“Failure is not an option here. If things are failing, you are not innovating enough.”- Said Founder and CEO of Tesla Elon Musk
Mad Hedge Technology Letter
February 10, 2021
Fiat Lux
Featured Trade:
(UBER GETS ANOTHER MULLIGAN)
(UBER)
Great news for tech investors – Uber (UBER) is getting a pass on its almost historic loss-making 2020!
A highly bullish indicator is the broader tech market able to absorb an almost $7 billion annual loss with ease.
This all bodes well for the health of the tech market in 2021 – we should finish this year clearly higher than we are now today albeit with no black swans.
The tech market is iron clad right now with multiple external forces pushing up multiples to historic levels.
Imagine there are copious amounts of better tech companies out there that are actually turning a profit and are even at the vanguard of all the latest tech trends, and Uber definitely isn’t one of them.
Yet, I believe Uber shares will roar higher!
A Nasdaq index brimming with liquidity is the one way to explain this phenomenon because the bar has been set so low for tech companies to jump over that unless there is a bankruptcy or systemic risk, shares will rip higher.
Remove the liquidity subsidy and Uber shares would be headed into the gutter in a flinch.
But here we sit with tech shares going parabolic after a robust breakout.
If this carries on, we will see more abnormal side-effects and I believe the GameStop phenomenon was precisely the precursor to much weirder activity that is about to happen.
I must divulge that part of the narrative driving firms like Uber is the re-opening theme of increased consumer behavior if the population is theoretically inoculated driving a surge in economic activity.
The boom in outdoor consumerism would catapult Uber’s loss-making ride share division which performed poorly grossing only $6.79 billion, down 50% from a year ago.
As many might have guessed, Uber’s pitiful performance in ridesharing in a pandemic was met conversely by heightened food delivery gross volume of $10.05 billion, up 130% from a year ago.
What does this mean?
Uber is turning into a loss-making food deliverer from a loss-making ridesharing company and are still losing vast sums of money.
Their strategy of acquiring other food deliverers like alcohol delivery app Drizly for a deal valued at $1.1 billion in stock and cash combined will scale well and offer cost savings but is no panacea.
They also sealed a deal for a $2.65 billion acquisition of delivery service competitor Postmates in December to help build out its delivery capabilities.
However, where is the light at the end of the tunnel?
Where is that iPhone or YouTube – that game-changing asset?
There is no growth asset here and I still see no proprietary technology other than an app that matches drivers to passengers and a food delivery app that gets a car to its hungry customers.
To Uber’s credit, they revealed 20% improvement in net losses amounting to $6.77 billion, from a jaw-dropping $8.51 billion loss in 2019, and I will agree there is headway to make with such lousy numbers.
As long as Uber is afforded such a long leash and incentivized to perform badly, they can incrementally reign in the net losses and still claim victory.
But I scratch my head thinking how they will finally overcome that “last mile” problem of making this company a true tech giant and not one just brandishing below-average intellectual property and partying for losses that aren’t as bad as expected type of model.
At the end of the day, we can only trade the market we have, and not the one we want.
The broader tech market has given its implicit nod to Uber and this company remains an attractive buy on the dip tech growth company even though I listed a myriad of risks and concerns about its underlying model.
“My goal was never to make Facebook cool. I am not a cool person.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
February 10, 2021
Fiat Lux
Featured Trade:
(THE CORPORATIZATION OF BITCOIN)
(TSLA), (BTC)
Bitcoin (BTC) is going corporate and that is great for the digital currency and the stock market.
That is the big takeaway from Tesla (TSLA) investing $1.5 billion into the cryptocurrency and announcing that Tesla lovers will be able to buy the car with the digital gold.
Hard to believe that Bitcoin has come so far so fast, but with governments doing their best to cultivate fiscal distrust along with a pandemic driving the entire global business world to the internet, Bitcoin is well placed to reap the benefits just like digital cloud companies.
The big question is what is next for the computer gold?
This could open the floodgates for the likes of Apple, Microsoft, Facebook, Google, and Amazon to join the bitcoin party by making their own investments into the industry.
