Mad Hedge Technology Letter
June 21, 2019
Fiat Lux
Featured Trade:
(THE REGULATION WARPATH TO LIBRA)
(FB)
Mad Hedge Technology Letter
June 21, 2019
Fiat Lux
Featured Trade:
(THE REGULATION WARPATH TO LIBRA)
(FB)
Facebook has a 30% chance of making this work.
Those are the odds I give Facebook today from making an announcement about integrating a Facebook-branded cryptocurrency called Libra into an actual successful future business.
First of all – let’s get this straight - Libra is not a cryptocurrency in the way that Bitcoin and Ethereum are.
These two digital currencies are non-sovereign bets for people who want to entrust a store of value outside the grubby fingers of big government.
Bitcoin and Ethereum are also speculative with a zig-zagging market movement attached to it with Bitcoin at its peak up to $20,000 and currently hovers around $9,000.
Slapping cryptocurrency buzzword on Libra is another marketing razzmatazz, one of the hallmarks of Founder and CEO of Facebook Mark Zuckerberg’s tenure.
This type of technology isn’t revolutionary or creative at all – it’s a giant rip-off of China’s WeChat Pay business.
Essentially, this is a digital wallet pegged to a basket of currencies and short-term instruments and Facebook’s digital wallet coined Calibra is for users to store and exchange the currency.
Libra will not be a speculative asset and will function as a payment instrument with $1 debited meaning $1 debited but this $1 is called Libra and it can be swapped for services on Facebook’s platform.
There aren’t any closing fireworks at the end of the show.
For the people who have lived in China, they know exactly what I am talking about because habitual monetary activity starts from the WeChat platform.
The main operational duty for WeChat is to chat with friends much like Facebook chat or Google Hangouts.
But here is when things differ – users can link a bank account and transfer money from the card onto the digital wallet called WeChat Pay that sits on top of the platform.
A home screen can then populate with a grid-like option of services from transferring money, ordering ride-sharing services, restaurant delivery and so on.
Users can even dump some cash into a money market fund that returns principal plus interest after a certain amount of time.
These 3rd party services give the user a bill and then the money can be conveniently digitally transferred from WeChat Pay with a few taps.
WeChat, owned by Tencent, earns a commission on every transaction and this is the carbon copy blueprint that Facebook wants to follow even if they haven’t announced the details of it.
This is another example of China being 10 years ahead of American fintech.
The unrivaled losers if this plays out to Facebook’s fancy are the traditional banks who are bypassed and the capital that is rerouted through Calibra.
I will say that Facebook couldn’t have worse timing even if they had tried, but better late than never.
Facebook should have established and nurtured this business 5 years before the regulatory storm started to brew.
If they went ahead with this 5 years ago, I would have given this business a 75% chance of succeeding because they were the darling of the tech world with everything they touched turning to gold.
The model was even out there for everyone to see by 2011 when WeChat went live with its digital wallet, why did it take Facebook or anyone else for that matter 8 years to get the ball rolling?
Is it because Silicon Valley is so inward-looking? Perhaps.
Even at the beginning of me writing the Mad Hedge Technology Letter in early 2018, the coast was clear with regulatory winds hitting six months later with vengeance.
Let’s check another box off, Facebook absolutely possesses the technological know-how to make this a reality, that is not the question.
Now it has more to do with if outside forces with the authority will undermine the start of this digital currency business.
After the announcement, it appears the blowback from politicians and regulatory bodies will be intense and unrelenting.
To say that countries abroad will let this fly isn’t accurate either with Chairman of the Russian State Duma Committee Anatoly Aksakov sharing that Facebook’s attempt at cryptocurrency through Libra will not be legalized in Russia because of posing a direct threat to the health of the Russian financial system.
Europe will most likely become a no-go as well as they take the issue of protecting personal data more seriously than their American counterparts.
Allowing Facebook to harvest a commission through every European digital financial transaction is in the realm of fantasy today.
