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@wjared
Jared Watson
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Jared Watson
@wjaredMay 24
Today I closed out my $S calls at 50% profit, which I feel good about since I still have significant exposure to the stock with shares.
I rolled some of that cash into $LYFT calls, shown below.
Thesis:
I think that Lyft has been appropriately beat down for their past performance. However, I think the market is discounting some fundamental catalysts that could be on the short-term horizon for $LYFT.
Catalyst 1: Buyout
The Lyft CEO stopped short of saying they’re seeking a sale, but mentioned recently that while the company is “not on the block,” the ride-hailing company would be “open to offers”.
$LYFT would be a no brainer acquisition at this price for a self-driving car company (e.g, Amazon/Zoox, Motional, Apple, Mobileye, etc.) who wants an instantly available network app that is already on everyone’s phone. The company and shareholders would still demand a premium, which would certainly above the share price today.
Catalyst 2: Expanded Self-Driving Partnership
After $UBER’s recently announced partnership with Google’s Waymo, the pressure is now on Lyft to catch up or sell. I think that similar to Google/Bard after Microsoft launched OpenAI’s ChatGPT, that Lyft is likely to feel the pressure to announce an expanded partnership agreement if they don’t sell.
They already have a pilot program with Motional in Las Vegas, which they plan to expand, so an announcement about that would be bullish for the company. And the same goes for all of the companies I listed for a potential buyout - I think both Mobileye & Amazon/Zoox, among others, would be foolish to not strike a sweetheart partnership deal with Lyft while the iron is hot.
Have been enjoying your ideas recently
Jared Watson
@wjaredMay 22
Penny Stock Arbitrage: AEye, Inc. $LIDR
TLDR: AEye at $30m is an enticing risk/reward and alpha opportunity. The company is trading at less than half net assets, extended its runway to the end of 2024, and has a floor based on the value of its LiDAR IP that I believe is above the current stock price. I initiated a position today at $0.19.
Company Background:
AEye, Inc. is a technology company that develops artificial intelligence (AI)-powered lidar systems for vehicle autonomy, advanced driver assistance systems, and robotic vision applications. The company was founded in 2013 by Amarjit Singh, a former executive at SRI International, and Jagdeep Singh, a former professor at Stanford University.
AEye's lidar systems are based on a unique technology that uses a solid-state design and adaptive optics to provide high-resolution, long-range imaging in real time. The company's lidar systems are designed to be scalable and adaptable to a wide range of applications, including autonomous vehicles, trucks, buses, and robots.
AEye has partnered with leading automotive manufacturers and Tier 1 suppliers to develop and deploy its lidar systems. The company's lidar systems are currently being used in a variety of prototype and production vehicles, including the Continental Automated Truck (CAT) and the Toyota Sienna minivan.
In 2021, AEye went public through a merger with a special purpose acquisition company (SPAC).
Current Situation:
Down from an ATH around $14/share $LIDR is now down to $0.19, equating to a market cap of $30m.
The company is trying to turn over a new leaf after an obviously rocky debut to the public equity market, with a new CEO and CFO appointed in the last 3 months. In order to extend their runway in a challenging funding environment, AEye made a decision that is becoming more and more common in 2023, cutting 1/3 of their staff and trimming expenses such as professional services (e.g. consultants) and real estate.
The new management team and slimmed-down workforce is now focused on one thing: validating and delivering their HRL LiDAR product jointly developed with Continental ($CTTAY). This is a great segue to why I believe AEye is such an enticing arbitrage opportunity.
Companies who have lost the faith of equity markets typically trade around the equivalent of their net cash/asset balance, signifying that investors think that management is too incompetent to get above a 1:1 return on the investment of said cash/assets. At the current $30m market cap, AEye trades at 40.25% of net assets. I'll state below why I think that this valuation is far too harsh, based on an underappreciated roadmap and price floor.
The Play:
The HRL131 Long Range LiDAR, jointly developed with Continental, is the reason I believe that $LIDR is a significantly underappreciated stock.
Continental, an international company that trades at a $15B market cap, is more than just a strategic partner and investor to AEye. They are also the first company that I've seen get on a partner company's quarterly earnings call to reaffirm their confidence in the product and vision.
