Market Talk, September 19th 2021

(Edition #24)

Market Talk

September 19th, Edition 24

Good morning,

Market Talk is where I round up some of the data from public markets over the past week in a bitesize format.

Each Sunday I will share:

• The best pieces of company-related insights I have consumed over the week

• The greatest articles I have read during the week

• One stellar podcast or interview


For Subscribers

Coming up this week, I will be sharing a research piece on Lululemon this Monday.

In the following week, you can expect one research piece on Square, as well as September’s company spotlight, which discusses Clearwater Analytics.


📈 Market Action 📉

Here are your quick updates from the past week for various asset classes.

Global Equities

Source: (FinViz)

Exchange-Traded Funds

Source: (FinViz)

The S&P 500

Source: (FinViz)

Sectoral ETFs for the US

Source: (SPDRIndustryETFs)


🌎 Global Indices 🌎

The Americas

Source: (Koyfin)

Europe & UK

Source: (Koyfin)

Africa & Middle-East

Source: (Koyfin)

Asia

Source: (Koyfin)


🛢️ Commodities 🛢️

Energy

Source: (Koyfin)

Metals

Source: (Koyfin)

Agricultural

Source: (Koyfin)


💷 Major Currencies 💷

FX rates are correct as of the time of publishing.

🔇 US Market Sentiment 🔇

Fear & Greed Index

The CNN Greed and Fear Index measures market sentiment based on seven factors; momentum, price strength, price breadth, put/call ratios, junk bond demand, volatility, and safe-haven demand.

The current reading stands at 34 flat from 34 last week.

Source: (CNN)

Volatility

The CBOE VIX stands at 20.81, up from 20.95 the week before.


Major Earnings for the Coming Week

Some of the major earnings for the upcoming week, compiled by Earnings Whispers.

Source: (Earnings Whispers)

Upcoming IPOs

Source: (Nasdaq)


🕵️ Company Insight 🕵️

Here, I will share a handful of interesting, company or industry-specific, pieces that I have read over the last week.

1) Square: Closing the Loop

Source: (Square)

Square has certainly been busy this month. Last week they would announce a 10Y partnership with SoFi to be the exclusive POS, payments software, and merchant services provider for the new SoFi stadium, a 300-acre masterpiece being constructed to house both the LA Chargers and the LA Rams. This stadium will be cashless and entirely reliant on Square’s services, including over 1,000 Square registers and terminal units.

Elsewhere, the company have launched their Square register product in Canada, as well as offering early access to Square products to a limited number of merchants in Spain (the third EU country they have launched in this year alongside Ireland and France).

Perhaps most tantalising, however, is that Square appear to be closing the loop between both the Cash App and Seller ecosystems. Last week, the company would announce that Square sellers and consumers can now use Cash App Pay (a new contactless payment method for both online and in-person transactions).

“With Cash App Pay, consumers can seamlessly pay with their Cash App account at participating Square sellers. For both in-person and online transactions, customers simply scan a seller’s QR code at checkout, or click a button on their mobile device for a payment process that is fast, elegantly designed, and more secure.”

I am currently working on a piece covering Square’s Q2 earnings, as well as some of their more recent announcements, so this will be discussed in further detail then. Be sure to subscribe to avoid missing that one.


2) DutchBros: Successful IPO

Source: (Dutch Bros)

The Dutch Bros beverage franchise (Ticker: BROS) landed a successful IPO during the week, which saw the price of their shares open at ~$34 before shooting up as high as $48 by the end of Thursday (+40%). By Friday close, shares would settle at $43.55 per share.

The quirky coffee and beverage franchise, which has a large presence in the West of Northern America, currently has ~471 stores nationwide (207 company-operated, 264 franchised) with longer-term ambitions of 4,000+ stores.

Unlike most other physical consumer-facing businesses, revenues would continue to advance in 2020 ($238M in 2019 to $327M in 2020) in the face of the pandemic. After having earned $228M for the first two quarters of 2021 (+51%) they look set to report another impressive year of sales growth.

