Tech Letter Archives - Mad Hedge Fund Trader

Considering Investment in Fisker Then Read This

Removing the Chief Accounting Officer and delaying earnings on the day of earnings is a massive red flag for EV start-up Fisker (FSR).

Fisker said in a filing that it “determined that it has material weaknesses in the company’s internal control over financial reporting.”

Hiring the wrong person for one of the most important jobs at the company only to realize on the day of an earnings report is more than bad optics, and it certainly means there is probably a lot worse going on under the hood.

The blood bath in FSR shares continues today with the stock cratering over 2% which is on the heels of a 21% drop on Tuesday.

Fisker CFO Geeta Gupta-Fisker said the company is cutting its 2023 production guidance to a range of 13,000-17,000 units to enable the company’s “global delivery and logistics platform to scale” and not sit on inventory. Fisker’s challenges with delivery resulted in 4,725 vehicles produced, but only 1,097 delivered.

FSR has continued to over-promise and deliver which creates a toxic recipe for lower stock prices.

After peaking at over $28 per share in the summer of 2021, the stock has done nothing but slide into the abyss.

CEO Henrik Fisker said customers were waiting a long time for their vehicles and were getting “annoyed.”

Fisker’s production forecast stood at 20,000-23,000 units, which itself was reduced from a prior forecast of 32,000-36,000 in May, and again from 42,400 earlier this year.

It’s only time until the EV company starts reducing its forecasts even more and this constant expectation of changing expectations is due to bad management.

FSR lost $91 million in the past quarter and only has a tick above half a billion in cash.

Doing some basic math, it means that FSR will burn through their existing cash in 5 quarters if they lose around the same amount of cash each quarter moving forward. If this happens, they will need to tap the corporate debt market and pay extortionate rates of something between 17% and 20% considering they have a high chance of filing for bankruptcy.

Readers should keep in mind that FSR doesn’t sell a cheap car.

It’s quite expensive which will make it even harder to scale.

That’s bad news for a start-up that only delivers about 1,000 cars per quarter.

Performance and management seem like they aren’t up to snuff and on paper, the company isn’t hitting the metrics it needs to be taken seriously by investors.

From a pricing point of view, Fisker made pricing adjustments for its lone Ocean SUV, cutting its top trim Ocean Extreme by $7,500 to $61,499.

Ultimately, I see FSR’s competitive position, or lack thereof exacerbating as we move forward.

I don’t see how they catch up with the heavyweights as it relates to many critical factors in running a successful EV firm.

Low-interest rates or something similar to them will not be back for a long time and perhaps never.

This new rate environment doesn’t favor the start-ups the ones that already “made it” in a low-rate environment of the past.

FSR makes a good car, but not to the point where buyers will pass up other cheaper options.

If FSR is struggling to deliver more than 1,000 cars per quarter, it bodes ill for repeat purchases after so many buyers are waiting for cars that should have already been delivered.

Management not understanding the logistics of the situation is hard to fathom in 2023.

They might want to pick up the phone and call around to see what is going on.

If a buyer spends more than $70,000 for an EV from an untested brand like FSR, better get the car there on time.

There is a reason why Tesla (TSLA) just caught a bid and shares went up 18% and the stock has doubled this year and it’s not because they have trouble delivering 1,000 cars.

I’ll take a hard pass on FSR for right now.

November 15, 2023 - Quote of the Day

Tech Letter

“My goal was never to make Facebook cool. I am not a cool person.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg

November 13, 2023

Tech Letter

Mad Hedge Technology Letter
November 13, 2023
Fiat Lux

Featured Trade:

(RIDE THE NVIDIA AND AMD ROLLER COASTER)
(NVDA), (AMD), (ORCL), (GOOGL), (AMZN)

Ride the Nvidia and AMD Roller Coaster

Tech Letter

It’s scary when the best chip company in the world rolls out new products.

It’s scary because others can’t compete and they get left further behind.

It’s scary because the high level of technology facilitates another new wave of technological expertise in other companies from the software and hardware side.

These new products are almost always faster, more efficient, and better than the previous products catalyzing a snowball effect that lifts everybody’s revenue.

This type of outstanding performance of late is the reason that made Nvidia (NVDA) into the world’s most valuable chipmaker and they have announced they are updating its H100 artificial intelligence processor, adding more capabilities to a product that has fueled its dominance in the AI computing market.

