Weekend Update #71
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.
Month-to-date, the S&P 500 has declined by 5.9%. Among the leading components: Twitter (+24.3 after Elon Musk’s buy-out offer), Target (+15.1%) and Ross Stores (Dress for Less; +14.3%). Among the laggards: Netflix (-42.2% on the heels of their earnings report), Match Group (not getting any love, down 29.0%), and NVIDIA Corp (-26.9%). As of this writing, the S&P is poised to close down 2.8% for the day, which would be the worst daily performance since March 7 when it closed down 3.0%. These moves come after Federal Reserve Chairman Powell spoke Thursday afternoon at a panel discussion with ECB President Christine Lagarde hosted by the International Monetary Fund in which he indicated they were prepared to implement half-point interest rate hikes at the next FOMC meeting.
The Nasdaq Composite Index is down even more than the S&P, registering a -10.0% return month-to-date, led by Checkmate Pharmaceuticals (+236.16% following the news that it is getting acquired by Regeneron) and dragged by Blue Water Vaccines (-92.2%).
The “best” performing index of the three majors is the Dow Jones, which generated a -2.9% for the month. Among its best-performing components are Dow Inc (+6.73%) and IBM (+6.22%) while the worst performers were Salesforce Inc (-19.2%), The Walt Disney Co (-13.7%) and Microsoft (-11.4%).
On the commodities front, European natural gas ended the week down almost 20% while its American counterpart edged down 10% following a peak on Monday of $7.82 per MMBtu. Brent and WTI crude also fell—4.92% and 4.56%, ending the week at 106.20 and 102.07 per barrel, respectively.
The housing market showed further signs of slowing, with the NAHB Housing Market Index falling to 77 points from its pandemic-recovery high of 90 in January 2021. Building permits for new construction declined somewhat month-over-month, which serves as a leading indicator for new housing starts, which seem to have peaked at 1.793 million. Adding to the softness are declines in sales of existing homes and a six-consecutive-week decline in mortgage applications caused by a rising 30-year mortgage rate that is now at a recent high of 5.25%.
We saw several earnings reports this week from Netflix, Tesla and Snapchat, which fellow team members Nick Peart and Jared Fenley cover in their reports.
Thank you Blue Room Leader OMAR GUZMAN.
Summary and Outlook
Netflix’s stock plunged over 35% following its earnings call after reporting negative subscriber growth for the quarter, the first net loss in 10 years. While the net decrease largely came from the company’s decision to discontinue its service in Russia resulting in a loss of 700,000 accounts, the adjusted 500,000 gain in memberships was substantially below both analyst estimates and company guidance of 2.5 million. In addition to macro factors, the company attributed its slow growth primarily to market saturation and competition, which executives had not been as concerned with in previous quarters. Even worse, Netflix is guiding a net loss of 2 million subscribers for the second quarter of 2022, indicating the company’s troubles will continue to get worse in the near term. Netflix plans to reaccelerate revenue and subscriber growth by testing account sharing fees and implementing a lower-priced tier with advertising, but neither are likely to be rolled out globally before 2023. The stock is trading down 64% year-to-date near $220, levels it has not seen since early 2018.
Netflix highlighted four external factors that are adversely affecting its growth trends:
Pace of growth in the underlying addressable market. Adoption of streaming by broadband homes will depend on growth of connected TVs, the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers.
Account sharing. Netflix estimates that its service is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of paying membership hasn’t changed much over the years, but will continue to hinder the company’s ability to grow subscriber numbers if nothing changes.
Competition for viewing with linear TV. Over the last three years, traditional entertainment companies have launched new streaming services to adapt to the transition from linear programming to on-demand entertainment.
Macro factors. Sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID will continue to impact Netflix’s outlook through 2022.
