Mad Hedge Technology Letter
August 28, 2019
Fiat Lux
Featured Trade:
(WHY ROKU WENT BALLISTIC)
(ROKU)
Roku has had a year to remember and the party isn’t over yet after a tech analyst issued another upgrade.
This company was one of my picks to knock it out of the park this year and it has delivered in full force.
The premise behind the upgrade was that Roku (ROKU) could have 82 million active accounts by 2025 as it expands internationally.
What does Roku do?
Roku is a leader in advertising-supported video-on-demand streaming services. It does this by running commercials on its Roku Channel and other channels.
A minor part of their business is involved in making set-top boxes and streaming sticks to access internet video services such as Netflix and Hulu. Plus, it licenses an operating system to makers of smart TVs.
Roku currently relies on the U.S. market totaling 30.5 million active accounts, up 1.4 million from the prior quarter.
As the analyst reemphasized his outperform rating on Roku stock, the stock levitated, and this morning crossed the intraday level of $146 and finished the day over $147.
Roku's international growth could echo Netflix.
The company has been tagged to experience the same type of uber-growth that Netflix experienced as it went global.
If Roku can accumulate 82 million active accounts by 2025, it should have $4.5 billion in annual platform revenue.
This would make Roku's market capitalization around $40 billion to $50 billion in 2025. Its current market value is about $16.5 billion.
Operational superiority filters into the financial results with Roku expanding revenue to $250 million, up 59% year over year.
Roku posted a loss per share of $0.08, both metrics were better than analysts' consensus estimates.
Roku distributes content from a powerful list of streaming providers providing both paid and free ad-supported options. This allows the company to collect not only a piece of each paid subscription on its platform but also benefits from a growing advertising base.
Unless the government bans digital ads, Roku is poised to harvest the lion’s share of the spoils for the streaming revolution.
The unfortunate side to Roku’s stardom is the herculean task of trading a stock that moves up and down in dramatic fashion.
If the stock ever exhausts back to the $100 level, buy and hold long term.
If you try to trade this beast, your positions will get roughed around on the massive swings in the price action.
A great company deserves its plaudits and Roku positioned itself as the tech company in the right place and the right time in 2019.
“As an entrepreneur, I try to push the limits. Pedal to the metal.” – Said Co-Founder of Uber Travis Kalanick
Mad Hedge Technology Letter
August 26, 2019
Fiat Lux
Featured Trade:
(INTUIT’S WAKE UP CALL)
(INTU)
Intuit Inc. (INTU), one of my favorite domestic cloud plays came to life Friday morning by posting earnings and revenue surpassing estimates.
Cha-Ching!
Intuit provides financial management and compliance products and services for small businesses, consumers, self-employed, and accounting professionals.
It’s not the sexiest company, but it does the job.
This is the perfect late economy cycle software stock to hide out while the two largest economies in the world battle it out on the geopolitical level.
And don’t worry, Chinese haven’t found a use case to rip off the software, insulating the products from any international exposure.
The stock responded in kind shooting up 7% and I have been keen on this name for quite a while.
Its non-GAAP loss was 9 cents per share slimmer than the expected loss of 14 cents.
Profit has improved 800% on a year-over-year basis on revenue grossing $994 million, up 15% from the year-ago quarter’s adjusted revenues.
Total revenue crushed estimates of $961 million by displaying robust momentum in online ecosystem revenues and growth in the consumer business.
We can attribute the startling outperformance to the 33% subscriber surge for QuickBooks Online, which tallied up more than 4.5 million at the end of the fiscal fourth quarter.
The Online ecosystem revenues jumped 35% to $459 million.
The U.S.-based subscribers of QuickBooks Online expanded 25% to more than 3.2 million while international subscribers rose 58% on a year-over-year basis to more than 1.3 million.
Can Intuit squeeze more juice out of the lemon for 2020?
Revenues are expected to register in the range of $7.44-$7.54 billion.
For the full fiscal year, Small Business and Self-Employed group is expected to grow 12-14% year-over-year.
The Consumer Group is expected to increase by 9-10%.
Intuit predicts revenue growth of 10-12% in the range of $1.12-$1.13 billion for the first quarter of fiscal 2020.
Intuit expects Online Ecosystem revenues to grow more than 30%.
There are some parts of this business that are supercharged with more than 30% expansion, hallmarks of a solid growth cloud company.
The reality is that in total, this is a company that is growing around 10% and the 8-10% projected for 2019 was eclipsed with growth of 13%.
Investors cannot expect growth that typifies Amazon Web Services or Microsoft Azure, but this stock remains a reliable yet unspectacular bet on the cloud names to advance.
Accountant software is not a fashionable business, but this software has to be classified as best in show.
If investors are keen on “buy the dip” strategies, this candidate should give one no pause in jumping in headfirst.
This stable cloud stock has tickled the fancy of investors already up 35% year to date and is resilient in times of stress.
The dips are shallow and the up moves impressive, hard not to like this stock.
“Everybody is coming into crypto” – Said Co-Founder of Winklevoss Capital Management Cameron Winklevoss
Mad Hedge Technology Letter
August 23, 2019
Fiat Lux
Featured Trade:
(SPLUNK’S SWAN DIVE)
(SPLK)
The data analytics stock Splunk (SPLK) was downgraded from outperform to neutral with a $127 target by an analyst yesterday morning.
On Wednesday, Splunk reported Q2 beats with upside revenue outlook and announced the $1.1B acquisition of SignalFx.
The stock was down 11% yesterday morning offering investors a good entry point.
Data and the analytics needed with it is all the rage and here to stay, yesterday was a good day to strap on a call spread, a bet that the stock will stay above $100 by September 20th.
Splunk Inc. provides software solutions that enable organizations to gain real-time operational intelligence in the United States and internationally.
Its products enable users to investigate, monitor, analyze, and act on data regardless of format or source.
Splunk yesterday announced that it had acquired SignalFx for a total price of about $1.05 billion.
Approximately 60% of this will be in cash and 40% in Splunk common stock. The companies expect the acquisition to close in the second half of 2020.
SignalFx, emerged from stealth in 2015, provides real-time cloud monitoring solutions, predictive analytics and more.
This acquisition will give Splunk an edge in observability and actions per minute (APM) for organizations at every stage of their cloud journey, from cloud-native apps to homegrown on-premise applications.
Splunk will become a power player in the cloud space as it expands its support for cloud-native applications and the modern infrastructures and architectures those rely on.
Big data generates revenue in modern business period.
Dealing for SignalFx directly lifts Splunk in position at the cutting edge of monitoring and observability at massive scale.
SignalFx will support the continued commitment to giving customers one platform that can monitor the entire enterprise application lifecycle.
This deal is about growing a larger pie for everyone, so it's a commendable move that should help Splunk maintain its sales momentum.
Splunk is in an industry expanding fast with global spending on cloud services and infrastructure set to double by 2023, again according to IDC.
Splunk faces a few headwinds such as negative free cash flow and part of the reason is the result of a transition in renewable licensing contracts and subsequent revenue recognition.
Splunk will soon debut their new pricing plans, reducing the cost of its data volume-dependent model to help its customers run more information through the Splunk system.
Free cash flow is now at negative $120 million so far this year, compared to positive $102 million through the first half of last year.
Mushrooming top-line growth for this software company and management giving another upgrade to full-year expectations are the short-term catalysts boosting shares.
Splunk is one of the premium data analytics play out there and a compelling long-term buy.
“Success is a lousy teacher. It seduces smart people into thinking they can't lose.” – Said Co-Founder of Microsoft Bill Gates