Whilst not directly relatable to Starbucks, there are some notable similarities, besides operating within the same industry and likely attacking the same batch of consumers.

Dutch Bros is a company I plan to write about in the near future, so keep your eyes peeled for that.


3) Stripe: IPO Edges Closer

Source: (Bloomberg, Independent)

The rumour mill has churned once again for Stripe, one of the most hotly desired IPOs of the current decade so far.

Whilst the fact this company are potentially seeking a path to the public markets is not news to most people, there were talks during the week that initial talks with investment banks have now begun, according to insiders. This, leading some to believe we may see an IPO as soon as 2022 after the company raised $600M in March of this year at a $95B valuation.


4) Apple: Apple Pay Later

Source: (Bloomberg, The Financial Times, Tech Crunch, Credit Karma)

The fact that Apple is working on a BNPL product (internally referred to as Apple Pay Later) was widely reported back in July of this year (see here).

Back in summer, it was reported that Apple was working with their lender of choice, Goldman Sachs (who have been Apple’s partner for Apple Card since 2019), to build a BNPL product that requires nothing more than Apple Pay to be set up on the user’s phone. With well over 1B iPhones in Apple’s installed base of users, this could be a promising method of both customer retention and acquisition. Apple Pay is by far the most seamless payments mechanism for iPhone users, with the ability to utilise it across the phone and the watch.

The murmurs went quiet for a number of months until they were resurfaced this week after Goldman acquired the speciality lender, GreenSky, for ~$2.2B. GreenSky offers BNPL as part of its service bundle to both merchants and consumers. This acquisition bolstered Goldman’s BNPL capabilities, which could suggest we are inching closer to an Apple BNPL product. This is just me speculating, however.

Readers may be interested in this study, conducted by Credit Karma to better understand the consumers who use BNPL services.

The study suggests that 44% of respondents have used BNPL before, with ~34% of those who used BNPL falling behind on one or more payments, and ~74% falling behind on at least one payment.

The data also shows that Gen Z and Millenials are more accustomed to using BNPL for smaller dollar value items, whilst Gen X and Boomers tend to use it for higher value items. This may just be the difference between wealth, however.

Some salt is required, as the study was conducted online using 1,044 Americans so that 74% headline figure really tells us that of the 459 respondents who admitted to using BNPL, ~340 of those had missed at least one payment.

Ultimately, that’s still alarmingly high, but we can’t be sure that the sample is demonstrative of the wider American consumer base.


📰 Brain Food 📰

Here is a shortlist of a few interesting pieces that I have read over the course of the week, to feed your mind.

Note, these articles are not numerically listed in order of perceived value.

To access the suggested article, click the purple link after the source subheading.

1) Peter Lynch Essays: 1993 to 1999

Length: Dense Read

Source: (Dividend Growth Investor)

Huge H/T to Mr Dividend Growth Investor, someone I had the pleasure of interviewing a while back, for highlighting this collection of Peter Lynch articles from the 90s.

Probably not something you will consume in one sitting (the PDF is 181 pages long) but certainly a document you should save somewhere for later reading. This PDF contains a collection of the articles that Lynch wrote for Worth Magazine over the course of a decade, mostly ~3 to 5 pages in length per issue.

This is something that will keep me busy for the next few months, and I imagine will be a great resource for anyone reading.

“Nothing bedevils the average investor more than the false sense of inferiority that comes from playing against the institutions. After all, the institutions are so big, and get so much attention for dominating the markets, that the amateur stockpicker can't help but feel that he's trapped in a fantasy baseball camp, competing against the Atlanta Braves.”

2) Essay About How Greenlea Lane Invests

Length: Light Read

Source: (Greenlea Lane)

Greenlea Lane Capital Management is an investment fund managing almost half a billion dollars, ran by Josh Tarasoff.

Josh launched the fund in 2006 with $2.3M in AUM. At the time, there were no employees, no marketing efforts, and today he still remains the sole professional managing the fund. After having compounded at a 17.3% rate from 2006 (net of fees and expenses), the fund currently stands at ~$450M today. For more insight into that story, see this short interview.

