Tech Letter Archives

The FANGs' Path to Online Banking

Yu'e Bao or "leftover treasure" in English has caught the attention of over 400 million Chinese investors.

This money market fund has exponentially grown into a $250 billion fund by the end of 2017, and is now the largest money market fund in the world!

This product isn't offered by Bank of China or another giant state-owned bank or financial enterprise, but Alibaba's (BABA) Ant Financial (gotta love those Chinese names).

Assets under management are up 100% YOY and it now accounts for a quarter of China's money-market mutual fund industry in just one fund.

These inflows coincide with the sudden migration into mobile payments. Common folk are comfortable with investing their life savings in these short-term instruments with a too big to fail, larger than life firm like Alibaba.

Yu'e Bao derives its funds from Alipay users, Alibaba's digital third-party platform, that allows consumers to pay for everything in life from theater tickets to utility bills.

Service is unified on a holistic graphic interface and users can easily divert their cash into this fund with a few screen taps on their app. Yu'e Bao's ROI offer a 7-day annualized yield of 4.02%, down from the introductory annualized rate of 6.9% around the launch in 2013.

Yu'e Bao's short-term yield outmuscles the 1.5% interest rate on one-year Chinese bank deposits and the 3.6% yield on 10-year Chinese government debt.

Weak banking regulation has spawned a mammoth FinTech industry in the Middle Kingdom. Only one yuan (16 cents) is enough to create an account and considerable retail flow has rushed in.

China has catapulted ahead of the rest of the world emerging as the leader of global FinTech (financial technology) innovation. The pace, sophistication, and scale of development of China's FinTech has surpassed the level in any other developed countries.

The country's digital metamorphosis has enhanced e-commerce, payment systems, and connected logistical services. The Chinese discretionary spender for the past decade has been the deepest and most reliable lever of global growth.

Mobile third-party payments in China, 90% cornered by Tencent's Wechat and Alibaba's Alipay, are estimated to reach a lofty $6 trillion in revenue by 2019, more than 50 times that of the US.

These omnipresent payment systems are now deeply embedded into the fabric of Chinese society. Its commonplace to witness homeless people on Shanghai subways waving around a scannable image for Wechat or Alipay money transfers instead of physical cash.

Even in rural farmlands, shabby convenience stores prioritize digital currency and sometimes don't accept paper currency at all. Yes, China is beating the US to a cashless society.

Digitization is changing the competitive balance, and global banks must embrace large-scale disruption caused by big tech platforms.

Banks in China regard these companies as potential collaborators resulting in a net positive long-term infusion of enhanced products and services.

Agreements have been forged between the Bank of China with Tencent, and the China Construction Bank has linked up with Alibaba.

China has incorporated the technical power of AI and machine learning into its Fintech platforms at every opportunity. Robo-advisors are also making inroads, creating a bespoke financial program for the individual.

This trend has so far failed to go viral in America, where individuals still prefer plastic cards or even paper cash. E-commerce clocked in a paltry 9.1% of total US retail sales in the third quarter of 2017.

Even though most of us have our heads buried deep in our smartphone virtual world, Americans are still programmed to whip out debit or credit cards at every opportunity.

Chinese that visit America carp endlessly about America's archaic payment system.

Ultimately, American payment systems are ripe for digital disruption.
The American consumer will ultimately cause severe damage to MasterCard (MA), Visa (V), and American Express who are happy with current status quo.

The lack of innovation in the US Fintech sector is a failure in the otherwise fabulous technological leadership of the US. American smartphones should already be a fertile digital wallet, not just a niche market.

Savvy Jack Dorsey even invented a firm based on this inefficiency, exploiting the lack of proficiency in domestic FinTech with Square (SQ).

American big tech will gradually utilize China's FintTech model and extrapolate it with "American personality". It is much more of a two-way street now than before with cutting edge ideas flowing both ways.

The next leg up after digital wallet penetration of FinTech are money market funds on tech platforms. In effect, the Chinese innovation of this industry has allowed more variations of potential financing for the ambitious Chinese, and the same trends will gradually appear on Yankee shores.