The new model, called the H200, will get the ability to use high-bandwidth memory, or HBM3e, allowing it to better cope with the large data sets needed for developing and implementing AI.

Amazon’s AWS, Alphabet’s Google (GOOGL) Cloud and Oracle’s (ORCL) Cloud Infrastructure have all committed to using the new chip starting next year.

Winning orders is easy with the outsized brand recognition and type of game changing product on offer.

The current version of the Nvidia processor is already experiencing accelerated demand.

But the product is facing stiffer competition: Advanced Micro Devices (AMD) is bringing its rival MI300 chip to market in the fourth quarter, and Intel Corp. claims that its Gaudi 2 model is faster than the H100.

AMD is another chip company that readers should feel comfortable diversifying into if they don’t feel comfortable putting all eggs into the Nvidia basket.

AMD’s stock is surging towards old highs around $125 and should overtake that soon after the nice rally in the 2^nd half of the year.

With the new product, Nvidia is trying to keep up with the size of data sets used to create AI models and services.

Adding the enhanced memory capability will make the H200 much faster at bombarding software synthesizing data.

Large computer makers and cloud service providers are expected to start using the H200 in the second quarter of 2024.

Nvidia got its start making graphics cards for gamers, but its powerful processors have now won a following among data center operators.

That division has gone from being a side business to the company’s biggest moneymaker in less than five years.

Nvidia’s graphics chips helped pioneer an approach called parallel computing, where a massive number of relatively simple calculations are handled at the same time.

That’s allowed it win major orders from data center companies, at the expense of traditional processors supplied by Intel.

The growth helped turn Nvidia into the poster child for AI computing earlier this year — and sent its market valuation soaring.

Nvidia is like a freight train that has left the station.

The stock is up 9 straight days as we cruise into its earnings report on November 21^st.

It’s hard to see this earnings report being nothing short of spectacular and Nvidia have become famous for forecasting the unthinkable.

They then go and surpass a high bar and push the envelope further so it’s not a bad idea to buy NVDA before the earnings report.

The speed at which they come out with products is astounding and now being able to boast the best server chip in the tech enterprise community, it just represents yet another powerful part of their stunning array of tech arsenal.

$600 per share is a no-brainer for Nvidia and that will be surpassed in 2024.

November 13, 2023 - Quote of the Day

Tech Letter

“If you don’t understand the details of your business you are going to fail.” – Said Founder and CEO of Jeff Bezos

November 10, 2023

Tech Letter

Mad Hedge Technology Letter
November 10, 2023
Fiat Lux

Featured Trade:

(ARTISANAL TECH FEELS THE HEAT)
(BMBL), (PTON), (MTCH)

Artisanal Tech Feels The Heat

Tech Letter

Bumble (BMBL) is a dating app in which women initiate communication first and their CEO Whitney Wolfe Herd deciding to quit offers deep insight into the state of tech firms.

Remember that Wolfe Herd is the person who established this app and presided over an 83% decline in share price since an initial public offering over two years ago.

Clearly, the writing was on the wall for Wolfe Herd, but she shouldn’t receive all the blame.

There is an industry-wide malaise occurring in some sub-sectors of technology and smartphone dating apps are one of them.

Some investors have started to gain a sense that these apps don’t have enough bang for the buck and these business models are gaining in popularity.

In the past few weeks, the popular dating app Tinder announced a new feature rolling out a new subscription tier for $500 per month boasting it would unlock premium profiles at that price point.

Asking for $6,000 per year is a serious overreach for a dating app and I believe that type of ask will alienate some of the core users.

These apps are supposed to scale but not at $6,000 per year.

What else is the big challenge for Bumble?

How to get consumers to commit money to a dating app when the economy is so uncertain?

That’s the conundrum.

In the months after the pandemic, online dating apps became the hottest ticket in town as the only way to not sacrifice a dating life.

Bumble, which currently has 40 million active monthly users across its portfolio of apps, is now fiercely fighting for users with its competitor Match (MTCH).

As with some of these niche tech businesses, opening up the economy from the lockdowns has been a tough pill to swallow as it relates to the knock-on effect on future sales.

In terms of pure market sentiment, investors have determined a strong likelihood that the lockdowns were the high water mark for these artisanal apps.

Unfortunately, these sub-sector stocks are labeled as a time and place stock and not one that is worth holding in times of chaos and upheaval.

