Weekly TLDR - Stocks Down, Airfares Up

In this week’s TLDR we talk about Elon’s attempt at getting a TWTR discount, Disney lapping Netflix, and a hedge fund manager’s regrettable Terra Luna tattoo.

In this week’s TLDR we talk about Elon’s attempt at getting a TWTR discount, Disney lapping Netflix, and a hedge fund manager’s regrettable Terra Luna tattoo.

Chart of the Week

The market is done and the pandemic is not yet over but airfare prices are now above pre-pandemic levels. One part of this is airlines needing to pass through higher costs for fuel to consumers and another part is a return of business and recreational travel. After being stuck inside for 2+ years, leisure travel is back with a vengeance with vacations and wedding travel heading into peak season for summer and fall. This could be a decent setup for airline and accommodation stocks in the second half of 2022.

Stock Market TLDR

Elon Looking to Get More Juice From Twitter Deal

The Short:  Elon tweeted that the $44 billion deal to acquire Twitter is temporarily on hold as he is investigating how many real users Twitter has. While DAU/MAU numbers are very important to the health of the business, we can’t help but think that Elon is looking to powerplay his way into a discount on his acquisition price.

More TLDR: Tech stocks have been hammered since Elon announced his acquisition, with Tesla down more than 30%. Since Elon is looking to fund much of his acquisition through TSLA shares, he either needs to put more shares up as collateral or find alternative funding. Putting a pause into the transaction will either give Elon some leverage to get a discount or give him enough time to find other funding sources. Based on the analysis we have seen of the acquisition agreement, it seems hard for Elon to drop the acquisition altogether and a discount is probably the best that he can get.

Disney+ Adds Subscribers, Stark Contrast to Netflix

The Short: Disney+ added 7.9 million subscribers in Q1. This compares to a 200K subscriber loss by Netflix. If investors were thinking that weak subscriber numbers were due to industry wide factors like online time shrinking as more places reopen, think again.

More TLDR: With Netflix thinking about prioritizing business goals over user experience through tackling password sharing and adding advertisements, Disney+ is in position to gain many more subscribers. Disney has also been able to increase content efficiency through its highly valuable Marvel IP which is churning out hit after hit. The future looks dark for Netflix and mobile gaming does not seem like a viable way out.

Instacart Files for IPO

The Short: Despite the recent stock market nose-dive, Instacart is going forward with an IPO. Users for Instacart saw incredible growth during the pandemic but its growth is likely tapering off as the world re-opens.

More TLDR: Filing for an IPO right now seems incredibly risky from both a market timing perspective as well as for their growth story. Our take is that with rising wages, rising energy costs, and increasing competition, Instacart needs to raise the money to continue investing in its business. With the VC environment drying up, the public capital markets may be Instacart’s only way out to fund a very labor and capital intensive business model.

Retail Spending Still Strong

The Short: Despite inflation warning lights flashing everywhere, retail spending remains strong with both Walmart and Home Depot reporting revenue above expectations for Q1.

More TLDR: Unemployment remains low and pent up demand from pandemic shutdowns seems to be setting up a strong second half of the year for retail spending. If you look back to the 2000 “dot com bubble”, retail spending and unemployment remained strong until mid-2001. The economic impact of that bubble was actually a pretty soft landing despite a harsher stock market reaction. Could we be setting up for something similar with risky assets crashing despite strong underlying economic signals around employment and consumer spending?

Crypto TLDR

High profile hedge fund manager Mike Novogratz’s regretful Terra Luna tattoo

The Short: Mike Novogratz of Galaxy Digital ($3.1 billion in AUM back in September last year), tweeted about getting a Luna tattoo if Luna breaks $100. And Luna did so he got a Terra Luna tattoo. Oof.

More TLDR: With Terra Luna’s recent devastating collapse in just a few days, this was probably a super regretful tattoo. Thankfully, the tattoo is ambiguous enough to give Novogratz plausible deniability. Novogratz, a staunch crypto advocate and one of the first hedge managers to invest in crypto, recently released a Galaxy Digital shareholder letter sharing his thoughts on the Terra Luna collapse. The firm participated in a $25 million funding round in Q4 2020. In the letter, Novogratz explained their investment thesis but also admitted the mistake. As for the tattoo, he wrote, "My tattoo will be a constant reminder that venture investing requires humility".

South Korea is investigating Terra Luna by reviving “Grim Reaper” financial crimes unit

The Short: The founder of Terra Luna, Do Kwon, is being investigated by a South Korean specialized financial crimes unit for the collapse of Terra Luna. The unit will investigate, among other things, the methods in which the project attracted prospective investors.

More TLDR: The group investigating Do Kwon has a reputation for their accuracy and clinical approach, earning them the nickname of “Grim Reaper”. The unit disbanded two years ago but is now being brought back into operation. Separately, the South Korean government is also charging Do Kwon with a hefty tax bill ($78 million), and believe that Terra Luna’s recent relocation to Singapore was for tax evasion purposes. The South Korean government seems to be pulling no stops to bring Do Kwon into justice.

Gensler tells Congress that the SEC is understaffed for crypto

The Short: SEC chair Gary Gensler told Congress that the SEC is understaffed to regulate crypto. This is no surprise given the bureaucratic slowness of the SEC and how incredibly fast the crypto space moves.

More TLDR: This admission comes on the heels of Terra Luna’s collapse, which has highlighted how desperately the crypto space needs more oversight. Gensler is using the fallout of the collapse to pitch Congress for more budget for the SEC. He didn’t mention Terra Luna by name but did say: “There was one crypto complex that went from like 50 billion dollars of value to near-zero just in the last three weeks. I mean these are highly speculative, volatile, and I dare say, the public is not protected.”

Ethereum’s main testnet will hold demo proof-of-stake merge in early June

The Short: Ethereum’s main public testnet Ropsten is set to go through a test run of the proof-of-stake merge in early June. This is a big step in the process to upgrade Ethereum to a proof-of-stake consensus algorithm from proof-of-work.

More TLDR: The proof-of-stake merge test will happen in two parts. The first part involves creating a genesis version of the consensus layer and will happen on May 30th while the actual test merge will take place on June 8th. If successful, two other public testnets will undergo the merge before the mainnet will go through the merge as well, completing the process of turning Ethereum into a proof-of-stake network. Once complete, it’ll alleviate many concerns of Ethereum’s high environmental impact and low scalability.