Ironically enough, Amazon's (AMZN) land grab in the field is more prevalent in China, as artificially low financing and juicier scale justify this strategy.

The scaling premium also explains why corporate China's early adopter advantage is so effective because not many countries boast a 1.3-billion-person consumer market.

Soon, Americans will wake up to the reality that American FinTech must advance or foreign firms will rush in.

Mediocrity is not good enough.

iPhones and Android consumers could direct savings into tech money market funds with compounding yield all on a single digital platform.

Tech companies could deploy some of the repatriated cash to invest in some fledgling FinTech expertise to smoothly execute this new endeavor.

Consequently, a successfully created money market fund on a tech platform would enlarge the already substantial cash hoard these firms have. Not only will the large tech get bigger, but the big will get absolutely massive.

The determining factor is financial regulation. Capitol Hill has drawn a large swath of mighty Silicon Valley tech titans to testify because they are stepping on too many toes lately.

A scheme to hijack the digital payments market and dominate the mutual fund industry will cause unyielding push back in Washington. Especially, when the Amazon death star continues pillaging select industries of their choosing and eliminating brick and mortar jobs by the millions.

JP Morgan (JPM), who has the largest institutional money market fund in the country, and retail stalwarts like Blackrock and Vanguard will be sweating profusely too if mega tech starts probing around its turf.

Alibaba is also coming for their bacon too with the failed purchase of payment transfer service, Moneygram International (MGI) temporarily shutting out Jack Ma from a foothold in the American payment system industry. How long will it take before they are allowed in?

The momentum for these financial instruments is robust as FinTech integrates deeper into consumer life. The global cash glut from a decade of cheap financing is causing profit hungry investors to starve for high yield vehicles.

The stability and clean balance sheets of tech giants give them ample chance to successfully execute. So why can't they also become banks? Would you buy an Apple, Amazon, or Google money market fund if they offered a 4-7% annualized yield?

I believe most Americans would.

??

February 28, 2018

Tech Letter

Mad Hedge Technology Letter
February 28, 2018
Fiat Lux

Featured Trade:
(RED HAT'S TRIP DOWN THE YELLOW BRICK ROAD WITH LINUX),
(RHT), (ORCL), (MSFT), (CRM), (SAP), (VMW)

Red Hat's Trip Down the Yellow Brick Road With Linux

Tech Letter

When a marvelous company with cutting edge technology keeps chugging along, you do not have to wonder why the heck its shares are surging.

This is the case with Red Hat (RHT) who is trading at an all time high even after a broad based correction.

The extraordinary development of this earnings season is the broad-based strength that second tier tech companies, the Non-Fang's, have displayed beating and raising guidance amid the backdrop of rising rates and inflation.

This is what happened when FANG share prices run too far, too fast. The Niagara Falls of cash pouring into the technology sector cash need other companies to spill into.

The pioneering Linux operating system company has exhibited emphatic strength after the tech sector led the equity recovery from the precipitous correction earlier this month and the Nasdaq has gained back almost all of its losses.

The broader market is concerned about higher remuneration costs and runaway inflation. Rising wages will inflict severe damage to wage bills.

Look no further than bitcoin software engineers who accept entry level positions of over $100,000/year and autonomous vehicle engineers who start out at net $300,000/year and quickly scale to $450,000/year because of the severe talent shortage in Silicon Valley.

Luckily, the Mount Everest wage levels are justified when gross revenue per employee is steadily gushing upwards such as at Red Hat. Technology companies are almost the only ones that can afford these wage hikes because they have the earnings to justify them.

In the company's latest earning's report announced, revenue was up a bubbling 22% YOY. Application development and emerging technology subscription revenues registered at $162 million, up 44% YOY.

Operating cash flow was up 18% YOY at $160 million. Upcoming earnings project accelerated revenue growth.

Red Hat (RHT) has been one of the many recipients of the secular growth trend of tech and is making all the right moves to command praise from industry analysts.

Similar to Amazon (AMZN), the company still trades relative to future growth projections and does not trade on bottom line performance - PE multiples are irrelevant.

A headquarter in Raleigh, North Carolina would have been a death sentence 15 years ago, but the city has turned into one of the hippest tech nerve centers for blossoming millennials.

