Splunk (SPLK) Q4 2020 Earnings

Splunk (SPLK) Earnings

Disappointing Q3 earnings hit the Splunk (SPLK) stock hard after the revenue missed expectations and YoY revenue growth. The revenue miss was attributed to a few “larger deals, high-seven-figure, eight-figure deals” not being closed in the expected quarter.

While a fall in revenue growth can quickly damper a high growth, high multiple stock, as it did last earnings with Splunk, we expect the disappointing result of last quarter to a be a onetime blip. At current levels, this seems like a good buying opportunity and with a favorable the risk/reward.

What Does Splunk Do?

Splunk (SPLK) positions itself as cloud “data-to-everything” platform. Splunk is a business to business software, used by IT, DevOps, Developers, Data Scientists, Security Ops amongst others to collect, store, visualize and report on data from various different systems. Splunk is well known and well respected in the industry and is a leader in their space.

Domino’s (DPZ) is a long time Splunk customer and is a company that has focused on becoming more of a tech company than just a restaurant chain over the last decade. Domino’s has a popular in-house pizza ordering and delivering system, and while we don’t know exactly what they use Splunk for, it’s not unreasonable to assume they are sending all of their order, delivery, franchise, server data to Splunk. Having all of these different data sources in aggregate may help the company identify abnormalities in their operations and be able to track and report on analytics such as changes in delivery times, outages, supply chain issues, and identify seasonal, geographical patterns in usage.

Splunk can also similarly track data reported to cyber security, and help customers identify security abnormalities and detect threats via their Enterprise Security software.

Splunk Screenshot

SPLK Valuation

Comparing Splunk’s price to sales ratio to two other cloud, b2b cloud software companies, you can see SPLK has long been trading at a discount to MongoDB(MDB) and Elastics(ESTC), and has fallen further over the last several month. It’s now trading at just over 10x sales, which is on the lower end in the cloud software space — and likely due to the lower revenue growth rate, especially given last quarter’s results.

While all three are not yet profitable, Splunk also has had the largest EBITDA margin, a company’s profit as a percentage of its revenue, until just the previous earnings from ESTC, which is now at -19.77% vs SPLK’s -25.89 vs MDB’s -32.12%. Splunk was also just recently over taken in market cap size by MDB which stands at 23.26 billion vs SPLK’s 23.12 billion vs ESTC 12.05.

SPLK P/S vs Peers

Bottom Line

Business to business SaaS software sales which rely on several large deals a quarter to lock in new revenue, often have a difficult time predicting exactly which quarter a new prospect will sign on. When a larger company signs on to use a new software across the enterprise there is usually a need for a large effort to implement and roll out the new software and is usually a substantial cost for the organizations which need to be approved, planned and reviewed by legal before signing a contract. The larger the customer the more red-tape and process may exist, delaying the process.

Given this, we would expect that several of those expected Q3 deals moved into Q4, and we think it’s very likely they will beat the conservative expectations analysts set for this quarter. The stock is currently trading at an almost 35% discount from its 52 week high in September 2020 of $223.59 and if the Splunk management team can deliver and help push the revenue growth rated to previous levels we see plenty of upside ahead of Splunk. We also like that Splunk has very high institutional ownership, currently over 93%, however insider have less than 1% ownership which some mays see as a slight concern.

Overall, given Splunk’s solid product, wide adoption, and previous solid revenue growth we think the previous earnings report was likely an aberration and we see plenty of upside ahead.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long SPLK stock and have long and short puts and calls in SPLK.

Sea Limited (Q4 2020) Earnings Preview

Sea Limited Earnings

Sea Limited (SE) is reporting 2020 Q4 earnings before the bell March 2nd, 2021. What can we expect?

As of this writing Sea Limited’s market cap is just around $120 billion, with a year over year revenue growth of over 110%. The stock hit an all time high, but is sitting below those levels after growth stocks were under pressure the past couple of weeks.

For this quarter, SE’s consensus EPS estimate is -$0.75 and the consensus revenue estimate is $1.5 billion.

Sea Limited(SE) Logo

News Since Last Quarter

At least three analysts have upgraded SE, including Credit Suisse which sets a $285 price target. While Goldman Sachs raised the price target to $300.

Sea Limited has received their banking license in Singapore in December and Reuters reported in February that Sea has also acquired an Indonesian lender to transform it into a digital bank.

Sea Limited has begun more aggressively expanding into Brazil, and if successful is reportedly considering expanding further into South America. Looking at Shopee’s Brazilian site traffic, we see it’s increased 3x within just three months. According to Alexa ranking, it’s now ranked the 51st most popular site in Brazil.

Sea Limited(SE) Brazil Site Rankings

What to Expect

SE has rarely beaten EPS estimates and usually falls short. However, in the last year it’s consistently beaten revenue estimates.

We expect this trend to continue, and aren’t worried about EPS misses since the company is heavily investing in its growth and has done so successfully. As long as the revenue growth is continuing and guidance remains strong, regardless of EPS numbers, are outlook remains bullish on SE. If the stock doesn’t react well based on an EPS miss, as long as strong revenue and guidance remain intact we would consider it a good buying opportunity.

Update- SE Reports Results

March 2, 2021 - 6:30 am
Sea Limited (NYSE: SE) (“Sea” or the “Company”) today announced its financial results for the fourth quarter and full year ended December 31, 2020.

Fourth Quarter 2020 Highlights

Group

Total GAAP revenue was US$1.6 billion, up 101.6% year-on-year.
Total gross profit was US$533.7 million, up 101.5% year-on-year.
Total adjusted EBITDA1 was US$48.7 million compared to US$(104.9) million for the fourth quarter of 2019.

Digital Entertainment

Bookings2 were US$1.0 billion, up 111.1% year-on-year.
Adjusted EBITDA1 was US$663.5 million, up 149.1% year-on-year.
Adjusted EBITDA represented 65.5% of bookings for the fourth quarter of 2020, compared to 55.5% for the fourth quarter of 2019.
GAAP revenue was US$693.4 million, up 71.6% year-on-year.
Quarterly active users (“QAUs”) reached 610.6 million, an increase of 72.1% year-on-year.
Quarterly paying users grew by 119.5% year-on-year to 73.1 million, and represented 12.0% of QAUs for the fourth quarter compared to 9.4% for the same period in 2019.
Average bookings per user were US$1.7, compared to US$1.4 for the fourth quarter of 2019.
Our self-developed global hit game, Free Fire, was the most downloaded mobile game globally for 2020, according to App Annie3, maintaining this leading position for a second consecutive year.
Free Fire continued to be the highest grossing mobile game in Latin America and in Southeast Asia for the fourth quarter and for the full year of 2020, according to App Annie3. Free Fire has maintained this leading position for the past six consecutive quarters.
Free Fire was also the highest grossing mobile game in India for the fourth quarter and for the full year of 2020, according to App Annie3.
Free Fire related content recorded over 72 billion view counts across YouTube globally in 2020, making Free Fire the most viewed mobile-only video game globally on YouTube for both 2019 and 2020. It was also the third most viewed among all video games on YouTube in 2020.
Our esports and community-building efforts continued to attract significant followings in the fourth quarter. Free Fire esports tournaments hosted during the quarter have accumulated over 170 million online views to date.

E-commerce

GAAP revenue was US$842.2 million, up 178.3% year-on-year.
GAAP revenue included US$627.6 million of GAAP marketplace revenue4, up 175.4% year-on-year, and US$214.6 million of GAAP product revenue5, up 187.1% year-on-year.
Gross orders totaled 1.0 billion, an increase of 134.6% year-on-year.
Gross merchandise value (“GMV”) was US$11.9 billion, an increase of 112.5% year-on-year.
Adjusted EBITDA1 was US$(427.5) million compared to US$(306.2) million for the fourth quarter of 2019. Adjusted EBITDA loss per order decreased by 41.4% year-on-year to US$0.41, compared to US$0.70 for the fourth quarter of 2019.
In Indonesia, where Shopee is the largest e-commerce platform, it registered over 430 million orders for the market in the fourth quarter, or a daily average of around 4.7 million orders, an increase of over 128% year-on-year. Shopee also ranked first in Indonesia by average monthly active users, total time spent in app on Android, and downloads, in the Shopping category for the fourth quarter and for the full year of 2020, according to App Annie3.
Both in Southeast Asia and in Taiwan, Shopee ranked first in the Shopping category by average monthly active users, total time spent in app on Android, and downloads, for the fourth quarter and for the full year of 2020, according to App Annie3.
Shopee was also the third most downloaded app globally in the Shopping category for the full year of 2020, according to App Annie3.
Shopee is building ever-stronger brand affinity with our communities. Shopee ranked first in YouGov’s “Best APAC Buzz Rankings 2020” and ranked eighth in YouGov’s “Best Global Brands 2020”. Shopee represents one of the only two e-commerce brands in YouGov’s top 10 global brand rankings.

Full Year 2020 Highlights

Group

Total GAAP revenue was US$4.4 billion, up 101.1% year-on-year.
Total gross profit was US$1.3 billion, up 123.0% year-on-year.
Total adjusted EBITDA1 was US$107.0 million compared to US$(178.6) million for the full year of 2019.

Digital Entertainment

Bookings2 were US$3.2 billion, up 80.3% year-on-year, exceeding our recently raised full-year guidance for 2020.
Adjusted EBITDA1 was US$2.0 billion, up 94.0% year-on-year.
Adjusted EBITDA represented 62.2% of bookings for the full year of 2020, compared to 57.8% for the full year of 2019.
GAAP revenue was US$2.0 billion, up 77.5% year-on-year.

E-commerce

GAAP revenue was US$2.2 billion, up 159.8% year-on-year.
GAAP revenue included US$1.6 billion of GAAP marketplace revenue4, up 155.2% year-on-year, and US$575.4 million of GAAP product revenue5, up 173.1% year-on-year.
GAAP revenue plus sales incentives net-off was US$2.5 billion, exceeding our recently raised full-year guidance for 2020.
Gross orders totaled 2.8 billion, an increase of 132.8% year-on-year.
Gross merchandise value (“GMV”) was US$35.4 billion, an increase of 101.1% year-on-year.
Adjusted EBITDA1 was US$(1.3) billion compared to US$(1.0) billion for the full year of 2019. Adjusted EBITDA loss per order decreased by 46.5% year-on-year to US$0.46, compared to US$0.86 for the full year of 2019.

Digital Financial Services Update

In the fourth quarter, we continued to see strong growth in the adoption of SeaMoney’s offerings. Our mobile wallet total payment volume exceeded US$2.9 billion for the quarter and US$7.8 billion for the full year of 2020. Moreover, quarterly paying users for our mobile wallet services surpassed 23.2 million in the fourth quarter with monthly paying users in Indonesia surpassing 10 million during the quarter.

We also continued to expand our suite of online and offline third-party use cases and partnerships. We recently expanded our partnership with Google to offer our mobile wallet as a payment option for the Google Play Store in Indonesia, following our partnership with Google in Thailand from March 2020.

Other Updates

Sea has acquired 100% of Composite Capital Management (“Composite”), a Hong Kong-licensed global investment management firm. Composite was founded and is led by David Ma. Its team has a demonstrated track record of successful, long-term investing, and a deep understanding of industry trends and relevant sectors globally.

Concurrent with this acquisition, we are establishing Sea Capital, a platform to manage Sea’s overall investment efforts. David Ma will serve as the Chief Investment Officer of Sea Capital and will report directly to Sea’s Chairman and Group Chief Executive Officer, Forrest Li. Sea Capital will focus on partnering with entrepreneurs using technology to better serve consumers and small businesses. Through Sea Capital, we intend to invest into and support the growth of our broader ecosystem to create value for our users, business partners, and communities.


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long SE stock and have long and short puts in SE.

Lucid Motors Merging with Churchill Capital IV (CCIV)

Lucid Motors - What We Know

There EV(electric vehicle) maker Lucid Motors Inc. is in talks to go public through a merger with one Churchill Capital IV (CCIV), one of Michael Klein’s special purpose acquisition companies (SPACs), according to several reports today. What is a SPAC?

Lucid Air Source: Lucid Motors

While the Lucid Air vehicle is not yet available to purchase, it is planned to be available in the US later in 2021 and should cost below $80k. The company has spent a good amount of money on TV advertisements recently, and have been raising consumer awareness. It’s likely the largest potential Tesla(TSLA) competitor that has not gone public. Lucid is funded by the Saudi Arabia sovereign wealth fund.

The deal could be valued at up to $15 billion. According to reports the talks are still ongoing, and there is no guarantee yet the trade will go through.

Our Thoughts

We don’t know yet if this deal will actually close or is premature - there have been plenty of SPACs that move up sharply on some leaked news or rumors but quickly fall back down when it doesn’t come to fruition. And while we don’t have much information to value this deal, or Lucid as a business, we do know there has been an EV mania in the market. Even EV companies that don’t have a planned product for years, or make industrial components that retail investors don’t fully understand have received highly premium valuations. Lucid Air however, actually has physical cars which should be released within a year, with a very appealing design and cars made for consumers. So if CCIV does indeed merge with Lucid, we would expect a lot of retail mania here drive up the price and think this may be an interesting opportunity for a short term trade. However, since the deal may fall apart and there has been no formal announcements we would start with only a modest common shares position, or buy the warrants - which is similar to buying a call option with a strike of $11.50. What is a SPAC warrant?

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We do not have a position in CCIV but may open one up within 24 hours.

Alibaba (BABA) Buying Opportunity?

BABA Stock Down on Government Antitrust Investigation

Alibaba - That's What Xi Said

After Jack Ma of Alibaba (BABA) offered some critique of Chinese regulators, the government quickly suspended Ma’s other venture’s, Ant Group’s, highly anticipated IPO. The stock began moving lower on this news from it’s all-time highs in October of 319. Then on December 24th, it was announced that the Chinese government would open up an antitrust investigation into Alibaba which further put pressure on the stock with it dropping over 13% in one day. It seems to us, this is clearly intent to publicly humiliate Jack Ma by Chinese President Xi and the Chinese Communist Party. The government wants to remind him that even though he’s a wildly successful tech entrepreneur, he is not beyond the system and establishment, and want him to bow down to them and their oppressive regime.

While Alibaba may need to pay some fines and face some public humiliation, we can’t envision these event jeopardizing the very successful business or ultimately penalizing its shareholders once the dust settles. In the most recent quarter Alibaba posted 30% YoY revenue growth, 60% YoY cloud computing revenue growth. We were especially pleased on the cloud computing number since this is a rapidly expanding industry and can become a successful revenue driving cash cow SaS line of business for Alibaba, supplementing the company’s e-commerce revenue.

With China’s goal of expanding their tech presence, continuing driving their economy to global expansion, it becomes almost unthinkable that this was more than a way to put Alibaba and Ma on alert and to remind them to behave as the communist party expects. There has also been some additional pressure on Chinese equities with the Trump administration, but we think with the new Biden administration there will be less foreign policy surprises and expect to see Chinese equities to fair well, or at least not be further hindered, under the next US administration. All in all, we think this is a buying opportunity.

The Trade

Put Credit Spread

  • Sell 1/29 $220 Put
  • Buy 1/29 $215 Put

Max Gain/Credit: $240
Max Risk: $260

Selling a put is giving the buyer of the put the right to sell you 100 shares at the strike price. In this case $220. But since this is a spread, we’re hedging ourselves quite a bit. If we were to just sell the $220 put we would receive over $1000 dollars in credit, but if stock went to $100, we would have to buy 100 shares at $220 and we would be down $12,000 (minus the premium we received and keep either way).

However, since it’s a spread, we’re buying a cheaper $215 put, in addition to selling one. The put we buy is $240 dollars less than the put we sell, which is the credit we receive. Entering the spread, limits our credit received, but also greatly reduces our max loss to the width of the strikes ($220-$215) minus the credit we receive $240, which is how we calculate our max loss.

At this time BABA is just a nickel below 222. So as long as BABA stays at this level or goes higher by the expiration date, 1/29, the puts will expire worthless and either way we keep the $240 credit. In fact, if the stock goes down to $220, we still get the full max gain. The breakeven point is the short put spread $220 minus the credit received $2.40, which is $217.4. So we’re in the green as long as BABA stays above $217.4. Anything below $215, and we incur the max loss, $260.

Managing the Trade

We started with a modest width between the strikes, which yield a smaller gain but gives us the chance to roll the spread later if the stock does go below $220. For example, if BABA went to $200, and we were still bullish on the stock, in one transaction we could buy to close our $220 put, and sell to close our $215 put and open up a longer dated spread, with a wider width and collect even more premium - even as the stock moves against us. So in this example, we may be able to then roll the spread into a $205/$195 February or March spread. While this would increase our max risk, we would have a higher probability of success. However, this should only be done if your conviction hasn’t change on the stock.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long BABA stock and net long in options

HEXO Corporation (HEXO) 4-1 Stock Split

Is HEXO a good investment?

Hexo Corp (HEXO) today held a reverse stock split to avoid being delisted with its stock price hovering below one dollar for 30 consecutive trading days. Hexo was initially planning an 8-1 share price, but management updated it to a 4-1 split because of their confidence in the company. Reverse stock splits are rarely seen as a positive, and can sometimes increase the amount of short position on the stock given the better short risk/reward for higher priced stocks.

The company is currently around half a billion in market cap, is not profitable and is heavily in debt. Even though the company has struggled, the company treats its executives very well. In 2019 the CEO’s annual compensation was around CA$8.8m. According to simplywallstreet research, compensation for CEO’s companies of similar market caps is CA$1m.

Hexo Bulls will point that company has partnered with Molson Coors to produce an adult beverage which may present promising future growth opportunities. While there may be some hope there, this is hardly a competitive advantage as Aphria(APHA) purchased beermaker SweetWater and Tilray(TLRY) has partnered with Anheuser-Busch InBev.

Another huge problem with this company is the wild dilution, which is one of the catalysts that almost got this stock delisted. And while adjusted EBITDA has been improving, the cash flow from operations for the previous year was reported to be over CA$90 million. In addition, the company spent over CA$100 million in capital expenditures and then plowed $10 million in debt service. On top of this, Hexo thought it was a great time to pay over CA$30 million on acquisitions. All this combined, this equated to a cash burn rate of almost CA$250 million on the year. To cover all this expenditure, the company issued even more shares this year, further diluting its shareholders. This year alone, Hexo issued CA$186 million in new shares and also borrows another CA$70 million.

While cannabis may be a promising area for future growth, we are not going anywhere near HEXO. In our opinion, there are much better weed companies for investors to invest it.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We have no long or short position in HEXO and are not planning on opening one.

Are CRISPR stocks the future?

Cathie Wood is the CEO/CIO of ARK Invest, which include the wildly successful and growlingly popular ARKK Innovation ETF and ARKG Genomic Revolutions ETF. In an interview with Bloomberg, Woods recently said: “The biggest upside surprises are going to come from the genomic space, and that’s because the convergence of DNA sequencing, artificial intelligence, and gene therapies are going to cure disease”. This interview helped propel many biotech stocks in the gene therapy space. Today we’re looking at two of our favorite CRISPR stocks:


Editas Medicine (EDIT)

Market Cap: 5.21 billion

Editas Medicine (EDIT) is a CRISPR/Cas9 gene editing company, along with CRSP, NTLA, BEAM. These CRISPR companies are perusing treatments of genetic diseases, by a process which uses a Cas9 protein to find a specific DNA sequence, and then cuts it at that location and inserts new DNA in place. This is of course a very crude summary, but can help provide context on the technology.

Editas has a large pipeline of several potential treatments and applications of its technology. Currently, one is in Phase 1/2 clinical trial and is attempting to target the mutant genes associated with genetic blindness. As of now, there are no cures or effective treatments for this type of blindness. This is also the first time an in-vivo CRISPR treatment has been done as part of a clinical study. The in-vivo CRISPR approach is administered directly delivered into the patient and the gene editing occurs within the person’s body. While ex-vivo, the other method of delivery for these type of treatments, relies on first taking the patients cells, and editing them outside the body, before transplanting them back into the body. If all goes well in trial, Editas will be the clear leader of in-vivo CRISPR treatments.

The company’s pipeline also includes EDIT-301, which targets to treat Sickle Cell Disease. EDIT-201 for the treatment of solid tumor cancers. Editas also has other treatments for both ex-vivo and in-vivo treatments and has partnered with other companies to develop and research these potential treatments.

Editas has secured enough cash to be run through 2023 - but make no mistake, this is a pre-revenue company.

Beam Therapeutics (BEAM)

Market Cap: 5.06 billion

Beam Therapeutics (BEAM) is up 275% since its February 2020 IPO and has more than doubled over the last month.

Beam is a very promising biotech company developing precision genetic editing medicines, utilizing the very hot CRSPR technology. The company was founded by David Liu, a pioneer in the field, who previously founded Editas(EDIT) - another leader of the CRISPR biotech space. Beam stands out in this field by its use of base editing which can target single edits in DNA with great precision with chemical reactions. Other companies in the field like CRSP, EDIT, NTLA use genetic editing which make double-stranded cuts in the DNA, and while that technology is farther ahead, has technical issues that still need to be overcome – primarily unintended cuts in the DNA which may have unintended consequences like cancer. But due to the greater efficiency in base editing technology, it generally has more precision and less issues with unwanted DNA changes to overcome. Though these issues are not completely unheard of with base editing either and more work is needed especially since this is a newer technology.

While there are many diseases that BEAM could use this technology to potentially address, the most immediate one is sickle cell anemia which is caused by a point mutation, exactly what base editing could one day treat more efficiently than the more involved gene editing approach. In fact, BEAM is currently pursuing two different base editing approaches to treat red blood cell disorders.

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long BEAM and EDIT stock and options.

Visa vs Mastercard Stock


Is Visa or Mastercard a better stock

Digital Payment is the Future

Both Mastercard (MA) and Visa (V) are solid portfolio bedrock stocks to have in a diversified portfolio. For growth investors, they may somewhat reduce the volatility of a more aggrieve portfolio, yet still have produce returns which have been beating the S&P for several years.

The number one driver is the growth in digital payments, made both in physical retail locations and especially the growing e-commerce space. And the global opportunity is even larger when considering the global economy, especially emerging markets. Globally, electronic payments have just a couple of years ago eclipsed cash payments.

In 2020, reduced travel, especially business travel, has been somewhat of a headwind for the industry, but increased e-commerce transactions has helped the revenue bounce back from the lows, and finished the year with a year over year increase 1-5% in transactions.

Both Visa and MasterCard make most of its revenue from service and data processing fees. Unlike American Express and Discover, Visa and Mastercard have almost no consumer debt exposure.

Bottom Line

Visa is the larger and more dominant player in the space, and Mastercard is the number two player - think Coke and Pepsi. Both are growing domestically and internationally, and in some countries one has a larger footprint than the other. Visa has a slightly larger dividend, but Mastercard has been growing faster the past several years. While both are solid stocks, we like Mastercard a bit better because of the growth and continued larger growth opportunities.

Mastercard (MA) Visa (V)
Market Cap $326.41 billion $401.88 billion
Annual Revenue $16.88 billion $22.98 billion
EPS $7.77 $5.44
Forward P/E Ratio 40.27 35.50
Price / Sales 19.33 17.49
Dividend Yield 0.49% 0.62%

Is Visa or Mastercard a better stock

This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long MA stock

DermTech (DMTK) - High Upside/High Risk Stock


Overview

DermTech is attempting to reduce the need for costly, invasive and inconvenient methods currently required to detect skin cancer. The company uses a patch, resembling a circular band-aid, which patients can place on themselves and then mail to DermTech’s laboratory where the subsequent testing is done on the collected sample. The laboratory uses molecular testing on skin cell samples, to check for two genes associated with melanoma.

DermTech (DMTK) Stock Price

Why it Moved

On December 17th, 2020 the topline results of Dermtech’s study was announced. These results confirmed the high negative predictive value of (Pigmented Lesion Assay) PLA at 99% and found no significant adverse outcomes after long-term follow-up of PLA negative tests.

The stock price moved up 5.85% today, and 27.55% in afterhours on the positive results of the study.

Opportunity

Early detection can be life-saving for some cancer patients, and with the added convenience of in home detection, and potentially lower costs DermTech could continue to garner support from both the clinical and insurance side. In November, DermTeck announced it has entered an agreement with Blue Cross Blue Shield of Illinois.

While this is still an early stage pre-revenue company and carries a lot of risk - it also has a lot of potential upside, with a market cap around 300 million. And as company has just recently received approved and launching to market, there will likely be more news and continued catalysts for the stock to make waves in the coming months. We see a large market for DermTeck especially with the rapidly aging population. It is estimated that 1 in 5 adults will develop skin cancer by age 70. And even with younger adults, the use of tanning beds in recent decades has increased Melanoma rates, which is the deadliest form of skin cancer.


This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclaimer: We are long DMTK June 2020 calls

Our Watchlist - Trading Winners and Losers

Thursday December 16th, 2020


Biggest Gainers

Tilray (TLRY)

The Canadian Cannabis company reported a merger with Aphria (APHA), another Canadian producer and supplier of primarily medical marijuana. While this may help Tilray in the longer term, it’s been a troubled stock with a run up to around $150 in 2018 and lows under $5 as recently as this September. The stock has suffered from dilution, and the company has a poor balance sheet. Both stocks have benefited from the run up of cannabis stocks, and Tilray was up on the news while Aphria was mostly flat on the day.

Trade
If we owned the stock, we would take our profits. The stock has and will be volatile, and while this does periodically present some good options plays, we would not be long this stock. If investors are looking to get into this space, especially on the momentum of the future Democratic Presidential administration and a steady stream of states legalizing or decriminalizing marijuana, we think there are better weed stocks out there. One of our favorites is GrowGeneration (GRWG). It’s a grower supplier, and can be thought of as the picks and shovel of the industry, with a great balance sheet and impressive revenue growth - up more than 11.50% today!

