Mad Hedge Technology Letter
April 29, 2020
Fiat Lux
Featured Trade:
(TAKING A LOOK AT RINGCENTRAL)
(RNG), (ZM)
Tech stakeholders have won out by corporate American extracting a King’s ransom in the form of a favorable stimulus and unwavering government support for the next lucrative explosion upwards in tech shares.
We have moved into a post-industrial capitalistic apocalyptic world for better or worse and I will give you another hot tip - RingCentral, Inc. (RNG).
The company is poised to rise with all corporate tech boats moving forward.
Inside the deep underbelly of U.S. Capitalism 2.0, the financial fallout and response to it mirrors the last crisis of 2008 signaling to investors to buy tech growth stocks and lots of it.
That might be a cynical take of how the cookie is crumbling but just look at the Teflon tech market that shrugs off the unemployed who are standing in food lines.
Then consider that many of the small business loans were front run by the corporate crowd by hijacking almost $900 million in funds allocated to the small business relief program that was meant to go to main street.
It’s a sign of the pecking order of the future and investors must input the new data into their models going forward.
Corporate America value and its economic extraction machine are powering ahead leaving main street behind offering opportunities for tech-savvy investors.
What does this mean? This is demonstrably bullish for the tech sector and could initiate the Golden Age of 5G investing.
Big tech will get bigger and corporate America will lurch out of the coronavirus epidemic positioned the strongest precisely because they have been best, fully funded, and the strongest tech companies have the country’s best balance sheets.
I advise investors to look at tech growth and RingCentral is one of the leaders in this field.
RingCentral is a robust cloud communications company that is at the vanguard of the Unified Communications as a Service (UCaaS) space.
RingCentral has about 2 million users on its platform and according to management is “the last service to be turned off” in this wonky economy that is mostly shut down.
The knock-on effect of the coronavirus is that RingCentral app downloads are up 400% month over month, online meetings on the platform are up over 200%, and messaging is up over 90%.
RingCentral is regarded as one of the originators of the UCaaS market, which projects to grow at a double-digit pace for the next ten years.
Unified Communications as a service (UCaaS) is the concept of integrating enterprise communication services, such as messaging, voice, and video, into one platform and ecosystem.
The company is brilliantly placed to turn rising demand for UCaaS services into real revenues in Q2 and Q3.
RingCentral (RNG) has launched its highly effective RC Video product for meeting applications.
RingCentral Video is bundled across the entire RC Office portfolio for free and preliminary analysis indicates that the product outperforms for basic multi-user video conferencing requirements via the Chrome browser, including screen sharing.
RingCentral is fighting with Zoom to be at the top of the food chain.
The company’s robust cloud communication platform ties together message, call, and video.
The open platform nature allows for easy integrations and strong brand equity.
The stats don’t lie with RingCentral reporting 30%-plus revenue growth in each of the past three years.
The company is growing out of their ears and when you add in a favorable margin profile, this robust revenue growth will lead into equally robust profit growth cycle.
I will assume in my model that the company will grow 20% over the next 10 years with several hundred basis points of gross margin expansion.
If the company can hit these moderate performance targets, I can’t imagine anything other than the stock being much higher than it is today in the future.
Secular tailwinds cannot be understated as the stock is on the verge of surpassing its prior high of $245, making a perfect V-shaped recovery from the nadir of $139, and breaking out as the rest of the economy comes back online.
The almost doubling of the stock can be extrapolated to many other tech growth stocks that have experienced similar price action in the past 45 days.
Slip this one into your portfolio as tech goes from strength to strength.
“I am not trying to chase what other people are doing.” – Said Softbank Founder and CEO Masayoshi Son
Mad Hedge Technology Letter
April 27, 2020
Fiat Lux
Featured Trade:
(FRONT RUNNING THE MICROSOFT EARNINGS)
(MSFT), (AMZN), (WORK)
It’s hard to imagine that Microsoft’s earnings report on Wednesday will be anything other than remarkable as their growth drivers plow ahead in a digital-first economy.
The only risk that could soften shares following the report is the forward guidance.
Bill Gates asserted that the U.S. economy will come back to “semi-normal” in the next 2 months, and I wouldn’t bet against management putting a positive spin on the path going forward tying the company’s short-term prospects with the comeback of the wider economy. By semi-normal, he means still falling economic growth, just at a slower rate.
There is a high probability that this “semi-normal” state of the economy will last for longer than we think, but even in that scenario, Microsoft will outperform competition widening the gap between the haves and have nots.
Another theme picking up traction is the massive volume of business that will migrate digitally and will want to work with a quality cloud provider who is not their direct competitor Amazon.
What is there to like about Microsoft?
Almost all of it is the short answer.
Momentum in Microsoft’s cloud computing platform is strong and has experienced a surge in usage becoming a lifeline to many companies that have been forced to go all digital.
Even in the cutthroat COVID-19 environment, I still believe Microsoft’s Azure cloud expanded 50% year over year in the past quarter.
Even more successful, Microsoft’s workspace communication product, Teams, has seen a dramatic surge in popularity as co-workers try to solve company problems remotely.
Teams broke a daily record of 2.7 billion meeting minutes, up 200% from 900 million minutes on March 16.
In late March, Teams has 44 million daily active users (DAU), and 93 firms have implemented Microsoft Teams in the Fortune 100.
Another strong data point is Microsoft 365 and Dynamics 365 suite of solutions.
Every company needs these platforms as a utility to boost enterprise productivity.