Facebook missed an ideal time slot to roll out this business, they could have sunk their fangs into the consumer in a way that it could not be reversed, but that ship has sailed.
This sets up a massive uphill battle against domestic regulators that were quick with responses to news regarding Libra with chair of the House Financial Services Committee Democratic Rep. Maxine Waters pushing for an immediate “moratorium” on Libra.
The latest run-up in Facebook shares was on the back of Libra, Facebook appears to be valued fairly at $200, and they are praying that Libra will become its fresh catalyst to take them to $250.
“A squirrel dying in front of your house may be more relevant to your interests right now than people dying in Africa.” – Said Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
June 19, 2019
Fiat Lux
Featured Trade:
(FREELANCING TO THE TUNE OF THE GIG ECONOMY)
(FVRR), (LYFT), (UBER), (UPWK)
The company who exploits workers in the gig economy, Fiverr International Ltd. (FVRR), went public and is a terrible long-term buy and hold for investors.
I’ll tell you exactly why you should stay away from it like the plague.
Take a look at one of the sad side effects of the tech industry – 58% of full-time gig workers said they would have a hard time finding $400 to cover an emergency bill compared to 38% of people who don’t work in the gig economy.
The large discrepancy indicates that the informal economy is far more destabilized from Silicon Valley than investors care to admit.
And in many cases, the brutal economic conditions don’t underline the lack of upward mobility too.
While some are drawn to flexible roles, the gig-economy has faced condemnation, particularly because it has enabled companies to marginalize workers as contractors rather than employees who would be entitled to benefits and wage protections.
What about the risks of Washington smushing their business models?
Fiverr confesses that policy changes could destroy their business model if the ability to designate their workers as contractors is banned.
The freelance model could also become less attractive if it means higher regulatory risk or even higher perceived regulatory risk.
Another stain on Fiverr’s reputation is that, like many other tech companies of its ilk, it is loss-making.
Fiverr posted a net loss for 2018 of $36.1 million, compared to a net loss of $19.3 million in the prior year.
The lack of profitability is absorbed for the ultimate goal of gouging a total addressable market within the U.S. of $100 billion.
Fiverr's $82.5 million in trailing revenue is less than a third of fellow freelance platform operator Upwork (UPWK) at $263.1 million.
Uber (UBER) and Lyft (LYFT), ridesharing services, are considerably larger than that as Uber and Lyft command trailing top-line results of $11.8 billion and $2.5 billion, respectively.
Revenue expanded 45% last year and this year 42% annualized through the first three months of 2019.
Fiverr is growing faster than Upwork with just a 16% top-line gain in the first quarter and Uber which decelerated to a 20% increase in the same reporting period.
But all three gig-economy players still trail behind Lyft with its first-quarter revenue surge of 95%.
None of these companies are currently profitable.
Is it worth it to pay a premium for cash burners?
Fiverr, Upwork, Uber, and Lyft are fetching between six- and nine-times trailing revenue.
Fiverr shares are 50% above its IPO price after just two days of trading and is somewhat misleading but mister market is always right.
Lyft and Uber have been losers this year after going public and the jury is out to whether they are really worth a long-term duration trade.
It can be argued that Uber is a better bet long-term bet because of a bold aerial service that could eventually unlock massive value, but I would say its current model is somewhat underwhelming and could be called a fancy taxi service.
The best type of tech companies right now are software companies insulated from the turmoil of the trade war.
If you are interested in pure software companies, there are a handful of names out there that fit the bill, but if you are looking at a company attempting to crowbar itself into the idea of a software company then Fiverr is it.
That unflattering description is entirely justified as well.
Don’t forget they have real competition in the marketplace to supply freelance jobs in Upwork who has a bigger market share.
These type of broker apps do not have much pricing power and their only sell is the prospect of scaling as fast as possible meaning a volume play.
I can honestly ask, why buy Fiverr when there is a much better option out there?
