Mad Hedge Technology Letter
March 1, 2024
Fiat Lux
Featured Trade:
(ROBOT-AS-A-SERVICE)
(ROK), (TER), (ZBRA), (NVDA)
We need to look to the future to better understand what is next after software-as-a-service (SaaS).
Technology never keeps still and evolves.
Even giant Google who invest countless numbers of dollars and man-hours into AI are facing short-term pressure on their AI trajectory.
I do believe the next iteration and extension of technology services will be accretive to the tech ecosystem and help boost stock shares and that piece of technology will come in the form of Robotics-as-a-Service (RaaS).
The RaaS market size is expected to grow by US$8.23 billion from 2024 to 2030 at 34.12%.
Like a number of other shared services, RaaS is becoming increasingly popular due to its convenience and flexibility, as well as being cost-effective and easy to implement.
Remember that human workers get sick, like to take days off, shout to the rafters about promotions, better pay, and more benefits.
Robots don’t do that.
RaaS also allows a company to have the benefits of robotic process automation by leasing robotic devices and accessing a cloud-based subscription service.
You will own nothing and be happy.
By not having to purchase the equipment outright, organizations can avoid the downsides of ownership and maintain their bottom line.
Cloud computing solutions are already in place for many organizations, so the foundation for RaaS has been perfectly set for the model’s increased use.
As adopting smart robotic technologies requires companies to part with a significant chunk of their financial resources, a RaaS solution also means companies have no need to invest in costly infrastructure.
Remote services and IoT are major growth, but lack of awareness and acceptance pose challenges
A major driver of the market is going to be the increased remote services provided by vendors in the market.
Companies are moving away from the physical approach of providing break-and-fix services to incorporate services that are predictive and proactive by combining the remote service platform with the Internet of Things.
The reason why uptake won’t be higher is because in some settings that require a personal touch like healthcare, companies will be hesitant to adopt robots because customers could feel alienated.
We are still in the early innings.
As the tech ecosystem advances, the integration of robots into this industry is inevitable.
Yes, they will be relied on to perform mundane tasks at first like Amazon’s warehouse robots who move around large amounts of packages.
We need to start somewhere.
In the future, robots will increasingly start to reach further up the value-added chain to offer some quite impressive set of skills to contribute to the labor force.
Rome wasn’t built in one day.
Some stocks to be on the lookout in the RaaS space are:
Rockwell Automation (ROK) is a leader in industrial-grade technology. Its systems, components, and software help manufacturers develop smarter and more efficient machines.
Zebra Technologies (ZBRA) is a longtime player in the automation space. The firm develops mobile computing devices to help employees of a company work more efficiently.
Teradyne (TER) is a developer of industrial equipment that helps automate repetitive tasks.
Intuitive Surgical (ISRG) is a pioneer of robotic-assisted surgery. Its da Vinci system made its commercial debut in 2000 and has since expanded across the globe.
Lastly, a second derivative play powering these robots will be Nvidia (NVDA) chips.
“If you're competitor focused, you have to wait until there is a competitor doing something” – Said Founder of Amazon Jeff Bezos
Mad Hedge Technology Letter
February 28, 2024
Fiat Lux
Featured Trade:
(GOOGLE HITS A ROUGH PATCH)
(GOOGL), (MSFT), (OPEN AI)
Google’s stock has felt the pain the last few days.
Why?
Its generative AI has gone wrong or at least producing controversial images as Google’s AI technology produces historical figures in different ethnic races.
The backlash was so bad that Google CEO Sundar Pichai issued a mea culpa.
The incident marks the latest misstep from Google as it scrambles for positioning in the blossoming market for AI products and plays catch up to Microsoft (MSFT) and its AI partner OpenAI ChatGPT.
In a memo to staff on Tuesday, CEO Sundar Pichai said, "I know that some of its responses have offended our users and shown bias — to be clear, that’s completely unacceptable, and we got it wrong."
The underwhelming AI performance means that Google is falling way behind other competition.
All investors care about these days is the trajectory of AI and stocks go up just based on that.
There must be a question of whether the generative AI research they are doing is good enough and if they have the right talent to compete.
Right now it certainly doesn’t look good.
Google is in the unfamiliar position of not being the leader in a core, [machine learning]-driven technology.
Google is trying hard to catch up and now needs to go backward to repair a core technology component while dealing with a major PR blunder.
Google's first AI fumble came a year ago when the company released a demo of its AI chatbot, Bard, a few months after ChatGPT exploded onto the scene.
Google's chatbot spits out an inaccurate response in a promotional video that was widely circulated online. In the immediate aftermath, skittish investors wiped $100 billion from Google's market value just as Microsoft's fortunes climbed.
Google explained in a recent blog post that it tuned its Gemini image generation tool to show a range of people of different ethnicities and other characteristics but that it failed to account for cases that should not depict diversity.
This is setting up for a great buy-the-dip moment for the company.
In the short term, Google investors have been burnt.
The Mad Hedge Tech Letter had a bullish position in GOOGL and it got torched.
However, Google has been a good short-term trade since it became a duopoly with Meta.
The fact is that Silicon Valley is turning into a race for AI and Google are the kings of search using the older generation.
That doesn’t quite mean they possess the correct talent to compete in AI.
Search was never geared towards this one area of technology that has become the newest thing.
Google has dropped 12% since its January highs which is surprising because they have been a solid bet for years to rebound from any weakness.
