Mad Hedge Technology Letter
March 20, 2023
Fiat Lux
Featured Trade:
(AIRBNB POISED FOR A GREAT FOLLOW-UP YEAR)
(ABNB)
One tech firm that should get the benefit of the doubt from investors and traders moving forward is travel-sharing firm Airbnb (ABNB).
I’m not only recommending them because I use their product, but I do believe in their business model moving into the summer months of 2023.
Many travel agencies were waiting for a major pullback in travel for 2023 after revenge travel 2022 meant that consumers aggressively spent in 2022 after waiting in draconian lockdowns for the past 2 years.
Well, the cliff drop in travel revenue following 2022 will not come to pass as consumers are materially aware of higher inflation, but still not willing to sacrifice travel.
One of the epiphanies that many people had during the government lockdowns was that it is essential to get a change of scenery once in a while to refresh.
It’s one of the few new non-negotiable items on people’s lists now.
What are people doing to combat inflation?
Looking at more budget-friendly options and downgrading on accommodation, transport, entertainment, and even going to more affordable destinations.
Instead of Monaco, people are going to Marseille, instead of London, people are heading to Birmingham, and so on.
Its 2022 fourth-quarter revenue of $1.9 billion and earnings per share (EPS) of $0.48 were up 24% and 500%, respectively, on a year-over-year basis.
The full-year numbers were fantastic, too. 2022 was the first time that Airbnb was profitable for an entire fiscal year.
The strong financial performance was bolstered by some key trends highlighted by the management team. Nights and experiences booked increased 20% year over year in Q4. Cross-border, urban, and long-term stays also showed outstanding growth.
Airbnb's platform continues to add headcount as it now has 16% more active listings (or 900,000 more) than a year ago.
A near-term catalyst for Airbnb is the ongoing recovery of the Asia-Pacific region, which saw nights and experiences booked increase by 40% versus bookings in Q4 2021.
Chinese tourists are heading to Thailand and Malaysia in droves, packing the jumbo jets with rice crackers on the way there.
With its heavy reliance on cross-border travel, Asia-Pacific was decimated because of the health crisis. The easing of travel restrictions and the reopening of China will help provide a boost.
Airbnb's rapid rise to prominence has resulted in its name being used as a verb, which all but solidifies its place in consumers' minds. This is a powerful position to be in, especially in an economy that favors major internet-based brands. This situation bodes well for Airbnb's long-term relevance.
This year’s projections appear rosy with forecasts of year-over-year revenue and EPS growth of 14.3% and 22%, respectively, in 2023.
Although 2022 was quite the travel season, the follow-up year is shaping up to not be too shabby.
Definitely don’t expect a flop like a Spanish soccer player.
Shares in the first few months of the year got ahead itself and now after a deep pullback from February highs, I do believe this stock is a great "buy the dip" for the rest of 2023.
Rinse and repeat for the rest of 2023.
“You only have to do a very few things right in your life so long as you don't do too many things wrong.” – Said American Investor Warren Buffett
Mad Hedge Technology Letter
March 17, 2023
Fiat Lux
Featured Trade:
(HIGHLY BULLISH FOR TECH STOCKS)
(AAPL), (GOOGL), (ARKK)
Up to $2 trillion in liquidity into the banking system should do the job in the financial sector.
This is highly bullish tech shares and the growth-based tech stocks will experience the best windfalls from this psychological and fiscal reset of the American banking system.
It’s true tech stocks did need a little help as 2022 was really a struggle for them, but 2023 has been brighter with the “buy the dip” mentality back with vengeance.
After the gangbuster January, we’ve been waiting for some direction as to what will happen to tech stocks and now we have gotten the signals.
In short, tech stocks will go higher.
Now, I truly believe that the buy-the-dip mentality will become firmly entrenched and investors should dig deep to execute bullish positions as I expect tech stocks to roar ahead.
Many know about the FDIC, SPIC insured deposits of up to $250,000, but the Fed has rolled out the red carpet for the banking system and lent money to the banks that even don’t need it.