We are far from the start-up frenzy peak where entrepreneurs could make hopes based on fantasies into an app and concoct a targeted addressable market.

It’s not going to cut it anymore, because the bar is so much higher.

In the era of cheap money, funding niche sub-sectors of technology was still quite fashionable and mainstream.

I would even say it caught fire.

Then there is the issue of artificial intelligence concerning how this type of technology delivers poison to the innards of the business model.

How?

Dating apps could easily turn into bots chatting to bots to monetize users with no real value. This would constitute a fake business. Ad sponsors could be paying for this to happen. AI integrates into online dating apps quite poorly because it strips away the authenticity of the end user which undermines communication and the underlying asset.

A fake business would mean a crash in the underlying equity value. Of course, we are not even close to that possibility right now, but keep in mind that force-feeding management to one-up AI capabilities could unearth some bizarre unintended consequences.

Ultimately, the end of 2023 is a dynamic time in technology because the trajectory of companies has never been so uncertain, fluid, and challenging at the same time.

Expect quite a few of these artisanal apps to get swept into the dustbin of history.

Readers need to stay away from sub-sector technology stocks like Peloton (PTON) and instead go for stocks that have broader exposure to more wallets where artificial intelligence will act as a tailwind.

Plus, many people use Instagram, X, or Facebook for dating anyway. No need to overcomplicate life.

November 10, 2023 - Quote of the Day

Tech Letter

“Move fast and break things.” – Said Meta CEO Mark Zuckerberg

November 8, 2023

Tech Letter

Mad Hedge Technology Letter
November 8, 2023
Fiat Lux

Featured Trade:

(SETTING UP FOR THE NEXT BULL MARKET)
(WEWKQ)

Setting Up For The Next Bull Market

Tech Letter

Taking out long-term leases and turning around to rent short-term i.e. Airbnb style for corporate offices ended with a thud as office sharing tech company WeWork filed for bankruptcy.

The idea never made sense and felt more like a gimmick.

Surprisingly, this bankruptcy didn’t happen much earlier as the “work from home” pivot during 2020-2022 made this business model go from bad to worse.

It’s safe to say that we are far passed the peak “sharing economy” and investors are licking their wounds on this one.

WeWork filed for bankruptcy, capping a dramatic period that saw the once high-flying startup navigate a failed initial public offering, forced government lockdowns, a blank-check merger, and a stubborn avoidance of return-to-office trends.

The company at its 2019 peak commanded a $47 billion valuation with the likes of SoftBank losing more than $14 billion on just this one investment.

The firm’s death spiral arguably started in 2019. In a matter of months, the company went from planning an IPO to firing thousands and procuring a multi-billion-dollar bailout.

WeWork was almost a scam from the beginning with its main business mission explained as to “elevate the world’s consciousness.”

The former CEO of WeWork Adam Neuman operated the business almost as a cult.

The company eventually went public in 2021 through a special purpose acquisition company, two years after its initially planned IPO. But that didn’t stop WeWork from hemorrhaging cash.

While WeWork reached a sweeping debt restructuring deal in early 2023, it quickly signaled desperation soon after.

High-interest rates are starting to knock out the low-quality business ideas that never should have gotten off the ground in the first place.

These developments are a godsend for the tech economy that needs a complete flushing out of the bad ideas that were fueled by 0% interest rates.

Cheap money attracts larger-than-life ideas and personalities that can’t really back up the chutzpah.

Raising the bar for quality in tech has also caused the unintended consequence of raising the top tech companies or magnificent seven even higher up than before.

This trend can easily be seen in the EV sector where incumbent Tesla is putting their foot on the scruff of smaller EV company’s necks that simply can’t keep up with the higher material costs and headache of developing a global manufacturing presence amid deglobalization.

In simple terms, it is substantially harder to build an above-average tech company, or any tech company for that matter in 2023.

The former is an issue with the lofty competition that wields powerful balance sheets and the latter is an issue with draconian funding terms.

Waving goodbye to lemons like WeWork is only healthy for the tech sector in the long term and shortly we should see other junk-status companies be thrown by the wayside as well.

Cryptocurrency mogul Sam Bankman Fried’s fall from grace with a guilty verdict of fraud is another signal that the tech’s excesses are quickly normalizing.

We are in the middle of setting ourselves up for the new bull market in technology stocks which will be kicked into gear if interest rates sniff out the next recession.