Now Google has the unenviable task of proving to investors that they have the ability and capacity to go toe to toe at the high levels of the AI race.
We won’t see deteriorating ad numbers soon, but over time, this could become a slow burn of them ceding search share as AI becomes integrated into the search business.
I still believe Google is worth holding long-term, but we are seeing a mild pullback after a great 2023.
“Price is what you pay. Value is what you get.” – Said US Investor Warren Buffett
The Amazon of Latin America is a stock that has done well this year, but that doesn’t mean the party is over.
Like many other tech stocks this year, they have performed exceptionally strong in the past year and MercadoLibre (MELI) is no different.
The stock has returned 42% in the past year and the 13% dip from the most recent earnings report has presented an appetizing entry point.
The Amazon of Latin America fell the most in nearly two years after posting fourth-quarter earnings that fell short of analyst estimates, hoisting a major hurdle to the major stock rally over the past year.
Shares slumped 13% Friday, the worst intraday drop since May 2022, after the company reported earnings per share of $3.25 — about half of the $7.17 analysts had forecast. It was the first miss since at least mid-2022.
The lower number, which was boiled down to one-off costs and higher logistics left a sour taste in the mouth of MELI investors.
MercadoLibre's revenue growth over the last three years has been in overdrive, averaging 56.8% annually.
This quarter, MELI registered an impressive 41.9% year-on-year revenue growth.
Usage Growth As an online marketplace, MercadoLibre generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, MercadoLibre's daily active users, a key performance metric for the company, grew 24.6% annually to 145 million. This is fast growth for a consumer internet company.
In Q4, MercadoLibre added 48 million daily active users, translating into 49.5% year-on-year growth.
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like MercadoLibre because it measures how much the company earns in transaction fees from each user.
Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and MercadoLibre's take rate, or "cut", on each order.
MercadoLibre's ARPU growth has been excellent over the last two years, averaging 16.8%. The company's ability to increase prices while growing its daily active users at such a fast rate reflects the strength of its platform, as its users are spending significantly more than last year. This quarter, ARPU declined 5% year on year to $29.39 per user.
It posted full-year net revenue of around $14.5 billion and net income of $1.2 billion for the year. Revenue and payment volumes beat expectations for the last three months of 2023.
Naturally, buyers and sellers gravitate towards a singular marketplace, consolidating the dominion of Amazon and Mercado Libre while marginalizing smaller retailers.
This monopolistic stranglehold, compounded by the excessive capital investments requisite for technological infrastructure, inventory management, and advertising, perpetuates a vicious cycle of exclusion and inequality, relegating smaller players to the fringes of the digital marketplace.
MELI is part of this duopoly in South America and I see any big dips as good buying opportunities.
Mad Hedge Technology Letter
February 26, 2024
Fiat Lux
Featured Trade:
(CHECK OUT THE AMAZON OF LATIN AMERICA)
Mad Hedge Technology Letter
February 23, 2024
Fiat Lux
Featured Trade:
(SILICON VALLEY INVADES THE USED CARS MARKET)
(CVNA)
Even tech’s red-headed stepchild such as Carvana is making money in Bidenflationary times showing the deep momentum of the tech sector in early 2024.
Tech stocks are hot and Carvana (CVNA) is joining in on the action.
The Nasdaq has ignited early this year rallying around the hype of AI.
In turn, investors are coming off the sidelines to pour money into tech stocks and that has also had a strong effect on the lower tranche of tech firms like Carvana.
Carvana sells used cars on a digital platform. They charge a commission for this service.
The business model poorly scaled and incurs high costs yet they were able to turn their first profit in the history of the company.
They also forecasted core current-quarter profit "significantly above" $100 million helped in part by cutting costs.
To strengthen its balance sheet and attain positive cash flow, Carvana has been trimming inventory and slashing advertising and other expenses.
The company became popular during the healthcare pandemic, as people opted for readily available used cars instead of buying newer vehicles, which were in short supply due to a global chip crunch.
Carvana said it expects retail units sold in the first quarter of 2024 to be "slightly up" from last year.
Carvana said it expects first-quarter retail gross profit per unit to be similar to the fourth quarter, with an upside potential.
It reported retail gross profit per unit of $2,812, representing a nearly seven-fold increase from the fourth quarter of 2022.
Carvana also said it expects to reduce expenses per retail unit sold from the $5,769 it reported in the fourth quarter, on a sequential basis.
The company reported net income of $450 million for the year 2023. It had reported a loss of $1.59 billion in 2022.
The company’s gross profit per unit rose to more than $5,500 from $3,022 in 2022.
The online car seller has lowered costs in recent quarters and restructured some debt to lower interest payments. Carvana has sought to regain its financial footing and resume growing after an ill-fated expansion several years ago.
Carvana offers a unique insight into the health of the American economy.
The US is a car-reliant country and car costs are one unavoidable input. Good news for CVNA.
The accelerating profit in used cars shows the impact of Bidenflation and increase in goods which has led to many tech firms reporting profits like Uber.
If the price of cars sold continues to increase, the future augurs well for Carvana.
I fully expect inflation to stay sticky for many types of goods in the US economy and used cars are one of them.
I fully believe an ample volume of supply won’t be dumped in the car market because consumers know they’ll have to pay a higher price for something similar.
This won’t reverse anytime soon.
Carvana is poised to be a serious tech player selling a product that will likely see increasing prices for the short to medium term.
Carvana would be a great buy the dip candidates on big dips of 10 or 20%.