Norm Hammerschmidt, Vice President of the Components business at Continental went on AEye's Q1 earnings call this May to say the following:
"I would like to start by saying that Continental is very pleased with the new management and the go-forward plan presented by AEye. AEye's decision to take an automotive first strategy further strengthens our partnership and provides the focus and velocity needed to secure automotive series production awards and expand our LiDAR business case. As a 150-year old automotive Tier 1 supplier, we at Continental deeply understand the processes, time and capital required to industrialize products for passenger and commercial vehicles, so when we choose partners like AEye, we do so with our brand and reputation with OEMs in mind. We are as committed to AEye today as we were 3 years ago when we began this journey. And even more so as we work together to accelerate through the design validation stage, which is a precursor to OEM integration and higher volume production.
The Conti and the AEye engineering teams are working collaboratively during this stage to perform stringent accelerated life cycle testing on the HRL131 Long Range LiDAR products in our labs while also replicating real-world scenarios in a variety of adverse weather conditions at our closed course tracks in Michigan and Germany. In parallel, our business teams have progressed tremendously on quoting activities with multiple large volume LiDAR programs from both passenger and commercial vehicle OEMs, where we believe we are well positioned to win. As the global leader in ADAS products, Continental began this journey with AEye with a belief that the automotive LiDAR adoption curve will mimic that of radars, which saw exponential growth over the last 25 years, and these recent RFQs from OEMs confirm our belief. The future looks very bright for our LiDAR market and our partnership with AEye."
In short, Continental believes strongly enough in AEye's product to center their own autonomous driving and trucking roadmap around their jointly developed HRL131 long range LiDAR. This HRL131 product, according to Continental's website, "enables new compelling automated driving features and will be ready for mass production starting in 2024."
AEye and Continental are currently in the OEM validation process with the LiDAR, likely including companies such as Aurora Innovation ($AUR). This tweet from Continental Press shows an Aurora truck featuring the HR131 powered by AEye, which has not been publicly reported or acknowledged by AEye. At this low of a market cap, any positive press could send the stock upwards in a hurry.
Conclusion:
The new and improved AEye has a streamlined product roadmap, supported by an established partner in Continental, that not only gives the beat-down company an opportunity to succeed and thrive, but gives the company a buyout/investment floor at or above the current stock price.
I initiated a position today at $0.19 and plan to slowly scale in if the price drops or stagnates in the current range.
Twitter
Abhishek Mogre on Twitter
“In April 2023 @ContiAutomotive talked about the impressive @aurora_inno powered #AutonomousTruck.
When you zoom in the pic from the @Conti_Press tweet, you see the integration of #HRL131 Ultralong Range #LIDAR which is powered by @AEyeInc
Time to ask $LIDR management, why are…”
Great thesis! You convinced me to buy some.
Jared Watson
@wjaredMarch 21
My Take: Snowflake $SNOW at the JMP Technology Conference
Conference Link: https://wsw.com/webcast/jmp58/snow/1714700
Participant(s): CFO Mike Scarpelli
Highlights:
- What was different in Q4: Newer customers ramping on Snowflake are significantly better trained to use the platform out of the gate and using the platform more efficiently. These factors, plus the implementation of alerts for features like auto-suspend, mean that these new customers are ramping slower than expected.
- Won't apologize for 40% revenue growth guidance - still really good at Snowflake's current scale.
- How salespeople increase customer spend: Ask questions to see if there is demand for Snowpark, e.g. Cloudera, Spark, EMR (Amazon Elastic MapReduce). Don't actually have to sell, just educate and get the customer using a new feature. Which will lead to more consumption. Azure, GCP, AWS all pay their reps like this based on revenue, not on bookings.
- Snowpark captures Spark workloads that were previously being migrated out of Snowflake and then brought back in. These ML workloads were being run in Databricks, EMR, etc.
- Not sure how ChatGPT is going to make money - reiterating what was talked about on the recent All-In Podcast.
- How large language models benefit Snowflake: Running models in Snowflake to fine tune them.
