Changing Collateral - Changing Value
Essence 06.29.2020
Discussion
What do you value today? How do you value it?
Crunchbase News – “Meet Karat, Creating the Credit Card for Influencers and Creators”
According to Business Insider, “The influencer marketing industry is expected to be valued at up to $15 billion by 2022.” We think those estimates might be conservative, but the point is there is serious economic value here. This is a business. Yet many influencers have difficulties getting access to capital. Traditional institutions like banks and credit agencies don’t seem to understand the creator economy using “standard” metrics like FICO scores to create a financial standing. This prevents influencers from accessing the capital necessary to operate their businesses.
Karat addresses this problem. Karat is a credit card company (capital source) that understands the creator economy. They use Plaid to assess the influencer’s financials using their social media handle to evaluate a creator’s reach, engagement, type of content & platform, and other metrics. Data left out of traditional criteria necessary to access capital.
CNBC – “United taps frequent flyer program to back $5 billion loan, sees cash burn easing”
United leveraged its frequent flyer program to open a $5 billion term loan facility. A CNBC analyst stated that (paraphrased) in airline bankruptcies, loyalty programs are the most valuable asset. Traditional lending institutions agree and the loyalty of United Airlines customers, the trust of their customers in their company, was used to secure a $5 billion loan.
Our Takeaway:
On the “Invest Like the Best” podcast Stripe Cofounder John Collison summed up two points very well;
“accounting and GAAP as you know, these fundamentals that are etched into stone tablets”
“if you look at the raw numbers, the internet economy is a very small fraction of the overall economy depending on who you believe, five, 6%, something like that”
Which brings us to our main point, how do you assign value? Are we not looking through the correct lenses? In one instance customer loyalty was recognized using traditional metrics (United Airlines) and one instance it wasn’t (influencers trying to gain access to traditional capital resources like credit cards). Customer loyalty/engagement is of value to every business. However, there is clearly a disconnect.
Traditional measurements like GDP, GAAP, credit scores, etc. are falling behind.
Tremendous growth opportunities can be discovered/recognized if barriers of entry are removed and measurements change
Value is constantly evolving
Portfolio
Portfolio Overview
This week was another lackluster week at Meera. We did not make many moves, as we believe we are positioned well for the continued downtrend in the market. We currently are only in 5 positions, 3 of which were initiated before last week’s newsletter. 4 out of these 5 positions are giving us complete exposure to the downside. We are currently down -18%, but we believe we are positioned to make up some ground.
The only current upside exposure is $SNAP. We are momentum investors and $SNAP has been on a wild ride over this last week, hitting all-time highs on 06/25. We bought $SNAP when it was trading at $22.5, and plan to hold for the next few days.
Trade Spotlight
We wanted to re-highlight our $LULU puts this week, as the trade has only looked better. Our strike price for these $LULU puts is $275, which is a significant support level in the chart. When looking at the other resistance and support levels, LULU just broke through a floor at the $290 price level and ended the week at $289. The general trend over the last two weeks has been very bearish. Looking at the chart below, last week we saw a “Three Black Crows” pattern form, which is another bearish signal.
We feel good about this position.
The technicals are bearish
The Coronavirus has significantly hurt the retail sector
LULU is still trading above the pre-COVID levels
Week Review
Watchlist 06.28.2020
EVBG calls - This company has been a stellar performer over the past 3 months and could surge to near all-time highs
ROST puts - Ross lacks an e-commerce presence and has heavy exposure to the Florida market
AMD puts - pure chart play, all of our screener technicals are screaming sell
Follow us on Twitter or Stocktwits to see or daily updates!
Private Company Spotlight
Atom Power built the world’s first and only true solid-state circuit breaker. Our current electrical infrastructure is dated and doesn’t suit the needs of future consumption. C.E.O Ryan Kennedy stated “We are seeing more complex, redundant systems” and “power goes through lots of circuit breakers, perhaps the least sophisticated product on the market today.” Atom’s circuit breaker is designed to use software and semiconductors to connect and manage an unlimited number of power sources digitally from one point.
Atom Power claims that circuit breakers and electrical flow haven’t experienced meaningful change since the Edison era. Atom Power has now raised over $23 million and is looking to disrupt the global power distribution component industry, valued at $90 billion in 2018. According to Global Market Insights, the industry is expected to grow over 6% by 2025 fueled by demand for refurbishment and regulatory & fiscal restructuring costs.
Atom Power currently offers 6 hardware products, 2 pilot programs, and the Atom OS Infrastructure Management Software application. Mr. Kennedy did not disclose revenue, but said he “anticipates the company will grow 20% YoY.” Atom plans to use its recently raised series B to accommodate the growth of its products. We believe hardware companies with a software interface should focus on being a ‘painkiller’ (not a ‘vitamin’) and that a successful growth strategy will include focuses on;
Present legitimate cost savings – Are you saving a company so much money previously spent on electrical or safety costs (even consider insurance risks) that they couldn’t go without Atom’s circuit breaker and power management platform?
Recurring revenue (like contracts) associated with the scalability & flexibility around the software offering, not one-time hardware installations/sales
Continue to innovate – This industry is very large and the most profitable sectors are just starting to be developed, solutions should be nimble and ready to fill new gaps in any power grid
Doodle
Bloomberg Businessweek: “LeBron James Gets $100 Million Investment to Build Media Empire”
LeBron James is a business tycoon. Arguably one of the most influential athletes ever, it may not come as a surprise that LeBron James has found success in many of his ventures. LeBron’s SpringHill consists of a marketing agency, SpringHill Entertainment, and Uninterrupted LLC. LeBron James has used his platform and career success to support very noble causes, including the I Promise School and a non-profit aimed at combating voter suppression.
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GDP
Definition: Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period
Andrew Yang has some creative ideas on the current state of GDP and what to change
GAAP
Definition: Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB)
Dig Deeper: Austin Rief Thread | “Market Valuation of Intangible Asset: Evidence on SG&A Expenditure”