Friday, May 6th, 2021 – Volume 2 – Issue 214

Dow Jones: 32,899 (-0.30%)

S&P 500: 4,123 (-0.57%)

Nasdaq: 12,144 (-1.40%)

Russell 2000: 1,839 (-1.69%)

Bitcoin: $36,024 (-0.71%)

Ethereum: $2,693 (-1.87%)

 

Today wasn’t great… But compared to yesterday’s complete market meltdown, it looked like a walk in a financial park!

Stocks fell to close out a pretty crazy week as tech stocks were once again a major point of market weakness. More speculative areas, like biotech and solar, were also hit particularly hard today.

For the Week: The Dow closed down 0.24%, the S&P lost 0.21%, and the Nasdaq fell 1.4%. The S&P 500 and Nasdaq recorded their fifth straight week of losses in a row while the Dow is now on a six-week losing streak.

Economy: The 10-year Treasury yield hit a high of 3.13% today before pulling back later in the session. The U.S. added 428,000 jobs in April.

Crypto: Bitcoin ended the day relatively flat as analysts worry that the price is breaking down. The charts show a strong support at the $30,000 level.

Now, for the top news stories of the day… Have a great weekend!

Source: Heat Map & Sector Performance — Finviz.com

Tech Stocks Lost $17 Billion in Q1

Tech stocks are getting crushed. That’s no secret, especially given the massive 4.99% hit the Nasdaq took yesterday… But behind the curtain, the companies themselves are losing tons of money on their investments as well. You’re not alone!

Q1 earnings reports so far have all highlighted growth challenges like inflation, supply chain shortages, and the war in Ukraine. But they’ve also pointed out the huge L’s they’ve taken on equity investments.

  • Keep in Mind: A lot of these companies ‘hide’ these losses as “non-operating expenses” or “unrealized losses” when discussing them in their earnings calls… But they are L’s that affect the share price nonetheless!

Pulling Back the Curtain: Total equity holding losses among tech companies topped $17 billion in Q1. How many upvotes do you think these #lossporn posts would get on /wallstreetbets?

    • Amazon lost $7.6 billion on its Rivian investment (RIVN is down over 70% year-to-date).
    • Shopify recorded a $1.6 billion loss on investments — with most of that coming from Affirm (AFRM), which is down over 73% year-to-date.
    • Uber lost a total of $5.9 billion in Q1, with $5.6 billion coming from its stakes in delivery company Grab, autonomous vehicle company Aurora, and Chinese ride-hailing company DiDi (DIDI).
    • Alphabet lost a collective $1.07 billion on UiPath (PATH), Freshworks (FRSH), Lyft (LYFT), and Duolingo (DUOL).
    • Qualcomm lost $240 million on its Qualcomm Strategic Investments in intelligence, digital health, and networking.
    • Snap recorded a $92 million loss “on investment that became public in H2 2021,” according to its earnings report.

Many of these investments were touted as a stroke of genius — and shaping up for blockbuster IPOs. But it looks like the tech giants are learning about the risks of investing in their own industry the hard way…

Zooming Out: The Nasdaq fell 9.2% in the first quarter, and Q2 is looking even worse… So far the Nasdaq is down 14.9% in the second quarter as previous high-flying tech stocks continue to get crushed.

Crypto.com Just Reached a Huge Milestone

Want to 10X your business without paying Grant Cardone thousands for a seminar seat? Take a page out of Crypto.com’s playbook and start a crypto company!

Of course, we’re joking. Starting a successful crypto exchange is a tough task. But in all seriousness, Crypto.com CEO Kris Marszalek says that the company is set to officially 10X from its late 2020 user stats, on track to hit 100 million users by the end of 2022.

Where are they now? Crypto.com just surpassed the 50 million user mark — a fivefold increase from its 10 million back in 2020. And they did it all without taking outside investment…

  • “We’ve obviously had a tremendous amount of interest with some very generous offers, but cash hasn’t been a limiting factor given the amount of revenue the company produces,” said Marszalek.
  • Compare that with other high-volume exchange rivals like Coinbase and FTX, one of which is already a publicly traded company with virtually no limit to fundraising capabilities.

Putting Cash to Work: Crypto.com owes a lot of its growth and success to its marketing team, which has essentially turned the exchange into a household name — at least with regards to the finance community.

  • Paying upwards of $700 million to put its name on the former Staples Center was a good example of their prowess. Many LA natives weren’t too happy about the historic name change, but it did generate tons of buzz and media coverage online.
  • Making Moves: This weekend, Crypto.com will get even more brand recognition as the title sponsor of the Formula One race in Miami. Over the summer, Crypto.com will be a FIFA World Cup sponsor as well.

Going Public? Marszalek hasn’t ruled out the possibility of eventually taking Crypto.com public. But before that happens, he wants to make sure the company is “better able to withstand market pressures.”

  • Coinbase has taken a lot of heat from investors for being “too one-dimensional” and susceptible to crypto market risk. Crypto.com wants to be able to diversify its revenue streams before asking investors for their hard-earned money.

China is Testing its Economic Strength…

China is up to no good… as usual. With all eyes on Russia, China is taking note of the situation, and wants to know what would happen to itself if it was placed under similar circumstances. Here’s what we know right now:
 
  • Beijing has ordered a extensive “stress test” to study the implications of similar scenarios for its economy, according to the Guardian.
  • According to a source close to the matter, a comprehensive test began around late February/early March when sanctions had been laid out by the western allies.
  • Several key sectors, from international trade to banking, were asked to come up with responses if those sanctions were imposed on China.
  • Chinese finance officials met with domestic and foreign banks to discuss the protection of China’s overseas assets should they face similar penalties.
Why? It’s not 100% known why this is happening, but many point to Taiwan. Like Russia has invaded Ukraine, many are fearful China will invade Taiwan, a territory it feels is rightfully its own and home to a lot of key technology.
 
