Weekly TLDR - Clown Car in a Gold Mine
The TLDR
We are still adjusting the publish date of the Weekly TL:DR; to figure out the best time when readers want to digest the recap. For this week, we are testing publishing on Thursday but give us your thoughts on Twitter (@FinanceTLDR) if you have suggestions. This week, we first reminisce on how Mark Zuckerberg once called Twitter a clown car in a gold mine, then we discuss Gamestop’s NFT marketplace, the tale of two advertisers (FB vs everybody else), and the FinTech apocalypse.
Chart of the Week
Small (retail) traders are having a larger impact than ever! It's a sure bet that hedge funds are watching retail investor conversations in online communities like /r/wallstreetbets and even “influencing” the conversation. This is why we believe what we do at FinanceTLDR is important. We want to cut through the noise and PR to help you focus on what’s important. Without further ado, the top news since last week.
Twitter’s Clown Car. Almost a decade ago, Mark Zuckerberg called Twitter a clown car in a gold mine, and this phrase happened to be prescient. In 2013, Twitter IPO’d and closed at $38.79 on the day. Yesterday, Twitter closed at $37.83. Less than its price on IPO day, and yet the company has compounded revenue at 29% a year. How is that possible? For one, Twitter has been incessantly issuing shares. From a little over 500 million outstanding shares in 2013 to almost 800 million outstanding today. Second, Twitter has yet to figure out advertising. Some of the most valuable (sports, finance, politics) online conversations happen on Twitter, yet the company still has no idea who its users are. That is not to say that I’m bearish, since Twitter just had a huge management shift, and they aren’t going anywhere and have many many more years to figure out how to really make money.
GameStop’s NFT marketplace. GameStop (GME) is partnering with Immutable on an NFT marketplace expected to launch later this year. They are also creating a $100 million fund for game developers who use this marketplace. We are cautious on the potential for this NFT marketplace as gamers and the gaming content creator scene have generally viewed NFTs with skepticism and negativity. Gamers view NFTs as yet another crash grab by game developers and major game companies have reversed course from “future of our industry” to not a very important aspect. Web3 is hot right now among VCs and investors but enthusiasm from gamers and end users are still lagging.
Tesla is 17% of the largest Consumer Discretionary ETF. Consumer discretionary means nonessential goods and services. The largest ETF investing in companies selling consumer discretionary goods is State Street’s XLY and get this: its second largest holding is Tesla at 17% of this $22B fund. How does that happen? Is everyone interested in nonessential goods and services buying Teslas? No. The main reason Tesla got so big in XLY is because XLY is market cap weighted, and Tesla’s market cap exploded over the last couple years. It is now just under $1T when it was less than $0.13T two years ago. Market cap weighted indices are highly prevalent today and they reward winners while punishing losers. Talk about a momentum-driven market.
Peloton’s CEO falling off the bike. Peloton CEO John Foley and roughly 2,800 other Peloton employees are being fired. Funnily enough, markets will view this as a positive as the board can now hire a CEO focused on selling Peloton. Amazon and Nike are rumored suitors for the company. Still hard to imagine paying $12B+ for a failing hardware business so dip buyers beware!
Tale of Two Advertisers. Earnings results from Google, Snapchat, Amazon, and Facebook show a tale of two advertisers with Google, Snapchat, and Amazon ad businesses doing well while Facebook faltered. iOS changes are being blamed at Facebook while the shift in budget may be benefiting alternatives like Snapchat and Google search. As we wrote earlier in the week, this dip may be a good buying opportunity for Facebook. Given the uncertainty, Facebook management is likely setting expectations low so we expect better performance than guided for Q1.
Let’s go on a Cruise. GM subsidiary Cruise is opening its driverless robotaxi’s to the public in San Francisco. There is a public waitlist on the Cruise website if you live in San Francisco. Cruise seems to be ahead of the pack when it comes to driverless and putting your product in the hands of the public shows extreme confidence. There is a case for Cruise to be worth more than the entire market cap of GM if it were a private company. It may take some time to unlock the value but we think GM is a good play on EVs and a self-driving future.
Fin-tech Apocalypse. Paypal reported very disappointing earnings and the stock dipped more than 20%. Fin-tech stocks have been getting absolutely destroyed with most names down 50-60% from peaks. Major issues around demand post lockdown, and how some of these fin-tech companies will respond to increasing rates and inflation. Traditional finance companies respond positively to higher rates but PayPal blamed inflation for its poor performance. Do investors actually know how these fin-tech business models will work as the Fed increases rates?
Bonus Chart of the Week
Wage increases are happening alongside record low unemployment and high job growth. Seems like companies are upping their game to retain workers during the “great resignation”. Hope you TL:DR; readers are able to capitalize on a hot labor market.