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It's Not Personal, It's Just Business

John Chapter 6 verse 35 states, "Then Jesus declared, I am the bread of life. Whoever comes to me will never go hungry, and whoever believes in me will never be thirsty."


So I guess as a Christian I don't need to eat or drink. Joking aside, this verse is highly important to me as it directly relates to how I define my value and self-worth. I don't find peace in my family, my career, investments, or anything of the world. I find peace in God through his word that always fills me and transcends all that I do.


For investing I find a parallel in that what I fill myself with will ultimately influence my actions. If I fill myself with constant news that simply confuses and/or contradicts things, I will find it very hard to manage my investments. Personally, I don't find much value in any social media sites out there and this is a core driver for why I blog and created this site. It's not perfect, but it focuses on digesting mainstream narratives against company growth/performance trajectories rather than derailing into useless banter.


While I recognize that the stock market gyrations and pressure associated with it can lead to frustration, investors need not take it personal. I don't like the way Wallstreet manipulates things, but it isn't my job to worry about that one bit. There are however, many inconsistencies that continue to remain present. Below is the core culprit.

  • Dow Jones Industrials: 12.98%

  • S&P 500: 20.83%

  • NASDAQ: 17.05%

  • Russell 2000: 9.34%

All major indices are performing well in 2021. This is a direct conflict with respect to select aggressive growth plays that have been brutally punished of late. All is also not what it seems as the NASDAQ's support has been influenced by the weighting of FAANG-M's performance as seen below.

  • FAANG-M: 24.44%

This of course means that aside from FAANG-M, many NASDAQ companies are performing significantly worse, which begs the question, how can slower growing Big Tech outperform to such a degree? I know I've been pushing out information on certain companies recently, but there's simply too much of a divergence to not continue to bring attention to it.


DocuSign, Inc. (DOCU) v. Adobe, Inc. (ADBE)

DocuSign: EV/Revenue 13.5 times - SP to OCF/Share 55 times


Adobe: EV/Revenue 21 times - SP to OCF/Share 42 times


DocuSign is estimated to outperform Adobe's Revenue growth rate next fiscal year by nearly 70%. Adobe is expected to hit $18 billion in Revenue, while DocuSign will be targeting $2.7 billion. DocuSign's EV stands at $26 billion, while Adobe's is at $317 billion. Did DocuSign deserve to see its SP drop from the $200s, yes. I actually went long with a limit set at $140, and the SP in the $130s is very reasonable for mid- and long-term potential. But Adobe is overvalued today as well and is continuing to keep its premium for no reason other than it is a Large Tech company. This is a great example of the double standard. While companies like DocuSign will see slowing growth, they will still continue to substantially outperform larger peers like Adobe, who ironically will see a much more rapid slow down in growth.



Roku, Inc. (ROKU) v. Netflix, Inc. (NFLX)

Roku: EV/Revenue 10 times - SP to OCF/share 92 times


Netflix: EV/Revenue 9.6 times - SP to OCF/share 405 times


Roku is estimated to outperform Netflix's Revenue growth rate next fiscal year by over 150%. Roku will be approaching $4 billion, while Netflix is anticipated to generate $35 billion. Roku's EV stands at $25.5 billion with Netflix's at $275 billion. Roku has been unjustly punished and clearly deserves to trade at a premium to Netflix. This is justified by Roku's much stronger ARPU growth, and superior Cash Flow performance at a much earlier stage of business, that is poised to inflect further. I am not highly concerned with Netflix's valuation level being where it is, but I do believe that the EV/Revenue multiple should drop towards 8 or so, especially as Cash Burn will be resurfacing. Netflix will be generating $35 billion or so in Revenue, while still achieving negative OCF.