The current exercises will teach China what could happen to them if they face similar circumstances, but many experts say the economic damage is unavoidable. Although China was caught off guard by Russia’s invasion, supposedly they were more shocked with the West’s response. Even amid the sanctions, China has stepped up its support of its ally in the past couple of weeks, leading many to become cautious of China’s true intentions.

People Are More ‘Scared’ Than ‘Excited’ For the Metaverse

And that’s usually not a great sales pitch. But hey, it is 2022. Perhaps you’re not trying hard enough to innovate if your product isn’t a bit terrifying…

A recent survey conducted by Axios asked respondents if the metaverse made them “more excited or scared about the future.”

  • To Mark Zuckerberg’s heart ache, only 7% of the respondents said that the new VR worlds made them “more excited” about the future.
  • On the flip side, nearly one-third of the respondents said it made them “more scared.”

Now of course, that leaves a large group of people that don’t fall into the “more excited” or “more scared” categories. So where does that leave them?

Well, 58% of people actually responded “neither,” suggesting that most of America is still treating the idea of the metaverse with indifference.

  • And this could be why… The survey also found that 60% of adults were completely unfamiliar with the idea of the metaverse in the first place.

Why This Matters: This could be a big point of concern for the hordes of tech companies that are already pouring billions into developing virtual worlds — since the vast majority of Americans are either fearful or apathetic towards metaverse concept as a whole.

  • And that’s not to mention the individual investors who are dropping millions on virtual real estate, NFTs, and shares of metaverse-forward stocks and cryptos.

But it looks like some developers already understand the risk they are taking… Facebook’s Metaverse VP, Vishal Shah, told CNBC last October that the company’s metaverse investment could take as long as 15 years to truly ‘pay off.’

Cathie Wood + Major CEOs Just Spent Millions on Stocks

No one wants to hear this, but economist Brunello Rosa is saying it anyway: we’re not at the bottom yet.

Rosa says that the markets are set for even more heavy selling this summer as central banks around the world notch up interest rates. And he doesn’t think that people are recognizing how bad things can get…

  • “Now it’s time for a reappreciation of the economic fundamentals around the world in terms of growth,” he told CNBC.

While investors welcomed the news that 75 basis point hikes are off the table for now, Rosa warns that there will still be multiple 50 basis point rate increases over the next few months. “It’s clear that all of them [central banks] are talking tough at this stage. But the reality is that lots of tightening will eventually lead to economic contraction,” he said.

  • “In the euro zone and in the U.S. they are nowhere near realizing that actually there will be some form of contraction of economic activity,” Rosa added.

But at the end of the day, bulls will be bulls… And some big-time company insiders are scooping up shares of their own beaten-down companies during this market rout.

  • Spotify CEO Daniel Ek dropped a cool $50 million on SPOT shares this week. SPOT is down more than 50% this year.
  • General Motors finance chief Paul Jacobson bought 35,000 shares ($1.38 million as of today’s close) of GM earlier this week. GM is down 35% YTD.
  • General Electric CEO Larry Culp bought 65,000 shares of GE (about $5 million) this week. GE is down over 18% this year.
  • Intel CEO Pat Gelsinger and CFO David Zinser bought a combined 12,000 shares of INTC this week. INTC is down 16.7% YTD.

And Cathie Wood has been quite active as well… Buying the dip and adding aggressively to her positions in these stocks during Thursday’s crash across Ark’s many funds.

  • HOOD: 255,670 shares of Robinhood bought in ARKF
  • ROKU: 42,450 shares of Roku bought in ARKW
  • SHOP: 130,000 shares of Shopify bought across ARKK, ARKF, and ARKW
  • SQ: 73,000 shares of Block (formerly Square) bought in ARKW

Bulls

Monster Beverage (MNST): +4.37% – Moster beat revenue estimates of $1.43 billion and reported $1.52 billion, but EPS missed slightly. 

WeWork (WE): +3.33% – WeWork has held up better than the markets over the past month (+7.46%) as back to the office trends grow stronger. 

CVS (CVS): +3.02% –  CVS is coming off an earnings beat on the top and bottom line earlier this week. 

Bears

Under Armour (UAA): -23.93% – Under Armour reported an unexpected loss and revenue came in under expectations. Forward outlook also disappointed. 

Nikola (NKLA): -11.88% – Nikola was one of the best-performing stocks yesterday following its earnings beat, but momentum faded today. 

Coinbase (COIN): -9.20% – Coinbase is falling ahead of earnings next week as crypto continues to struggle amid market conditions. 

Lucid (LCID) – Bank of America reiterated Lucid as a buy saying the company remains a “competitive threat” after solid earnings. “As a reminder, our Buy rating on LCID is predicated on our view that the company is one of the most attractive among the universe of start-up electric vehicle (EV) automakers and also a relative competitive threat to the universe of incumbent automakers.”

Virgin Galactic (SPCE) – Canaccord downgraded Virgin Galactic from buy to hold seeing a “supply chain crunch” and bottleneck for delays.” “Management announced during the Q1/22 earnings call that the company has delayed the start of passenger operations until Q1/23.”

eBay (EBAY) CRRA downgraded eBay from buy to hold after its earnings report citing downside fundamental risks. “We cut our target by $11 to $55 due to: 1) decent 1Q21 results, though consensus seemed to have built-in significant bad news, with revenue down 18% Y/Y and EPS $0.04 lower Y/Y to $1.05.”

Quote of the Day: It’s how you deal with failure that determines how you achieve success. –David Feherty

Fun Fact: The US Stock Market is worth $117 trillion, more than the next 7 stock exchanges combined.

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