Banks borrowed up to $350 billion in cheap loans from the Fed.
Nearly $143 billion went to holding companies for two major banks that failed over the past week, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets.
Ironically, public tech stocks benefited the most from the government helping the financial industry and it was a crypto-biased bank that bled itself to edge of catastrophe.
Although this creates a moral hazard, I am not really in the business to tell someone what is right or what is wrong in terms of systemic risk.
But knowing that the Fed has the backs of the banks and stock market no matter what is highly bullish for tech stocks in the short-term.
This opens up liquidity like a reservoir opening up its water channels.
Expect a lot more capital sloshing around the financial system that will naturally fall into tech stocks from the boring behemoths to the cash-burning peons.
The tide will lift most boats in this situation.
The bank term financing program should be able to inject enough reserves into the banking system to reduce the reserve deficit and reverse the tightening that took place last year.
I anticipate that the new program will be attractive to a wide range of institutions, apart from those currently facing liquidity problems.
The longer this program sustains itself the better for tech stocks.
Say goodbye to quantitative tightening.
The era of balance sheet reduction is now dead as the Fed is too worried to rock the boat.
Going from QT to printing money which is what this discount window effectively was has stunned the market to the upside.
Moving forward, expect rate hike expectations to dissipate and lower bond yields which will contribute to another tech market rally and in turn a lower dollar.
Most of everything will have a high chance to deliver decent tech gains from ARK Innovation ETF (ARKK) to the Apple’s (AAPL) and Google’s (GOOGL) of the world.
When the Fed wants to widen the goalposts this wide, you don’t need Ronaldo to score a goal.
Buy the dip in tech until we truly see a systemic credit risk or if inflation comes back shooting past the first pandemic peak to form a double top.
“I love museums but I don't want to live in one.” – Said Apple CEO Tim Cook
Mad Hedge Technology Letter
March 15, 2023
Fiat Lux
Featured Trade:
(THE UNKNOWN IN THE DIGITAL AD SPACE)
(NFLX), (WBD), (DIS), (CMCSA), (ROKU)
The uncertain digital advertising environment has been a thorn in the side of legacy media giants for quite some time.
Companies from Comcast (CMCSA) to Warner Bros. Discovery (WBD) are feeling the pressure as profitability struggles pile up.
Unfavorable macroeconomic headwinds coupled with decreased ad budgets amid a decline in linear TV and digital search trends put the ad market through the wringer in 2022.
Recent ad market softness comes as media giants like Disney (DIS) and Netflix (NFLX) have embraced ad-supported streaming alternatives as the race for eyeballs escalate.
Disney's direct-to-consumer division lost an eye-popping $4 billion-plus in 2022.
Warner Bros Discovery is now targeting $4 billion in cost savings over the next two years.
Advertising revenue within NBCUniversal's media division increased by 4% in Q4 because of a boost from the incremental revenue from the FIFA World Cup.
Looking ahead, the lack of brand name events in 2023 such as the World Cup, Olympics, or U.S. midterm elections, will likely be a drag on ad spend in 2023.
Those events greatly aided the battered industry with the domestic ad market totaling $318 billion last year — an increase of 8% compared to 2021.
Similarly, Spotify (SPOT) CFO Paul Vogel told investors during the latest earnings call: "Advertising in Q4, overall, it's definitely continued to be very up and down."
Spotify's Q4 ad-supported revenue, boosted by podcasting, grew 14% on a year-over-year basis to €449 million — accounting for 14% of total revenue.
Disney and Netflix rolled out their ad tier products at a time when the ad market is in flux, but the move seems to have been a lucrative one.
At the time of the debut, the company said over 100 advertisers bought inventory for the launch — bucking the trend of a global ad spend slowdown.
Similar to Disney, Netflix is playing the long game when it comes to its recently launched ad-supported tier, which officially debuted in November.
In its latest shareholder letter, Netflix said engagement for ad-supported subscribers "is consistent with members on comparable ad-free plans, is better than what we had expected, and we believe the lower price point is driving incremental membership growth."
Investors should run to higher grounds to avoid the upcoming slaughter in legacy media.