Opendoor Technologies (OPEN) v. Zillow Group (ZG)

Opendoor: EV/Revenue 2.9 times - SP to OCF/Share -1.4 times


Zillow: EV/Revenue 3.2 times - SP to OCF/Share -4.6 times


Opendoor is estimated to outperform Zillow's Revenue growth rate next fiscal year by 4,550%. For those thinking that sounds crazy, Opendoor is estimated to grow 2021 Revenue from $7.7 billion to $14.8 billion or 93%, while Zillow is expected to grow 2021 Revenue from $6.8 to $6.9 billion or 2%. Opendoor's EV stands at $12.6 billion while Zillow's is at $16.4 billion. It is insane that today Zillow has a higher EV/Revenue multiple. Ironically, analysts have recently weighed in stating that Zillow is discounted against their pre-iBuying EV/Revenue multiple - this was enough to rally the SP by 10% during a broad-based beat down. The bottom line here is that Zillow's entire future is at risk and Opendoor is being suppressed for the simple fact that Wallstreet despises the winner-loser reality. This is why Opendoor continues to be pulled down into parity with Zillow. The double-standard is stark with the above examples, which is ironically opposed here. There's a clear defense by Wallstreet against newer, more innovative and faster growing competitors versus legacy peers. I attribute this to the majority of older analysts, less willing to take risk, regardles of what their firms' marketing says.


MercadoLibre, Inc. (MELI) v. Sea Ltd. (SE)

MercadoLibre: EV/Revenue 8.4 times - SP to OCF/Share 100 times


Sea: EV/Revenue 15 times - SP to OCF/Share 191 times


MercadoLibre is estimated to underperform Sea's Revenue growth rate next fiscal year by nearly 29%. MercadoLibre will be approaching $9.5 billion in Revenue and Sea will be targeting $13.6 billion. MercadoLibre's EV stands at $52 billion, with Sea's at $123 billion. While this may suggest that MercadoLibre is growing slower, Sea's core business is within Asia, nearly 80%. Sea's Latin America segment is growing robustly, but this includes both e-commerce and mobile gaming. By my calculations, Sea is headed towards $3 billion or so for its Latin America segment with an assumed $2 billion in non-gaming. This still places MercadoLibre close to five times higher comparatively in Revenue for the upcoming year. I don't necessarily have an issue with Sea's current valuation as their growth is highly robust. However, MercadoLibre's decline is not warranted as the company continues to scale successfully and remains in a highly competitive position. MercadoLibre traditionally has substantially outperformed Sea's Cash Flow margins as well, and I expect this to potentially continue over the mid-term, which as past has proven, should bring the SP back towards a more reasonable valuation level.


Vroom, Inc. (VRM) v. Carvana, Inc. (CVNA)

Vroom: EV/Revenue 0.50 times - SP to OCF/Share -3.5 times


Carvana: EV/Revenue 4.5 times - SP to OCF/Share -21.9 times


Vroom is estimated to outperform Carvana's Revenue growth rate next fiscal year by nearly 60%. Vroom will be approaching $4.5 billion in Revenue, while Carvana will be looking to generate $16.5 billion. Vroom's EV stands at $1.4 billion, while Carvana is at $48.4 billion. I wrote on this recently comparing both of these companies to traditional used vehicle companies like AutoNation, Inc. (AN) and CarMax, Inc. (KMX), but it is equally important to see the divergence with the leading used vehicle iBuying e-commerce platform. The chart above clearly shows the correlation that these companies had until later in the summer, that has now reached a new divergent low-point. I don't have an issue with Carvana's valuation level with the recent sell-off from its late summer peak. However, Vroom's discount is not justified due to the simple fact that Vroom is the clear number two behind Carvana. The competitive opportunity remains against the traditional players that will all be growing sub-10% sooner than later. Wallstreet is pumping traditional players while it can in during their inflated pandemic-based performance.