It's affordability, low cost of living and abundance of high paying gigs has lured in young professionals in droves.

The research triangle circuit of Raleigh-Durham-Chapel Hill that feeds off of Duke University, NC State University, North Carolina-Chapel Hill and Wake Forest, give employers a formidable opportunity to cultivate an expansionary talent pool to cherry pick from.

The main arteries, I-85 and I-40, marry all these metro areas together making North Carolina well positioned to facilitate distribution.

Red Hat development is bound to open source software and Linux operating system offerings. Other know-how and expertise come in the form of virtualization, middleware, cloud, and storage technologies that equip a successful enterprises software business.

The extensive training and consulting they provide reverberates down to their revenue at 12% growth.

Red Hat Enterprise Linux (RHEL), an operating system platform outperforming in hybrid cloud environments ensures a healthy infrastructure.

Red Hat JBoss Middleware, a key for developing, deploying, and managing applications; integrating applications, data, and devices; and automating business processes in hybrid cloud environments is another application on offer.

The stamp of supreme quality was validated when Red Hat joined forces with Alibaba (BABA) Cloud. The certification process required the completion of distribution of Red Hat's software.

It will be jointly available for both firms' customers, ISV's (Independent Software Vendor) and 3rd party developers to boost their infrastructure with a cost-effective, fluid solution.

With Alibaba Cloud's global audience, having Red Hat Enterprise Linux on Alibaba Cloud Marketplace offers customers better results from a platform capable of deploying enterprise cloud architectures to exponentially expanding business demands of digital transformation.

Red Hat, which compete with Oracle (ORCL), Microsoft (MSFT), Salesforce (CRM), SAP (SAP), and VMware (VMW), are in an enterprise cloud arms race and management sense they cannot back down from their pursuits. As with many before them, evolve or go extinct.

Red Hat has used their unique understanding of Linux and open source to consummate a mixed cloud product around OpenStack. This process began in 2014 as CEO, Jim Whitehurst firmly understood Red Hat could not flourish with Red Hat Enterprise Linux alone.

By becoming specialists in the open source sphere, it gave Red Hat the perfect podium to offer their cloud products. The Linux system and cloud software feed off each other and the recently acquired JBoss middleware layer that is required to hold these two together act as another revenue stream.

Jim Whitehurst has convincingly noted that the current offerings will easily see them march above $5 billion total annual revenue up from the less than $3 billion annually they procure today.

Salesforce's sheer size represents the 800-pound gorilla in the room, but Red Hat is advancing nicely and regularly surpasses growth targets which crucially sustains positive investment sentiment.

Open source projects are the new normal and will progress because of the diverse community of stakeholders that are particularly keen in making the software succeed.

It's important to recognize that open source outperformance will create better products globally and holistically advance the enterprise software market.

Open source software has the long-term vigor to outlast proprietary developers that aren't as committed. If products are continually improving, they become being incredibly sticky inside the ecosystem.

Red Hat has positioned itself smartly and share the lucrative pickings with others in its peer group.

Red Hat has prospered in a brave new world where business is catering to tech to enhance product levels and service explaining why Walmart (WMT) is turning into a tech company.

Red Hat is still ubiquitously famous for building a fresh version of Linux, specifically, an enterprise version, but it has begun reaccelerating with tools on their Linux platform such as cloud and container products that will pad profit margins.

These existing clients that already use RHEL (Red Hat Enterprise Linux) will continue to thirst for the new add-ons that harness innovative technologies.

Red Hat's share price is on a tear in 2018, already up over 17% and over 60% over the last 365 days. Use the next entry point to splurge on Red Hat.

February 27, 2018

Tech Letter

Mad Hedge Technology Letter
February 27, 2018
Fiat Lux

Featured Trade:
(WHERE TO FIND HIGH BETA IN TECH),
(SQ), (ROKU), (QCOM), (AMD), (JD)

??

Where to Find High Beta in Tech

Tech Letter

So, you think the markets have been volatile lately?

I happen to know that for some of you the markets have not been volatile enough.

These people focus on a select group of technology stocks that often move three, four, or five times more than the main market.

