During GFC equities bottomed in 2009 and the housing market continued to fall into 2012. I wonder if we see something similar this time…

If a business is growing revenue at 5% but growing earnings at 20% it is important to ask how this is happening and is it sustainable. The business is likely doing one or more of the following:

1 - Squeezing employees and asking them to perform more work for the same pay

2 - Squeezing suppliers/manufacturers and likely using cheaper materials or inventory

3 - Squeezing customers providing less value for the same or more money

I do not believe either of these are sustainable and often lead to toxic work culture. In sum, you need to grow revenue in order to sustainably grow earnings.

Things to be bullish about on a relative basis if you are a tech investor:

1 - The issuance of new ipos and Spacs has been at a a standstill for almost a year meaning their is less supply available in these internet names when demand does come back to the market. This is in contrast to 2020 when there was a huge amount of new stock issuance competing for the same capital.

2 - The companies that benefited the most from inflation will ultimately have to compete with those inflated sales prices which will be incredibly hard in a recession in the US especially if we ultimately experience deflation in the back half of the year in a YOY basis.

3 - Earlier stage private startups that were easily raising funds to compete with many of the publicly traded cloud leaders are finding the environment very difficult and painful for all stakeholders. This will ultimately lead to less competitor pressure to currently listed leaders.

4 - There is a huge gap in relative valuations between public / private valuations. For example, I can invest in Epic Games at a 42bn valuation pay a 3% markup fee to the share price and pay a 20% carried interest fee. $U is currently valued at 19bn and I can buy that today with no fee at all.

All of these points tell me when we do see demand come back it will be massive

If you are looking for a way to play the entire crypto ecosystem in one stock keep an eye on Galaxy Digital. They are listed on TSX now but should be joining Nasdaq shortly. I believe along with $COIN it could be one of the largest crypto companies over the next few years.

I spoke to a contact at a large software reseller who told me they sell $S and $CRWD to the SMB market. He could not tell me much about any product differences between the two but said they are selling more $S than $CRWD and sometimes $S is sold as a replacement for $CRWD.

Since there was no understanding by the sales rep as to why $S is better I can infer a few things.

$S is winning on price only with smaller clients who are more price conscious. Larger enterprise clients (Fortune 500 and governments) which lean to $CRWD are less price conscious and more concerned with product fit, scalability and reliability of the platform.

$S is looking to grow at all costs, sacrificing margins (profit and FCF) to a customer set that is more apt to churn while $CRWD focuses on higher margin, large enterprise clients that tend not to churn based on price alone.

Anyone have thoughts on this? Do you think this is accurate?

I wanted to repost this from Pat. I like it because it made me think that at times we may not be bullish on the market backdrop but you should always be bullish on the prospects of your individual holdings. This will allow an investor to hold through these periods.

https://commonstock.com/memo/658e7627-1862-4ccd-8d6c-b93e18359003 by @pat_connolly

One thing I like to do when analyzing stock holdings is review future growth drivers that are so small right now but have the potential to create a much larger valuation since they are not priced into the stock.

For example - Snap maps struck me as a massive marketing tool that the team was just expressing excitement about on the earnings call. You have to imagine you are in some specific region you may be familiar with or not.

You open up $SNAP to see local restaurants, experiences and events that are happening along with snaps of people eating or enjoying themselves at various places in REAL TIME. Let’s say you are deciding between two places; one has a location on snap maps with marketing from the business in lenses, customers are snapping favorite dishes or promotions (that they may be earning discounts for) and the other establishment just has a listing on $YELP.

This is not anything that is guaranteed to happen but I believe this type of exercise is important for long term success. You should be excited for the future of you holdings not constantly looking at the P/E ratio from past years. That is not a differentiator.

I am actually shocked 3 of 3 earnings today positive

$SNAP

$BILL

$U

I haven’t read the reports yet

Don’t bet against innovation

It is frustrating to have a long term gain turn into a loss but even worse to sell at the lows only to watch the stock recover. The market short term is unpredictable so best to go in with realistic expectations.

I understand this has been a treacherous market. You can make the case that you had some overvaluation in some names but comparisons to the internet bubble are misplaced. Today’s internet companies and leaders in cloud computing are operating at massive scale with very strong trends (despite overall macro changes) and solving real problems. Internet stocks in 1999 had very little revenue or scale and a lack of infrastructure.

There is lack of profit by design in many names because they are spending aggressively to pull business from legacy competitors, who are trying to maximize profits since revenue is only growing ~ 3-5%. How long do investors really believe profits can continue to grow well above the revenue growth rates of many names. There is only so much you can cut costs without jeopardizing a companies long term success.