Closing Thoughts for the week - 2

The following write-up reflects only the authors opinions and should not be taken as investment advice. The piece is solely meant to be read for it’s entertainment value. Note, most of this post was written on wednesday before the massive crashes in the weed stocks had taken place. The author may own, buy and sell equities mentioned in this post.

(5 minute read)

$SHOP $TWLO

Some companies win no matter what because they support the infrastructure that the tech economy is built on. We saw that this week following $TWLO earnings. $SHOP benefited from the tremendeous growth in ecommerce and their vast partnerships. The recent partnership with Tiktok, Pinterest and Instagram speaks to the strength that Shopify has. Shopify doesn’t need social media as much as social media needs Shopify. It’s a remarkable company and it’s no wonder that Ark Invest keeps buying. I bought more this week and I am keeping it as a core position. Maximillian Friedrich - Ark Invest fintech analyst wrote a great thread on Twitter about how the Shop app is going to enable Shopify to move even further towards becoming a platform (and,i in my own view, eventually unseating Amazon for the eCommerce throne.)

“Twilio has nearly a quarter-million customers that are, on average, spending ~ 40% more each year on its APIs.” -Ryan Reeves

Following their stellar earnings report Twilio did an upsized offering of $1.54B in shares. I’m reading that bloomberg is reporting pricing at $425 each vs. yesterday's close of $443.49. Minimal dilution at this valuation, around 2%. And the cash goes on the balance sheet. I added some shares.

SPAC mania continues
My best performing stock in the past month - bar none - has been $BFLY a recent SPAC, used to be LGVW. I like the company, and they recently updated the market on their 2020 earnings, which showed 65% growth. No doubt a solid number. But the stock has rallied all the way to 26 closing in on a 6B valuation. Thats more than 110 times trailing sales. Even the most promising medical device companies of the past, $SWAV comes to mind, never even got close to such valuations. It’s clear that SPACs are getting crazy premium valuations over regular IPO’s. Hot retail money is pouring in causing shares to rise way above their fair values. When the tide pulls back, I expect some of these valuations to come down hard. Even $BFLY could come down, if I owned a substantial position I would be selling into the strength. I’ve already trimmed my position once and expect to hold the rest long term.

$CCIV

Lucid motors CCIV - rumors has it, is trading at around a 68B valuation on day one. This doesn’t seem to have any basis in reality. Lucid could generate 900m in revenue in 2021 on 6000 lucid Airs. Putting the 2021x valuation at 75x sales which seems extremely high for a car company. Does lucid deserve a 4.5x premium to tesla (which is valuaed as a tech stock already)? I would say no.

$ARCHER Spac

Archer is going public via spac and has pinoeered the 10 year out prediction. They haven’t manufactured or delivered any aircraft to their customers. Projecting an absurd far out extremely optimistic revenue target will allow them to come public at a very high valuation, and line the pockets of the management. Management will become instant billionaires and be set for life. Fast forward to 2030. Archer might not even have a fraction of projected revenue, the future is uncertain a lot can happen in 9 years.

$FSLY

Not very impressed with the fastly earnings. 25% implied growth if we remove the Signal Sciences revneue from the equation doesn’t get me up in arms. Some very positive updates on Compute@edge though. I wish the valuation was lower. The 2020 run was somewhat unjustified given the mediocre revenue growth. Fastly had massive tailwinds from the covid-19 pandemic yet only managed to grow 45%. A far cry from Zooms 355% or Twilios 65%. Different businesses, sure. But when you realize that Twilio trades at a discount to Fastly. It makes sense that investors wanted to see stronger numbers from the company. The product that investors are still putting their hopes in is Compute@edge which has been in beta for years. It has recently gone into limited avaiability mode. A start contrast to Cloudflare which has built up an entire ecosystem around their nascent workers platform. Both are leaders make no mistake, Fastly is a great company with a bright future. But I know which one I am betting on.

$PLTR

Palantir had their lock up expiration, I’ve been sceptical of Palantir stock in the past. My scepticism mainly stemmed from me not being able to understand how good the product actually was. Their recent Demo Day helped a lot in showcasing what the product actually looked like, and how it worked to people like me who have never had a chance to work with it. I’ve made Palantir a core position of mine. I think this is a company that is going to grow for decades to come, their runway in the governmental sector should not be underestimated and I expect the predictability of their revenues to be extremely stable. The backlog visibility and constant announcement of new contracts also gives me hope in this being a “set it and forget it” investment that’s going to be very easy to own. The extreme volatility will most likely stick around for a while, but I expect it to subside over time. The main competitor palantir has is consultancies such as Deloitte, which build custom solutions for customers. Palantir forward engineers are sort of like consultants, they help deploy Palantir at customers and ensure their long term success. I think Palantir has the right approach and I view the competition from Deloitte and the likes as very manageble.

$U

The excellent interview with Unity CFO Kim Jabal just added to my confidence that Unity is a great long term investment. I recommend that anyone who is interested in Unity to go and read it.

Lockup expirations

Both of these companies came under pressure due to their respective lockup expirations. Palantir surged 14% on the day (as of writing), while Unity dropped 3%. You can’t predict what a stock will do on it’s lockup expiration day - and personally I think it’s just noise to the long term investor.

That wraps up my closing thoughts for the week. Hope you enjoyed reading. See you next week!