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Mad Hedge Fund Trader

Management Under Fire

Tech Letter

Vulture Fund investor Elliot Management is coming for Salesforce (CRM) and that could mean CEO Marc Benioff’s tenure there will soon be over.

Why?

Elliot’s primary strategy to lift the share price is to fire management and replace it with one of “their guys” to streamline the operation to profits.

Usually, an Elliot takeover is a swipe against how bad current management is and often with famously branded companies.

They just took a large position in Pinterest (PINS) and shares have done well since that investment.

Their track record bodes positive for the medium term of the share price.

Even if they are labeled as vulture fund investors, they usually turn out to be correct more often than not.

The reason I pinpoint Marc Benioff as someone that could be taken out to pasture is that he has been there for a long time and his ideas have most likely become stale.

His big investment in MuleSoft was a failure and he hasn’t moved the needle in the last few years. He even decided to retain a Co-CEO who he later fired and reinstalled himself as a solo CEO. Sounds like too much power in one person’s hands to me.

It’s hard for these types of tech magnets to leave the companies they created.

Therefore, Elliot usually invests enough that allows them to fight for board seats where they can influence who the future management will be.

We have seen this time and time again.

It has been a volatile stretch for CRM.

Earlier this month, the company said it was laying off 10% of its workforce and reducing its office space in certain markets.

Again, like with most tech companies, I believe 10% is just not enough, but they might as well fire the ones who are social justice warriors first.

Tech firms should use this time as a way to get as lean as possible and CRM could have easily cut 55% of staff.

However, they are worried about a worker revolt.

Many customers are also starting to pare down CRM services as they sense less business flowing through because of the most anticipated recession in history.

Salesforce had nearly 80,000 employees globally as of Oct. 31, up from more than 49,000 as of Jan. 31, 2020, according to company filings.

Salesforce's reported revenue for its fiscal third quarter ended Oct. 31 of $7.84 billion, up 14% from the prior year. That marked a sharp slowdown from 27% revenue growth in the same quarter a year earlier. The company also declined to issue guidance for its fiscal year 2024.

Instead of fighting this CRM – Elliot partnership, readers should just wait for a big dip to put money to work.

Granted, it could get messy if Benioff is jettisoned, but this is still an established brand that is a foundational software platform for many corporate companies including the big guns.

It certainly does look like an internal struggle will take place as CRM just added 3 new board members to combat Elliot.

Either way, Elliot seeks to install better management and wants a stronger company that will lead to a higher share price.

Whether entrenched executives fight this or not, once the ball gets rolling, it is mighty hard to stop.

Buy CRM on the dip.

 

crm

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-27 16:02:182023-02-01 23:15:51Management Under Fire
Mad Hedge Fund Trader

Quote of the Day - January 27, 2023

Tech Letter

“An ounce of patience is worth more than a tonne of preaching.” – Said Indian Mahatma Gandhi

 

https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/thomas-jefferson.png 646 436 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-27 16:00:172023-01-27 16:47:31Quote of the Day - January 27, 2023
Mad Hedge Fund Trader

January 25, 2023

Tech Letter

Mad Hedge Technology Letter
January 25, 2023
Fiat Lux

Featured Trade:

(UNIMPRESSIVE FROM THE BEHEMOTH)
(MSFT)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-25 15:04:222023-01-25 16:32:07January 25, 2023
Mad Hedge Fund Trader

Unimpressive From The Behemoth

Tech Letter

The most talked about topic at the forum of the elites in Davos, Switzerland was the souring economic environment globally.

That’s starting to look more real by the day as companies realize aggressive revenue estimates need to be flushed down the toilet.

As funny as it sounds, the January gangbuster rally could have been just a delayed Santa Claus Rally that got pushed back one month.

Now we are entering earnings season, and that means some companies won’t be able to spin numbers in the right way.

That bodes ill for many tech companies as, beneath the surface, the engine humming along that is the tech sector is starting to flash a few red lights.

Tech shares sold off sharply this morning which is quite unusual when the U.S. 10-year treasury barely moves.

Why did it open up poorly?

Microsoft offered us unimpressive guidance that was $2 billion less than the consensus.

Clearly, Microsoft is trying to lower the bar earlier than the other tech companies, boding ill for sector-wide guidance.

That’s highly unusual for the tech bellwether who has the habit of beating and raising forecasts almost systemically.

I can’t imagine tech firms in the ecommerce space like Amazon or Etsy offering better than expected guidance either for the annual year or the quarter’s ahead.

Microsoft was also one of those tech firms that took a machete to staff and sliced off a big chunk of them.

I would have liked to see Microsoft fire more than 10,000 workers and felt they could have easily handled a 50,000 reduction.

The $1.2 billion charge resulting from these layoffs is just a drop in the bucket for MSFT.

CEO Satya Nadella used the words "caution" at least six times on the one-hour  call on Tuesday.

