Hope everyone had a good weekend!
The Emerging Crypto Economy
Three (3) positive catalysts have emerged that appear to have materially increased the potential of the emerging crypto economy sector over the past 6-12 months. First, China and their involvement in crypto has gotten completely out of the way and the sector demonstrated a strong resilience to removing this perceived dependency. China's regulators clarified on September 24th that cryptocurrency transactions and mining are illegal, the country's strongest stance against the non-government-issued currencies to date. The ban on digital assets has allowed the US to take the reins as the heart of innovation and focus for the new crypto economy. The second catalyst was the pivot from the SEC to begin to collaborate with with both Wall St. financial services companies industry and crypto exchanges instead of following China’s lead and issuing a complete ban on cryptocurrencies. In my opinion, this pivot was effectively an informal acknowledgement that cryptocurrencies have become “too big to fail” (estimated by Coinbase to now amount to almost $2T of market capitalization!) and now the next phase for the SEC is to figure out how to add some type of regulatory framework for this emerging industry. On October 19th, Proshares introduced a new exchange traded fund, $BITO, that trades on Bitcoin futures. The new fund quickly grew to over $1 billion in assets, becoming the quickest ETF to reach that threshold. In addition, we are now seeing certain investors like Paul Tudor Jones going on CNBC proclaiming that they are buying bitcoin as a new inflation hedge versus buying gold. Institutional investors are now getting interested in how bitcoin can we used as a hedge in their portfolio strategies as well. The third catalyst is the massive potential that the “on-shoring” of crypto related companies and jobs can contribute to the US economy that the Biden Administration is likely not to inhibit. Whereas 3-5 years ago cryptocurrency was effectively entirely speculative driven, Coinbase CEO Brian Armstrong recently said that today he thinks participants are more driven now by utility / adoption of crypto (NFTs, games, staking, borrowing/lending, Coinbase Card, etc. These “crypto sectors” have significant opportunity to ramp employment and create jobs to support them. Coinbase in particular started “Coinbase Ventures” in April 2018 to specifically provide capital and investment into building out the crypto ecosystem and economy. This provides jobs to developers, engineers, and others that will contribute to growing this new industry. In addition, the actual crypto miner group (Riot Blockchain, Hut Mining, etc.) has continued to make massive investments in high performance computing and graphic cards supporting US semiconductor companies like Nvidia, AMD, and others. The crypto economy has potential to continue to scale and Coinbase even highlighted that the current trajectory of crypto user growth is tracking the adoption of the internet.
Slide from recent Coinbase earnings press release:
Some interesting charts from this past week:
1) Inflation- Consumer Perceptions
Bank of America Global Research recently did a survey of consumers asking them to pick the top 3 area where they are noticing price increases. By a far and wide margin the grocery store took the #1 position.
2) Travel Spending Ramping Higher in October
Based up on Bank of America’s U.S. credit card spending tracking data, travel and hotel spending ramped significantly in October and will likely continue to pick up as the holiday travel season we be soon upon us.
3) EV Adoption Entering “S Curve” Adoption?
Based upon the chart below, global battery electric vehicle “BEV” sales are anticipated to account for almost 7.41% of total passenger vehicle sales in 2021, which is more than double the percentage from 2020 and almost 3.5X the market share from 2019!
Stocks I’m Watching
1) Airbnb (ABNB)
Airbnb, Inc., together with its subsidiaries, operates a platform for stays and experiences to guests worldwide. The company’s marketplace model connects hosts and guests online or through mobile devices to book spaces and experiences. It primarily offers private rooms and luxury villas.
Last week, I profiled Airbnb’s earnings release and potential as the next significant platform company that has potential for significant network effects in the future. It now appears the institutional “fact finding” phase may be over after numerous analyst upgrades and back to back significant accumulation weeks. The weekly RSI is now in the power zone and weekly breakout resistance is $212 level. High odds that this weekly breakout level is eclipsed by the end of the year, if not sooner.
2) DMY Technology Group (DMYQ)
Planet Labs, the leading earth observation operator will merge with SPAC dMY Technology Group IV. The shareholder vote to approve the merger will take place December 3rd. Founded in 2010 by former NASA scientists, the company operates the largest earth imaging satellite constellation, and can completely scan the entire world every day. Planet is vertically integrated, which means it not only designs, makes, and operates its own satellites but also provides images, data, and analytics to clients. What makes Planet different than other companies is that it has the largest constellation of fully deployed satellites, 170, and has exceeded $100 million in revenue last year with just a 30 person sales force. Planet's net dollar retention rate was 112.8% for FY2021 and has “big league” SPAC sponsors, including Google, Blackrock, and Marc Benioff’s Time Ventures firm.
With the SPAC merger soon approaching, what has caught my attention is two things; first is that Planet Labs is hosting a virtual investor day on November 18th that will highlight their SaaS type revenue model; second is that the SPAC sponsor, Niccolo de Masi, has had massive success with his SPAC’s over the past year. Niccolo has sponsored Rush Street Interactive (RSI), Genius Sports (GENI), and IonQ (IONQ). From a chart perspective, the SPAC is sitting at just about 50 cents over its $10 net asset value and saw huge volume come in last week.
Link to signup for investor day:
https://www.businesswire.com/news/home/20211109005817/en/Planet-Announces-Virtual-Investor-Day
3) Build-A-Bear Workshop (BBW)
Build-A-Bear Workshop, Inc. operates as a multi-channel retailer of plush animals and related products. The company operates through three segments: Direct-to-Consumer, International Franchising, and Commercial. Its merchandise comprises various styles of plush products to be stuffed, pre-stuffed plush products, and sounds and scents that can be added to the stuffed animals, as well as range of clothing, shoes, accessories, and other toy and novelty items. The company operates its stores under the Build-A-Bear Workshop brand name; and sells its products through its e-commerce sites.
Build-a-Bear has now topped its revenue earnings estimates in five straight quarters and has consolidated its post-earnings gap up and recently turned higher. A strong retail sales report Tuesday AM could be a catalyst for another move up. Build-a-Bear is an example of another company that leveraged the COVID-19 pandemic to pivot their sales model and significantly ramp their e-commerce business that is now paying off for them. Over the past year or so, Build-a-Bear has been leaning in on digital transformation initiatives to transform its business model. Last quarter, Build-a-Bear announced that in fiscal 2021 thus far that they have achieved the highest profit for their first half in our company’s nearly 25-year existence, with e-commerce sales up by 159% over 2019 levels with total revenues of $94.7 million, a 135% increase compared to the second quarter of fiscal 2020 and a 19.6% increase compared to 2019. In addition, Build-a-Bear is one of the few retailers that has a sound balance sheet; it ended the second quarter with cash and cash equivalents of $51.1 million with no borrowings on their credit facility.
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