I know this is not for everyone. However, today I will toss some red meat to those of you who are true volatility junkies. I will concentrate on five names. Hold your hats, fasten your seat belts, and down the Dramamine!

Either way, higher volatility is here to stay for the time being and traders need to readjust their portfolio strategies accordingly.

Square (SQ)

This Fintech outfit is visionary Jack Dorsey's brainchild. Square is an omni channel payments processor that focuses on bringing affordable payment solutions to small sized enterprises.

Their goal is to eat the lunches of giant, high charging Visa, Master Card, and American Express.

Jack Dorsey invented Square (SQ) after he was kicked out of Twitter (TWTR), another company he founded. It is reminiscent of Steve Jobs departure from Apple, only to return a decade later as the prodigal son to save the company.

Square overtook Twitter in market capitalization in November 2017, vindicating Jack's vision.

The pullbacks in the share price are often violent due to fintech's place as a still nascent segment of tech that causes the elevated beta. The proprietary technology developed at Square is wonderful...they even accept bitcoin.

Roku (Roku)

Roku has a Facebook type business model in terms of advertising, but they are in the embryonic smart television industry. They do not create original content like Netflix (NFLX) but harness a digital distribution platform for 3^rd party content using the most sophisticated smart top box device.

In turn, advertisers are charged on Roku and it is a hot new product for all the Millennial cord cutters out there.

Roku posted an earnings beat last week, but its stock sold off a nauseating 22%. That was after the stock moved from $19.50 on October 30, 2017 to an all-time high of $52.31 on December 11, 2017.

Although this is a case of too far too fast, the technology is legit and could develop into the premier platform competing for millennial advertisement exposure.

Qualcomm (QCOM)

This San Diego based company earns the majority of their revenue streams from patent licensing and chip manufacturing. They have been a mainstay in producing chips for your iPhone as their claim to fame.

Qualcomm is the preeminent tech volatility stock in current day terms because of the current hostile takeover bid from Broadcom (AVGO). Hock Tan, the maverick CEO of Broadcom, won't take no for an answer.

This battle royale is taking place at the same time Qualcomm is attempting to buy Dutch semiconductor manufacturer NXP Semiconductors (NXP) for $44 billion. This defiant move has one unequivocal winner - Higher Volatility.

Expect treacherous whipsaws and shocking headlines to affect its share price for the foreseeable future.

AMD (AMD)

Dr. Lisa Su heads the cavalry of this always also ran microprocessor manufacturer. The majority of their revenue derives from CPU's and GPU's. Their main competitor in GPU's is Nvidia (NVDA), so the GPU market is now largely a duopoly.

The CPU chip struggle is contested by Advanced Micro Devices (AMD) and Intel (INTC). (AMD) has solidified their silver medal position in this market. (AMD) was trading down at $1.72 on September 1, 2015 and now sits at over $12.

AMD has a beta of 3.22 meaning it stock moves 322% relative to average stock price movements. Consolidation and chip shortages are overarching themes to the chip industry in 2018, which is why we have been so heavily long them this year.

JD.com (JD)

JD.com or otherwise known in local Chinese mandarin lingo as Jing Dong and is the younger brother of Alibaba (BABA) in a 2-horse race. JD.com is an e-commerce sales platform just like Amazon and mainly sells goods from 3^rd party vendors.

Jing Dong is a BAT that isn't a BAT. I am not talking about the furry winged friend who sleeps upside down in a dark cave. I mean the Chinese tech BAT's comprised of Baidu (BAIDU), Alibaba (BABA), and Shenzhen's Tencent. They are China's answer to the American FANG's.

The Chinese e-commerce outperformance has put Alibaba squarely in the running for the world's first $1 trillion company. JD.com is headquartered in Beijing by Liu Qiangdong and Beijingers and Northern Chinese alike swear by this service, especially the authenticity of electronic devices.

If you order an iPhone X on their digital platform, a real iPhone X will actually appear. This isn't always the case in China. It has fewer problems with selling fake goods than Alibaba (BABA).

