Cloud News & Opportunities
Free Edition - The Stimmy Has Arrived, The Valley's Most Valuable Private Company, a Dip in the Cloud and the Technoking of Tesla
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The Valley's Most Valuable Private Company. At a $95 billion valuation, Stripe has raised a $600 million financing, making it the most valuable private company in the Valley. The company was founded in 2010 by Patrick and John Collison, who are now aged 32 and 30. Stripe’s rising valuation reflects the recent boom in ecommerce and digital payments with more than 200,000 new customers in Europe signing up to the platform since the start of the pandemic. John Collison said its systems handled almost 5,000 requests per second in 2020. More here.
YouTube Shorts, the company’s short-form video experience and TikTok rival, went live in the US this week. It lets users to create videos of 60 seconds or less which can be combined with licensed music from industry partners. Sarah Perez took an in-depth look at the Shorts experience, noting that it’s pretty similar to TikTok while lacking some key features, such as intelligent sound syncing.
Farmland Investing. Traditionally, farmland as an asset class has been accessible only to the ultrawealthy to acquire and invest in. Bill Gates is the largest owner of farmland in the US, holding roughly 242,000 acres. But farmland could be the next big asset class modernized by marketplace startups. Platforms like AcreTrader, Tillable, FarmTogether and Harvest Returns are opening up the asset class to retail investors. More here.
Playstore and Appstore Fees. Google stated that as of July it will reduce the service fee for Google Play from 30% to 15% for the first $1 million in annual revenue developers earn using the Play billing system. For every $ generated beyond $1 million through Google Play, the company will get its usual 30% cut; similar to a tax for the rich. According to App Annie, the vast majority (97.9%) of Google Play publishers made less than $1 million in annual consumer spend in 2020, and therefore qualify for the reduced commission. More here and here.
The move comes after Apple announced last year it would collect 15% rather than 30% of App Store sales from companies that generate no more than $1 million in revenue through the company’s platform.
Earlier this month, the US state Arizona advanced a bill to prevent app store operators like Apple and Google from forcing app developers to use payment systems in which they have to pay commissions on in-app purchases and app sales, thereby increasing pressure on them to change the rules for all developers everywhere.
Source: App Annie
6.5% - the median estimate from Fed officials on growth of the US economy for 2021. This is a significant increase from the previously forecasted 4.2% in December 2020. Two obvious reasons are the approved $1.9 trillion stimulus bill and a strong pace in the vaccination rollout. Fed chairman Powell said better forecasts alone will not be enough for the central bank slow down its support for the US economy. Only when an improvement is reflected in the economic data will the Fed consider increasing interest rates more meaningfully. More here.
Uber Drivers. A month after the UK Supreme Court ruled that Uber drivers are workers, not independent contractors, the company said that all drivers in the UK will be paid holiday time based on 12% of their earnings, paid out every two weeks, and that drivers will be paid at least the minimum wage. Additionally, eligible drivers will automatically be enrolled into a pension plan with contributions from Uber representing approximately 3% of a driver’s earnings. More here.
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eToro, the rival trading platform to Robinhood, plans to go public via a SPAC merger that values the company at about $10 billion. Founded in 2007, the Israeli company has 20 million registered as of March 2021. eToro offers zero-commission trading, but unlike competitors doesn’t sell customer orders to market-makers (payment-for-order flow). Instead, the company generates revenues from a bid-ask spread on its platform. More here.
Instacart considers waiting to go public until the vast majority of American adults has been vaccinated, according to The Information. The company says that its investors want the public to have a clearer understanding of how fast the company might grow after the pandemic. More here.
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The “Stimmy” Has Arrived
The new stimulus payments of $1,400 per person began hitting bank accounts this week. According to a Deutsche Bank survey, individuals between the age of 25 and 34 are likely to put 50% off their stimulus check payments into the stock market and across all age groups, a total of $150 - $190 billion could be flowing into the stock market via stimulus checks. Retail trading now accounts for more than 20% of all trading flows vs 10% before the pandemic, according to UBS Equity Research. More here.
Which companies will be in demand? Of course there is still GME. Attention on Reddit picked up again recently and in anticipation of the stimulus the company’s share price jumped from a temporary plateau at $40 - $50 to currently $210. I expect the company to remain the playground for both retail investors and hedge funds for a little longer. In an effort to anticipate the next GME, several Reddit users have created tools like this Short Squeeze Indicator, which show companies with high short interest rates and monitor how frequently they are mentioned in discussions on Reddit. Btw, for anyone who hasn’t seen it yet, the WSB forum is a world of its own and quite entertaining - if you can speak their language.
However, “retail investors” is not synonymous with “Reddit users”. So while GME received a lot of attention, the stimulus will have an effect on public companies beyond those discussed on WSB. On a high level, the purchase volume by retail investors in companies outside the S&P increased by 60% since August 2020, according to Vanda research. This implies a shifting focus away from big names and towards smaller companies.
Additionally, a list of companies (especially consumer) is expected to benefit from the stimulus, not through an increase in demand for their shares but via an increase in demand for their products. Examples include Walmart - given that stimulus payments are targeted mostly at lower earners, discount grocery chains are likely to benefit - Amazon, Apple - with $1,400 more in your pockets, those $250 AirPods don’t look that expensive anymore - or companies in the travel sector - think Airbnb, Expedia or US Airlines - as going to other countries is expected to become a thing again.
Active
Dobebo’s March investor presentation.
The last 4 weeks have been brutal for cloud stocks. The BVP index dropped by more than 20%. This is significant for any index, but especially noteworthy considering that the S&P remained flat over the same period. Cloud valuations were inflated and now we see a correction. For the same companies, the same assets, growth and cash flow, investors are now willing to pay lower prices, because alternatives have become more attractive again. Like the Dow Jones for example, which increased +4.3% over the last 4 weeks. The price for cloud companies with 25% NTM growth and a rule of 40 value of 30%, for example, is now 15x NTM Revenues, vs 19x one month ago.
Docebo’s revenues are expected to grow 48% in 2021 (ARR grew 57% in 2020) with a rule of 40 value of 64%. At the same time the company is trading at only 11.9x NTM Revenues as of Friday’s closing. Based on a list of fundamentals, the company is significantly undervalued compared to other cloud comps. Two reasons for the lower valuation are the company’s relatively small size with $74 million in ARR as well as a limited potential for technological differentiation in its vertical (see initial analysis). Nevertheless, the company continues to perform strongly and the market is expected to see a continued tailwind in 2021, especially for players like Docebo who focus on enterprise customers. With net cash of $220 million on the balance sheet and healthy fundamentals, Docebo’s current valuation represents an investment opportunity with an outstanding risk / reward ratio. For that reason I reiterate my price target of $70 and bought additional shares at a PPS of $41 this week.
New
On Feb. 3, I wrote an analysis about WIX. At that time the company was trading at a PPS of $277 and my price target was $350 (+26% upside). In the week of Feb. 22, the company published its Q4-20 results beating both revenue and EPS consensus estimates. After the release, the company’s share price increased to over $350 for a few days and I closed my position. In line with the broader cloud index, the company’s share price fell over the last 4 weeks and today WIX is trading at a price of $290 again, implying a 12.5x NTM Revenue multiple. With 30% NTM Revenue growth and a rule of 40 value of 41%, I set the same price target as before at $350, on par with the consensus target of $353.
Here is WIX’s March company presentation.
Top Picks
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👑 The new, SEC-registered “Technoking of Tesla” and “Master of Coin”.
🎵 More Musk: Selling this song about NFTs as a NFT.
🕵️ Hackers stole thousands of $ worth of NFTs from collectors.
🛍️ The pandemic boosted U.S. online shopping by $183 billion.
🎬 How to make TickTock videos.
🔥 No-code / low-code universe and its players
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Disclosure: I am long 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.