This could come in the form of just dipping their toe by holding bitcoin reserves or buying a fintech company that facilitates the operations of it.
Have you noticed that as of late, fintech companies like PayPal and Square have broken out to the upside representing a proxy of bitcoin exuberance?
No doubt some of the established tech titans are taking note of Elon Musk’s plunge into the digital unknown, but it does send the message the next leg up in tech development is via bitcoin and the synergies surrounding it.
Apple was the one that, out of thin air, brought us the iPod and iPhone which spawned a million copycats from China and a tsunami of capital that came along with it.
It’s undeniable that bitcoin is picking up traction with recent news in October 2020 that Square invested $50 million into Bitcoin.
That was about 1% of the company’s total assets at the end of Q2 2020.
That move came after the Cash app had offered the ability to buy Bitcoin for several years.
2020 also saw more traditional veteran investors like Stanley Druckenmiller and Paul Tudor Jones become Bitcoin promoters.
Long-term investment analysts have determined that today, bitcoin gives corporations a foothold into the future while operating in the real world.
Asset preservation is also another phenomenon where many insiders believe that the value of the dollar is in slow decline which could hurt U.S. corporation’s ability to compete globally.
Bitcoin bulls believe more institutional investments will lead to more stability and naturally, increased value and I agree that is exactly what is happening no matter if Warren Buffet and his sort go on air to proclaim the asset is snake oil.
It’s getting to the point where large companies cannot deny the potential upside to bitcoin because of fear of missing out.
They do not want to be the new Blackberry to the Apple’s iPhone.
Then is the brute fact that the aforementioned tech giants have the resources to take the jump.
Ark Investments sees Bitcoin growing to $70,000 per coin if US companies put 1% into it, and $400,000 a coin if companies put 10% into the cryptocurrency.
If bitcoin finally becomes convertible globally, US companies will be tearing their hair out because they missed the chance to get in at a cheaper price.
What I just said would be absolutely bonkers in the financial world before the pandemic, but that shows how much the narrative has moved along and there are even more outlandish analysts who believe the likes of Apple and Amazon should move 50% of total assets into bitcoin.
Apple does have Apple Pay which they could integrate with the digital currency much like Square and PayPal have done.
If Tesla invested 1% of total assets into bitcoin and if a solid case nudging other companies to outdo this 1% and go to 2-3% comes to realization even if it’s a speculative bet on the future appreciation of the asset, it could be a moneymaker.
A company like Apple currently has $207 billion and so the pieces are on the board to make a bold move if they are willing to do so.
If we stand back and look at the bigger picture, US companies will undoubtedly lead the digital currency revolution for the next 25 years.
Europe is too regulated for their companies to jump in and Chinese authorities will stop companies like Alibaba hoping to operate in a currency that isn’t the Renminbi.
Like US companies created the cloud, internet, personal computer, and so on, they are on the cusp of making the bitcoin industry their own.
Another strong aspect I love is that Elon Musk clearly felt comfortable with the bitcoin’s foundational security, infrastructure and mechanisms in place in 2021 to facilitate this deal.
I am convinced that he had his best developers go into the meat and bones of the technology to find any structural flaws or lack of them.
Remember that bitcoin has been dogged by security breaches and hackers.
There is so much to love about this move and long term, bitcoin will hit $100,000.
“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Technology Letter
February 8, 2021
Fiat Lux
Featured Trade:
(VENTURE CAPITALISTS SHARE THE CLUES TO THE TECH MARKET)
(NVDA), (OTCMKTS: SFTBY), (GOOGL), (BABA), (AMZN), (UBER), (FB)
To gain a glimpse into the current psyche of tech investing, we need to take a raw snapshot of the state of Softbank’s Vision Fund.
The Vision Fund is the brainchild of the Japanese telecom company’s founder Softbank Masayoshi Son and is the world’s largest technology-centric venture capital fund with over $100 billion in capital.
The torrent of bullish price action of late has meant that SoftBank recorded a record quarterly profit in its Vision Fund as a gangbusters’ stock market lifted the value of its portfolio companies.