The success of Fiverr is reliant on maintaining and expanding the scale of operations to generate a sufficient amount of revenue to offset the associated fixed and variable costs.
In my eyes, growing the number of users to benefit from the scale might happen after it does not exist anymore.
Investors must really ask themselves if gig workers will even be around in 8-10 years.
Why is that?
The gig economy is a battle down to zero and as tech companies become more sophisticated with expanding their artificial intelligence capabilities, it will remove the demand for gig economy taking away a huge swath of the addressable market with it.
This stock is a bet against artificial intelligence and the application of it, and if anyone has been reading this newsletter, they know it would be akin to throwing your hard-earned money down the toilet.
Specifically speaking, every cornerstone industry from national defense, consumer products, the trappings of Wall Street, industrial production, robotics, autonomous driving technology, and transportation is moving full speed ahead with implementing and harnessing artificial intelligence.
The technology isn’t quite there yet and humans are just a quick stop-gap until the optimal technology can be achieved.
Then it will be arrivederci to the human element, stripped away like my innocence in high school.
This is a bet on the upward trajectory of gig economy workers and the fate of them and that is a bad gamble to make long-term.
“10 to 20 years out, driving your car will be viewed as equivalently immoral as smoking cigarettes around other people is today.” – Said American Venture Capitalist Marc Andreessen
Mad Hedge Technology Letter
June 17, 2019
Fiat Lux
Featured Trade:
(THE FLIGHT PATH OF UBER)
(UBER)
If you want a bull out of the gate type technology stock, those are few and far between at this point in the late economic cycle.
There's another deep-lying value out there and a company who promises the stars and the moon is Uber who announced some eye-opening developments.
Uber Elevate, a division of Uber developing urban flight ridesharing, will have to hold on to its ridesharing business serviced by combustion engine-based cars for quite a while before the company can literally take flight.
This is the type of investment that used to only be reserved for venture capitalists, but Uber going public has given the average American a chance at staking out and holding one of the most controversial yet forward-thinking tech companies in the world.
If Uber can get this up and running, the underlying stock promises to become a ten bagger.
The United States-based subsidiary of the Embraer, EmbraerX, focuses on the development of disruptive businesses.
EmbraerX fundamental pillar is the formation of the future experience of air transport users.
Last week turned heads by debuting a small electric-powered vertical takeoff and landing (eVTOL) vehicle that should transform the future for Uber and other ridesharing companies.
The annual Uber Elevate conference in Washington, D.C. offered a glimmer of hope for Uber Elevate, the company is hellbent on realizing the holy grail of ridesharing transport transforming into autonomous flying vehicles.
A business model concocted with this input would pay dividends for a company who is doling out subsidies to gas-guzzling drivers on the road to service.
Yes, this is the future, but the future is here sooner than you think.
The EmbraerX eVTOL will only be able to handle a few passengers from the get-go.
Unfortunately, autonomous piloting will integrate into the process slowly.
The goal is for the vehicle to be absolutely autonomous according to the manufacturer aligning with Uber’s much-prophesized aim of going fully autonomous.
Dreams aside, there appear to be many technical issues with executing this transformation such as how will a new generation of flying Ubers prevent nonstop collisions above a city?
Uber has buddied up with an army of air traffic controllers, academics, pilots and industry experts to study this issue, while EmbraerX has proposed a pragmatic, simple and robust urban air space design to allow more aircraft to operate in urban environments.
Uber’s flying division plans on rolling out their service by 2023 which is an ambitious target, to say the least.
EmbraerX is partnering up with Uber to try and make this happen.
The locations of Los Angeles and Dallas have been pinpointed as places they plan to demonstrate flight capabilities next year.
The timeline is excruciating tight if Uber plans to get all their ducks in a row and make this a reality.
Uber has toyed with other launch locations such as Brazil, France, and India.
Other aircraft manufacturers are in the mix as well allowing Uber to diversify the risk in case EmbraerX can’t deliver the goods.
