Timing & trends

Ponzis Go Boom!!!

 

For the past few years, I have been critical of the Ponzi Sector. To me, these are businesses that sell a dollar for 80 cents and hope to make it up in volume. Just because Amazon (AMZN – USA) ran at a loss early on, doesn’t mean that all businesses will inflect at scale. In fact, many of the Ponzi Sector companies seem to have declining economics at scale—largely the result of intense competition with other Ponzi companies who also have negligible costs of capital.

I recently wrote about how interest rates are on the rise. If capital will have a cost to it, I suspect that the funding shuts off to the Ponzi Sector—buying unprofitable revenue growth becomes less attractive if you have other options. Besides, when you can no longer use presumed negative interest rates in your DCF, these businesses have no value. I believe the top is now finally in for the Ponzi Sector and a multi-year sector rotation is starting. However, interest rates are only a small piece of the puzzle.

Conventional wisdom says that the internet bubble blew up due to increasing interest rates. This may partly be true, but bubbles are irrational—rates shouldn’t matter—it is the psychology that matters. I believe two primary forces were at play that finally broke the internet bubble; equity supply and taxes. Look at a deal calendar from the second half of 1999. The number of speculative IPOs went exponential. Most IPOs unlock and allow restricted shareholders to sell roughly 180 days from the IPO. Is it any surprise that things got wobbly in March of 2020 and then collapsed in the months after that? Line up the un-lock window with the IPOs. It was a crescendo of supply—even excluding stock option exercises and secondary offerings. The supply simply overwhelmed the number of crazed retail investors buying worthless internet schemes. Back in 2000, I used to joke that in a scenario where a company wanted to raise equity capital, but insiders wanted to sell, they’d both dump shares on the market—but the insiders would get out first. What do you think that did to share prices as both parties fought for the few available bids?

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Jack wants the entire world to know he’s got a bitcoin clock

 

If you’re watching Thursday’s House hearing on misinformation, where Twitter CEO Jack Dorsey, Facebook CEO Mark Zuckerberg, and Google CEO Sundar Pichai are testifying, you might have noticed a clock-like device prominently displayed over Dorsey’s right shoulder. (It’s hard to miss — besides Dorsey, a window, and some houseware, it’s basically the only other thing in frame.) But the device doesn’t seem to be showing the time — or at least, I haven’t seen that. So what is it?

It’s a bitcoin clock. Specifically, Coinkite’s $399 BlockClock mini. If you’re even tangentially aware of Dorsey’s love of bitcoin, this will not come as a surprise.

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Microsoft reportedly eyes Discord acquisition. According to GamesBeat, chat service Discord, which is popular in the gaming community, is seeking a sale that could value the company at more than $10 billion. Microsoft is reportedly the lead suitor for the company as Amazon, Twitter or Google could also potentially be interested. Discord raised $140 million in December at a $7 billion valuation and has more than 140 million monthly active users. “I know they are in active discussions with a select few parties,” a source told GamesBeat. “The market is in a state where they could command strong double-digit billions of dollars.”

 

 

People bought boats like crazy last year.

The pandemic has had a devastating impact on car and airplane sales.

Between travel restrictions and reduced domestic mobility, dealerships and major manufacturers in both sectors have seen some of their biggest dips since the Great Recession.

But out on America’s waterways, another mode of transport has thrived…

Boats are booming

According to a report by the National Marine Manufacturers Association (NMMA), sales of boats and related marine gear hit $47B in 2020 — a 9% bump from 2019, and a 13-year high.

Per Boating Industry, all types of big-boy water toys saw a bump in 2020:

  • Freshwater fishing boats and pontoons: 143k units (+12%)
  • Personal watercraft (Jet Ski, Sea Doo): 82k units (+8%)
  • Wake boats: 13k units (+20%)

Who’s buying?

Experts say this trend has largely been buoyed by first-time boat buyers, many of them on the younger side — a demographic that hasn’t historically been the industry’s strong suit.

As it turns out, boating enthusiasts aren’t as niche of a community as one might expect. Per NMMA:

  • 100m Americans report going boating every year, making it one of the most popular outdoor recreational activities in the US.
  • 61% of boaters earn <$75k in household income/year.

Collectively, these boaters make up a $12B/year industry — and ~4.3k boat dealers exist to cater to their needs.

Why boats?

Boats weren’t the only form of recreational transport to spike last year: Bicycles, RVs, and electric scooters all sold like hotcakes.

But boats in particular seemed to benefit from a perfect storm of more flexible remote work schedules, travel restrictions, and timing (boating “season” is generally considered to run from April to October, which coincided with 2020 lockdowns).

The only people having more fun than the boaters themselves are the people who bought boat-related stocks last March.

 

STAT OF THE DAY

 

Which tech firms hired the most last year? According to The Information, the companies that increased head count % the most were Zoom (+74%), Amazon (+63%) and Twilio (+59%).

A few cybersecurity firms (Crowdstrike and Cloudflare) and work productivity firm Atlassian round out the top 6.

These hiring sprees come as the entire tech sector saw employment fall by 1.5% from February 2020 highs, according to the Bureau of Labor Statistics.

On an absolute scale, Amazon dwarfed everyone. The ecomm giant added 500k global employees — or, per The Information, “113 Zooms.”

 

The Spectacular Rise of the Blank Cheque Companies (the SPAC)

Special purpose acquisition companies — or “blank check companies” — are suddenly all the rage on Wall Street. What’s the deal?

TL;DR: A SPAC is a publicly traded shell company set up specifically to merge with, and take public, a private company. In the past year, we’ve seen a massive spike in SPACs as an alternative to traditional IPOs, but questions remain about whether they’re a good investment for the public.

What do these 5 people have in common?

  1. Shaquille O’Neal (7’1” NBA legend)
  2. Scott Kelly (former astronaut)
  3. Paul Ryan (ex-congressman)
  4. Serena Williams (one of history’s greatest tennis stars)
  5. Bill Ackman (hedge fund billionaire)

Answer: They all have a hand in SPACs (special purpose acquisition companies), one of the hottest financial trends on Wall Street.

In the past 15 months, SPACs have seen a meteoric rise as an alternative way to take a private company public — one that bypasses many of the legal and regulatory “headaches” of the traditional IPO (initial public offering) process.

By the latest tally, SPACs now outnumber traditional IPOs by a factor of 5x.

Many outlets have proclaimed SPACs to be the “new IPO” — and with good reason:

  • In 2020, 248 SPACs went public (a 400%+ increase from 2019), collectively raising $83B from investors.
  • Just 3 months into 2021, we’ve already surpassed last year’s figures (275+ SPACs, $84B+).

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