Weekend Update #053

Dec 10

Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.

Core Inflation (excluding Food and Energy) hit 4.9%. Inflation is at its highest levels since the 1970s stagflationary period. Rising PPI (producer price inflation) suggests CPI will be pulled higher in 2022.

Thank you Blue Room Director Minyoung Sohn

Progressive Yet Conservative

I said that I loved the expression but wanted to make sure that we were on the same page.

Progressive means moving forward, with sincere consideration of new ideas, but that does not mean we should seek change with reckless abandon or total disregard for tradition and customs.

Blue Room Fund One, L.P. is a multi—strategy hedge fund focused on generating superior risk adjusted returns long term as measured by the Sortino ratio. We seek to generate an average gross investment return of 15 percent per year over a market cycle by minimizing, not eliminating, drawdowns through the execution of the following strategies:

+ Holding long term buy and hold positions in public companies whose equity share prices have the potential for significant value creation over a multiple year holding period. We prefer to establish positions in securities that have experienced share price correction, in some cases, of fifty percent or more;

+ Avoiding long exposure to Facebook, Amazon, Netflix, Google (colloquially collectively referred to as “FANG” stocks) and Microsoft, Apple and Nvidia to increase active share component of risk;

+ Holding long exposures related to Gold, Silver and other precious metals, including cryptocurrencies such as bitcoin and ethereum, because we believe these assets have and will maintain low, or even negative, correlation to the S&P 500;

+ Establishing short stock and hedged short positions which offset losses during a market correction; purchasing cost efficient market hedges, when available.

Highlights:

CEO Dan Springer purchased DocuSign 1,076 shares on December 8, 2021, contributing to the 11% price increase that day. He referenced the previous Friday’s 40% drop and called it an “overreaction”
On the question of “Why now?” (the deceleration of growth in revenue and billings)—customers purchased aggressively during the pandemic and now are buying less aggressively
- He pointed out no customers have left DocuSign, they’re just not buying at the same volume, and “the combination of a whole bunch of people with that small delta...the math is what got us there”
CFO Cynthia Gaylor noted forecasting from pandemic peaks is difficult
- The billings reduction actually lines up with the guidance put out in May; she implied there was pressure to increase it due to accusations of “sandbagging”
The focus is now on enabling the sales team to talk to existing customers, understand their needs, and offer use cases that would generate additional ROI for their businesses
- Shifting from demand capture toward demand generation; 60% of the go-to-market field joined since the pandemic and still need to undergo training to do this effectively
- “Additional use cases”— the Agreement Cloud, ex-eSignature, which includes CLM, Notary, Insight, Analyzer, Payments, Identify, among others
The company expects margin compression in 2022 due to continued investments in sales and marketing and R&D

Ambarella, Inc. was incorporated in the state of California in 2004. It is a leading developer of low-power systems-on-a-chip, or SoC, semiconductors for AI processing, advanced image signal processing and high-resolution video compression. Ambarella Inc. historically sold its solutions for human-viewing applications for public infrastructure, internet protocol security cameras, sports cameras, wearables, and aerial drones. Since 2018, the company has gone to market with its next generation of artificially intelligent, computer vision SoCs under its CVflow architecture, a suite of software and hardware that run convolutional neural networks and deep neural networks for environmental adaptivity architecture, a suite of software and hardware that run convolutional neural networks and deep neural networks for advanced t. The CVflow product line includes programmable wafers that can run commonly used AI software programs like Tensorflow and Caffe in order to customize AI applications. Because CV SoCs are programmable, they provide customers with the option to run customized software that is unique to their specific needs. Some of the notable applications of CVflow technology include terrain mapping, object detection, stereo object detection, classification and tracking, image processing, semantic and instance segmentation, and facial recognition. Since 2018, Ambarella has sold more than 1,000,000 CV units to over 100 customers.

December 09, 2021 - Costco: Q1 2021 Earnings Call

Link to press release: PDF

Summary: Fiscal Quarter Ended (twelve weeks), ended November 21, 2021

Net sales for the quarter increased 16.7 percent, to $49.42 billion from $42.35 billion last year.
Comparable sales for the 4th quarter and the fiscal year were as follows:

Net income for the fourth quarter was $1.324 billion, $2.98 per diluted share, compared to $1.166 billion, $2.62 per diluted share, last year. This year included a tax benefit of $91 million, $0.21 per diluted share, related to stock-based compensation, and a write-off of certain information technology assets of $118 million pre-tax, $0.20 per diluted share. Last year included tax benefits of $145 million, $0.33 per diluted share, and incremental expenses for COVID-19 premium wages of $212 million pre-tax, $0.35 per diluted share.

Costco currently operates 828 warehouses, including 572 in the U.S. and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the U.K., 16 in Korea, 14 in Taiwan, 13 in Australia, 4 in Spain, and two each in France and China, with one store in Iceland. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

Summary:The House Financial Services Committee held its first-ever congressional hearing on cryptocurrencies to discuss the challenges and opportunities of cryptocurrencies with various executives in the industry. Overall, the hearing seemed to be productive and positive for the cryptocurrency industry. Generally, Republicans were more supportive and receptive of crypto, as they were primarily concerned that the government could stifle innovation, pushing American companies and entrepreneurs overseas. Democrats seemed to have mixed perspectives, and were mostly concerned with investor protection and national security. It was clear that all parties favor more explicit regulations that have uniform standards and are clearly communicated. There are still some disagreements on the “how” in which these regulations are implemented, but Congress looked to be receptive and eager to work with companies in creating legislation. Discussions will continue on December 14, when the Senate Banking Committee holds its own hearing to specifically discuss the use of stablecoins. Below is a synopsis of the key takeaways from the executive panel’s responses.

Initial jobless claims came in at 184,000 for the week of December 4th — the lowest reading since September 1969.

Along with this, the U-3 unemployment rate registered a pandemic low of 4.2% for November.

This should give the Federal Reserve some extra confidence in speeding up the pace of tapering and moving forward rate hikes, because these indicators point to a strong, functional labor market…

But there are still plenty of signals showing that something is not quite right in this labor market.

Schrödinger, Inc.Corporate Profile:

Our mission: To improve human health and quality of life by transforming the way therapeutics and materials are discovered.

Our physics-based computational platform leverages a deep understanding of physics, chemistry, and predictive modeling to accelerate innovation.

Our platform enables our collaborators to discover high-quality, novel molecules more rapidly, at lower cost, and we believe with a higher likelihood of success compared to traditional methods. We’re also harnessing this platform for our internal drug discovery programs.
We are proud to be leading this digital revolution.

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December 10, 2021
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MCA Octopus Initiative

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Blue Room has partnered with MCA Octopus Inituative to showcase 25 unique pieces of artwork at Blue Room headquarters.

Have you ever looked at a work of contemporary art in a museum and wanted to bring it home? Well, now's your chance. MCA Denver's Octopus Initiative is offering any resident of the Denver metro area the chance to borrow and live with a work of art made by a Denver-based artist for ten months. FOR FREE.