Mad Hedge Technology Letter
January 13, 2021
Fiat Lux
Featured Trade:
(HYDROGEN FUEL CELL TECHNOLOGY FOR DUMMIES)
(PLUG), (RENAULT), (SK), (GS), (TOYOTA)
Hydrogen fuel cell technology goes like this: electricity is generated from an onboard supply of hydrogen.
That electricity powers the electric motor.
When hydrogen gas is converted into electricity, water and heat are released.
A FCEV (Fuel Cell Electric Vehicle) stores the hydrogen in high-pressure tanks.
Non-toxic, compressed hydrogen gas then flows into the tank when refueling.
Did you get all that?
This is an industry that Goldman Sachs’ (GS) says is a $10 trillion industry just waiting to happen and that is one of the plethora of reasons to look at Plug Power (PLUG.)
And when you consider that 20% of European recovery stimulus will be spent on hydrogen fuel cell technology, it seems like a no-brainer.
French automaker Groupe Renault and U.S.-based Plug Power just told us that they signed a memorandum of understanding to establish a joint venture that will develop, build and market electric fuel cell light commercial vehicles (LCVs).
The progress is real, even with German automaker BMW saying it would produce an X5 SUV with its second-generation hydrogen fuel cell powertrain by 2022.
This move pushes the narrative along for technology automakers who once hoped would replace batteries as the power source for electric vehicles, only to be thwarted by a lack of refueling infrastructure and safety surrounding the use of flammable hydrogen.
“Hydrogen fuel cell vehicles are superior driving machines compared to traditional vehicles” said Jackie Birdsall, senior engineer on Toyota's fuel cell team.
Plug Power, headquartered in Latham, N.Y., outside Albany, has emerged as the leader in developing fuel cell systems, the proverbial “best in show” having deployed more than 40,000 such systems, and has built 110 hydrogen refueling stations.
That’s essentially why Renault has made the executive decision to partner with Plug Power as it looks to create fuel cell-powered light commercial vehicles for business-to-business customers in Europe based on its Master and Trafic truck platforms.
The more practical reason to go with hydrogen fuel cells is because in electric vehicles, batteries simply cannot carry payloads of more than four tons with 20 cubic meter volumes.
There is no solution for light commercial trucks because you would need a lot of battery on board, a lot of energy, more than 100 or 120-kilowatt hours and that doesn’t make any sense in terms of cost or in terms of weight.
The attractiveness in this asset consists of perpetual operation, fast charging, fuel cells that can fill up in 5-6 minutes, can get twice the range and you also have greater density for packaging.
The target is to capture more than 30% of the fuel cell-powered European light commercial vehicle market.
The initiative goes a long way to commercializing fuel cell LCVs in Europe with a pilot fleet.
The deal with Renault is a boon for Plug Power and comes a few days after announcing a $1.5 billion investment from SK Group, a South Korean conglomerate.
It all amounts to new energy for fuel cells—not as competitor to batteries, but as an additional and supplementary source of electric power more suitable for certain applications.
The venture will start commercializing fuel-cell light commercial vehicles in Europe starting in 2021 with pilot fleet deployments and the partnership will also create a hydrogen vehicle ecosystem solution company that offers vehicles, hydrogen fueling stations, and hydrogen fuel.
The project will finish by mid-2021.
Indeed, while sentiment has grown fairly sour for using fuel cells in passenger vehicles, Plug Power CEO Andy Marsh says the technology is a perfect fit when it’s not feasible to wait around for a battery to recharge, which is why the B2B market is embracing it.
The commercial market sits entirely adjacent to the private vehicle market and traction has been slow to pick up for that segment.
Hydrogen fuel-cell cars remain low in volume, expensive to produce, and restricted to sales in a few niche regions that have built hydrogen fueling stations.
Passenger cars won’t scale up on this technology unless policies change.
I am not a believer of FCEVs for passenger cars. It costs tens of billions of dollars to set up a hydrogen fueling network that requires industrial-strength compression equipment.
However, Plug Power is the best of breed and its technology is well suited for a specific application and I do believe other countries will be interested in partnering with them to introduce it into their business-to-business segment.
Wait for a pullback to purchase shares.
“It takes 20 years to build a reputation and few minutes of cyber-incident to ruin it.” Said Global Chief Information Security Officer at Société Générale International Banking Stéphane Nappo
Mad Hedge Technology Letter
January 11, 2021
Fiat Lux
Featured Trade:
(STRIKE WHILE THE IRON IS HOT WITH CLOTHES TECH)
(SFIX)
Stitch Fix and its updated prognosis from management predicts 2021 results to look something like sales growth of 20% to 25% and that’s pretty damn good considering the less-than-ideal backdrop that corporate America is facing.
Even though I am not a big clothes guy personally, this tech apparel company is delivering value to customers by sending individually picked clothing and accessories items for a one-time styling fee. Customers fill out a survey online about their style preferences. A professional stylist at the company picks five items to send to the customer.
