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Today’s News (Apr 20, 2021) : U.S stocks slip, Facebook and Reddit try out Clubhouse clones, Nvidia’s regulatory maze and more.
Market Summary (9:15 A.M. ET): “U.S. stock futures fell, suggesting major indexes will extend losses as investors assess blue-chip companies’ profits and sales prospects,” WSJ writes.
“U.S. stocks slipped Monday, dragged down by losses across everything from technology shares to retail stocks,” WSJ writes.
It doesn’t look like investors are pushing the panic button, instead taking a cautious approach to the week. A series of blue-chip companies are reporting earnings this week and those results will “offer a view on businesses’ expectations for the pace of economic revival.” After the S&P 500 and Dow closed at record highs last week, all eyes are on whether these skyrocketing valuations are justified.
I still don’t think we’re in a bubble and am moderately bullish on the market over the next 6 months. At most, I see a 10% correction as the biggest downside for the major indices, barring another headline such as a bad Covid-19 variant or runaway inflation.
If it makes you feel any better, Facebook ($FB) is still trading at only 14.2x forward EBITDA despite having over 20% growth rates. There are definitely safe places to hide if an investor wants to avoid the massive volatility seen in high growth or SPAC stocks.
Facebook and Reddit Announce New Audio Products
The move comes on the heels of Clubhouse’s latest fundraise, which reportedly put the company at a $4 billion-plus valuation. Facebook’s new audio offerings include the Clubhouse clone, a long-form audio platform for podcasters, some Spotify integration and a short-form feature called Soundbites. Reddit’s version, known as Reddit Talk, will live on the platform’s subreddits or subcommunities. Both are still being tested.
Despite Andreessen Horowitz continuing to fund Clubhouse and signaling their bullishness, I am not very optimistic about the long-term success of Clubhouse.
Twitter, Facebook, and Reddit are using the infamous Zuckerberg “copy-and-contain” strategy. I also actually believe that the Clubhouse “feature” lives more naturally on Twitter than anywhere else. Or even as a call-in feature on YouTube or Twitch.
As a consumer, I don’t find the platform natively compelling absent big names like Elon Musk or Chamath Palihapitiya. As a creator, being on Clubhouse has by far the lowest ROI on time and energy.
But of course Andreessen Horowitz may know something we don’t. Perhaps Clubhouse has some killer features on the roadmap or the data show a different story…
Stock Shorts Collapse as No Hedge Fund Wants ‘Head Ripped Off’
Nobody wants to be the next GameStop bear, and Wall Street shorts are crumbling as a result, Bloomberg reports.
Short interest in members of the S&P 500 hit a 17-year low at 1.6% of market value, according to Goldman Sachs data. Across the Atlantic, “a short-covering frenzy has sent bearish bets collapsing like never before in Morgan Stanley data.” JPMorgan data shows hedge fund long bets are at their highest relative levels in years, pointing to “the bullish mania propelling global equities to fresh records this month.” As money flows in from re-openings and stimulus, smart money isn’t picking against expensive or risky companies.
Retail investors have been a big force in the markets during the pandemic. The data is showing that retail volumes are continuing to wane, and my baseline assumption is that retail investors will fade into the background as we fully reopen.
But I do hope that many will stick around with me as I continue to create content, pick stocks, and invest, as true wealth is not created over two years, it’s created in two decades.
Venmo Adds Support For Buying, Holding and Selling Cryptocurrencies
Starting today, Venmo is adding support for cryptocurrencies, TechCrunch reports.
Just as parent company PayPal did last year, 70 million Venmo users now have access to digital currencies. Venmo will support four at first — Bitcoin, Ethereum, Litecoin and Bitcoin Cash, which is the same offering as PayPal.
Yet another huge competitor enters the cryptocurrency ring. This is the reason why I believe retail-facing fees and “take rates” by cryptocurrency exchanges will be driven to zero.
Coinbase ($COIN) at $333 per share trades at a $100 billion valuation, representing around 20x revenues. This is too expensive for me to favor this trade over underlying Bitcoin.
Oatly Reveals Growing Losses, Revenue in U.S. IPO Filing
Vegan food and drink company Oatly has filed for a public offering, Bloomberg reports.
This all comes amid rising sales and growing losses. The filing listed the offering at around $100 million, a placeholder that will be amended later on. Oatly posted a $60 million net loss on $421 million of revenue last year. In 2019, it lost $36 million on $204 million of revenue.
Nvidia’s $40 Billion Deal for Arm Faces U.K. National-Security Probe
Nvidia Corp.’s $40 billion agreement to buy chipmaker Arm from SoftBank is being put under a national-security review by the U.K. government, WSJ reports.
The massive acquisition was poised to reshape the chip industry, but it has a new obstacle to overcome with regulatory scrutiny creeping in. The probe “plans to investigate the deal on antitrust grounds” and it is “the latest example of how governments around the world are increasingly tightening control over semiconductor technology.” Access to advanced microprocessors has proven to “make or break” the futures of some of the U.K.’s biggest companies.
Johnson & Johnson’s Covid-19 Vaccine Adds $100 Million to Quarterly Sales
“Johnson & Johnson’s Covid-19 vaccine contributed $100 million to the company’s sales growth in the latest quarter, as U.S. health authorities re-evaluate the vaccine during a pause amid safety concerns,” WSJ writes.
It’s a sign that maybe things are heading back to normality as vaccines roll out and a lift to the company after a “tumultuous first months of 2020.” The company’s Q1 revenue was $22.32 billion, up from $20.69 billion in the year-ago period. Net earnings also improved to $6.2 billion from $5.8 billion compared to the last Q1.
What’s Going On:
Covid-19 infections have reached their highest levels during the past seven days even as vaccines continue to roll out, Bloomberg reports.