The subscriber base has benefited from the avalanche of remote workers with their array of tools.
Microsoft’s professional network LinkedIn platform is likely to show outperformance adding to the top line in the quarter to be reported.
Another outstanding segment that can’t be overlooked is gaming, and specifically a meaningful increase in the Xbox Live monthly active users and a boost in the adoption of Game Pass subscriptions.
The only negative segment that is probable will most likely be the hardware segment as a deteriorating trend in PC shipments in the first quarter rears its ugly head because of coronavirus crisis-induced supply constraints.
A demand shock doesn’t help as well.
Consumers just don’t have the cash to upgrade their Microsoft Surface computer-tablet hybrid device.
Total PC shipments in first-quarter 2020 declined 12.3% year over year to 51.6 million units.
Another damper on profitability could come in the form of higher investments in cloud and AI engineering, amid stiff competition from Amazon (AMZN) in the cloud computing vertical and Slack (WORK) in enterprise communication domain.
Even with the global economy coming to a standstill, growing cloud sales by 50% would represent a massive relative victory in the broader scheme of things.
As the economy opens back up, Microsoft is well-positioned to capture much more of the rapid transformation into digital the has been a dramatic side-effect form this pandemic.
The company is already worth over $1.3 trillion and in a new economic world where big tech gets bigger, I see nothing in their path that will slow them down.
The anticipation of the new reality that Microsoft will become more influential post-COVID gives way to a rapid recovery in shares that will only gain steam as the 5G revolution approaches.
Microsoft will easily become a $200 stock and if the U.S. economy opens up sooner than people expect, then nail down this stock for a price of $230 a share by year-end.
I am strongly bullish Microsoft for the rest of 2020.
“The bulk of the story will be what happens next.” – Said Co-Founder of Microsoft Bill Gates when talking about the pandemic
Mad Hedge Technology Letter
April 24, 2020
Fiat Lux
Featured Trade:
(WHERE THE ACTION WILL BE IN TECH)
(MSFT), (AMZN), (APPL), (GOOGL), (FB)
Today’s tech newsletter might be the most important one you will ever read.
It’s my job to pinpoint exactly what is going on in tech and disburse this information in a way that readers can take advantage of.
The tech market is all about striking when the iron is hot.
The five largest stocks in the S&P 500, Microsoft, Amazon, Apple, Google, and Facebook have accrued a combined valuation that surpasses the valuations of the stocks at the bottom 350 of the index.
This means that if you weren’t in tech the past few years, chances are that your portfolio significantly underperformed the broader market.
Even in August 2018, many active managers could have thrown in the towel and said the late economic cycle was way too frothy for their taste and time to take profits.
Little did they know that betting against it would equate to self-firing themselves because to retrieve the same type of performance would have meant staying in tech through the coronavirus scare.
Many in the trading community would even go as far as to say to wait for the bear market, then big tech would get hammered first and deepest because of their lofty valuations.
These tech companies were in for a rude awakening and shares had to consolidate, right?
Well, anyone who doesn’t live under a rock is seeing the exact opposite happen with Amazon, Microsoft, and Apple valuated above $1 trillion and still soaring as we speak.
This goes to show that betting against something because they are “too expensive” or “too cheap” is a fool’s game.
Just take oil that many retail investors bought because they came to the conclusion that oil could never go below zero.
Then playing oil through an ETF with massive contango means that the index is likely to go down even if the price of oil is up.
Not only do investors bear insanely high risk in these trading vehicles, but also a systemic risk of oil ETFs blowing up.
Oil is cheap, and it can get cheaper, while tech is expensive and can get a lot more expensive.
Until there are structural changes, there is no point to bet on a sudden reversal out of thin air.
Betting against things that an individual perceives as unsustainable and secretly hoping that they cannot continue to go on is probably the worst strategy that I have ever heard of in my life.
The reality is that these things are sustainable and tech shares will keep moving higher uninterrupted until they don’t.
Active managers are the ones who set market prices and they help the momentum accelerate in tech with full knowledge that if they miss out, there is likely no other solution to hit yearend targets.
What active manager doesn’t want their year-end bonus?
Even analyze the value investors who in a normal world would not even consider tech companies because they avoid the traditional “growth” profile.
Funnily enough, these “value” investors have Microsoft in their portfolios now even though it is not even close to a value stock.
So what has Microsoft accomplished recently?
CEO of Microsoft Satya Nadella has rebuilt a company Microsoft that is now equal in value to The Financial Times Stock Exchange 100 Index, the share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.
That’s right, one American company is just as valuable as the top 100 public companies in England.
An even broader view of tech would give us an even more stunning snapshot of tech showing that the Top 5 tech stocks are now worth more than the entire developed stock market outside the U.S. such as Europe, Canada, Japan, Hong Kong combined.
Then take into consideration that these companies are on the cusp of penetrating high margin industries like medicine and healthcare which will translate into another golden decade of accelerating revenue and elevated profits relative to the rest of the S&P index.
The U.S. is a place where unfettered capitalism is promoted and implemented, and tech’s outperformance manifests itself by underscoring the winner-takes-all mentality.
Americans like winners and the rules are no different in corporate America.
These 5 tech names have contributed 23% of the gains in the past month and until they falter, there will be no tech sell-off.
“Your margin is my opportunity.” – Said Founder and CEO of Amazon Jeff Bezos
Mad Hedge Technology Letter
April 22, 2020
Fiat Lux
Featured Trade:
(HERE’S A MINI AMAZON TO BUY)
(SHOP)