Alibaba is headquartered in Hangzhou and breeds higher trust levels in the South of China. JD.com also control its entire logistics chain, which streamlines its facilitation in the movement of goods. If the trade war between the US and China deteriorates, Alibaba (BABA) and JD.com (JD) will be hard hit, with JD shares dropping twice as fast as Alibaba's.

Tech Trade Alert - (AAPL) February 26, 2018 STOP LOSS

Tech Letter

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

February 26, 2018

Tech Letter

Mad Hedge Technology Letter
February 26, 2018
Fiat Lux

Featured Trade:
(QQQ), (FB), (AAPL), (AMZN), (NFLX),
(MU), (LRCX), (GOOGL), (NVDA)

??

Are Technology Stocks Peaking Here?

Tech Letter

The NASDAQ (QQQ) technology Index (QQQ) is struggling to reach its January all-time high at $7,261.

We are about to approach the 18-year anniversary of the last technology bubble top during April 2000.

Has it been that long? I remember the IPO party Vodka luges like it was yesterday.

So many investors here in the San Francisco Bay Area are asking if it is time to sell all the stock they own and move to a country without an extradition treaty, like Brazil.

Everyone here feels like they are getting away with murder, making big money for doing nothing.

They remember all too well what happened to those who forgot to sit down last time the music stopped playing.

Fortunes were lost, homes foreclosed, trophy wives went missing, and kids were sent to public school in marginal neighborhoods.

That day is certainly coming.

But not for at least another year, which means that NASDAQ will hit 7,000, 8,0000, and even 10,000 before the fat lady sings.

The moves certainly have been staggering, especially since the beginning of 2016, when the tech melt up started.

Apple, the largest capitalized company in the world, is up exactly 100% during this time, creating a staggering $445 billion in paper wealth. That's almost a whole country!

Facebook (FB) has gained a breathtaking 118%%, while Amazon (AMZN) has posted an eye popping 220%. Netflix (NFLX) has tacked on an incredible 251%.

It has all created immense wealth for individual investors, especially here in the San Francisco Bay Area, where everybody keeps their entire retirement savings in technology stocks.

No wonder I can't hire a new gardener, nanny, or housekeeper!

You see, it all about the numbers.

For a start, let's compare apples with apples. NASDAQ would have to hit an inflation adjusted 7,196.56 to really get to a new high, and we're not quite there yet.

When the bubble popped last time, NASDAQ traded at a price earnings multiple of 100 times, versus 25 today.

Then it was all about "eyeballs". Now it is about real earnings and cash dividends. Tech was 10% of total market capitalization at the last top, compared to 25% now.

And while some analysts are openly arguing that technology stocks are peaking here, I believe they are only just getting started.

For years, we technology mavens thought "Moore's Law" would drive us out of business by 2020.

This was the mathematical prediction made by Intel founder Gordon Moore that improvements in semiconductor price and performance would reach the limits defined by physics about now.

Instead, the opposite is happening. For the first time in years, manufacturers are raising prices, as chips become more customized and add more value.

The 50-year cycle of ever faster and cheaper chips has at last been broken.

And thanks to the exponential growth of server farms run by Google (GOOG), Amazon (AMZN), Facebook (FB), demand is far outstripping supply.

The cloud is growing by leaps and bounds due to the explosive growth of streaming and online commerce. Virtually all of the Fortune 500 now have cloud strategies.

Every time a traditional bricks and mortar retailer goes under, it creates more demand for chips.

Netflix (NFLX) alone is probably responsible for a doubling of global semiconductor demand in the past decade because of the downloading millions of two hour long movies a week by its entertainment starved customers.

Cocooning and binge watching is this company's dream come true.

If you haven't noticed, those fancy new applications you have been buying have been getting faster, smarter, with better resolution and functionality, eating up voracious amounts of memory.

Every time there is a major hack somewhere in the world, chip demand inspired by the urgent enhancing of security measures explodes.

Automobiles, too, are major new drivers of chip demand. My Tesla S-1 (TSLA) boasts a massive 24 gigabytes of computing capacity, more than most PC's. General Motors (GM) will have to install the same just to play catch up.

And the rapid diffusion of artificial intelligence algorithms is coming into play.

