August 12, 2019

Mad Hedge Technology Letter
August 12, 2019
Fiat Lux

Featured Trade:


Unstoppable Roku

Roku has been unleashed.

To be honest, I was worried when it dipped all the way down to $25 last year because it was a stock that was prime for liftoff.

Liftoff has happened but a little later than I first surmised.

Roku had a blowout quarter crushing estimates with expanding their pie 59% year-over-year to $250 million scorching consensus estimates of $224 million.

The outperformance doesn’t stop there with the company rapidly adding users to 30.5 million active users during the quarter, up 39% year-over-year.

The monetization side showed the same outperformance with average revenue per user (ARPU) up to $21.06, up $2.00 year-over-year.

For all the doubters out there, who dismissed the potential of Roku because they weren’t part of an Amazon, Google, Facebook, or Apple group, then you were wrong.

What we have seen in the past year is the potential transforming in real-time into high octane outperformance.

The x-factor that put the company’s business model over the edge was the “onslaught” of new streaming assets coming online this year and in 2020 from Disney, NBCUniversal, and HBO.

Recent surveys suggest that Amazon’s Fire TVs haven’t been able to keep up with Roku.

And as Disney and NBC roll out gleaming new streaming assets, Roku will be able to do what is does best – sell digital ads.

Roku being independent doesn’t care who streams what because selling ads can be sold on any streaming program.

This makes me believe that Roku is in a better position not being a Fang because of a lack of conflict of interest.

For example, Google and Amazon have skirmished about different crossover partnerships such as YouTube on the Amazon Kindle and so on.

They plainly don’t want to help each other

Part of the DNA of these big tech companies is bringing each other down.

In my mind, Roku has definitely benefited from the first-mover advantage and have perfected selling digital ads over over-the-top (OTT) boxes.

It just so happens that Roku has prepared itself to extract maximum profits from the intersection of integrating online streaming assets and the consumer quitting analog cable.

The timing couldn’t have been better if they tried.

In its infancy, Roku’s revenue was reliant on selling the physical hardware, but that revenue has trailed off at the perfect time because of the explosion of digital ad growth in the industry boosting its other business.

Perhaps even more impressive is the loss of 8 cents last quarter when the company was expected to lose 22 cents.

This signals to investors that profitability is just around the corner for Roku and after years of burning cash, they are finally ready to turn the page and start a new chapter in the history of Roku.

Roku bottomed out at $25 and is now trading over $125, an extraordinary feat and one of the stories of the tech industry in 2019.

I wouldn’t chase the stock here, but I will say the momentum is palpable and Roku will end the year higher than where it is now.

It’s a great stock with an even more compelling story and about to harvest and monetize the new streaming assets that are coming through the pipeline.


August 12, 2019 – Quote of the Day

“I believe this artificial intelligence is going to be our partner. If we misuse it, it will be a risk. If we use it right, it can be our partner.” – Said CEO of Softbank Masayoshi Son


August 9, 2019

Mad Hedge Technology Letter
August 9, 2019
Fiat Lux

Featured Trade:


High-Risk Lyft

Lyft (LYFT) has the wind at its back but that doesn’t mean you should bet the ranch on it.

In Silicon Valley, “peak losses” are two words that can deliver a great earnings report.

That is where we are at with tech’s risk tolerance.

It’s no surprise some of these outfits burn money like no other, Lyft rejigged guidance from EBITDA losses of $1.15 billion to $1.175 billion down to $850 million to $875 million.

The main reason Uber (UBER), Lyft, and I’ll lump Netflix (NFLX) into the mix too, lose money is because they intentionally underprice their services allowing consumers to take advantage of a great deal in relative terms stoking outperforming revenue growth.

All those years of losses can be shouldered by the venture capitalists if revenue growth outweighs the pain of short-term losses.

But when a company takes that step to go public, everything changes.

No longer can they sweep the mountain of losses under the carpet to the deep-pocketed VCs, but they are penalized for it by a lower share price under the control of panicky shareholders.

Lyft started to raise prices in June and since Uber went public as well, the duopoly is in the same boat.

This means that your rideshare route home from the bar after the last call is about to get more expensive.

Since Lyft and Uber have a boatload of data, they will surgically pick and identify the routes and distance that do the least damage to end demand.

This will clearly be the routes and distances that have such an overwhelming and pent up demand that they can nudge up prices an extra 5% or more if they can get away with it.

In my head, these routes mean downtowns in metros with high paying jobs with poor public transportation links such as Los Angeles or Seattle.

Another route that I believe will get a bump in price is late-night surcharges often when partygoers are inebriated or out on the town.

Lyft has pockets of opportunities to exploit.

The cost inflation won’t stop there because even though Lyft “beat expectations” due to this pricing change, there is the long-term fixation on profitability that haunts management.