- Competitive landscape: Google BigQuery #1, Microsoft #2, Databricks #3. "Google definitely the most competitive." Big reason why Google and Microsoft are the biggest competitors is because of their ability to bundle and offer services for "free".
- Public sector opportunity: FedRamp High is expected "very soon". Could be a week, could be two months. Public sector is only upside, currently only 1% of business. Big opportunity not only in the US but internationally. Doing very well in state and local where FedRamp High isn't required. FedRamp High and IL5 (Impact Level) will open up the federal opportunities. Don't think Snowflake will ever get to IL6 (the highest level).
- What investors don't currently get about the story: Investors may not appreciate how long some migrations are going to take. Some customers could take up to 10 years with how big their current on-prem data state is. Early adopters were often digitally native companies; however, new customers tend to require migrations which leads to the previously discussed longer ramp times.
My Take:
There was a lot of useful, novel information in this jam-packed 20 minute conference appearance from CFO Mike Scarpelli. The big takeaways for me were the public sector opportunity, which I've confirmed to at least anecdotally be true from my channel checks, and how durable the sales runway is for the company. We all know about the Snowflake's guidance for $10B revenue in 2028, and the more I learn about Snowflake's expanding TAM and execution the more I think they would have to try to not meet the lofty-sounding goal.
wsw.com
The JMP Securities Technology Conference
Great synopsis, thanks for sharing 🙏
Jared Watson
@wjaredMarch 15
My Take: Hyliion $HYLN CEO Healy on WhatTheTruck
YouTube Link: https://youtu.be/bS9FYKNQs3E
Highlights:
- Winter testing for the ERX is in progress and on track.
- DSV commitment to 10 ERX order with an option for 10 additional trucks. Will be deployed in Dallas which is where Hyliion will have their white-glove service center for initial implementations.
- On the hydrogen partnership with Hyzon: way for Hyliion to signal that they are committed to an eventual hydrogen based future. Will deliver prototype with Hyzon fuel cells and Hyliion power train and see how the partnership expands from there.
- On the Karno generator: the Karno is designed to be low maintenance and run 24/7 vs typical on-site facility generators (e.g. Cummins). The Karno is also as efficient as the newest power plants today. So Hyliion actually sees Karno generators being viable as on-site primary power sources with the grid as a backup. This solution would also eliminate line and transmission losses, further improving efficiency.
- Hyliion will look to tackle semi-trucks first, as the most challenging, then plan to scale down their technology to smaller vehicles.
- On the subject of military applications, there is a huge push to reduce emissions. Hyliion certainly sees an opportunity to collaborate on vehicles. But more importantly, Healy sees a massive opportunity to use the Karno for stationary applications, vehicles, and vessels in situations where the military would benefit from the generator’s ability to efficiently run on 20+ fuel types.
My Take:
I love this company. Hyliion continues to de-risk their product timeline and be one of the only de-spacs to not only meet and exceed their investor presentation goals, but also have enough cash on the balance sheet to not raise any capital.
There was some groundbreaking news in this interview that wasn’t mentioned in their last earnings call - specifically around the versatility and potential of the Karno generator.
For the uninformed, the Karno generator is a 3D printed generator out of GE’s aviation unit that is on the roadmap to power the second generation of the Hypertruck.
If what Healy says is true about there being a demand in the military and general commercial power supply markets in general, Hyliion just experienced a massive jump in TAM. And yet this company remains at a $400m market cap - right above their available cash balance.
YouTube
Hyliion CEO Thomas Healy On WhatTheTruck Podcast
#sustainable #Hyliion #alternativegas #Carbonfootprint #CNG #RNG #renewablenaturalgas #sustainable #GoGreen #trucking #logistics #Dallas #Texas #Tesla #Nikol...
Jared Watson
@wjaredMarch 14
My Take: Schwab CEO on CNBC
My Take:
Not only is a bank run not happening at Schwab, clients are depositing assets at an record rate. On Friday alone clients deposited $4B net new assets - and have averaged $2B per day in March.
Bettinger also bought 50,000 shares at market open today according to Sarah Eisen of CNBC.
Twitter
Sara Eisen on Twitter
““I personally bought 50,000 shares at the open” Schwab CEO Walt Bettinger tells me he bought his stock this am after yesterday’s selloff”
He's buying shares, that's a good sign
Jared Watson
@wjaredMarch 13
Buy the Dip: Schwab $SCHW
I just initiated a massive position in $SCHW at $48, now second to only $SNOW in my portfolio after the stock dumped 20% today and 45%+ in the last week. Easy buy after the CFO came out today to say that the “business continues to perform exceptionally well” with access to “significant liquidity” and “more than 80% of total bank deposits falling within FDIC insurance limits.”
Oh, and they also got an upgrade from Citi to Buy.
MarketWatch
Charles Schwab upgraded to buy from neutral, but price target cut to $75 at Citigroup
Charles Schwab Corp. was lifted to buy from neutral on Monday by Citigroup analysts, who see a a “compelling entry point” from a 23% drop over two days....
Not to play devils advocate but what do you expect him to come out and say lol. Also a bank upgrading a bank is funny. I respect your decision and I do agree the drop is a little overreacting so I think you can be in it for a trade but I agree with what Morgan Stanley said this morning. MORGAN STANLEY: “We suggest selling any bounces on a government intervention to quell the immediate liquidity crisis at SVB and other institutions until we make new bear market lows, at a minimum.”
Jared Watson
@wjaredMarch 7
"My Take" Series
Thought I'd give some advance notice on a series of posts I'll be putting out on companies that I own and/or cover. In the next week or so I'm planning to publish pieces on $SNOW, $S, and $HYLN that link to the news, video, or earnings report, give the quick & dirty highlights, and end with my take on it - including impact, takeaways, and much more.
Let me know if you have constructive feedback, questions, or anything specific to cover, otherwise stand by for future posts!
As an aside, I'm frustrated with my portfolio not linking to Commonstock at the moment but @nathanworden has been extremely helpful with troubleshooting so I'm hoping that the issue is resolved this week.
Jared Watson
@wjaredFebruary 28
The Good, The Bad, The Ugly: Upstart $UPST Q4 2022 Earnings Recap
Coming to you live from a cabin at Mammoth Mountain, CA, I'm with you here today to recap Upstart's Q4 2022 earnings. I believe that listening to the earnings call provided a number of novel insights that weren't captured in the press release or numbers, so I'll try to detail the good, the bad, and the ugly for you in my post below. I'll finish with answering the questions that were submitted last week in response to my solicitation post.
If you'd like to follow along with the earnings call, the transcript is available on The Motley Fool website and Quartr app, among other options.
The Good
- The company is involved in late-stage discussions with multiple potential partners, in support of the goal to provide more reliable and persistent funding to the Upstart platform.
- The Upstart Macro Index or UMI, a new metric that measures how changing economic conditions like inflation and unemployment are impacting credit performance, is expected to launch to the public later this quarter.
- UMI nudged upwards from Q3 to Q4 but at a much slower rate than in prior quarters and has shown encouraging signs of stabilization in the early weeks of 2023. As UMI stabilizes, Upstart sees a corresponding reconvergence of loan return performance to target for the company's more recent vintages as they continue to season.
- Talking more about UMI, Dave said UMI "...is going to be a very powerful new tool and one we think that lenders of all flavors will get excited about." He added on by saying "if they have either overperformance or underperformance in their credit programs, it's really hard to attribute that either to something about how you set your system up and the rules you have in your system or maybe the economy's deteriorated in some way, you don't have visibility. This is a really powerful way to say no, we can actually isolate the performance of the credit model from the impact of the macroeconomy."
- The increase in model accuracy in the last seven months is more than what was delivered in the prior two and a half years. CEO Dave Girouard said about the improved model "...as capital markets and the overall economy normalizes, I expect this will become obvious to all of you."
- For Auto Retail, Upstart finished the year with 778 total dealerships under contract, a 90% increase from a year ago.
- Lending partners grew 130% YoY from 42 to 92.
- Corporate liquidity remains in a "comfortable" position with $532 million of total cash on the balance sheet and approximately $674 million in net loan equity at fair value.
- As a result of the workforce reduction, company expects to realize cash savings of approximately $57 million in operating expenses over the next 12 months, primarily related to employee cash compensation and benefits, in addition to $42 million of savings from reduced stock-based compensation expense over the next three years.