Both the interview (4 pages) and the letter (5 pages) that I shared in this issue of Market Talk are captivating reads.

“As a business school student before launching Greenlea Lane, I thought that long-term investing was a decision—an approach you can choose to adopt, and that’s that. But after beginning to invest in the real world, I soon realized that nothing could be further from the truth: a long-term approach requires constant recommitment in the face of pressures stemming from both human nature and external influences. It’s a discipline, I thought for a while—but soon became dissatisfied with that formulation as well. Discipline is effortful, and that didn’t seem right. True long termism should be automatic—not something you do but something you are. And so, I came to think of true long termism as a way of being.”

3) Interview with Gavin Baker

Length: Moderate Read

Source(The Market)

In this interview with Gavin Baker, conducted by Christoph Gisiger at The Market, the pair talk macro, inflation, big tech valuations, semiconductors, and a host of other market-related ideas.

After spending almost two decades at Fidelity, which included an eight-year stint managing their $17B OTC fund (which compounded at 19.3% net of fees and won six Lipper Awards), Gavin would launch Atreides Management in 2019. The firm “brings the long-term perspective of a private equity investor to high growth technology and consumer companies and invests across public and private markets” and currently has an AUM of ~$3.7B. A great interview from a vastly experienced investor.

“It’s actually pretty tough to argue that these mega-cap tech stocks are expensive. A lot of the big tech companies are pretty cheap. Here’s something I like to do with these mega-cap tech companies: Let’s divide every number by ten; the market cap, the shares outstanding, the revenue, everything. And then, let’s pretend that stock is in another sector like industrials and try to figure out where it would trade. I can tell you the multiples would be way higher.”

4) Why Financial Manias Persist

Length: Light Read

Source(A Wealth of Common Sense)

A short and insightful piece from Ben Carlson which covers the backdrop to what criteria is typically present during a speculative mania, as well as his thoughts on the NFT boom.

“While relatively rare, it would be foolish to assume manias can ever be eradicated. Unless our hard-wiring somehow changes, they’re here to stay.

It’s in our nature. We humans have a tendency to go overboard and take things to extremes. We can’t help ourselves, especially when it comes to new and exciting technologies or financial securities.”


🍬 Ear Candy 🍬

There is a huge range of Podcasts to listen to, and the choice can feel quite saturated at times. Here, I will share one podcast I listened to during the week, that I feel is worth your time.

Airbnb (ABNB) with Alex Morris

Chit Chat Money

Alex Morris, alongside Abdullah (MBI Deep Dives), are both firmly placed within my top three investment writers that I read.

In Market Talk, I make it a point to only share non-paywall content for the benefit of the reader, which sadly means I can not often share Alex’s great work, which I read every week (if you are reading, Alex, I know you will understand).

A week or so ago, Alex put out a great issue, digging into the fundamentals of Airbnb, complete with the history, the competitive environment, and how they transitioned (and survived) throughout covid. I personally adore the science of hitting (the title of the publication) as it genuinely feels like I have an additional analyst on my team, sharing concise and insightful research on company’s I don’t have the time to cover.

This is beginning to sound like an ad, but I assure you it’s not. Readers will know that’s not my style.

Anyway, Alex recently joined Brett and Ryan over at Chit Chat Money to discuss that very article, which paints great context into the subject matter than Alex discussed. For those interested in learning more about Airbnb, or the industry in general, this is a great listen.

HostBrett Schafer & Ryan Henderson

GuestAlex Morris


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Disclosure

These are opinions only of the individual author. The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company. All content is purely subjective and you should do your own due diligence.
Occasio Capital Ltd makes no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece. Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice. Any projections contained in the Information are based on a number of assumptions as to market conditions and there can be no guarantee that any projected outcomes will be achieved. Occasio Capital Ltd does not accept any liability for any direct, consequential or other loss arising from reliance on the contents of this presentation. Occasio Capital Ltd is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.