#130 - 5 Reasons For $FB 30% Drop, $AMZN Earnings, Flexport Raises $1b to Fix the Supply Chain, and Wags.co is a Bet That We’re Going Back to the Office.
#130 - 5 Reasons For $FB 30% Drop, $AMZN Earnings, Flexport Raises $1b to Fix the Supply Chain, and Wags.co is a Bet That We’re Going Back to the Office.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
📈📊Market Update💵📉
Bear Case:
The S&P 500 came close to its 50-day moving average and reversed. The Nasdaq 100 tested its 200-day moving average and pulled back lower. Finding some resistance after going up for several days in a row is not a big surprise. It’s how markets move – every rally and every selloff have counter-trend reactions. What matters is what happens afterward. The bearish scenario for this week is clear – anything that loses its lows from Friday (Feb 4th) can be shorted for a quick trade. For example, if SPY loses 444, it will probably fall to 440. If QQQ loses 352, it is likely to test 340. If those breaks happen, most individual stocks will follow.
The Most Important Charts To Markets Right Now:
Bull Case:
Last week brought new bullish arguments. We finally saw some recent IPOs like BROS and HOOD wake up and push higher. This is a clear sign of improving risk appetite. In the meantime, quite a few oil & gas stocks broke out to new 52-week highs. Commodity-related names are currently the only momentum stocks left. Financials are quickly catching up with the spike in interest rates. XLF is back above its 50-day moving average.
The era of negative bond rates is coming to an end and this has led to a repricing of all risk assets. Is the repricing over? Probably not for everything but plenty of software, Internet, biotech stocks and crypto fell 50% to 80% in the past three months.
That’s not a bear market; that’s a crash.
The silver lining last week was that the spike in interest rate didn’t lead to further downside in those risk assets. On the contrary, they bounced. This could be the proverbial dead-cat bounce that just goes nowhere fast or an acknowledgment that even if rates go from 0% to 2.5% quickly, some businesses will grow into their valuations, eventually.
Don’t get complacent. Many of those stocks are not going to go back to their all-time highs for many years if ever. That’s how financial markets work. A constant cycle of booms and busts and new trends.
We are still in the midst of earnings season.
If Facebook, Amazon, and Snapchat can trade like small-cap biotech stocks, you know that anything is possible. No stock is safe, no bet is a sure thing.
Adjust to the new market reality because it can last much longer than you expect.
💸Reformed Millennials - Post of The Week
Why the hell would China be interested in the Winter Olympics?
A THREAD:
Chinese people don't ski, right?
Why are they getting involved in something that's not entertaining or lucrative?
The answer: China's using Winter Olympics as a focal point to drive domestic interest and spending in winter sport tourism and commerce.
So the aim is that while not much of the population is interested in winter sports before, they gonna be after the Olympics.
Chinese consumers do not have winter leisure sporting traditions.
Lack of demand also diminished supply, there's no supporting ice rinks, ski lodge or slope in terms of infrastructure.
But Chinese consumers do have something going for them. They love new things.
Getting Chinese consumers interested in winter sports can kill a couple of birds with one stone.
- Promote consumption upgrading since winter sports are not cheap
- Develop more domestic tourism in poorer and colder northern regions
- Create new supply-side industries
So this is how it's looking to go down:
1. The Winter Olympics gets people interested in new and strange sports.
2. Bunch of policies to promote venue construction and training
3. Auxiliry sporting industries spring up and habits become set
4. ????
5. Profit
By early 2021, China boasted 654 standard ice rinks, an increase of 317% from 2015. Indoor and outdoor ski resorts had reached 803, up 41% increase from 2015.
The Chinese gov aims for the ice and snow industry to be $157.2 bn by 2025
Now snow sports is quickly becoming a leisure marker for the middle class just like it has been in Europe and US.
Sichuan and Guangzhou have seen ticket sales surge for their indoor ski resorts. Yulong Snow Mountain in Yunnan saw 40% in ticket sales in 2021 relative to 2019.
Skiing equipment makers are making bank. Brands like Anta, Toread and 361 Degrees have all released a snowsuit and retailers are super happy since margins on these things are like 40 to 50%
So consumers get a new way to show off, exercise and travel domestically. Retailers are happy since there is now a growing market with healthy margins. Policymakers are happy since everyone's spending.
Wins all around.
All it takes is having a marquee marketing event like the Winter Olympics. So even if the event is loss-making, China's making a bet they'll make it up on stimulating and cultivating a long-term national past-time.
WHY APPLE HAS ITS FOOT ON THE NECK OF FB… For Now
Everything you need to know about facebook in link form.