Nadella also let investors know that Microsoft Azure, the cloud product, is slowing down to 31% and although still healthy, growth products aren’t growth products anymore when they dip into the 20% range.

The tech business model and the sector as a whole is getting a little stale.

They aren’t the shining stars of the equity market anymore as costs skyrockets and revenue decelerate. That designation is now reserved for energy and precious metals.

Don’t wait for tech to pull a rabbit out of the hat in the short run.  

The bad news is that it doesn’t seem that revenue weakness will only be confined to Microsoft.

A large swath of the tech sector could be painted red when it’s all said and done, which is why equity holders are betting on US Central Bank head Jerome Powell saving the day.

The silver liner on offer from Nadella was telling us how MSFT is betting the ranch on artificial intelligence particularly ChatGPT.

Artificial Intelligence inching closer to material revenue contribution is highly positive, but in the here and now, it’s hard to see where the incremental great idea comes from.

Nadella also told us that enterprise software isn’t doing as great because companies are being thriftier in what software they use.

Firms are cutting software and reducing their software footprint where they can get away with it.

Sales of Windows Licenses dropped 39% year over year highlighting the issue of companies attempting to universally cut costs.

When the overall economic mindset originates from a thrifty-based beginning, it doesn’t favor technology stocks.

Tech usually basks in the glory of the excesses, which is why they overshoot to the upside.

Hence, Chairman Powell is now priced in to singlehandedly rescue tech shares as many investors wait for his pivot back to zero interest rates yet again just like the 2008 Great Financial Crisis on repeat.

 

tech sector

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-25 15:02:192023-02-01 22:34:37Unimpressive From The Behemoth
Mad Hedge Fund Trader

Quote of the Day - January 25, 2023

Tech Letter

"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." – Said 3rd U.S. President Thomas Jefferson

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/thomas-jefferson.png 646 436 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-25 15:00:152023-01-25 16:27:08Quote of the Day - January 25, 2023
Mad Hedge Fund Trader

January 23, 2023

Tech Letter

Mad Hedge Technology Letter
January 23, 2023
Fiat Lux

Featured Trade:

(PLANT-BASED MEAT IS A NO GO)
(BYND), (COST)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-23 15:04:302023-01-23 16:51:26January 23, 2023
Mad Hedge Fund Trader

Plant-Based Meat Is A No Go

Tech Letter

I am not going to say that plant-based meat is a fraud, but it’s about as close to being a fraud one can be without it being one.

That’s a harsh analysis of an industry that once shone brightly just a few years ago and branded itself as a food technology company.

I can say there is not much technology happening in this product either.

The idea of plant-based meat replacing animal-based meat would need to overcome Americans’ thirst for the old-fashioned red meat that attaches itself to such iconic cultural events like the Super Bowl and the barbecue in the backyard.

That’s something I wouldn’t bet on at least in the next 50 years.

The leader in the industry Beyond Meat (BYND) has been executing pretty poorly and performing poorly as well.

This fake meat thing doesn’t seem like it will stick well with the median American consumer.

Remember that the CEO of Beyond Meat Ethan Brown swept us up with all these buzzwords explaining how fake meat was about to change the world.

Looking at some of his old speeches, it feels eerily similar to former Theranos CEO Elizabeth Holmes who was convicted of fraud in a California courtroom recently.

Brown's reason why Americans needed to start eating fake meat was that his mission demanded the urgency and scale the US mustered for World War II and that his products would simultaneously help solve heart disease, diabetes, cancer, climate change, natural resource depletion, and animal welfare.

Although not an outright lie, his words stretch the truth to the point of sounding idiotic. He might as well blame gas stoves for Americans not eating plant-based meat too like the recent political fad.

Then there is the obvious question of instead of eating “plant-based meat,” why don’t consumers just eat plants or just eat meat?

Case solved.

Why complicate such simple concepts?

Then there is the clout of big meat industry.

During government lockdown, meat companies did extraordinarily well and they still are banging out the top-line revenue like it’ll never go out of fashion.

The lockdowns meant there was a shortage of meat and Americans stored huge supplies of the product even buying a second fridge to accommodate the grandiose supply of reserve meats.

Now, Bidenflation has caused cuts of pork, beef, and chicken to skyrocket, but consumers are still buying.

Supermarket sales of refrigerated plant-based meat plummeted 14% by volume for the 52 weeks.

Orders of plant-based burgers at restaurants and other food-service outlets for the 12 months that ended in November were down 9% from three years earlier.

Beyond lost sales in almost every channel last quarter. Over the past year, it laid off more than 20% of its workforce.

None of the biggest fast-food chains that had announced partnerships with Beyond—KFC, Pizza Hut, and most importantly, McDonald’s—maintained a single permanent item on their US menus.

