Good morning! Today’s word count is 2,319 words, or a 12-minute read. Let’s get to it:
“U.S. stocks pared their declines after a senior Republican lawmaker pledged an orderly transition of power following the election this fall, tamping down some recent jitters that had hampered stocks,” WSJ writes.
- S&P 500: $3,235.99
- Nasdaq: $10,668.30
- Bitcoin: $10,416.50
- U.S. 10-Year: 0.667%
Also, be sure to enter the new, weekly giveaway in Morning Cents every day.
Justin Oh’s Quick Read
- Here’s a quick take on ChargePoint announcing they would be going public through a SPAC (ticker $SBE). If you want to play the electric vehicle theme, I would rather own Tesla ($TSLA) at $386.00 than ChargePoint ($SBE) at $12.80. They both have similar tailwinds tied with overall electric vehicle growth, although I believe Tesla will have best-in-class growth. Tesla has better gross margins than ChargePoint does, is already profitable, and has multiple massive upside markets they can also tap (trucking, autonomous vehicle, stationary storage, etc.). And $TSLA is trading at 21x estimated 2023 gross profit, which is a discount to ChargePoint trading at 26x estimated 2023 gross profit. If you want EV exposure, it’s a no brainer to skip ChargePoint and use that money to buy big daddy Tesla stock.
- Also, after some questions I’ve received, I want to clarify why I compared Tesla ($TSLA) to Tattooed Chef ($FMCI) yesterday. I’m not comparing the businesses, as they are so different. I wanted to point out that buying Tesla’s earnings growth is at least 3 to 5 times more expensive than other growth companies. The more expensive you buy a growth stock, the longer you have to wait for fundamentals to catch up with the valuation and the smaller the potential upside you ultimately have. If you believe $TSLA stock will double in 5-10 years, I would invite you to compare that against a reasonably priced growth stock that might double in, say, 2-4 years. Everything you buy comes at the expense of opportunity cost, and you should consider all other options out there before tying your money up in one thing just because you like the story.
Amazon Expected to Unveil More Alexa, Smart-Home Devices
Amazon plans to announce new additions to its product lineup Thursday, including home-security products and Echo smart speakers, featuring the Alexa voice assistant. New Ring doorbells and video streaming devices are also expected to be showcased.
Why It Matters
Amazon is trying to find it’s next big hit.
- The company unveiled its massively successful Echo Smart Speakers powered by Alexa in 2014.
- Since then, it has diversified its Echo products by releasing different variations “tailored to video, children and music.”
And in doing so, Amazon is pushing further into the smart-home and security industries.
- Its Ring cameras have been extremely successful. Amazon was the leading vendor by shipments in both smart-speakers and video-doorbells, according to Strategy Analytics.
- Later this year, Amazon is launching a wireless network called Sidewalk that will “enable motion alerts from security cameras to operate even when Wi-Fi goes down.” Down the road, it’s seen as a tool to help locate pets and operate lighting.
Low prices allow Amazon to establish market share.
- Amazon generally undercuts its competition, sometimes sells products at cost to “gain acceptance among customers.” It also users other tools like its Prime membership offering to steer consumers toward products.
- It’s a departure from the strategies of competitors such as Apple or Google, according to Loup Ventures analyst Gene Munster. But it puts less pressure on Amazon to establish “hardware hits” than its rivals and leaves room for experimentation.
- Amazon’s strategy helped it grab 54 percent of the smart-speaker market. But increasing competition from Google 36 percent share could threaten to overtake Amazon’s lead.
The end goal is to get Alexa into as many products as possible.
- During the same event last year, Amazon highlighted the Alexa-enabled Echo Buds, and also announced eye frames and a finger ring, both featuring Alexa, that has only been available to select consumers.
- Devices powered by Alexa span from “earbuds to kitchen devices and vehicle products.”
Numbers To Consider
- Amazon stock opened at $2,977.79 Thursday, with a market cap of $1.49 trillion.
- Amazon’s Echo Buds, generally priced at $129.99, has sold for as low as $89.99. The cheapest Apple AirPods sell for $159.99.