Similar air products are being crafted by Aurora Flight Sciences, a Boeing subsidiary, Bell and Karen Aircraft, and a Slovenian manufacturer named Pipistrel Vertical Solutions.
The entire premise behind the aerial ridesharing involves delivering a network of airports.
It will not morph into a door to-door service because a lack of capabilities on last mile deliverability that gas-based cars possess.
The concept of skyports or skystations have been bandied around and will theoretically force passengers to find their way to these launch stations to take advantage of aerial capabilities.
Uber could deliver a 2-1 service with road-based cars delivering the passengers to the sky stations all through the Uber app and a receiving a windfall of 100% of the transport revenues.
Uber is collaborating with renowned architectural and engineering firms on that piece of the project to solve complex challenges.
The sky stations must be built around commercial and retail hubs making this problem even more frustrating because the lack of infrastructure and crowded nature of these tight spaces means this project absolutely cannot fail.
Can you imagine a failed blighted sky port hanging above the retail and tourist mecca of Times Square in Manhattan?
Then there is the issue of these sky ports being monumental eye sores ruining picturesque skylines that many people hold dear to their heart.
The San Francisco skyline and the property owners with panoramic views would lose enormous property value if they were holed up next to an Uber aerial flight route.
The company has brainstormed around building on top of existing under-utilized urban structures like parking garages or even big box malls.
Some of the designers see them as providing not just takeoff and landing platforms for eVTOL vehicles, but an all-inclusive mix of retail, entertainment, and commercial with fitness clubs, supermarkets, and fine dining integrated into the concept similar to Tokyo subway stations.
In terms of time, the benefits would be compelling with flights able to cut commutes down from 2 hours to 15 minutes.
This type of time savings is applicable to megacities such as New York and the San Francisco Bay Area where many employees reside in outer suburbs to only commute into the heart of the city with their cars.
Shared flights would mitigate traffic on the ground giving a 3D solution to the massive traffic problem megacities face.
Meanwhile, as a way of dipping its toe into the waters of urban aerial transportation, Uber is due to launch a new service in New York City on July 9 that relies on an existing technology: helicopters.
The new Uber Copter service is by way of the Uber app allowing customers to call for helicopter rides between lower Manhattan and JFK Airport, pegged at a price of about $250 per person.
Times will be reserved for the afternoon rush hours on weekdays – and only for Platinum and Diamond members of the Uber Rewards loyalty program.
Newark-based HeliFlite will operate this part of Uber offering 5 seats per helicopter.
This test roll-out will give Uber valuable insight into the pitfalls of running an aerial transport network and long-term feasibility of it.
What does this mean for Uber?
Part of accessing the public markets was to supercharge their Uber Elevate division.
It is happening.
The company will be able to access the debt market to fund its deep-lying value divisions much like Google’s autonomous driving division Waymo has been financed by its parent company Alphabet.
Regulatory headwinds still represent a doozy of a thorn in its side.
There is a real chance of Uber Elevate being ready before the government is ready to allow them to flood the sky with aircrafts, and a 2-year delay suddenly grounding the planes with shareholders footing the costs will sap the momentum.
Facebook has grown uncontrollably for over a decade and the government still can’t get their finger out and figure out what to do.
A decade hiatus would be catastrophic for Uber Elevate as flight crashes have a more graphic consequence than personal data being hijacked.
I give Uber a 40% chance of creating a full-fledged, up and running aerial ridesharing service by 2023.
“As we move over to more of a mobile device-centric world... I think the interaction model with devices is going to be much more voice-based.” – Said CEO of Uber Dara Khosrowshahi
Mad Hedge Technology Letter
June 13, 2019
Fiat Lux
Featured Trade:
(THE TRADE WAR MOVES DOWN MARKET)
(DOCU), (PSTG), (ZUO), (MSFT), (PYPL), (ADBE)
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.
OKLearn moreWe may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Vimeo and Youtube video embeds: