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Markets Nov. 25, 2020

Today’s News: The Dow hits a milestone, payments startup Stripe is working on a $70 billion valuation and an economic roundup.
 
Market Summary (11:00 A.M. ET): “The index’s ascent to 30000 signals more companies are beginning to participate in the new bull market, offering hope to investors who have long waited for the rally to widen.” WSJ writes.

S&P 500$3,624.30– 0.31%
Nasdaq$12,047.76+ 0.09%
Bitcoin$19,140.33– 0.78%
Gold$1,808.90+ 0.23%
U.S. 10-Year0.864% 

Analyst Read: Blink Charging

While we’re on the subject of potential bubbles, Blink Charging Co. ($BLNK) is an overhyped electric vehicle (EV) stock that looks like its bubble is popping from attacks from short-sellers like Citron and others. I (very profitably) have disagreed with Citron in the past when I recommended buying Peloton ($PTON) at around $50, but I have to agree with them here.

Blink is an owner, operator, and supplier of commercial and residential EV charging stations. 

  • They claim to have deployed 6,944 chargers on their Blink Network and 8,772 private, non-networked chargers around the U.S.

Blink is very small and their financials are uncompelling.

  • $3.8 million in revenue and $1.1 million in gross profit for the first three quarters of 2020, representing 83.5% revenue growth with a 29% gross margin
  • 69% of their revenue comes from selling the actual charging stations, which carries 45% margins
  • They only made $570,000 from unprofitable charging revenue during this period

$BLNK stock is insanely overpriced.

  • Even after selling off the last two days to $24 per share, that implies a fully-diluted valuation of almost $1 billion. 
  • Even if Blink keeps growing at this rate, that implies an over 100x forward revenue multiple and an over 350x forward gross profit multiple. 

To put that in perspective, even if the stock stays flat and Blink were to keep growing at 85% per year, it would take 6 years for the stock to reach the valuation that Pinterest ($PINS) has.

Furthermore, you could buy ChargePoint ($SBE), which is almost 30x larger with 73% market share for one-third the cost (30x projected 2022 revenue and 90x 2022 gross profit). If $BLNK traded at $SBE’s valuation, it should be worth around $5 per share.

Blink’s has a dubious story, sketchy management, and nefarious corporate management.

  • Culper Research’s on-the-ground research estimates Blink’s public network only has 2,192 functioning public chargers, and many of them are in disrepair.
  • Citron shows that Blink is not growing in app downloads.
  • Culper estimates that Blink’s network is woefully underutilized, with under 3% utilization.
  • Culper dug up the fact that Blink’s Chairman and CEO Michael Farkas has been involved in multiple previous criminal schemes.
  • BLNK has increased share count by almost 20% in the last year, implying they are aggressively diluting value from shareholders.

Disclaimer: I am short Blink Charging Co. ($BLNK) in small “speculative” size for my personal account.

Dow’s Rise to 30,000 Heralds a Broader Stock Rally

“The Dow Jones Industrial Average’s ascent to 30,000 Tuesday signals more companies are beginning to participate in the new bull market, offering hope to investors who have long waited for the rally to widen,” WSJ writes.

The Not So Usual Suspects: Apple and Microsoft were “two of the biggest contributors to the blue-chip index’s latest 10,000-point milestone, a journey that took nearly four years.” But November gains from lagging cyclical stocks such as Boeing, Honeywell International and Goldman Sachs powered the Dow over the 30,000-point hump.

Roller Coaster Ride: This all comes after the Dow peaked at 29,551 in February and dropped as low as 18,592 in March, recovering its losses more slowly than its peers partly because it missed out on much of this year’s tech boom.

And things continue to look up for the Dow on the heels of positive Covid-19 vaccine news. The progress of Moderna, Pfizer-BioNTech and AstraZeneca-Oxford are “reordering the market’s winners and losers, prompting wagers that the U.S. economy will return to normal more quickly than anticipated.”

  • The index is “oriented toward shares of banks and manufacturers that are particularly sensitive to the economy’s trajectory.”

Looking Ahead: Analysts had been skeptical of the recent stock market rally with cyclical sectors stuck on the sidelines until now. It’s hard to see the market continuing to advance solely relying on internet stocks continuing to boom (although cloud computing and remote work are powerful trends). But the “recent Dow rally therefore sends a rosy signal to those who contend that major indexes perform best when the economy is exiting a recession and growth-sensitive companies such as banks lead the way.”

Justin Oh:

I am reading completely differing opinions about what the stock market will do by “experts.” For example, Morgan Stanley is warning the market looks “ripe for a correction” while Goldman Sachs is predicting a continuation of the bull market.

Please see my Analyst Read from yesterday. I don’t like predicting the stock market, despite having gone “viral” for doing just that. I tend to agree with Howard Marks and believe that we’re in for lower overall returns over the next decade. But if we get multiple vaccines and the economy recovers strongly, I don’t see a reason why the market can’t grind higher, especially since the Fed is not going to be raising interest rates any time soon.

Payments Startup Stripe in Talks for Funding at $70 Billion Valuation or More

“Private financial technology business Stripe Inc. is in talks to raise a new funding round valuing it higher than its last private valuation of $36 billion,” Bloomberg reports.

What is Stripe? A competitor of Square and PayPal, Stripe is used by businesses to take payments, and its customers include Amazon, Salesforce, Lyft and Instacart. The company has boomed during the pandemic as more shoppers turn online to e-commerce for a safe, contactless experience.

  • This year, Stripe also started a card-issue service in the U.S. and agreed to acquire a Nigerian payments startup to expand in Africa.

So how much? The number being discussed could be “more than $70 billion or significantly higher, at as much as $100 billion, said one of the people, who asked not be identified because the matter is private.”