The cord cutter phenomenon is real and the pivot to work-from-home culture has really stuck the fork in many traditional services that used to be part of American culture.
Legacy media is one of the big losers – nobody watches analog television anymore.
Investors will need to seek attractive properties such as NFLX to buy the dip.
They benefit from the first mover advantage, but Disney is also finding their way after firing former CEO Bob Chapek and replacing him with the guy before him - Bob Iger. It’s not a pure streaming play which is also an issue for the likes of Amazon and I do think Roku is a little too growth based at this point in the business cycle.
The overall message is to avoid unproven tech assets for the time being with bank turmoil and interest rate tumult.
The only exceptions are active traders who use volatility in their favor and play from the long and short side. Traders usually don’t discriminate and can jump in and out of these sharp movements.
If traders want to get into streaming or social media stocks, that is fine, but stick with the brand names and shun the exotic names for now.
Mad Hedge Technology Letter
March 13, 2023
Fiat Lux
Featured Trade:
(METAVERSE FLAMES OUT WITH SILICON VALLEY BANK)
(SIVB), (META)
The word “metaverse” is a popular word recently and it has to do with a world almost from science fiction.
It refers to a future version of the internet accessed through immersive technologies such as virtual reality and augmented reality headsets.
Metaverse could supposedly be a $13 trillion market by 2030 according to a prominent research firm.
The internet built around decentralized technologies and virtual worlds is a novel idea.
The definition of the metaverse goes beyond sticking to virtual worlds, like gaming and applications in virtual reality.
A comprehensive vision of the metaverse includes smart manufacturing technology, virtual advertising, online events like concerts, as well as digital forms of money such as cryptocurrencies like bitcoin.
The metaverse could see 5 billion unique internet visitors by the end of the decade, funneling trillions of dollars in revenue in this next-generation of the internet.
This isn’t the only source labeling the metaverse and web3 a trillion-dollar opportunity. In research published in December, Goldman Sachs put a $12.5 trillion number on the space, in a bullish outlook that assumed one-third of the digital economy shifts into virtual worlds and then expands by 25%.
But so far, the metaverse has been a cash guzzler with not much to show for it.
With a huge amount of money already flowing into companies addressing the space and not much revenue, companies face years of poor revenue showing.
Unit economics wasn’t about to turn the corner at all with all signs showing that the Metaverse has stalled, but the bank contagion at Silicon Valley Bank (SIVB) means that many employees from metaverse projects simply won’t get paid their salary.
That’s how the momentum has been demonstrably pushed back lately.
Call the Metaverse dead in the short term.
What are the Metaverse risks?
Besides funding drying up like the Sahara desert in the short term - it doesn’t stick because it’s only tolerable for a few minutes.
There’s definitely a real risk that the metaverse never goes from the “fake it until you make it” to the real killer app that every consumer is clamoring for.
Just take for instance the art of a business meeting.
One might argue that using VR for meetings is less enticing than familiar technologies such as Zoom.
Would you rather see a real version of someone on a video or a fake avatar of someone up close?
The metaverse could turn out to be just hype and nothing more because the leaders of these companies building it are surrounded by yes-men who tell them it’s a great idea.
Many analysts have mentioned that Meta’s version of the virtual now is “terrible.”
Many also chime in saying “it’s been tried many, many times over the past four decades and it's never worked."
Even if Meta does improve on the technology and it does become more advanced, it still could be turn out to be mediocre.
If many can remember, we were already supposed to have self-driving cars 3 years ago and that never happened.
A lot of this failed technology has a tendency to just fall by the wayside never to be talked about again or regurgitated with a new headline.
I am not a believer of the Metaverse and you can bet your hard-earned bacon that these bank blowups means that metaverse and crypto employees will be more focused in the short term of how to pay rent and put food on the table than figuring out how to trap the rest of us in a virtual world.
Even if the salary is issued for employees of crypto firms, web3 firms, and metaverse firms by another third party saving their bacon, I can guarantee that no cash burn company will be funded to lose money in the short term.
