the LEGO company to optimize and serve ads at the right moment ahead of the holiday season.
Another example is the luxury coffee company, Nespresso. They partnered with Pinterest teams to unearth key consumer trends around the holiday season, including search trends and consumer habits around holiday gifting, coffee recipes, and seasonal flavors.
With a better understanding of both auction dynamics and Pinner behavior, Nespresso delivered effective advertising campaigns that also showed positive results in a third-party brand study.
As 2021 does feel like another shelter-at-home year, I would warn investors to keep their powder dry for this one because the comparisons for mid-end 2021 will be tough to beat.
I do believe after a period of consolidation; Pinterest’s stock price will be back in full-out bullish mode.
There is just too much runway out there if you consider, these are the early innings of Pinterest transforming from an image company to a video-centric company.
There has been a significant uptick in video views and uploads. And PINS is beginning to expand that by enabling users to publish directly onto the platform.
This change will drive digital experiences for users, both in the U.S. and internationally, with some of the less mature web content ecosystems the U.S. relied upon.
That's a significant focus and makes the product more useful.
And they certainly did make the platform more useful in 2020 with enormous surge in product search that went up about 20 times last year alone.
PINS is also at the stage of supporting a diversified advertiser base and is really focused on making it easier for mid-market advertisers to manage SMBs to scale their spend.
But as they fine-tune automation, these SMB and mid-tier contracts will turn into Fortune 500 contracts like many of the larger tech sharks out there.
On the risk side, privacy issues could disrupt their rise as privacy measurements are diminished which could lessen their attractiveness to ad buyers.
This company is still a pure ad seller company where the user is the product ala Facebook.
Also, there is the risk that lockdown and quarantine measures are dismissed, and the world opens up which could damage the incremental use case for PINS that was so strong during lockdowns.
It’s hard to view that new sneaker in the shop window when the shops are closed, and I predict a 10% correction if investors feel the world is about to open up unfettered.
However, the long-term runway is healthy for PINS and I do expect a slow grind up as the company switches to predominate video and ad companies pile money into their platform because of the “brand safety” of PINS in a world where the internet is increasingly becoming a murkier place to deploy capital blindly.
2020 MADE PINS RELEVANT
“The thing that we are trying to do at Facebook is just help people connect and communicate more efficiently.” – Said Facebook Co-Founder and CEO Mark Zuckerberg
Mad Hedge Technology Letter
March 12, 2021
Fiat Lux
Featured Trade:
(SERVICENOW IS NOW)
(NOW), (PYPL)