Vertically Integrated EV Leaders v. Traditional Automotive OEMs

This is an example of how Wallstreet is using innovative leaders that have too much momentum to be pulled down, to pull up legacy players who have much more to prove than the simple statements that they've made. I recognize that traditional automotive OEMs have today's supply chain and production scale behind them, but they will not be capable of catching up to any of the Vertically Integrated EV Leaders by 2025, let alone by 2030. Wallstreet is quick to temper expectations for companies like Lucid Group, Inc. (LCID) and Rivian Automotive, Inc. (RIVN), while cheerleading the prospects for Ford Motor Company (F) and General Motors Co. (GM). This is completely illogical as while consumers will buy what Ford and GM sell, that doesn't equate to leading technology, direct-to-consumer models, and capital efficiency between cannibalizing ICE vehicles. In any regard, this is a clear example of two important factors, first, Wallstreet does face challenges when certain companies and industries are too difficult to control, and second, Wallstreet clearly mixes and matches and picks and chooses when to pump and when to dump.


FAANG-M

FAANG-M are all witnessing positive performance as we look to wrap up 2021. Prior to the pandemic, all of FAANG-M were witnessing significant slow-downs in Revenue growth. The pandemic has clearly been the core catalyst for their resurgence. However, this will not last forever, and slowing growth is likely to return with a vengeance. The irony here is again the double-standard where companies in FAANG-M receive a free pass, while smaller competitors (all growing much faster pandemic or not) are punished based on "growth concerns". Many of our federal politicians own stock in most if not all of these companies as well. FAANG-M in my opinion is one of the reasons why the U.S. government continues to prolong the pandemic, Big Pharma being the other key reason, also owned by many federal politicians.


Conclusion


Wallstreet does two very important things when it comes to the stock market. First, they control short-term moves across every public company. Second, they are only concerned with short-term investment returns and leave mid- and long-term investment priorities to ETFs, Mutual Funds, Cathie Wood, and many other investors. In fact, I wouldn't characterize Wallstreet as investors, but more of nefarious players influencing market moves in any way that they can to make money as fast as possible. Wallstreet truly is the epitome of greed and power. This is no different than JP Morgan manipulating the stock market in the late 1800s.


Today though, algorithms consuming constant information are the decision makers as to how the markets move. So volatility increases more and more and duration and severity degrees compound. This creates much more pressure and intensity with respect to dealing with how the markets move.


The recent proliferation of aggressive investing by retail investors and competing Cryptocurrencies as an alternatives to equities have placed pressure on Wallstreet. 2021 in my opinion is Wallstreet's response to these pressures, as they look to shake-out any investors that they can. It's not a game, but a sustained desire to eliminate the competition.


The fact that broader indices are all positive and that FAANG-M is leading broader indices creates a dicey situation. While COVID did inflate valuations to a degree for selective growth plays, today there are far too many premiums (FAANG-M included) while select aggressive growth plays have been punished beyond reason.


At the same time, Wallstreet continues to use false metrics for valuation that the public has unfortunately accepted long ago, and continues to today. Cash Flow is the name of the game and far too many investors fall victim to P/Es. Jim Chanos recent short discussion on DoorDash, Inc. (DASH) is a great example of Wallstreet's manipulation. His statement of if DoorDash can't generate a profit in an inflated COVID environment, it never will is pure uselessness. DoorDash has witnessed a Cash Flow inflection from -55% in 2019 to 10% as of Q3 2021 and on an LTM basis. This is where ALL investors (even Jim Chanos) pay attention behind the scenes, and why Cash Flow metrics are not widely published across the board. Over the mid-term if DoorDash is successful in generating $11-$12 billion in Revenue and nearly $2.5 billion or so in OCF, the SP will realistically be valued north of $400.


Investing is not for the faint hearted, and I view it as a war. As a Christian I am used to battling the daily spiritual battles that hit often and hard. Managing portfolios, and investing for mid- and long-term horizons requires an ability to fight and fight hard (and smart) in order to win. Wallstreet sold out long ago to control markets through greed and power. Without having control as an investor, the only alternative is to be capable of picking winners.


This is actually an arena where investors can beat Wallstreet, not at their own game, but by choosing to not play at all. The alignment of the baby boom generation across Big Government, Big Tech, Big Pharma, and Wallstreet is dividing the desired outcomes for the future. Unfortunately for Big Everything, younger generations are getting older and will inevitably become the majority which will unlock all of the future potential that is currently being suppressed.














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