Even vegans don’t like eating this fake meat stuff and rather stick with real vegetarian food like lentils, avocado, tofu, beans, and hummus. Vegetarian Indian food like certain Indian curries is way better than any fake meat garbage Beyond can deliver to the consumer.

Even John Mackey, co-founder of Whole Foods Market Inc.—the grocer that had been instrumental in introducing the category—went on the record calling plant-based meat “super, highly processed foods.”

The secret is now out that this fake meat could be more harmful than real animal-based meat and at the very worst, the same grade of unhealthiness.

The momentum has dried up for fake meat and convincing Americans to substitute real beef for fake beef is like convincing an American to live in a tent and describe it as a newly built Toll Brothers home.

The fake meat industry loved to give analogies of how the milk industry created alternative milk like almond and soy that consumers gravitated towards.

However, they fail to mention that dairy products cannot be consumed by lactose-intolerant consumers and milk’s primary use as an ingredient, not a main course.

In the summer of 2019, BYND was trading at $200 per share which coincided with the height of its stardom.

Now shares are a bottom basement at $15 per share and the market cap is below $1 billion.

This is a poor company to invest long-term and shares will only move up in the short-term as the market senses a Fed pivot, but after that sucker's rally, investors will get out while they can as this fake meat industry is the new snake oil salesman of 2023.

Instead of buying fake meat technology companies, stick with stocks that sell real food like Costco (COST).

 

plant based

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-23 15:02:092023-02-01 00:35:31Plant-Based Meat Is A No Go
Mad Hedge Fund Trader

Quote of the Day - January 23, 2023

Tech Letter

“As tech leaders, we have to admit that we are hugely disconnected from our nation. I don’t like it but have to recognize this issue.” – Said Dara Khosrowshahi

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2023/01/dara.png 670 640 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-23 15:00:132023-01-23 16:46:49Quote of the Day - January 23, 2023
Mad Hedge Fund Trader

January 20, 2023

Tech Letter

Mad Hedge Technology Letter
January 20, 2023
Fiat Lux

Featured Trade:

(2023 IS THE YEAR FOR UBER)
(UBER)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-20 15:04:042023-01-20 15:59:34January 20, 2023
Mad Hedge Fund Trader

2023 Is The Year For Uber

Tech Letter

Uber (UBER) has been one of the greatest influencers of American culture in the last 10 years, but that doesn’t mean they laugh all the way to the bank - hardly so.

The unit economics have never made sense as they hopped from the first cash-burn taxi service to another cash-burn food delivery service.

As many know, profits matter in this brave new world of tech investing simply because zombie companies cannot roll over debt because of higher interest rates.

Just in the nick of time, Uber Chief Executive Dara Khosrowshahi seems to have saved the day.

He has a grand solution to finally get Uber to profitability.

Most know the largest expense to doing business is often wages.

Anyone who has run a real business, essentially the inverse of a German politician, understands that if there was some way and somehow to reduce the wage bill or other large expenses, profits would go up extraordinarily.

For Uber, the highest expense since its inception has been the taxi or food delivery guy driving around.

Now, Uber is working with automakers to design lower-cost electric vehicles tailored for its ride-hailing and delivery businesses, part of its effort to “electrify” or de-emphasize the drag of running a fleet with a flock of gas guzzlers.

Khosrowshahi said the company is working with manufacturers on vehicles optimized for city use, ferrying passengers and deliveries.

For ride-sharing, that includes cars with lower top speeds and with seating areas where passengers can face each other.

I’m surprised it took Uber management so long to do this but better late than never.  

Uber is considering smaller vehicles with two or three wheels and trunk space.

Such vehicles can get through traffic easier and have a much smaller footprint, both in terms of environmental but also traffic footprint than, let’s say, a car to go deliver groceries.

The announcement comes as Uber is working to convert the fleet of vehicles its drivers use to electric by 2030 in many parts of the developed world, and in some places like London by 2025.

Truth be told, they have made headway in profitability reducing the annual cash burn in the last three years from $8 billion to $6 billion and then just last year only $500 million of losses.

Uber needs a little more juice to finally break even and I do believe this initiative will do the trick.

However, the crystal clear next step is the path laid out recently by the behemoths like Facebook, Microsoft, and Google.

Uber should fire 75% of the engineering team and 100% of the sales team.

The brand largely sells itself and the brand is ubiquitous in every corner of the globe.

If Uber management goes for this low-hanging fruit, I easily see a double in this stock from today’s $25.

The lack of profitability has always been that one impossible nut to crack for Uber management and now that they are so close, why not close the deal?

The stock has been on a tear for the first 20 days of the year going from $25 to $30 today.

Shares are up another 4% today at the time of this writing and I believe readers need to buy the dip on this ride hailing stock as battered down tech stocks come back into play.

 

uber vehicles

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-01-20 15:02:412023-02-01 00:32:272023 Is The Year For Uber
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