The pricing trick made Lyft rejig its annual targets expecting revenue of between $3.47 billion and $3.5 billion this year, up from a previously stated range of $3.275 billion to $3.3 billion.

The one metric that bodes well for the service is the 21.8 million “active riders” on its platform beating expectations by about 0.7 million year-over-year.

Lyft’s services are scalable and the growth will help mitigate losses and even though it’s in the public market, that doesn’t mean that it can’t stop growing.

Both ride-sharing services going public at almost the same time has meant that the price war that resulted in massive discounts to riders is no more.

Each service has incentives to raise prices in the most pain-reductive way possible for riders.

This particular tech category is certainly high risk – high reward as Lyft and Uber still face ongoing litigation in California courts concerning the job status of its drivers about whether they are classified as employees or independent contractors.

The more imminent issue is how much can they price hike before consumers balk.

Riders certainly have a price threshold that they aren’t willing to accommodate.

Luckily, Uber and Lyft have a treasure trove of data and can manipulate it to their interests by floating out trial balloons to test bold initiatives.

These two tech companies will not be able to shake off the volatility disease for the foreseeable future as the laundry list of predicaments spell turbulence.

Long term, they must show more to investors than “peak losses” but for the time being, they have survived the gauntlet.

I would not buy shares short-term, the most recent spike has snatched away an accommodative entry point.



August 9, 2019 – Quote of the Day

“Bigger than the world of the world is your mind.” – Said Founder and CEO of Huawei Ren Zhengfei

August 7, 2019

Mad Hedge Technology Letter
August 7, 2019
Fiat Lux

Featured Trade:

(DIS), (T), (NFLX), (CMCSA)

Cord-Cutting is Accelerating

Cord-cutting is picking up steam – that is the last thing traditional media want to hear.

There are several foundational themes that this newsletter has glued onto readers’ foreheads.

The generational pivot to cloud-based media is one of them.

It’s easy to denominate this phenomenon down to Netflix (NFLX) but in 2019, this trend is so much more than Netflix.

E-marketer published a survey showing that cord-cutters will surpass 20% of all U.S. adults by the end of 2019.

The rapid demise of traditional television has been equally as mind-numbing with the 100.5 million subscribers in 2014 turning into 86.5 million subscribers today.

Comcast (CMCSA) has tried to buck the trend by homing in on fast broadband internet, but that strategy can only go so far.

Disney (DIS), WarnerMedia, and NBCUniversal Disney have really gotten their ducks in a row and are on the verge of launching their own unique streaming services.

Disney’s service entails a 3-segment strategy bringing in Hulu and ESPN Plus to the Disney fold.

The Disney service will revolve around family content at its core so don’t expect Game of Thrones lookalikes.  

WarnerMedia’s hopes to cash in on its HBO brand while peppering it with original series and programming from Warner Bros. and DC.

Disney will be able to lean on family brands of Marvel, Star Wars, and Pixar, and newly acquired National Geographic.

Marvel Cinematic Universe is a growth asset pumping out more than $22 billion at the box office across 23 movies.

Disney Plus will also have a solid collection of Disney films to play with, which could make it indispensable to parents and comes with no ads making it even more appealing to kids.

Disney will also deploy some mix of bundles to diversify its offerings and personalize services for viewers who do not want its entire lineup of content.

The soon-to-be HBO Max will implement HBO original content along with WarnerMedia brands like Warner Bros., DC Entertainment, TBS, TNT, and CNN.

HBO Max will have a treasure trove of old Warner Bros. movies and TV shows, like “Friends” and “The Fresh Prince of Bel Air,” that has played extremely well on Netflix.

HBO will get those titles back at the end of 2019.

HBO has also tied up with BBC Studios to stream “Doctor Who.”

“You should assume that HBO Max will have live elements,” said Randall Stephenson, chairman and CEO of AT&T, on the company’s second quarter conference call.

This roughly translates into HBO Max snapping up live sports and music events to complement scripted content.

This is something that Netflix has shied away from and live events are best monetized through live ads.

The last big label service to go into effect is NBC’s yet to be named streaming service.

NBCUniversal will have the luxury of offering their cable subscribers a chance to pivot to an in-house online streaming service making the move seamless.

At first, the 21 million US cable-TV subscribers will receive the streaming content for free.

Some of the assets that will trot out on the NBC platform are “The Office,” because NBC is removing it from Netflix for 2021.

As cord-cutters hasten their move to streaming, this trio of loaded content-creating firms will benefit as long as they maintain a high quality of content and the pipeline to please fidgety consumers.




August 7, 2019 – Quote of the Day

“One of the only ways to get out of a tight box is to invent your way out.” – Said Founder and CEO of Amazon Jeff Bezos

August 5, 2019

Mad Hedge Technology Letter
August 5, 2019
Fiat Lux

Featured Trade:

(AAPL), (NVDA), (INTC), (MU), (WDC), (BBY)