This is why my top pick for 2016 NVIDIA (NVDA) doubled in a mere two months, and then doubled again. It was not alone. (NVDA) could double a third time from the recent $180 low.

Lam Research (LRCX), which is growing revenues 60% YOY, and Micron Technology (MU) could do the same.

There are two other new secular trends that analysts hadn't counted on.

As old hard drives with their quaintly spinning disks die off, they are being replace with solid state, solid silicon devices, with no moving parts.

But even the relentless 24/7 cycle of online commerce wears these out, creating yet another upgrade cycle.

I have been telling readers for a decade now that if they want to be lazy and invest in only one sector, it had to be technology.

It's nice to see all of this coming to pass.

Here's Your Future

February 23, 2018

Tech Letter

Mad Hedge Technology Letter
February 23, 2018
Fiat Lux

Featured Trade:
(IS AIRBNB THE NEXT FANG?)
(PYPL), (GOOG), (SNAP)

Is Airbnb the Next FANG?

Tech Letter

I was not surprised to hear that the home sharing app, Airbnb, was given a $31 billion valuation in the latest venture capital funding round.

The big question for you and me is: Will the valuation soar tenfold to $300 billion, and how much of a piece of that will you and I be allowed to get?

Or better yet, will Airbnb become the next FANG?

To answer that question I spent six weeks traveling around Europe as an Airbnb customer. This enabled me to understand their business model, their strengths and weaknesses, and analyze their long term potential.

As a customer the value you receive is nothing less than amazing.

I have been a five star hotel client for most of my life, with someone else picking up the tab much of the time, so I have a pretty good idea of the true value of accommodations.

What you get from Airbnb is nothing less than spectacular. You obtain three or four times the space for one-third the price. That’s a disruption factor of 7:1.

The standards are often five-star at the top end, depending on how much you spend. I found I could often get an entire three-bedroom house for the price of a single hotel room, with a better location.

Or, I could get an excellent abode in rural settings, where none other was to be had, whatsoever.

That’s a big deal for someone like me who spends so much of the year on the road.

You also get a new best friend in every city you visit.

On most occasions the host greeted me on the doorsteps with the keys, and then introduced me to the mysteries of European kitchen appliances, heating, and air conditioning.

Pre-stocking the refrigerator with fresh milk, coffee, tea, and jam seems to be a tradition the hosts pick up in their Airbnb orientation course.

One in Waterford, Ireland even left me a bottle of wine, plenty of beer, and a frozen pizza. She read my mind. Thanks, Mary!

She then took me on a one-hour tour of their city, divulging secrets about their favorite restaurants, city sights, and nightspots. Every one proved golden.

After you check out, Airbnb asks you to review the accommodation. These can be incredibly valuable in deciding your next pick.

I had one near miss with what I thought was a great deal in London, until I read, “The entire place reeks of Indian cooking.”

Similarly, the hosts rate you as a guest.

One hostess shared a story about picking up her clients from town after they got drunk and lost in the middle of the night. Then they threw up in the back of the car on the way home.

Guests forgetting to return keys are another common complaint.

Needless to say, I received top ratings from my hosts, as fixing their WIFI to boost performance became a regular habit of mine.

After my initial fabulous experience in London, I thought it might be a one off, limited to only the largest cities. So, I started researching accommodations for my upcoming trips.

I couldn’t have been more wrong.

Just the Kona Coast on the Big Island of Hawaii had an incredible 50 offerings, including several bargain beachfront properties.

The center of Tokyo had over 300 listings. The historic district in Florence, Italy had a mind blowing 351 properties.

Fancy a retreat on the island of Bali in Indonesia and tune up your surfing? There are over 197 places to stay!

While we weren’t looking, Airbnb has truly gone global.

Airbnb’s business model is almost too simple to be true, involving no more than a couple of popular applications. Call it an artful melding of Google (GOOG) Earth, email, text, and PayPal (PYPL).

Airbnb became the world’s largest hotel at a tiny fraction of the capital cost.

The company has 2 million hosts worldwide, and 100 million customers. That supply/demand imbalance shifts the burden of the cost to the renters, who usually have to fork out a 12% fee, plus the cost of the cleaning service.

