Weekend Investor: The Week That Was

I hope you had a wonderful week!

This was one of the wildest weeks we’ve had in the stock market in a while, not because the market swung all that much overall, but because there seemed to be fundamental changes in the economy. Here are the highlights you need to see and my brief thoughts.

In case you missed it

Here’s some of the content I put out this week. Enjoy!

• Chit Chat Money Interview - We discuss my recent write-up on GM and why Cruise could be a massive business.

• Snap’s Comp - Did you know the average stock-based compensation is $240,000 per employee? Insane.

• Keep an Eye On Macau - The numbers are getting crazy in Macau really quickly. $MGM, $WYNN, and $MLCO are the companies with exposure.

Earnings bonanza

Here were a few highlights from the week.

• Peloton: Revenue was up, subscribers up, hardware loss fell, and operating costs continued to decline, so everything is moving in the right direction. But the stock dropped like a rock. Click here for a video with my thoughts.

  • Find my spotlight on Peloton here.

• MGM/Caesars: People are working at home more and that means meeting up with friends and co-workers takes the form of trips to Las Vegas. That’s my theory on why Vegas is still booming. But don’t sleep on Macau’s rapid recovery, which could drive MGM, Wynn, and Melco Resorts higher for years. I looked at Caesars’ results here and MGM's here.

• Coinbase: A lot has changed in crypto over the past year, but the story for Coinbase is really rapid cost cuts and a jump in interest revenue from $5 billion in cash on the balance sheet and USDC reserves.

• Uber: Uber has effectively killed Lyft and is now increasing the take rate from each ride. That’s why Uber’s results are getting better, plain and simple.

• Zillow: The iBuying business is gone and Zillow is investing in the next generation of growth. Despite a slow housing market, Zillow reported adjusted EBITDA of $104 million and a net loss of $22 million. If/when the housing market recovers, Zillow should have a lot of operating leverage that will drive profits sharply higher.

• Block: Square and the Cash App continue to grow at rapid rates. This is a rollercoaster stock, but the company continues to get better and better every quarter.

• Apple: Cash machine.

Shopify’s about-face

During the pandemic, Shopify couldn’t expand fast enough. Now, it can’t shrink quickly enough.

Shopify announced a 20% headcount reduction and the sale of its logistics business to Flexport, a business that was acquired only a year ago. This comes less than a year after Shopify cut staff by 10%.

For years, it seemed that Shopify could do no wrong. It didn’t have much competition in the e-commerce website building space, it could expand into payments (Stripe), point-of-sale devices, and even logistics to the cheers of the market. Competition has gotten a lot stronger and Shopify has found that its moat may not be as big as once thought.

The Fed, The Fed, The Fed

There’s too much Federal Reserve coverage these days, but I have questions:

1. What are they doing?

2. What are they doing?

3. What are they doing?

Let’s recap the facts of the week:

• First Republic collapsed and was acquired by JP Morgan on Sunday

• PacWest Bank said on Thursday it’s “exploring all strategic options”, which is code for “we’re in trouble”

• Every regional bank stock collapsed in trading this week

• The big banks keep…getting bigger

This crisis is only a few weeks old and we’re already nearing the scale of collapses seen during the Great Financial Crisis.

Why are banks collapsing? Bank runs happen because depositors pull their money out.

Why are they pulling money out? Because yields are higher almost everywhere other than checking and savings accounts. And TRILLIONS of dollars are flowing out of bank accounts in search of yield.

To cover the loss in deposits, banks have two choices.

1. Sell assets

   1. OK, but these assets are now likely lower in value than they were purchased for and their value on the books because of Fed interest rate increases

2. Raise money from alternative sources like CDs, money market funds, etc

   1. OK, but this is a MUCH higher cost than near zero rate deposits they’re replacing

Regional banks are stuck between a rock and a hard place and most may already be insolvent. And the Fed put them there by raising rates faster than at any time in history. These actions may kill inflation, but the regional banking industry and U.S. economy may be casualties in the process.

But enough with the Fed.

Big week ahead

I will be back early next week with an earnings recap and new deep dive. I’ll also be officially launching a premium tier, which you can sign up for below to get ahead of the rush.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.

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