Jumia (JMIA)

The African e-commerce and payment platform has had a great month, up over 160% on the month, and has begun exceeding its previous 2020 highs. We are long term bullish on Jumia and while there have been some mixed results in recent in quarterly earnings, it looks like the company is headed in the right direction and gross profit was up 22% and the operating loss has been nearly cut in half from the previous year. According to The Council on Foreign Relations internet access is growing much more rapidly in Africa than anywhere else in the world. PWC projects that six of the world’s 10 fastest-growing economies are in Africa; for the period 2014-2050. We think given time, and proper execution it’s not infeasible to think JMIA could grow into what MercadoLibre (MELI) is in South America or Sea Limited (SE) is in Southeast Asia. With a market cap just over 3 billion, given enough time, and some luck, we see a lot of potential long term upside.

Trade
We are bullish on JMIA and long the stock. It’s just broke past its previous 2020 $38 high and if it can close above 40 may begin continue moving up in the short term. It is important to note, it’s been an incredibly volatile stock, and we’ve continued to add to the position on pullbacks. Starting just a small position here may be prudent, and adding more if it dips to the mid/low 30s. Barring any broader market pullbacks this seems to be forming a base at around 30-32 over the past few weeks

Gravity (GRVY)

Gravity is a Korean gaming company, was up over 7% today and reached all-time highs. This is a stock that often flies under the radar, but we think is one investors may want to keep an eye out for. The company reported 76% growth last quarter, and had had consistently high triple digit revenue growth in previous years.
Ragnarok is the company’s wildly successful massive multiplayer game and while the company is Korean based, the game is popular throughout several regions of Asia. Despite its massive run up, it still has a market cap of just over 1.3 billion - which based on its revenue growth and expense ratios is considerably cheaper than its peers. As the company grows and garners analyst coverage and more investor attention we think this stock may have a lot more upside. While some investors may be wary of investing in a company with focus primarily on a single game franchise, the type of massive multiplayer game has proven to be sticky for years, or even decades. This is especially true when paired with a growing audience base as GRVY has seen, since new product versions, upgrades and subscriptions offer continued revenue for years to come.

Trade
The stock has been consolidating in the 170-185 range the past few weeks, and is beginning to break out. Starting a small position may be prudent, but volatility is high with a small cap stock like this so there may be a better time to enter the stock. However, with new releases and potential to gain more mainstream notice from Wall Street with the recent growth, this may continue breaking out and get away for overly cautious investors.

Biggest Losers

Beam Therapeutics (BEAM)

Beam Therapeutics is up 200% since its February 2020 IPO and has almost doubled since the start of November - so it’s hard to call this stock a loser. The pullback here is mostly a result of some healthy profit taking.
Beam is a very promising biotech company developing precision genetic editing medicines, utilizing the very hot CRSPR technology. The company was founded by David Liu, a pioneer in the field, who previously founded Editas(EDIT) - another leader of the CRISPR biotech space. Beam stands out in this field by its use of base editing which can target single edits in DNA with great precision with chemical reactions. Other companies in the field like CRSP, EDIT, NTLA use genetic editing which make double-stranded cuts in the DNA, and while that technology is farther ahead, has technical issues that still need to be overcome – primarily unintended cuts in the DNA which may have unintended consequences like cancer. But due to the greater efficiency in base editing technology, it generally has more precision and less issues with unwanted DNA changes to overcome. Though these issues are not completely unheard of with base editing either and more work is needed especially since this is a newer technology.
While there are many diseases that BEAM could use this technology to potentially address, the most immediate one is sickle cell anemia which is caused by a point mutation, exactly what base editing could one day treat more efficiently than the more involved gene editing approach. In fact, BEAM is currently pursuing two different base editing approaches to treat red blood cell disorders.

Trade
While biotech companies have run up a lot over the last couple of months, and early stage companies like Beam will be especially volatile in the near term, we do like having at least a small portfolio allocation to a few of these early phase promising companies in this space. Pullbacks like today may present a good opportunity for investors with a long term horizon to begin scaling in to a position or add to an existing one. Investors who want exposure to this exciting field, but want to reduce volatility and single stock risk could consider ARKG. AKRG is ARK Invest’s Genomic revolution ETF which includes BEAM as well as other CRISPR publicly traded companies.