However, the significant gains accrued in equity were also substantially offset by painful derivatives losses as Son attempted to parlay his winnings into leverage directional bets in the short-term.
The Vision Fund’s $8 billion profit in the December quarter is a stark change from the prior March when the pandemic was in full gear and the Fund booked major losses amid embarrassing flops like office space sharing company WeWork.
As 2020 came to a close, tech growth firms like Uber (UBER) stock exploded higher and DoorDash (DASH) gave the Vision Fund a nice payday going public at the end of the year in stellar fashion.
On the options trading front, things didn’t go so rosy.
SoftBank posted a 285.3 billion yen or $2.7 billion derivatives loss in the period.
I understand “hedging your bets” but for Son to create this massive loss undeniably has to infuriate deep-pocketed investors from Arab nations that have stuck with him through tumultuous events.
The staggering option losses was why the asset management arm registered a loss of 113.5 billion yen or $1.08 billion, up from losses of 85.2 billion yen in the previous three-month period.
Experiencing wonderful gains only to have the narrative wiped out because of high stakes option bets is perhaps a sign of the times as phenomena like the Gamestop (GME) have moved to the forefront indicating that players have access to too much liquidity at this point in the market cycle.
Some 15 companies have gone public from the Vision Fund so far, and Son does have a long list of busts and winners.
However, one might assume that he won’t hit on every company as he revealed that his Vision Fund 1 and Vision Fund 2 have invested in a total of 131 companies. In the case of DoorDash, SoftBank invested about $680 million for a stake now worth about $9 billion while its $7.7 billion investment in Uber is worth $11.3 billion.
There are still shining stars on the balance sheet.
Another six more portfolio companies are planning IPOs this year and bringing this volume model to the public markets is logical considering even zombie companies are getting funded out the wazoo at this point.
Tech is also still holding its perch as the darling of the market and Son is simply delivering to market what investors want which is growth tech and more of it.
Other issues on Softbank’s list are to sell off its interests in Alibaba, T-Mobile US Inc., and SoftBank Corp., the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm to Nvidia (NVDA) for $40 billion.
On top of the risky growth companies, Softbank has also parked its capital in a who’s who of tech firms such as a $7.39 billion investment in Amazon.com (AMZN), $3.28 billion in Facebook (FB). and $1.38 billion in Alphabet or Google (GOOGL). The operation is managed by its asset management subsidiary SB Northstar, where Son personally holds a 33% stake.
Son labeled his options debacle as a “test-drive stage” hoping to play down the fact that he should have made a lot more with the massive ramp-up in tech demand in 2020.
It’s not all smooth for Son with the chaos at Alibaba (BABA), Son’s most exotic investment success to date and SoftBank’s largest asset, tanked 20% last quarter amid a Chinese government clampdown on Alibaba Founder Jack Ma.
This has to worry Son’s future tech investing prospects in China (P.R.C.).
SoftBank’s own sale of Arm to Nvidia (NVDA) is still making the rounds through the EU approval process. The United Kingdom and European Union are both preparing to launch probes into the deal.
All in all, a mixed bag for the Vision Fund where profits should have been higher and most of the damage was self-inflicted.
At some point, throwing massive amounts of capital to juice up tech growth firms will backfire, but the generous access to liquidity that Son has makes this strategy work while even affording him some massive failures.
In short, the Vision Fund should be many times more profitable and it’s a reminder that these leveraged bets aren’t going away which should mean enough liquidity out there to take the markets higher.
We should also be aware that the eventual “market mistake” could give us 10% tech corrections, which are no brainer buying opportunities if the same liquidity volume persists.
Then consider that many tech companies have done well in the recent earnings season and combine that with the eventual reestablishment of buybacks and the neutral observer must think that tech has more room to run in 2021.
Mad Hedge Technology Letter
February 5, 2021
Fiat Lux
Featured Trade:
(SHOULD INVESTORS BUY QUALCOMM STOCK AFTER THE DIP?)
(QCOM)
