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Signal
is a privacy-focused messaging app, that has been endorsed by the likes of Twitter CEO Jack Dorsey and Edward Snowden. It is built on open source, peer reviewed, and funded entirely by grants and donations.
This week, the company ran a series of ads on Instagram to illustrate to users the kind of information that the platform collects and infers about them. Link
The account behind the ads was shut down by Facebook before many of them could reach their target audience, but there are a lot of news articles covering it, so the company clearly got what it wanted.
The amount and type of information collected by the likes of Facebook and shown in the ads should really not surprise anyone.
If you enter in your Facebook profile that you live in London and post pictures on Instagram of yourself with your new motorcycle, it shouldn’t come as a surprise that the company will collect and relate this information and use it to serve you targeted ads. Most people don’t care too much about this, and those who do are not on Facebook.
But its interesting to see the company’s sensitivity towards showing its collection of data in a transparent way.
Peloton
admitted that its treadmills are dangerous and is now recalling 125,000 units after the federal safety agency issued a warning last month. Due to a gap between the running belt and the floor, pets and children could easily get entrapped, pinned and pulled under the device, leading to dozens of injuries and one death. More here
Additionally, a cybersecurity leak in some of the company’s APIs allowed anyone to pull private account data of a user directly from Peloton’s servers. More here
Peloton’s share price hit a seven-month low, falling 12% on the news, and is now -50% off from its high in January.
Fastly
released its Q1-21 performance on Thursday, after which the stock price dropped a whopping 27%. The company generated revenues of $84.9 million (35% YoY) vs. $85.1 million market consensus. Net loss per share was $0.12 vs. an expected $0.11.
These are not big misses but make the company one of the few high-growth cloud players that underperformed market expectations.
However, the company also lowered its guidance for Q2: Fastly forecasts revenues of $84 - $87 million and a net loss of $0.16 - $0.19 per share, compared to the market consensus of $92 million in revenue and a net loss of $0.08 per share, thereby disappointing investors.
Lastly, Adriel Lares will step down as CFO of the company after 5 years.
The company is now trading at a PPS of $42, compared to its high of $119 only 3 months ago, representing a TEV / NTM revenue multiple of 12x.
Berkshire Hathaway’s next in line
as CEO will be Greg Abel, said Warren Buffett, who is now 90 years old, in last weeks annual shareholder meeting. Link
Sony
announced an investment and partnership with Discord to bring the chat app to PlayStation. Link
Tiger Global
is looking to raise $10 billion in growth equity funds, just one month after raising $6.7 billion for its last fund. Link
Dogecoin
was up 26,000% this year making it the fourth-largest cryptocurrency by market value. The price increased steeply this week ahead of yesterday’s appearance of Elon Musk on Saturday Night Live, during which, the price fell by 35%. More here.
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Squarespace
the WIX and BIGC competitor, released its S-1 filing and will begin trading on May 19th via direct listing. The company has $754.2 million of annual revenue run rate as of March, up 36% YoY. While growth is not as high as that of other SaaS players, the company is significantly cash flow positive, generating $51.8 million of free cash flow in Q1’21, a 29% margin.
Wix is valued at 12.0x TEV/NTM, growing 30%.
BIGC is valued at 17.3x TEV/NTM, growing 25%. (still a good pair trade)
Squarespace is expected to grow ~30% NTM and begin trading around 15x.
Given the recent sell-off of cloud stocks and the increasing investor preference for profitable (or at least capital efficient) businesses, I believe Squarespace has good chances for a successful IPO, despite the current market environment.
Meritech’s detailed IPO breakdown.
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Market Thoughts
A tough week for cloud stocks. The BVP cloud index is down 11% this week alone and down 23% since its high in February. At the same time, when you look at the fundamentals you see that most of the large cloud players outperformed market expectations in Q1-21.
So what’s going on?
The world is increasingly getting vaccinated. Economies are not back to normal yet, but investors anticipate that they will reopen in the second half of the year and, assuming vaccinations remain effective against most mutations, position themselves accordingly. What we can see is that money is being shifted away from sectors that benefitted from lockdowns (cloud, e-commerce) and into sectors that will benefit from a re-opening (industrials, service).
To prevent a recession, in 2020 the US started printing money as it has never done before. And Biden’s $1.9 trillion fiscal stimulus bill enacted in March, will be financed through printing more money, so the supply will continue to increase.
As more money is being printed, the purchasing power of money decreases and prices of goods and services rise > inflation.
Warren Buffet last Saturday:
“Berkshire Hathaway is seeing ‘very substantial inflation’ and raising prices.”
To put Biden’s $1.9 trillion stimulus into perspective, the total money supply (M2) in the US was just below $20 trillion as of March 2021.
Asset classes which perform well during times of inflation are commodities, real estate and generally assets with a limited supply including farmland (Bill Gates), art and infrastructure.
We can observe a steep increase in prices for a list of commodities. For metal prices in particular, the rally is driven also by an (anticipated) increase in demand:
Biden’s $2 trillion infrastructure plan means that the US will invest heavily into greener infrastructure, which is more metal-intensive.
“Biden’s plan includes beefing up the electric vehicle sector with subsidies for cars, adding 500,000 new charging stations and converting 500,000 school buses to zero emissions.
Those stations and that number of battery electric buses would alone require nearly 200,000 tonnes of copper, while renewable energy requires an estimated five times more copper than conventional sources.” - Reuters
Mining companies like First Quantum Minerals (FM), who generate roughly 80% of their revenues selling Copper, are going through the roof. FM saw roughly stagnant EBITDA from 2017 - 2019. For 2020 and 2021, however, EBITDA is expected to increase ~45% in each year, an impressive increase at this scale.
From burning $1.5 billion of cash in 2019, the company now expects to generate $1.8 billion for shareholders.
No surprise: FM’s share price increased >300% over the last 12 months.
If inflation is increasing too fast, the FED may increase interest rates.
“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat” - Yellen
As interests rise (or are even just mentioned to rise), high-growth software stocks are falling hardest.
Bottom line
From a macro perspective, commodities, real estate and alternative assets are the name of the game — at least for the next few months.
However, nothing changes the fact that there will be higher demand for cloud software solutions after the pandemic than before the pandemic. Valuations were overheated but are currently undergoing a correction. Personally, I would expect cloud prices to recover quite well in the late second half of the year, catching up with fundamentals.
Active
Docebo (DCBO) - Target price: $70 (+41% to current PPS)
Wix.com (WIX) -Target price: $350 (+20% to current PPS)
Pexip (PEXIP) - Target price: $20 (+102% to current PPS)
ECOMI (OMI) - Initial view
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💰 Jeff Bezos sold $2 billion worth of Amazon shares over the last few days
🎮 More teenagers earnings millions in eSports
📈 Berkshire Hathaway’s share price is too high for computers
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Disclosure: I am long FM, DCBO, PEXIP, OMI. 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.