Ben Thompson on Strategy:
ATT’s Impact
Meta (and Stratechery) has been giving warnings about the impact of Apple’s ATT changes for two years; the company didn’t fully specify the scale of the impact until yesterday though, and it’s massive: approximately $10 billion in 2022. That is 8.5% of Meta’s 2021 revenue; worse, because that impact is primarily felt through lower prices, that is money straight off of the bottom line as well, and $10 billion is 25% of the company’s 2021 profit. This, more than anything else, is what is driving Meta’s disappointing outlook.
Moreover, while Meta is piecing together ways to improve conversion tracking, the lack of precision and longevity in those signals means that it is much more difficult to leverage conversions for targeting. Meta will figure this out, in part by making massive investments in machine learning to improve its targeting; that, though, entails a big increase in capital investment, which hurts profitability even more (this does, though, increase Meta’s relative moat in the long run).
FINANCIAL VERSUS EXISTENTIAL RISKS
I ranked the financial impact of these challenges from least to most; what is interesting is that the ranking of the existential risk of these challenges goes in the opposite direction. Working through ATT is going to be painful and take years, but Meta is better equipped to figure it out than anyone else in the 3rd-party advertising space (Meta did note on the earnings call that Google doesn’t face the same headwinds because Safari isn’t covered by ATT).
This format shift, meanwhile, is riskier than the addition of Stories: that prior shift moved engagement and temporarily reduced monetization, but Stories were additive to the Feed. Replacing the feed means not only shifting engagement but also reducing very valuable inventory. Moreover, the older users that Facebook is de-prioritizing are also likely to have more disposable income and may be more valuable to advertisers.
The true risk to Meta, though, is (and always has been) a loss of engagement to other companies. Winning users back is much more challenging than figuring out how to shift advertisers to another spot on your own properties. This battle matters more than anything for Meta’s long-term value.
To that end, just as Facebook’s product changes are evidence that TikTok is real competition, today’s stock price drop is also evidence of the benefit of founder control. Meta could have delayed its response to TikTok until ATT worked its way through the system, but instead the company is fundamentally changing its products at the very moment its results are the most impacted by Apple’s changes. The easier decision, particularly for a manager, would have been to wait a quarter or two, when the comps would have been easier, and the excuses clearer, but founders have the freedom to prioritize existential risks over financial ones.
Of course they also have the freedom to spend $10 billion on a speculative bet like the Metaverse, an amount that will “increase meaningfully” in 2022; Meta continues to be first and foremost a bet on Zuckerberg.
IDFA Marketing Strategy from Eric Suefert at Mobile Dev
see here
Favorite Twitter Thread on ROW Growth:
Favorite Twitter Thread for FB($META) Bear Case:
Joel’s Conclusion on FB($META)
A thoughtful discussion on Meta must now address concerns around FoA user growth and engagement (most notably for the blue app), a competitive threat from TikTok, the impact of IDFA and regulatory headwinds on revenue growth, the massive expense ramp of the past few years (which will continue into FY22), and the ~$10 billion of annual losses at FRL (with very little that we can tangibly point to as the output from that investment). That’s a lot to work through. And when you finish that exercise, I think you inevitably conclude that this bet requires a lot of trust in Zuckerberg and the team (that’s always the case, but this is at another level). Given their impressive track record, I think they’ve clearly earned that trust; however, their actions of late are quickly putting that to the test.
There are few decisions as an investor that I find more difficult than trying to intelligently react to disappointing results, particularly when dealing with a sizable position that I’ve owned for years. In hindsight, given the specifics of this situation (huge FRL investments that are unlikely to show a ROI for 5+ years and uncertainty around the size and duration of any IDFA impact), there were clear short-term risks on this investment; those risks materialized and the stock reacted accordingly.
Personally, I don’t see the lower stock price on its own as a sufficient reason to add aggressively (particularly if the company continues its large allocation to repurchases in FY22 and beyond). I’ve placed my bet, and I think its reasonably sized given the long-term return prospects and the risk / uncertainty associated with the factors discussed above. For that reason, I’ve decided to keep the position unchanged
Flexport Raises 935mm at 8bn Valuation in Bid to Save our Supply Chain From Government
🌊 Canadian Companies To Peruse 🌊
Wagwalking.com - Local, trusted pet care - Book 5-star Pet Caregivers near you.
🔮Best Links of The Week🔮
Was The Pandemic Bad For Peloton? - Ben Carlson
Ben Thompson explains how the recent M&A outbreak in gaming follows the smiling curve where value accrues in a barbell, with aggregators at one end and differentiated content creators at the other.
“How many CFOs know their maintenance capex number?” With inflation and technological obsolescence, it’s likely most investors and operators underestimate this spend and, consequently, overestimate value-creating growth.
PayPal - Down 50% but same revenue guidance… - Grit @ SA on What to do?