  • If that’s the case, Stripe would become the current most-valuable venture-backed startup in the U.S., according to CB Insights.

More Numbers:

  • John and Patrick Collison founded Stripe in 2010 after selling their first company for roughly $5 million and are worth around $4.3 billion each today.
  • Stripe employs more than 2,500 people across 14 global offices.
  • In April, the company raised $600 million at a $36 billion valuation, and it has a total of almost $2 billion in venture capital since it launched a decade ago.

Just a reminder, talks are “at an early stage, and there’s no guarantee the funding round will be completed.

Justin Oh:

This probably means that public investors like us won’t have a chance to invest in Stripe for a while longer. The one actionable thesis I have from observing the growth in Stripe, Plaid, Square, and PayPal is that I am long-term bearish on old-school payment processors ($GPN, $FISV, etc), as well as the transfer and debit side of traditional banks and card businesses ($V, $MA, $AXP).

Economic Roundup: Consumer Spending & Jobless Claims

“The U.S. economy is heading into the holidays continuing to recover, in large part because Americans continue to boost their spending, particularly on goods,” WSJ writes.

Up And Down: Commerce Department Data arriving Wednesday is expected to show consumer spending increased in October for the sixth straight month and household income declined as the effects of government aid programs dried up.

  • Though it’s still going up, consumer spending has notably slowed since a robust summer. But with consumer spending responsible for two-thirds of economic activity in the U.S., the rising numbers have been a boon to climbing out of the latest recession.

“Jobless claims rose for the second straight week, to 778,000, a sign the surge in virus cases was starting to weigh on the labor-market recovery,” WSJ writes.

Claims can be more “volatile around the holidays, due to workweek changes that can cause seasonal-adjustment anomalies.”

Other Key Points:

  • Job growth was “robust in October, though it has slowed every month since June.” Unemployment levels decreased to 6.9%, but it’s still nearly double February’s 3.5% rate.
  • Retail sales ticked up in October, but at the slowest rate since spring.
  • Economic output increased at record levels in Q3 but still hasn’t returned to pre-pandemic numbers.
  • Aggregate household income decreased last month but remained above its level from just before the pandemic hit in March, economists project.

The Bottom Line: While the U.S. has taken vital steps toward recovery, a resurgent wave of Covid-19 infections and new restrictions to combat the spread has left the economic outlook dim.

Justin Oh:

We are continuing along the diminishing return curve of a recovery without a vaccine. We will need a widely-distributed vaccine and the opening up of economies to see further labor market improvement from here. 

A bright spot in the economy is that consumers seem to feel confident enough with their savings to continue to spend strongly. I am slightly net bullish on what 2021 has to bring, although we should temper our expectations for returns.

11/25/20: What’s Going On

“A leading Chinese vaccine developer has applied for authorization to bring its Covid-19 shot to the market, seeking to get a jump on Western rivals as the race for a working inoculation against the virus enters the final stretch. China National Biotec Group Co. has submitted an application to Chinese regulators, reported state media Xinhua Finance on Wednesday, citing parent company Sinopharm’s vice general manager Shi Shengyi. The application likely includes interim data from the company’s Phase III human testing conducted in the Middle East and South America.”

“On Wednesday, the telemedicine arm of Chinese e-commerce giant JD.com Inc. kicked off a $3 billion-plus IPO in Hong Kong. The deal by JD Health International Inc. will help lift proceeds from Hong Kong IPOs and secondary listings to a 10-year high, even after the sudden suspension of Ant Group Co.’s blockbuster listing earlier this month.”

“Netflix has taken the unusual step of removing a show based on the complaint by one of its stars. The streamer today pulled down Chappelle’s Show, the Comedy Central sketch series created by Dave Chappelle. The comedian claims he was never paid when the show’s owner ViacomCBS licensed it non-exclusively to Netflix (along with CBS All Access and HBONow).”

“Venture firm Sequoia Capital led SpaceX’s recent $1.9 billion financing, according to people familiar with the matter. The firm, known for its stakes in companies like Instagram, YouTube and Stripe, wrote a $500 million check in the privately held aerospace business founded by Elon Musk at a valuation of $46 billion this summer.”

Companies Raising Capital
NameAmountDescription
Current$131 MillionMobile Banking App With 2 Million Members
Dija$20 MillionDelivery Startup From Fromer Deliveroo Employees
HMBradley$18.25 MillionL.A.-Based Challenger Bank
WeGift$8 Million‘Incentive Marketing’ Platform
F3$3.9 MillionA Stories-Style Q&A App for Gen Z Teens

“ViacomCBS Inc. is close to a deal to sell book publisher Simon & Schuster to German media giant Bertelsmann SE for more than $2 billion, in a deal that would create a publishing behemoth accounting for about a third of all books sold in the U.S.”

“Gap Inc.’s quarterly sales rebounded from spring shutdowns but increased marketing weighed on profits. Executives cautioned that rising Covid-19 infections could slow visits to stores during the critical holiday shopping period.”

“Laptop sales, driven by people working and learning from home to curb the pandemic’s spread, helped HP Inc. and Dell Technologies Inc. soften the impact from lower office-equipment spending.”

“Discord, the communications service that’s become the 21st century’s answer to MUD rooms, is close to closing a new round of financing that would value the company at up to $7 billion.”

“TikTok has quietly upped the stakes of its legal battle with rival video-sharing app Triller, alleging that Triller has violated three of its patents and asking a judge for monetary relief.”

“India banned 43 more Chinese apps in New Delhi’s latest move to pressure China in the online industry as tensions fester following a deadly border clash between the neighboring countries.”

“Amazon and Facebook have been sent tax bills from French authorities as the transatlantic dispute between European countries and the United States over how much Big Tech firms are taxed is set to worsen.”

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