Last year, e-commerce could do no wrong and many stocks in the industry performed sensationally even hitting triple-digit percentages.
Employment is having a tough time coming back, the latest data suggest a long road to recovery and the vaccine rollout has been a pitiful exercise in efficient logistics.
This all means that 2021 will be more or less another year of click and collect from the confines of your abode made possible by ever-improving digital portals.
One of the disastrous industries last year, among many, was apparel, especially brick-and-mortar clothing and department stores.
Shelter-at-home lifestyles didn’t necessarily encourage consumers to handpick expensive dresses and suits, but as the economy slowly trends favorably, it can’t really get much worse than 2020, Stitch Fix should be one of the few winners in apparel among many losers.
Cutting to the chase, retail sales for apparel and accessories ended 2020 down nearly 30% year over year and you couldn’t make up what happened last year if you tried.
Restaurants experienced a 20% drop in sales because consumers simply evaporated highlighting the plight of many foundational industries.
Remote jobs and a wave of fresh self-employment are transforming consumer behavior in this shopping category, and I would bet that apparel consumption will never come back in the form it once was pre-pandemic which is why the use case of Stitch Fix's data-driven shopping experience could never be stronger.
That’s not to say that Stitch Fix had a record year in 2020.
They certainly didn’t.
Stitch Fix still had a bucket of problems in 2020 with a 9% year-over-year revenue decline during its fiscal 2020 third quarter (the three months ended May 2, 2020).
But even with such poor performance, it still represented a massive outperformance relative to other competition and finding those silver linings can be the most important for forward guidance.
This sets up Stich Fix for a massive rebound as consumers got used to the new lifestyle and sales returned with a reported 10% year-over-year growth in the first quarter of fiscal 2021 (ended Oct. 31, 2020).
And throughout the pandemic, Stitch Fix has continued to grow its client base around 9% to 10%.
The forecasted sales growth of 20% to 25% represents a substantial acceleration suggesting that 2020 was a “one-off” even likely to never reoccur.
Their total active clients stood at 3.76 million as of Oct. 2020, up from 3.42 million a year ago, and the company will improve on this growth while retaining past clients.
E-commerce is here to stay as consumers become conditioned to purchasing items in this fashion and a game-changing reason why Stitch Fix's own outlook is so rosy.
Looking forward the company's growth strategy revolves around acquiring new customers and entering new markets like many tech stalwarts before them.
Longer-term, Stitch Fix's data and machine learning capabilities, which helped the company get to where it is today, could be a real competitive advantage if it decides to make a foray into new clothing categories and beyond.
One issue to be aware of is that Stitch Fix generally caters to a pretty specific clientele and its services are only targeting specific price points.
The lower end of that range is still higher than what thrifty consumers may choose to spend and might even be considered a luxury for many.
The lower income tier of America simply won’t be able to make this work in its current form, and margins would drop if Stitch Fix ever accommodated this consumer group.
Despite the convenience Stitch Fix offers, many consumers like the idea of hand-picking clothing and trying it on in stores, where they have the option to instantly swap in and out a size for a better fit.
Stitch Fix does its best to estimate sizing based on user inputs and algorithms, but people are sized in different odd shapes and sizing can still miss the mark.
I don’t think Stitch Fix’s popularity will start to wane if working from home becomes the status quo in 2021 and 2022 and the need for higher-end wardrobes begins to decline because the company will simply need to adapt and focus more on pajama or comfortable clothing if the environment forces them to do so.
Believe me, I have noticed the uptick in the preference for outdoor sweatpants as the crisis went from bad to worse.
People simply don’t have time to dress up in these conditions, but consumers still need to wear clothes every day unless I am totally missing something.
Stitch Fix, in its current iteration, won’t replace department stores because it is too big of a swath from a low-income group that needs to access these services, but as scale terms into a positive input for the company, they can start looking at lower-income tiers for a revenue grab.
As Stitch Fix focuses on higher-end business, the runway is still mind-numbingly long and the optionality they possess is the envy of others.
They have too many good problems to have.
Stitch Fix looks like the cutting-edge apparel company that brings an innovated technology-based model to a stale industry.
It’s working and the first-mover advantage really means something here.
I would wait for a pullback to the low $50s range from the current $56.50 as shares are a little over their own skis.
“Often you have to rely on intuition.” – Said Founder and Former CEO of Microsoft Bill Gates
Mad Hedge Technology Letter
January 8, 2021
Fiat Lux
Featured Trade:
(UNSTOPPABLE FACEBOOK)
(AMZN), (FB), (APPL), (MSFT), (GOOGL)
Salacious TikTok ads portraying perceived underaged girls shown to middle-aged men?
Yes, you guessed Facebook’s algorithm correctly.
But it doesn’t matter.
No matter what you throw at Facebook and Big Tech, they will get away with it.
The ability to hone narratives and control our communication channels means they can reroute anything remotely resembling a con and spin it into a pro.
