Cloud News & Opportunities
Free Edition - Ethereum Supply, $69m Digital Art, Roblox IPO, Docebo Q4-20 and BVP's State of the Cloud 2021
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Ethereum blockchain developers have approved one of the biggest changes to the network since its inception in 2015. The move will reduce the amount of outstanding Ether by destroying some of the tokens every time it’s used to fuel transactions. This will make it possible to control inflation of the digital currency, the supply of which was theoretically infinite until now. More here.
Non Fungible Token. Explained. The auction of a NFT digital art collage from a relatively unrecognized digital artist ended with a sale price of more than $69 million. The art work, called “Everydays — The First 5000 Days”, shows several years’ of daily pictures from the artist. It was acquired by the founder of a crypto-based investment fund called MetaPurse, who explained "Techniques are replicable and skill is surpassable, but the only thing you can’t hack digitally is time. This is the crown jewel, the most valuable piece of art for this generation. It is worth $1 billion." More here.
In related news, Twitter CEO Jack Dorsey is selling his first ever tweet as a non-fungible token and will donate the profits to charity. Dorsey shared a link to a platform called “Valuables,” where his first tweet “just setting up my twttr” posted on March 21st, 2006 is up for bidding. Currently, the highest offer is from Sina Estavi, CEO of Bridge Oracle, for $2.5 million. The auction will end March 21, when he will immediately convert the proceeds to bitcoin and donate that to Give Directly’s Africa Response fund.
Tencent, best known for its WeChat messaging app, is one of the world’s biggest and savviest tech investors with stakes in a range of public tech companies. Unrealized gains for 2020 from its minority stakes in about 100 publicly listed companies amounted to $120 billion. At the end of last year, Tencent’s shareholdings in public companies were worth about $184 billion, more than doubling from $64 billion a year earlier. In comparison, the company has a market capitalization of $793 billion and generated net profits of about $20 billion in 2020. The Information has more.
Apple announced that it plans to invest $1.2 billion to set up its European Silicon Design Center in Munich, Germany to focus on 5G and potentially future wireless technologies. With 1,500 engineers, Munich is already Apple’s largest engineering hub in Europe. More here.
Russia is slowing down Twitter for users in the country because a list of unlawful posts have not been taken down by the company and warned it could implement a total block on the service.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Roblox, the kids gaming app that grew popular during global lockdowns, went public this week on the NYSE. The company’s share price closed at $69.5, giving the company a market cap of $38 billion. Roblox saw explosive growth last year, driven primarily by kids who were stuck at home because Covid-19 forced schools to close. But Roblox is an interactive environment where anyone can develop games or apps and sell them on the platform. So while revenue last year increased 82% to $924 million, at the same time, the company almost tripled the amount of money it paid to developers through its revenue sharing program. More than 1,250 developers made at least $10,000 last year through virtual sales in their Roblox games and two teenagers in the UK paid off their parents’ mortgage with their Roblox earnings. More here and here.
Couchbase, the database company that competes with MongoDB, has confidentially filed for an IPO that could come in the first half of 2021 and value the company at $3 billion. Couchbase reportedly passed $100 million in revenue after raising a total of close to $300 million in VC funding over the years, including from Accel. More here.
Grab, the Singapore-based ride-hailing startup, is reportedly in talks to go public through a merger with a special-purpose acquisition company that could value it at up to $40 billion, which would make it the biggest SPAC deal on record. More here.
SPACs promise founders and investors an alternative path to cash out. Backed by record VC and private equity funding, 228 of these funds have raised $72 billion so far in 2021, already more in both deal count and volume than Q3 and Q4 2020 combined, according to PitchBook.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
Last week there was a small recovery from the previous drop of tech valuations. There are a lot of opinions out there around why valuations fell and where prices are going next. Explanations I have seen go from Biden’s new stimulus bill, the prospect of lifted lockdowns and increased inflation expectations, to investors shifting their portfolio focus towards equities and away from US government bonds, which increases US Treasury yields, which in turn causes a price drop of fast-growing tech companies, whose high valuations are underpinned by low interest rates.
Some of these points may have more merit than others, but instead of deriving macroeconomic predictions I prefer to focus on finding great companies trading at low valuations and mediocre companies trading at premium valuations. If there is increased volatility in the market, I change the weighting of long / short positions in my portfolio to decrease market risk. But if you were willing to buy shares in a company a month ago and its share price dropped 20%, then you can now buy the same asset at a discount. Some companies published their latest quarterly results in the meantime outperforming market expectations, while simultaneously their share price dropped with the broader market - like Docebo, explained below. Such companies have a very good chance of outperforming their benchmark. A market-neutral strategy would be to short the cloud index and buy Docebo shares. This significantly reduces risk, but also lowers the return potential.
Active
Pexip (PEXIP) - Target price: $30 (Long, Analysis)
Docebo (PEXIP) - Target price: $70 (Long, Analysis)
This week, the company reported its Q4-20 results, beating both revenue and earnings estimates. After the earnings call, Docebo’s share price increased +10% in pre-market trading. At the end of 2020, ARR was $74 million, implying a strong organic growth rate of +57% YoY. With a high gross margin of 84%, the company was cash flow positive and generated $6.6 million vs a burn of $3.6 million in Q4-19. Docebo increased the average annual contract value with customers by +24% YoY and saw net retention with existing customers increase to 108%. With no debt and over $220 million cash on balance sheet the company is currently valued at a TEV/ ARR multiple of 16.4x. Docebo continues to perform well and sees stronger traction than expected. As companies with similar fundamentals trade at significantly higher valuations, I reiterate my price target of $70, implying a +52% upside to Friday’s close.
Top Picks
This is a list of public cloud stocks I am monitoring with some of the best risk/reward opportunities. I will provide a deeper analysis on each company as time allows.
Get a Premium Membership to access the list and receive new investment analyses as they are released.
NEWS | IPO & SPAC | OPPORTUNITIES | READING
💻 12 charts that show how tech took off during a year of shutdowns.
☁️ Bessemer’s State of the Cloud 2021.
⛓ How Facebook got addicted to spreading misinformation.
🏰 The most expensive home for sale in every US state.
🎲 A mathematical answer to how much Bitcoin you should own.
Was this forwarded to you? Sign up, and get your own copy of Cloud News & Opportunities sent to your inbox every week.
Feedback, comments or questions are always appreciated and if you know people who might enjoy the newsletter, it would mean a lot if you forward it on. 🙏
Disclosure: I am long PEXIP and DCBO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from paid subscribers of my newsletter. I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: I am not a registered investment, legal or tax advisor or a broker / dealer. All investment / financial opinions expressed by me are from personal research and experience and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.