Justin Oh’s Two Cents
In my opinion, it’s a two-company race between Amazon ($AMZN) and Alphabet “Google” ($GOOG) to dominate the emerging Internet of Things (IoT) market. Their goal is to sell integrated smart products into the home, such as sensors, cameras, speakers, and thermostats, which should be a lucrative market itself. But beyond that, IoT allows for massive amounts of data collection that can be used to learn and predict behaviors and preferences. Once Amazon or Google is fully integrated with your home and life, they can increase their monetization of you. Revenues from an integrated Amazon household will be higher because you’ll be ordering products through Alexa and Amazon will be able to predict what you need and sell you products (possibly by drone). Google might not have as easy of an e-commerce play but can still apply this same concept to advertising and content. Highly bullish on $AMZN and $GOOG for at least a decade to come.
Read More: (WALL STREET JOURNAL)
California to Ban Sales of New Gas-Powered Cars Starting in 2035
“California Gov. Gavin Newsom signed an order Wednesday that aims to end the sale of new gasoline and diesel-powered passenger cars in the state by 2035,” WSJ writes.
Everything You Need To Know
- California is the largest car market in the U.S., and transportation accounts for more than half of its carbon pollution. Cutting out gas and diesel cars is an essential step toward preventing climate change and a boon to the burgeoning electric vehicle market.
- California is the first U.S. state to make such a commitment, but 17 countries worldwide, including the U.K., France and Germany, have announced goals to phase out internal combustion cars. The state has been a domestic trend-setter in utilizing alternative energy sources and “adopted a law in 2017 to reduce its greenhouse gas emissions by at least 40% by 2030 and 80% by 2050, from a 1990 benchmark.”
- The order also aims to convert trucks and construction equipment, “where feasible,” to zero-emissions by 2045.
- Gov. Newson “has emphasized climate change as a key cause of the historically disastrous fires that have ravaged the state in the past month.” California’s warmer climate and an “increase in housing in fire-prone areas” have left the state more susceptible to devastating wildfires.
- However, the November presidential election will likely determine whether California can follow through on this promise. Newsom and the state have been fighting a legal battle against the Trump administration over California’s “special authority to regulate tailpipe emissions, established under the Clean Air Act of 1970.”
- In a hint that California’s lead could spark other left-leaning states to follow, Oregon Gov. Kate Brown commended Newsom’s announcement. Ford Motor Co. also released a public statement praising the move.
- Of course, the order is directly aimed at the sales of new cars and won’t prevent Californians from owning or selling existing gas ones. To fully make the shift, California will have to implement a statewide charging infrastructure and update its deteriorating electrical grid. It’s also important to mention the changeover could be devastating to the state’s thousands of gas stations.
- California tried to institute a less-extensive mandate in the past. In 1990, the state announced a move requiring 2 percent of new cars sold by 1998 to be zero-emission vehicles. The limited options and range of EV technology at the time led to the mandate being unsuccessful.
- Bans on internal combustion engines have spread in Europe, and other parts of the world, over the last few years. In 2017, Norway mandated all passenger cars and light vans have no carbon emissions by 2025. France has a 2040 goal to end the sale of fossil-fuel-powered vehicles. The U.K. moved up its plan to eliminate internal combustion cars and hybrids by 2035. Canada is targeting 100 percent electric vehicles by 2040.
Justin Oh’s Two Cents
Electric vehicles are clearly the future but keep in mind that complete electrification won’t be as fast as some Tesla bulls think. Tesla ambitiously aims to produce 20 million cars per year, double what the largest manufacturers produce now. Furthermore, there are 270 million registered vehicles in the US. $TSLA owners (and I am currently a small one again) need to understand that the further out cash flows are realized, the less they are worth today. So the longer you have to “wait” for Tesla to realize substantial cash flows, the lower your average annual “return” will be. Another way to think about it is: 3x upside in 5 years is a much better yearly return than a 3x upside in 10 years.
Read More: (WALL STREET JOURNAL)
Number Crunch: Jobless Claims Hold At Elevated Levels, Robinhood Nears $12 Billion Valuation
“Stock futures were lower on Thursday after weak economic data, set to add losses to what has been tough month on Wall Street,” CNBC writes.
- The Dow Jones Industrial Average futures fell 200 points, while the S&P 500 futures and Nasdaq 100 futures decreased 0.9 percent and 1.4 percent, respectively.
- U.S. weekly jobless claims were worse than expected. First-time claims for state jobless benefits were 870,000 for the week ending Sept. 19, 20,000 higher than the Dow Jones estimate.
- This month, the S&P 500 has dropped 7.5 percent, the Nasdaq 9.7 percent and the Dow 5.8 percent.
Read More: (CNBC)
Robinhood has reached an $11.7 billion valuation after its latest round of venture capital funding.
- The brokerage app raised $460 million in Series G funding, adding to the $200 million it procured in August. Series G amounted to $660 million in total.
- “A combination of new and existing investors backed the deal, including Andreessen Horowitz, Sequoia Capital, Ribbit Capital and D1 Capital Partners.
- Robinhood has now raised more than $2 billion in VC funding since its founding in 2013. The company also highlighted its Robinhood Snacks podcast’s growth, which now has 2 million monthly active listeners.
Read More: (THE INFORMATION)
Justin Oh’s Two Cents
During these down days, I am looking for the stocks we like best on the ROIC Big Board, seeing which ones are seeing weakness that day, and then placing small buys as the market crunches down. I am also pouring as much of my extra earnings as I can into my brokerage accounts to increase my cash position. As a reminder, I am not an owner of any ETFs at this point and am only an owner of the select businesses we love for the long term. I have seen the portfolios of some other “influencers,” and they have 30-50 stocks in their portfolio, which is ridiculous, dilutive, and poor personal portfolio construction. If you want to diversify, then buy a market or thematic ETF. In reality, when you hold 30+ positions, many will inevitably underperform your expectations. I want concentrated, high-conviction, long-term positions in capital compounding or highly undervalued businesses, with a heavy bias towards the former.
Worth Your Time
We Will WeWork You: After years of employing a rapid growth strategy, WeWork is backtracking. The office-space provider is selling control of its China business for $200 million as it looks to reduce risk. The company’s fortunes have taken a dark turn over the past year — it whiffed on its initial public offering and ousted former CEO Adam Neumann, all before the pandemic ravaged its business. But even while overhauling its business model, the cost-cutting efforts of CEO Sandeep Mathrani has allowed the company to stay afloat with sales rebounding from a spring low. (WALL STREET JOURNAL)
Negative Energy: “Talks between electric-truck maker Nikola Corp. and several potential partners, including BP, to build hydrogen-refueling stations stalled following allegations the company had misled investors. The setback is the first outward indication that the controversy is impacting the startup’s ability to execute its business plan. Nikola executives felt they were making progress toward reaching an agreement with at least one major energy company when short seller Hindenburg Research released a critical report, which cast doubt on the company and its statements about the readiness of its technology.” (WALL STREET JOURNAL)
Band Together: “Companies including “Fortnite” maker Epic Games Inc., Spotify Technology and Tinder owner Match Group Inc. have forged an alliance to pressure Apple Inc. and other app-store operators to make changes to their marketplace rules. The Coalition for App Fairness, a nonprofit registered in Washington, D.C., made its public debut Thursday, saying most app stores collect excessive commissions from software developers on users’ digital purchases and stifle competition by giving unfair advantages to their own products and services. It plans to push for legal and regulatory changes to how the companies operate app stores.” (WALL STREET JOURNAL)
E.W. Scripps Co. is buying ION Media for $2.65 billion in a deal backed by Warren Buffett’s Berkshire Hathaway.
To stimulate travel, United Airlines is offering Hawaii-bound travelers Covid-19 testing for a small fee as the state saw tourism decline 98 percent in July.
Regulators in Europe want to cut emissions, but rising SUV demand from consumers has pushed their efforts in the opposite direction.
An antitrust lawsuit against Google is coming, and it’s focused on search dominance and advertising.
TPG is buying a majority stake of DAZN Group’s Goal digital soccer unit, in addition to two other sports outlets, German Spox and Dutch VoetbalZone.
GoodRx IPO’d Wednesday, and the prescription drug company’s stock spiked 39 percent to $46 in its first few hours of trading.
Ripjar, a U.K. company founded by five data scientists who previously worked in British Intelligence, raised $36.8 million in Series B funding to keep expanding its AI financial crime detection platform.
India’s ShareChat, a social network focused on non-English users, has raised $40 million in funding and announced its short-form video app, Moj, now has 80 million users.