More than 5.2 million people were diagnosed with Covid-19 during that period, which “casts doubt on the hope that the end of the pandemic is in sight.” The weekly increase overtook a previous high set during December and amounted to a 12% increase from the week before, according to Johns Hopkins University data. More than three million people have died worldwide from Covid-19.
At this point, the pandemic continues to disproportionately affect countries in the developing world, with India and Brazil “shouldering surging caseloads.”
U.S. and U.K. cases seem to have stabilized at a lower level, but India and Brazil are bearing the brunt of the recent case increases. At least it still looks like vaccinations are a huge factor in preventing cases, and hopefully the rest of the world will improve as vaccinations are distributed globally.
America Is Short of Home Builders as Well as Homes
An increase in home construction and home buying “reflects a remarkable resurgence in the housing market that the Covid-19 crisis set off, as low-interest rates and city dwellers flocking to the suburbs substantially boosted demand,” WSJ reports.
According to data from the Commerce Department, construction started on a seasonally adjusted 1.74 million homes (at an annual rate). It’s a steep increase from February’s 1.46 million mark and the highest level since July 2006, “when the housing bubble was coming undone.” And the need for new homes will only keep rising — “Freddie Mac estimates that as of the end of last year the country was 3.8 million single-family homes short of what is needed to meet long-term demand.”
Now that it’s rallied substantially, how real estate will perform going forward is a puzzle.
Many factors lead me to believe that home prices will be flat or a little weak going forward.
- Rising yields will increase required cap rates and add to the cost of ownership, which will be a headwind for home prices.
- There is also the possibility of demand flocking back to cities and multifamily rentals after the pandemic.
- Anecdotally, it seems like houses are currently going for prices that aren’t commensurate with how nice they actually are.
But there is still a case to own real estate.
- There is still a housing shortage, which might keep prices going up.
- Perhaps prices stabilize and don’t offer the same upside as before, but at least rents will increase and investors will get an increasing yield.
- Real estate is still a hard asset to own in the whirlwind of unprecedented monetary policy.
All in all, I would rather be in multifamily or commercial real estate right now than single-family rentals.
Consumer Agency Warns Against Peloton Tread+ Use, As Company Pushes Back
The U.S. Consumer Product Safety Commission has issued a warning telling users not to use Peloton’s Tread+ after 39 incidents, one of which included a death, TechCrunch reports.
The warning is based on “multiple injuries involving small children and a pet.” Peloton has pushed back saying the warning is “inaccurate and misleading.” The Peloton Tread+ costs $4,295.
This is an event that, although tragic, doesn’t deter me from investing in the stock.
- Having heavy machinery in the home is dangerous for children in general. There were 22,500 injuries in 2019 and 17 fatalities between 2018-2020 related to treadmill usage in the U.S.
- Most of Peloton’s revenues come from its Bike product.
- A lot of Peloton’s future involves replacing existing treadmills in non-home settings with connected ones (gyms, hotels, apartments, etc).
Squarespace Files To Go Public
Website development and hosting platform Squarespace has filed to go public, TechCrunch reports.
Squarespace boasts impressive growth, with a 28% year-over-year revenue gain from $484.8 million in 2019 to $621.1 million in 2020. It also had a $30.6 million net income last year. It will trade on the New York Stock Exchange under the ticker “SQSP.”
Squarespace ($SQSP) carries 82% Gross Margins and 19% EBITDA margins. It’s an amazing business with great product design/fit and high retention rates of over 83%.
Depending on the valuation, it would be a great long-term investment in the growth of the internet and democratization of ecommerce.
Two things that I would want to look into are:
- How inflated was 2020 growth because of the stay-at-home boom to website creation?
- Squarespace states that 48% of small-to-medium-sized (SMB) businesses aren’t online today, but how much more online adoption do we expect to happen here? Surely not every neighborhood taco stand needs a website.
- How is Squarespace’s market share trending versus competitors like Wix.com and WordPress?
Coinbase Hangover Rattles Crypto Assets With Bitcoin Falling
The fallout of Coinbase’s IPO frenzy has presumably resulted in Bitcoin’s biggest drop since February, Bloomberg reports.
Bitcoin fell as much as 15% on Sunday and was roughly $57,000 in the afternoon of Tokyo trading on Monday. It had previously hit a high of $64,870. Ether also saw a drop, slipping below $2,000 over the weekend. Meanwhile, Dogecoin, which was started as a joke, saw 25% gains in the last 24 hours, according to CoinGecko.
Historic Oil Glut Amassed During the Pandemic Has Almost Gone
“The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers,” Bloomberg writes.
Roughly a fifth of the surplus that flooded the markets last year remains as of February. The aftermath has resulted in international crude prices landing at $67 per barrel, a solid price point for consumers, but has left consumers, motorists and governments, concerned about inflation.
What’s Going On:
China’s economy saw massive growth in Q1, improving by 18.3% compared to the year-ago period, WSJ reports. The world’s second-largest economy nearly tripled the “6.5%
Cryptocurrency price highs, everybody wants a piece of Coinbase, autonomous driving and more.
Coinbase’s moonshot IPO, regulating SPACs, the recovery of oil, Chinese EVs and more.
Uber posts a record month, the FDA pauses the J&J vaccine for further study, Grab’s SPAC deal and more.
An economic inflection point, raw materials surging, China’s antitrust regulator drops the hammer on Alibaba and more.
Justin’s notes on the current state of the stock market and Bitcoin.
Let’s understand the mortgage industry a little bit better…
Is there value hiding in the mortgage lending industry?
While the pace of economic recovery is promising, Fed Chairman Jerome Powell said the slow rollout of Covid-19 vaccines outside of the U.S. is a
Twitter’s Clubhouse aspirations, the dangers of market leverage and the ongoing chip shortage.