Mad Hedge Fund Trader

Category: Tech Letter

  • Check Out the Amazon of Latin America

    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.

  • February 26, 2024

    Mad Hedge Technology Letter
    February 26, 2024
    Fiat Lux

    Featured Trade:

    (CHECK OUT THE AMAZON OF LATIN AMERICA)

  • February 23, 2024

    Mad Hedge Technology Letter
    February 23, 2024
    Fiat Lux

    Featured Trade:

    (SILICON VALLEY INVADES THE USED CARS MARKET)
    (CVNA)

  • Silicon Valley Invades The Used Cars Market

    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%.

     

  • February 23, 2024 – Quote of the Day

    February 23, 2024 – Quote of the Day

    “Longevity in this business is about being able to reinvent yourself or invent the future.” – Said Microsoft CEO Satya Nadella

     

  • February 21, 2024

    Mad Hedge Technology Letter
    February 21, 2024
    Fiat Lux

    Featured Trade:

    (THE HIRING QUAGMIRE IN TECH)
    (GENZ)

  • The Hiring Quagmire In Tech

    A slightly worrisome trend is emerging from the tech world and it has to do with the future of the American tech worker.

    These employees could pose quite a conundrum to tech companies in the near future that could drastically affect the results they desire.

    Something needs to change or there could be many open gaps that cannot be filled.

    As the baby boomers age out of the job market and are replaced, it’s not necessarily the Millennial generation that is the big problem, it’s Gen Z.

    Gen Z is more or less having a hard time committing to even an interview based on fresh data from digital recruitment sites.

    As tech companies vow to make leanness mandatory, this doesn’t bode well for the volume of tech hiring for Gen Z who are in their 20s.

    Remember when friends of friends could get Facebook management jobs only to sip on lattes all day at the in-house coffee bar, well, that job doesn’t exist anymore because even Facebook is ridding itself of the slack. Those jobs were mainly dominated by Millennials up until the pandemic and have vanished with the pressure of higher inflation.

    No more hiring to make it look like tech companies are bigger than they are. Tech firms can’t afford it anymore.

    Results matter now and the up-and-coming generation who were extremely coddled as teenagers are having a hard time coming to terms with reality.

    Now Gen Z is treating their would-be employers like bad first dates and not showing up for scheduled job interviews or even their first day on the job without as much as a phone call.

    Employment website Indeed found that job ghosting is rampant by Gen Z, with 75% of workers saying they’ve ignored a prospective employer in the past year.

    A head-spinning 93% of Gen Zers told the global recruitment platform that they’ve flaked out of an interview.

    Worse still, a staggering 87% managed to charm their way through interviews, secure the job, and sign the contract, only to leave their new boss stranded on the very first day.

    Unsurprisingly, it’s having the opposite effect on businesses left high and dry: More than half of businesses surveyed have said that ghosting has made hiring a harder and costlier process.

    Almost half of those surveyed said they plan on pulling a disappearing act again, with a third deeming it acceptable to do so before an interview.

    However, unlike Gen Z who feel emboldened, older workers say they instantly regret it.

    What’s more, while more than half of Gen Zers are repeat offenders, the researchers found that a candidate’s likelihood to ghost again decreases with age.

    For many employers, Indeed’s data will finally confirm their suspicions that Gen Z has commitment issues.

    Indeed found that the cost-of-living crisis has exacerbated ghosting, with around 40% of those surveyed admitting that they’re more likely to ghost if they find a job offering better pay or a cheaper commute.

    Tech companies are in a race against time to automate using AI, because dipping into the Gen Z talent pool could be not being able to fill staff numbers.

    Even if Gen Z employees do get hired, they do tend to disappear without a trace quite quickly.

    Either way, tech companies will need to find a solution for a young US workforce that isn’t Silicon Valley material.

    AI is arriving at just the right time to save their bacon.

     

  • February 16, 2024

    Mad Hedge Technology Letter
    February 16, 2024
    Fiat Lux

    Featured Trade:

    (THE RIDE SHARING KING OF TECH)
    (UBER), (LYFT)

  • The Ride Sharing King of Tech

    It’s hard to believe that Uber (UBER), the ride-sharing company, is where it’s at now and by that, I mean delivering profits.

    It was just only a few years ago when burning money was something they were known for and beginning the next lender to fund them was a common request.

    That was the era of cheap money where 0% interest rates created companies like Uber and this capital was the oxygen they needed to keep trying until they could make it work.

    Much of the early years were characterized by a fierce competition with competitor Lyft (LYFT) offering subsidies to drivers.

    Fast forward to today and they also have a sparkling food delivery business and are projected to continue to grow in the first quarter of 2024.

    The company carved out a profit of $1.43 billion in the final three months of 2023, which included a $1 billion benefit from its equity investments as well as income from its operations.

    The company has turned an annual profit once before, in 2018 on the back of its investments, but it wasn’t earning money from its operations until now.

    The company’s performance in the last three months of 2023 suggests that demand for its ride-sharing and food-delivery services remains robust. 

    From 2016 through the first quarter of 2023, Uber bled cash close to $30 billion in operating losses.

    The company posted its first quarterly operating profit in the second quarter of 2023. The company was founded in 2009.

    It was also better than Lyft at responding to a sudden driver shortage after the economy reopened from lockdowns. That helped Uber gain market share.

    Lyft is still twisting in the wind of mediocrity and has yet to post its first operating profit.

    Uber expanded advertising on its app over the past year. It says it has continued to become more disciplined about spending on discounts to consumers and incentives to drivers. It says it has also become better at combining deliveries and reducing errors, which has improved its operational efficiency.

    In the last three months of 2023, the company’s mobility revenue grew 34% and its delivery revenue expanded 6%, while its revenue from freight declined 17%.

    After bottoming around $19 per share in the middle of 2022, the stock has been on a rampage and now sits nicely at over $81 per share.

    No doubt the stock benefited from last year’s slew of capital betting on the Fed to drop interest rates.

    I even anointed Uber as my number 1 stock of 2023 and their performance delivered in spades.

    What we are witnessing is the maturity of the company and I am not saying they are going to deliver profit back to the shareholder like a FANG, but the conversation will start and that should carry momentum.

    The US economy is still going strong growing a few percentage points per quarter and that means US consumers are still spending and that is good for ride-sharing and food delivery.

    Uber is sitting nicely as they are a monopoly in this area of technology services.

    I am bullish Uber.

     

     

  • February 14, 2024

    Mad Hedge Technology Letter
    February 14, 2024
    Fiat Lux

    Featured Trade:

    (A BIG RISK WITH AI)
    ($COMPQ)