Hosts only pay 3% to process the credit card fees for the payment.

The tidal wave of revenues this has created has enabled Airbnb to become San Francisco’s second largest privately owned “unicorn”, right after the $75 billion behemoth ride sharing app, Uber.

To say that Airbnb has created controversy would be a huge understatement.

For a start, it has emerged as a major challenge to the hotel industry, which is still stuck with a 20^th century business model. There’s no way hotels can compete on price.

One Airbnb “super host” in Manhattan is managing 200 apartments, essentially, creating out of scratch, a medium sized virtual “hotel”.

Taxes are another matter.

Some municipalities require hosts to pay levies of up to 20%, while others demand quarterly tax filings and withholding taxes. That is, if tax collectors can find them.

Airbnb may be the largest new source of tax evasion today.

In cities where housing is in short supply Airbnb is seen as crowding out local residents. After all, an owner can make far more money subletting their residence nightly than with a long-term lease.

Several owners told me that Airbnb covered their entire housing cost for the year, while paying off the mortgage at the same time.

Owners in the primest of areas, like Midtown Manhattan off of Central Park, or the old city center in Dubrovnik rent, their homes out as much as 180 days a year.

It is doing nothing less than changing lives.

That has forced local governments to clamp down.

San Francisco has severe, iron clad planning and zoning restrictions that only allow 2,000 new residences a year to come on the market.

It is cracking down on Airbnb, as well has other home sharing apps like FlipKey, VRBO, and HomeAway, by forcing hosts to register with the city or face brutal $1,000 a day fines.

Ratting out your neighbor as an off the grid Airbnb member has become a new cottage industry in the City by the Bay.

Airbnb is fighting back with multiple lawsuits, citing the federal Communications Decency Act, the Stored Communications Act, and the First Amendment covering the freedom of speech.

It is a safe bet that a $31 billion company can spend more on legal fees than a city the size of San Francisco.

The company has also become the largest contributor in San Francisco’s local elections. In 2015, it fought a successful campaign against Proposition “F”, meant to place severe restrictions on their services.

An Airbnb stay over is not without its problems.

The burden of truth in advertising is on the host, not the company, and inaccurate listings are withdrawn only after complaints.

A twenty something year old guy’s idea of cleanliness may be a little lower than your own.

Long time users learn the unspoken “code”.

“Cozy” can mean tiny, “as is” can be a dump, and “lively” can bring the drunken screaming of four letter words all night long, especially if you are staying upstairs from a pub.

And that spectacular seaside view might come with relentlessly whining Vespa’s on the highway out front. Always brings earplugs and blindfolds as backups.

Researching complaints, it seems that the worst of the abuses occur in shared accommodation. Learning new foreign cultures can be fascinating. But your new roommate may want to get to know you better than you want.

In one notorious incident a Madrid guest was raped. The best way to guard against such unpleasantries is to rent the entire residence for your use only, as I do.

Another problem arises when properties are rented out for illegal purposes, such as prostitution or drug dealing.

More than once, an unsuspecting resident woke up one morning to discover they were living next door to a new bordello.

Wild parties that trash the dwelling, annoy the neighbors, and bring in the police is another worry.

Of course, the million-dollar question is “When will the company go public?”

The current “unicorn” philosophy is to milk the company for all it’s worth, and take it public when it is about to go ex-growth.

That’s what happened to SNAP (SNAP) which saw shares dive a gut churning amount after its initial public offering.

On seeing the massive crowds of new tourists packing Europe this summer, my conclusion is that the travel industry is entering a hyper growth phase. Blame the emerging middle-class Chinese, who seem to be everywhere.

That means that whatever price Airbnb goes public at, there may not be a ten-bagger left for you. But a two or three bagger may be possible.

The real shock came when I left Airbnb and stayed in a regular hotel. Include the fees and the cleaning charges, and the service is no longer competitive for a single night stay.

In any case, most hosts have two or three-night minimums to minimize hassle.

When I checked in at a Basel, Switzerland, Five Star hotel, all I got was a set of keys and a blank stare. No great restaurant tips, no local secrets, no new best friend.

I spent that night surfing Airbnb's official website, planning my next adventure.