Cloud News & Opportunities
Free Edition - Robinhood Hearing, Shopify-Entrepreneurs, SPAC Bubble, Q4-20 Earnings and Remote Work on the Bahamas
NEWS | IPOS | OPPORTUNITIES | READING
Robinhood Hearing
On Thursday, executives of Robinhood, Citadel, Melvin and Reddit testified before Congress. Vlad Tenev, Robinhood’s co-founder and CEO, apologized for the company’s move to restrict trading in GameStop and other companies, which caused a rash of lawsuits and provoked outrage from lawmakers in both parties.
The hearing lasted 5 hours during which Robinhood’s Tenev was grilled most. In addition to reviewing regulation around short-selling practices, lawmakers questioned the company’s practice to sell users’ trades to market-making firms like Citadel in something called “payment for order flow”.
How it works: Today, most of all retail trades are not done on exchanges, but by market makers who “internalize” the trades. So when you buy a share in GameStop through your Robinhood account, Citadel will compete with other market makers to buy your order flow. If you are looking to buy a share at $100 and someone else is willing to sell his share already at $99.8, then market makers can generate a riskless profit by filling both orders. Robinhood is obliged to choose the market maker that offers the best price to the retail trader and will receive around $0.1 per 100 shares of order flow from the market maker. This makes commission-free trading possible but can lead to worse execution prices than on an exchange. Some of the largest market making firms are Virtu, Citadel Securities, Susquehanna, Jane Street, Two Sigma and UBS.
Shopify
Shopify released its Q4-20 earnings, showing that the company generated revenues of $977.7 million in Q4 alone, up 94% vs Q4-19. The increase was driven by many people opening online shops to make money after losing their jobs in the pandemic and as in-person service businesses have been shut down for month. Some of the increase in e-commerce will likely prevail after the world re-opens, but most of Shopify’s > 1 million users are first-time founders and more likely to fail than grow meaningfully. After the earnings release which included a conservative growth guidance for 2021, the share price dropped a few % despite the company’s strong growth. WSJ has more.
Source: Q4-20 Company presentation
Uber
The UK Supreme Court ruled on Friday that Uber drivers are workers, not independent contractors because their activities are "very tightly defined and controlled by Uber". Among other implications, UK Uber drivers which have similar contracts as those who filed the lawsuit, will now be able to claim minimum-wage retrospectively based on the whole working day instead of just when they have passengers. The decision could have significant consequences for how the company conducts business and how many drivers it allows on its app. Techcrunch has more.
Big Tech vs Journalism, continued …
In response to the proposed law forcing internet platforms to pay news publishers for their content, Facebook announced that it will cut off news-sharing in Australia.
Google, on the other hand, agreed to a list of licensing deals with Australian media organizations, most notably, including a deal with News Corp covering all the Murdoch-owned properties globally. It looks like Australia’s aggressive action may reshape the news industry far beyond its own borders. More here.
Google Maps Parking
In the US, drivers can now pay for parking directly in their Google Maps app, after the company has expanded a partnership with Passport and ParkMobile, two transportation software companies. Google also announced that it will extend this contactless payment feature for public transit users. More here.
Bitcoin - $1 Trillion
As the price per Bitcoin rallied last week and currently stands at $57k, the total valuation of all Bitcoin in circulation crossed the $1 trillion mark.
NEWS | IPOS | OPPORTUNITIES | READING
Porsche
According to the German newspaper Manager Magazin, VW is talking to advisors about both an IPO or a spin-off of its subsidiary Porsche. VW could float as much as 25% of the company to raise up to $30 billion to invest in its extensive electric vehicle and software development programs. Bloomberg has more.
SPACs
According to Renaissance Capital, 16 blank-check companies raised $3.4 billion last week and 45 SPACs submitted initial filings, vs with 10 traditional IPO filings.
Ivana Naumovska, professor at INSEAD, says in the Harvard Business Review: “The SPAC Bubble Is About to Burst”.
NEWS | IPOS | OPPORTUNITIES | READING
New
In my free newsletter, I discuss a new investment opportunity in more detail every other week. If you don’t want to wait, check out my Premium Newsletter which includes a weekly overview of all over- and undervalued firms that I am monitoring and provides key fundamentals and price targets.
Active
Pexip (PEXIP) - Target price: $30 (Long, Analysis)
No changes or updates since the analysis and the PPS was stable last week.
Appian (APPN) - Target price: $120 (Short, Analysis)
On Thursday after market closing, the company reported its Q4-20 results. Appian beat consensus estimates for revenue and EPS and provided a guidance of 15-16% growth overall and 30-31% on their cloud business for 2021. Cloud subscription business represented 45% of total revenues in Q4. Nevertheless, the fundamentals cannot sustain a 43x NTM revenue multiple. Accordingly, the share price dropped 8% upon the earnings release, before slightly recovering on Friday. Short interest has decreased to 14.3%.
After the earnings release, several banks issued new price targets. Its worth highlighting that the new target prices issued by those equity research analysts are spread across quite a range with the lowest 3 values between $80 - $90 and the highest two above $200. It seems there are significant differenced in the perception of where the company’s valuation stems from. Secondly, 30% of equity research analysts issued a sell recommendation and 50% a hold. This is quite bearish and reflects the company’s high valuation multiple.
Nonetheless, Appian did perform better than expected in Q4-20 and increased growth and profitability guidance for 2021. Thus, my fundamentals-based price target has increased to $120.
Source: Factset
Exited
Wix.com (WIX) - Target price: $350 (Long, Analysis) - Realized +26%
Wix announced its Q4-20 results on Wednesday and also beat both revenue and EPS consensus estimates. After the release, the company’s share price increased from around $300 to over $350 at closing on Friday. There are valid reasons to believe that the stock price can increase much further, but strictly following my framework I took profits at $350 and exited my position.
NEWS | IPOS | OPPORTUNITIES | READING
Citibank was trying to make $7.8 million in interest payments. It sent $900 million instead.
How virtual backgrounds can change the result of your AI-based interview.
China’s new digital currency, the ‘e-yuan’, will further increase Beijing’s virtual control.
79% of all EVs registered in the US last year were Teslas.
Due to Covid-19, life expectancy in the US has decreased by more than 1 year.
Apple is reportedly working on a magnetic battery pack that can be attached to its latest iPhone.
Designed for remote workers and their families, The Bahamas Extended Access Travel Stay (BEATS) program offers a permit to live on any of its 16 major islands for up to three years.
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Disclosure: I am long PEXIP and short APPN. 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.