OpenDoor (IPOB,OPEN)

IPOB is Chamath Palihapitiya’s second SPAC which will very likely be merging with OpenDoor. What is a SPAC? His first was Virgin Galactic(SPCE). A shareholder vote scheduled is for Dec. 17 to officially approve the deal. It will then likely begin trading under OPEN as Opendoor Technologies starting on Monday, Dec. 21. Today’s loss was probably mostly attributed to profit taking after a large run up, especially ahead of the merger, historically a volatile time for a SPACs
Opendoor is a leader in the iBuyer home space, which is a business model where a company buys homes directly from sellers, usually online, makes any needed repairs and upgrades and resells them. In a growingly digital economy, with more and more millennial homeowners, with proper execution, it’s not hard to see considerable opportunity for years to come in this space. And with Chamath’s leadership and the company recently announcing the hiring of several seasoned veterans in key leadership roles, we don’t anticipate execution being a major risk.

Trade
We do like Open-door, and the market agrees - this SPAC is up 150%. With the merger happening over the next few days, it’s usually a very volatile time for SPACs . So if investors don’t have a position we don’t think it’s the best time to enter, though that’s based on each investor’s own risk tolerance. We do think growth investors should at least look into this name, and consider entering it on additional future dips. We were in the IPOB SPAC from before the merger announcement, though have trimmed some of our initial position we intended to stay in the name. For a safer alternative, investors may want to look into Chamath’s other pre-merger announcements SPACs: IPOD, IPOE, IPOF. What is a SPAC?



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. We have long positions in all of the six stocks mentioned.

Is Rocket Companies Berkshire Hathaway's Secret Position?

Berkshire Hathaway’s Secret Position

Warren Buffett’s Berkshire Hathaway (BRK.B) released their third quarter 13F regulatory in November. It included a the footnote which read “Confidential information has been omitted from the public Form 13F report and filed separately with the US Securities and Exchange Commission”

This has lead to speculation on what this mystery business that Berkshire is accumulating a position in could be.

This is not the first time Berkshire has had such omissions in their filings, and was seen as recently as 2015 when Berkshire was building a position in Phillips 66.

Berkshire Hathaway and Rocket Companies

What we know

Warren Buffet loves the insurance, banking and lending industry. Up until recently, Berkshire Hathaway has been the largest shareholder of Wells Fargo. Over the past year they’ve been scaling back out of their position as the pandemic took a hard hit on the banking industry - and previous troubles at Wells Fargo, caused an even larger pullback for the bank than many of its peers. One noteworthy aspect of Wells Fargo business is they are the second-largest US home mortgage lender. The largest mortgage lender since 2018, has been Quicken Loans (RKT). Given that Berkshire owns the majority of the national’s largest residential real estate brokerages, HomeServices of America, it would make sense to have a strategic partnership or investment with a large mortgage lender like Rocket.

There are reports from previous years that link Warren Buffett and Dan Gilbert, the co-founder of Quicken Loans, today a subsidiary of Rocket Companies (RKT). A Fortune article from 2016 mentions “an exclusive mortgage-purchasing agreement between Quicken and a subsidiary of Buffett’s conglomerate Berkshire Hathaway (BRK-A)”. In an interview with CNBC, Buffett has said “”I’m an enormous admirer of Dan and what he has accomplished in Quicken Loans”. There have also been talks in previous years of the two partnering up to buy Yahoo. While we don’t have much details on their exact business dealings, there is evidence that there has been at least some level of talks and mutual admiration for years between the two men and their companies.

On November 11th 2020, Jay Farner, the CEO of Rocket Companies in an interview with CNBC’s Jim Cramer mentioned of an upcoming partnership with a “major large financial institution” that would be announced next year. Berkshire Hathaway would certainty fit the bill.

Rocket Companies

Rocket Companies (RKT) was founded in 1985 by Dan Gilbert, Lindsay Gross, Gary Gilbert originally named Rock Financial, later renamed to Quicken Loans. In 1999, Intuit, the makers of Quicken, QuickBooks and Turbotax, bought Rock Financial. A few years later Dan Gilbert and a group of private investors bought back the Quicken Loans subsidiary back from Intuit - but is why Intuit still retains products that share the “Quicken” name.
In 2016 Quicken Loans launched Rocket Mortgage which was the first fully online mortgage lender.
In the summer of 2020, the company was taken public, though the public float include just only a fraction of the overall shares. As of this writing, the market cap is 41.396B



This site references only our opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Disclosure: we are long RKT and BRK.B stock and RKT March $20 calls.