Doc's Daily Commentary
Mind Of Mav
Interesting Opportunities Roundup – Tech Stonks
This week we’re rounding up interesting opportunities to consider. Monday we talked about some crypto moonshots, yesterday we talked about SPAC IPOs + EVs.
Tomorrow we’ll finish the week discussing what emerging trends to play attention to, but today we’re talking stocks.
Specifically, tech stocks.
After all, lots of the cheap capital that has flowed from the Fed has found itself propping up companies focused on innovation. While the blue chips of the DOW have struggled under the very real economic uncertainties of today, tech companies have enjoyed entertaining the possibilities of tomorrow.
It has made tech companies very attractive targets for investors looking to bet on who will come out on top when the cards have been shuffled. As the thinking goes, the future belongs to those who build it.
But, enough grandstanding and lame metaphors. Let’s dive into some potentially interesting opportunities.
Let’s start by looking at how our changing economic situation will accelerate the already strong theme of digital payments.
In particular, I can see that Square (SQ) is set up to dominate loans to small businesses over large banks.
Essentially because of SQ’s payment processing and other things that small businesses depend on, SQ has a LOT of data on them. So when they need to take out a loan SQ knows exactly what kind of risks are involved, and what kind of an interest rate they think is appropriate for that risk. SQ usually charges a lower interest rates then other big banks, and it’s a lot more of a hassle for a small business to go a big bank to take out a loan.
Big businesses on the other hand, who need to borrow millions, or tens of millions of dollars, are still going to be using the traditional banks.
Square also gets revenue from bitcoin trading fees (up 600% YoY) and makes bitcoin usable. If it’s stored in the Cash App, you can use it to pay for anything. This a valuable tool in emerging markets and may get traction in larger countries if bitcoin (made more practical by Cash App) gets more users.
Let’s look at some other categories and tickers.
We’ll definitely see various SaaS winners (DOCU, TWLO, DDOG, AYX, OKTA, etc) continue to gain market share and become the new faces of facilitating the rapidly-changing nature of running business operations. Even still, established giants like Microsoft (MSFT) show that they are not without the ability to innovate (or at least strategically acquire).
Similar to Amazon’s massive profit margin from AWS, Azure will help to bolster Microsoft’s bottom line in a time of rapid digital transformation. Frankly, any company with a leading cloud platform is going to dominate in this market. Building off that, Windows is still far and away the most popular consumer OS (although desktop OS is not the juggernaut it once was with the rise of mobile OS).
What really serves as their long-term success edge is how integrated they have become in enterprise solutions. From having the best enterprise system available on the market (nothing on the Linux side compares), to the Microsoft Office suite used by millions, to Teams which nearly every enterprise is rolling out or has a plan to in the next few years, to acquiring Github.com and releasing an (actually really great) IDE with VS Code, and just continuing to understand and expand the enterprise technology ethos.
Not to mention, they’re in talks to acquire TikTok, so they have a strong focus on capturing a younger market that is digitally native and will grow up familiar with the Microsoft ecosystem.
The biggest thing is how they operate though. When I learned they keep a year’s worth of expenses in cash on hand that tells me they’re worth investing in long term.
Any business that follows that simple philosophy is worth investing in. Not to mention they have a dividend.
Salesforce (CRM) is another SaaS platform gear for enterprise and an increasingly digital economy. They just released their earnings for Q2 and exceed expected EPS by 115%. Already up 12% after trading hours. As someone who has worked in enterprise technology, SalesForce is the backbone for a ton of major large corporations undergoing billion-dollar digital transformation initiatives and even on a smaller scale, salesforce is gaining with small sized businesses as well. Not going away anytime soon.
Similar to Salesforce, Veeva Systems Inc. (VEEV) is the CRM of the Pharmaceutical industry and is showing tremendous growth.
The rise of “from home” services (Roku, Netflix, Peloton, etc) has shown the need to bring subscription services into consumer homes and to build loyalty through pro-consumer practices.
Perhaps the digital real estate names (ZG, RDFN) finally sustain a move higher – a surprising amount of people seem okay with buying virtually.
The “digital work marketplaces” (FVRR) are interesting as the gig economy adjusts and refocuses after a massive amount of flux.
Online betting will probably continue to be a theme over time w/states looking for revenue (DKNG, EVVTY, etc)
Online Grocery (Ocado, OCDGF.) will continue to gain acceptance and usage.
Finally, E-commerce (SHOP, WIX, etc.) is revolutionizing online consumer behaviors in a way that will facilitate a wholly new economy built and based around the online and digital experience.
While I have absolutely no love for Facebook (FB), I do think it’s worth seeing what they’re doing at a high level. In fact, FB could be the next trillion-dollar company. They just signed partnerships with Big Commerce (Instagram) and Shopify (FB marketplace), giving both companies a storefront to operate from directly on FB’s platform.
This will not only boost FB’s advertising revenue by a wide margin, but also begin normalizing the use for Facebook Pay. It also puts FB in the ecommerce business without having to deal with pesky things like fulfillment and delivery, which is a huge part of the cost.
In terms of data play, FB owns the third biggest CDN in the world. But more importantly, they own all the content on their platform. Content that they’re getting for free and content that they can monetize with the most targeted advertising platform on earth.
In the AR/VR space, FB is in the lead. You may think those instagram face filters are stupid, but there’s a ton of crazy AR programming that went into those. While companies like Valve / Steam are focusing on VR purely for video games, FB has been pivoting away from games in the AR/VR field. Then there’s the fact that AR/VR ads are going to be scary but effective: imagine seeing an ad for a vacation, but it’s you that’s in the picture. Is it scary? Hell yeah. But will it work? Hell yeah.
Here’s what I think makes FB more valuable beyond what the numbers tell you: Facebook operates like a Chinese company because it can and will copy + iterate faster than its rivals, and if necessary, use the government to help crush competitors. Instagram Stories and face filters effectively destroyed any lead Snapchat had on FB, and Reels will do the same to TikTok.
When FB makes an acquisition, they don’t outright take apart the acquired property and roll it into their existing portfolio of products like Amazon would. Instead, they let those properties continue operating as normal (like Tencent), and port over features from their current apps to enhance them. e.g. Facebook pay was originally something they developed for Messenger, now it’s available in Instagram and WhatsApp.
Let’s not forget that, while criticized heavily for data & privacy concerns, Facebook’s digital currency, Libra, is not dead and has spent a lot of time working to appease regulators and be allowed to launch internationally as widely as possible. It is very much the first go-to-market Corpocurrency of this scale, and even stripped down to a more “regulation friendly” form, it aims to reach as far as it can, and bring those it grabs hold of into the Facebook ecosystem.
So, that’s a view of some interesting opportunities to consider in the equities markets. It clearly a time of massive change, and increased appetite for innovation, so tomorrow we’ll dive into some of these emerging trends that we may want to get in front of.
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