Investment Thesis
Team 5,661 employees as of December 31, 2021
54% of employees are engineers
Technology Snapchat Social Media Platform
331 million daily active users
Products Spectacles / 3rd generation Dual camera glasses inspired by the human eye, for use with Snapchat $380
Spectacles / 4th generation Display glasses designed to overlay Lenses directly onto the world
Featuring dual 3D waveguide displays, 2 RGB cameras, 4 built in microphones, 2 stereo speakers, and built-in touchpad controls Not for sale / limited distribution to Creators
Shares Outstanding 1,382,050,725 as of April 19, 2022
10.00% 138,205,073 shares
1.00% 13,820,507 shares
0.10% 1,382,051 shares
0.01% 138,205 shares
Market Capitalization
$30.00 per share $41,461,521,750
$50.00 $69,102,536,250
$75.00 $103,653,804,375
$100.00 $138,205,072,500
$250.00 $345,512,681,250
$500.00 per share $691,025,362,500
Initial Public Offering 200,000,000 shares
Filing: $14.00-16.00 per share
Pricing: $17.00 per share
The NAHB Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.
The March reading was 79, below the consensus estimate of 81. The April reading came in at 77, in line with consensus estimates.
Tesla, Inc.
Ticker: TSLA
Market Capitalization: $1.041 tillion
Shares Outstanding: 1.03 billion
Share Price History
April 11, 2022 $975.93
April 12, 2022 $986.95
April 13, 2022 $1,022.37
April 14, 2022 $985.00
April 18, 2022 $1,004.29
April 19, 2022 $1,028.15
April 20, 2022 $977.20
April 21, 2022 $1,008.78 ← +3.4% day after Q1 ‘22 Financial Results released
April 22, 2022 $1,005.05
Corporate Profile:
Tesla, Inc. produces electric vehicles and clean energy generation, storage, and consumption solutions. Tesla is focused on accelerating the integration of clean energy transportation and production into society in order to more quickly achieve a zero-emission future. Additionally, all of the new Automotive products include self-driving capabilities and continuing to develop this Autopilot capability is at the core of Tesla. Tesla designs and manufactures several products based on sustainable energy usage. The products within their Automotive sector are all various types of electric vehicles: Model S, Model 3, Model X, Model Y, Roadster, Tesla Semi, and Cybertruck. Tesla’s Energy Generation and Storage sector comprises Powerwall, Powerpack, Solar Roof, and Solar Panels which are all products focused on the generation, storage, and consumption of renewable energy.
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BLUE ROOM GLOBAL MEETING
Thursday, April 21, 2022
6 PM / Denver Time
__________ _________
BLUE ROOM
GLOBAL MEETING
On the way to lunch last week, we talked about how fun and nerve wracking it would be to give a high school valedictory speech, yes, in front of all of your classmates. Jerry Seinfeld had a great rap on the fear of public speaking, noting some people feared it more than even death!
Question
+ Do you have any actual experience giving such a speech? Tell us about it. What was the topic of your speech?
+ If you had to give a speech in front of your peers, what would it be?
+ Other than Zelensky, what are some of the most memorable speeches you have heard?
+ Why are speeches effective, or ineffective?
__________ __________
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FAILURE LAB "HAZARD & ORDER" EXHIBITION OPENING
WEDNESDAY APRIL 27
Join MCA DENVER at the Holiday Theater on Tuesday, April 22 for a special showing of the Anti-Hero Short Film Fest.
ABOUT THE EVENT:
Join us at MCA Denver on Wednesday, April 27 to celebrate the opening of Failure Lab’s exhibition, Hazard and Order. The works in the exhibition address the chaos, the moments of joy, and the times in-between these polar opposites.
LOCATION:
1485 Delgany St
On the third floor and the rooftop café and bar of MCA Denver.
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IS LIVE
10% OF ALL BLUE ROOM REVENUES GO DIRECTLY TO FUND OUR NON PROFIT TOGETHERISM.
WE CAN ACCOMPLISH ANYTHING TOGETHER.