- Speaking about the projected decline in revenue next quarter, Dave said "...right now, most of the decline in volume in our platform, the most fundamental reason really is because the rates are much, much higher, the approval rates are much, much lower."
- Expanding on the soft Q1 guidance, CFO Sanjay Datta said "traditionally in Q1, as you get sort of close to the tax season, you do see a 10% to 15% trough, you know, depending on the year."
- Responding to a question about ChatGPT and AI in the news, Dave said "...[ChatGPT] is an advertisement for the power of AI and the fact that AI is going to be very central in our economy for the decades to come. So, if you're a bank executive, you really want to think about how that fits in the future, how you start to get awareness of it. And it just makes Upstart, I think, a more attractive partner."
The Bad & The Ugly
- Total revenue was $147 million, a decrease of 52% from the fourth quarter of 2021. Total fee revenue was $156 million, a decrease of 46% year-over-year.
- GAAP net income (loss) was ($55.3) million, down from $58.9 million in the fourth quarter of 2021. Adjusted net income (loss) was ($20.9) million, down from $87.0 million in the same quarter of the prior year.
- Consumer delinquencies remain elevated and the funding markets remain limited in their appetite for risk.
- Small business lending is on pause.
Q&A
Questions have been lightly edited for readability.
Q: How is the business in the long run, will it survive? What do you think about a long-term investment in this business? - @girigollapallem
A: As mentioned above, Upstart has $532 million of total cash on the balance sheet and approximately $674 million in net loan equity at fair value. With reduced expenses after the slashes to headcount and marketing budget, I believe that a fair assumption for quarterly cash burn is the adjusted $70 million net loss, which takes a relatively negative economic outlook into account and no increases in lending partners/banks/dealerships/etc. With this assumption, Upstart has a runway of seven quarters without selling their loan portfolio. If Upstart was forced to liquidate their loan portfolio, Upstart would have a runway of more than 16 quarters (4 years) to turn cash flow positive.
To answer the question about my thoughts on Upstart as a long-term investment, I'm personally bullish because I think that the risk of bankruptcy, considering the long runway to get back to profitability, is worth the reward of economic conditions improving and Upstart's AI technology continuing to win over lenders, partners, and borrowers. If conditions improve, Upstart's business model has proven that it can scale and generate profits rapidly.
Q: What are one or two things you'd want to see in the numbers or from management before you'd feel confident making an initial investment or adding to an existing position in $UPST? - @tomato
A: I think the first thing I'd look for is the company cutting expenses to adjust for economic conditions and lengthen the runway to return to profitability.
The second thing I'd look for is clarity from management on the path they see to return to said profitability. Personally, my confidence is not ironclad at this point, which is why Upstart is a small position for me, but I like what I'm hearing so far about ABS issuance trends, UMI stabilization, onboarding of new partners, lenders, and dealerships, and the critical improvement in model accuracy.
Final Thoughts
Hopefully I've relayed some takeaways in this post that weren't captured in Upstart's Q4 earnings press release. There's a lot to look forward to in the following quarters, both from an economic and company execution perspective. Let me know if you have questions about anything I touched on, and thanks for reading!
Upstart Network, Inc.
Upstart Announces Fourth Quarter and Full Year 2022 Results | Upstart Network, Inc.
SAN MATEO, Calif. --(BUSINESS WIRE)--Feb. 14, 2023-- Upstart Holdings, Inc. (NASDAQ: UPST), a leading artificial intelligence (AI) lending marketplace, today announced financial results for its fourth quarter and fiscal year 2022 ended December 31, 2022 .
Great recap thank you. I’ve help a small position through the thick of it and is a good one to follow. I love the innovation and promise of the concept, just want immediate next few quarters to compound some optimism from this earnings..
Jared Watson
@wjaredFebruary 15
Upstart $UPST Solicitation
I’m 90% of the way through the Q4 earnings call and plan to type up my thoughts in a post this week.
Respond here or message me with any questions or concerns about the earnings or company in general and I’ll try my best to address them in my post.
Thank you, Jared. How is business long run, will that survive? What do you think about long term investment on this business?
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