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Showing posts from August, 2020

Why the stock market is beating expectations

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  In the early stages of the pandemic, the S&P 500 index dropped a third of its value. Since then it has roared back, soaring more than 50 percent from its low in late March and setting an all-time high last week. This seems very implausible when set against the current state of the economy and the ongoing devastation caused by the pandemic. So why is the stock market rallying in the face of a pandemic and bad economic news? Several explanations are plausible. The stock market is not the economy: The stock market represents publicly traded companies only; it’s not the whole market. Most importantly, it’s always forward looking; i.e. it’s an indicator of the future earnings of those companies and how they would fare in the future. A rising stock market indicates that investors think these companies will do better in the future. On the other hand, a falling stock indicates that investors are pessimistic about the future earnings of companies. Continued income support for the ec...
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Nvidia: It's on between Gaming & Data-Center Business Units

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I'm having this delicious NYT Chocolate Mug Cake When it announced its earnings results on August 19th, 2020, Nvidia (NVDA) topped Wall Street’s estimates for both its fiscal 2020 second quarter and its forecast for the rest of the year. More interestingly its data-center sales topped its core gaming business for the first time. What’s making the case for Nvidia ? Nvidia ’s data center business is surging: Nvidia provides GPUs which power the heart of AI and machine learning. Demand for these powerful processors is expected to continue to surge at enterprise data centers (and cloud providers of course) as ML and AI become mainstream and more enterprises go to the cloud.  Gaming is also on the rise: In addition to ML and AI,  GPUs are in high demand for video games. The pandemic has made gaming one major way for a wide range of age groups to socialize virtually. Even better, we are close to the holiday season and major video game console makers such as Nintendo, Sony, Microso...
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Slack to Microsoft Teams: "Damn You!"

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When Slack (WORK) reported its last quarterly earnings results on June 4th, 2020, investors weren’t happy. Investors were expecting Zoom -like growth but Slack disappointed.  What’s wrong with Slack ? For investors, it’s Microsoft Teams.  Slack introduced an entirely new way to work and was primed to grow and dominate.  Then Teams happened. Teams is successful because it is: Exploiting Microsoft’s existing customer base. It’s not winning customers who would have never considered Microsoft in the first place. Those customers will continue to choose Slack .  Free while Slack isn’t. Technically, Teams requires an Office 365 subscription but all Microsoft customers have that. Sadly for Slack , these customers make up a big portion of Slack ’s addressable market.  It’s true that there is no risk in Slack ’s customers switching to Teams. That was never the goal for Microsoft though. Teams to Slack is like Instagram Stories to Snapchat. Stories removed the impetus...
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Popular posts from this blog

The business of calm

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Last week was a long one. The stress of the election coupled with the pandemic has a lot of us looking for ways to relieve anxiety and invest in wellness from the comfort of home. Increasingly, many are resorting to mental health and meditation apps. Calm, a meditation app, topped Apple's health and fitness category on Election Day — and other mindfulness apps like Headspace weren't far behind.  Why are these apps popular? The anxiety-inducing times, along with poor access to mental healthcare and high smart phone penetration are big contributing factors. However, these are not the only ones. For me, the biggest factor is that the companies making these apps have finally figured out that they are content creators and not just app makers. The features that were available through these apps 5 years ago were a lot more rudimentary compared to what we have today, and so was the content. These apps have heavily invested in improving their content. It's telling that the biggest a...
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SPAC: Why many unicorns won't hop on the SPAC wagon

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2020 has certainly been the year of blank check acquisition companies - or SPACs.  That's how Nikola- the sexy electric truck shop-, Utz - the iconic snacks company- and Virgin Galactic went public earlier in the year. Plus, it's also how electric vehicle makers Fisker, Canoo, and Lordstown Motors announced they will go public. Plus Plus, famous investor Bill Ackman recently took his SPAC (Pershing Square Tontine) public in the largest-ever blank-check IPO (it raised A whopping $4B). The objective is to buy a mature unicorn. Ackman actually said Pershing might buy a “mature unicorn” 6 times in the filing. However not all private companies are psyched about merging with SPACs to go public. Airbnb reportedly turned down an offer to merge with Bill Ackman's SPAC, saying it prefers going public via traditional. Airbnb isn't alone. Snowflake, Slack, Shopify and BigCommerce are other flashy SPACs that declined the backdoor to going public and opted for the front door through...
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Why the stock market is beating expectations

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Image
  In the early stages of the pandemic, the S&P 500 index dropped a third of its value. Since then it has roared back, soaring more than 50 percent from its low in late March and setting an all-time high last week. This seems very implausible when set against the current state of the economy and the ongoing devastation caused by the pandemic. So why is the stock market rallying in the face of a pandemic and bad economic news? Several explanations are plausible. The stock market is not the economy: The stock market represents publicly traded companies only; it’s not the whole market. Most importantly, it’s always forward looking; i.e. it’s an indicator of the future earnings of those companies and how they would fare in the future. A rising stock market indicates that investors think these companies will do better in the future. On the other hand, a falling stock indicates that investors are pessimistic about the future earnings of companies. Continued income support for the ec...
Read more