As Facebook has encouraged misinformation to spread, including from US President Donald Trump, they come in when you least expect it to play both sides as they announced they will ban the President from Facebook.
An unruly mob of President Donald Trump's supporters stormed the Capitol to disrupt the election certification process and Facebook has finally banned the US President’s account.
Four people died — one was shot by police, and three died during medical emergencies.
Jake Angeli, a well-known QAnon influencer dubbed the "Q Shaman," seemed to be giving out orders in the Capitol sporting a Viking-like horned fur helmet and shirtless chest.
Google CEO Sundar Pichai called it the "antithesis of democracy" in an internal memo and Facebook removed a video of Trump spreading baseless claims of election fraud. The platform then blocked Trump from posting content for 24 hours.
Ironically enough, Facebook blocked employees from commenting on posts on its internal messaging boards discussing the ban showing how little employees can do in national crises.
Facebook employees also lashed out at Facebook’s lack of speed and aggressiveness in dealing with the situation.
I spoke to several employees at Facebook and they admit in unison that Facebook is an absolutely terrible place to work and executive intimidation is something workers must put up with because it is precisely the working culture in place when they walk in the door.
Even former Facebook security chief Alex Stamos chimed in saying Trump needed to be blackballed from Facebook and Twitter.
Zuckerberg did later send out a note that said, “peaceful transition of power is critical to the functioning of democracy, and we need our political leaders to lead by example and put the nation first.”
Zuckerberg doesn’t really need to say much but stay politically correct because he does most of his speaking with the action and non-action at the helm of the ship.
If you dig deeper, his flatform is utterly disgusting, and investors shouldn’t be surprised by the handling of this event.
Facebook’s handling of TikTok’s ads is one of many examples of its advertising system gone bonkers, and the company's ongoing prioritization of revenue over the safety of its 3 billion users, the public good, and the integrity of its own platform.
Middle-aged men using Facebook are fed a voracious stream of TikTok ads displaying skimpy teenage girls and even if they contact Facebook to stop it, Facebook won’t change a thing.
Besides the subliminal advertising in areas that could lead to predatory behavior, consumers are sold goods they never receive or are lured into financial scams; legitimate advertisers’ accounts or pages are hacked and used to peddle those nonexistent goods or scams; credit card numbers are stolen.
The one constant here is that Facebook doesn’t refund any of this malicious behavior and in fact, encourages it.
Facebook agreed to an implicit pact with scammers, hackers, and disinformation peddlers who use its platforms to rip off and manipulate people around the world.
Prioritizing revenue over the enforcement of policies is beginning to be the legacy of Big Tech.
The Facebook “moderators” are a small army of low-paid, unempowered contractors to manage a daily onslaught of ad moderation and policy enforcement decisions that often have far-reaching consequences for its users.
They are much more worried about losing their $15 per hour job than challenging the powerful overlords at Facebook.
And that’s not the beginning of it; Facebook's ad workers have at times been told to ignore suspicious behavior unless it “would result in financial losses for Facebook.”
Non-enforcement helped Facebook become the preferred platform of unscrupulous affiliate marketers and drop shippers that target people with financial scams, trick them into expensive subscriptions, or use false claims and trademark infringement.
Bought products often never arrive.
Facebook’s “best” practices constitute of looking the other way, even if an account is hacked, and only caring about business if credit chargebacks are threatened.
I have also been told by former Facebook employees that they are instructed to be “more lenient with accounts originating in Russia, Ukraine, and China.”
This episode truly shows why investors should still buy big tech.
They are unstoppable to such an extreme that most people can’t comprehend. Rules don’t apply to them.
And it’s not just Facebook, there are mounting headaches for all these CEOs that won’t affect the bottom line and in fact, offer these corporations a great chance to cut costs.
On January 4th, 2021, Google workers and contractors announced they were forming a union with the Communications Workers of America.
It’s the latest move in an ongoing fight between Google workers and management, and it could trigger a giant offshoring to cheap labor countries.
If most of America’s supply chain was offshored and never came back, then why can’t tech do it as well?
Why do they need to pay $150,000 to an employee in California when they can hire the same level of talent in Moldova for 20% of the cost?
That proves my point because whatever hurdles are set in front of big tech, they know how to maneuver around and avoid any deep carnage.
If investors know there will always be fix out there, even with the egregious behavior at Facebook, they won’t hesitate to pile into Big Tech.
Washington riots simply don’t matter, and markets took wind of it.
I am bullish the Big 5 of Apple, Facebook, Microsoft, Amazon, and Google.
“When we launch a product, we're already working on the next one. And possibly even the next, next one.” – Said CEO of Apple Tim Cook
Mad Hedge Technology Letter
January 6, 2021
Fiat Lux
Featured Trade:
(THE INSATIABLE GROWTH OF THE MOBILE BASE STATION MARKET)
(MRVL), (NOK), (KRX: 005930)
