Chart Breakout November 3 – Stockmarket Simmers

Looking at this chart we can see that using 6M buy signals when the moving average turns higher has been a good time to buy. When an investment instrument is hitting new all-time peaks any buying strategy will produce good results.

Bitcoin is an intriguing investment because of the severely limited supply – 21m coins in a world where supply and demand is so often measured in trillions of dollars is a very tight supply if demand should hit an inflexion point.

Michael Saylor, CEO and co-founder of Microstrategy, which has built a portfolio of 279,420 bitcoins worth around $26bn since 2020, talks about the price for a single coin going into the dollar millions over time. This expectation is what underlies his incredible plan to invest $42bn over the next three years, financed by a mixture of equity, convertible and fixed interest issues.

This is a high-risk strategy given the persistent emperor’s clothes feeling that never quite goes away with Bitcoin. Still, his aggressive strategy has worked superbly so he is entitled to be treated with respect.

If he is right and there will be a supply shock with Bitcoin in the future as a tidal wave of global demand overwhelms supply he and his company could experience extraordinary times.

Any such move will be associated with almost equally spectacular volatility but Saylor claims this volatility is part of the case for bitcoin as an asset.

Tesla’s chart is an example of a diamond pattern. It has broken out higher which should be bullish. The fundamentals are all about Musk’s ambitious plans when he can find the time away from running America. He is an oddball and not to everybody’s taste but he has a claim to be the greatest living American/ South African or whatever he is. Textbooks are going to be written about this guy.

Below is a flavour of what is going on at Tesla.

To the best of my knowledge, there was no EV division of any company, of any existing car company that is profitable. So, it is notable that Tesla is profitable despite a challenging automotive environment, and this quarter actually is a record Q3 for us. So, we produced our seventh million vehicle yesterday, so congratulations to the teams that made it happen in Tesla. That’s staggering the immense amount of work to make 7m cars.

The energy storage business is growing like wildfire with strong demand for both Megapack and Powerwall. And as you all know, on October 10, we laid out a vision for an autonomous future that I think is compelling. The Tesla team did a phenomenal job there giving people an option to experience the future, where you have humanoid robots working among the craft, not with a canned video and a presentation or anything but walking among crowd serving drinks and whatnot. And we had 50 autonomous vehicles. There were 20 Cybercabs, but there were an additional 30 Model Ys, operating fully autonomously the entire night, carrying thousands of people with no incidents the entire night.

And for all those who were not there it is worth emphasising that the Cybercab had no steering wheel or brake or accelerator panels, meaning there was no way for anyone to intervene manually even if they wanted to and the whole night went smoothly. We are on track to deliver our affordable models starting in the first half of 2025. At the risk of taking a bit of risk here, I do want to give some rough estimate, which I think is for 20pc to 30pc vehicle growth next year unless there’s some force majeure events, like some big war breaks out or interest rates go sky high or something like that.

We can’t overcome massive force majeure events. But I think with our lower-cost vehicles, with the advent of autonomy, something like a 20pc to 30pc growth next year is my best guess. And then Cybercab reaching volume production in ’26. I feel confident of Cybercab reaching volume production in ’26.

We’re aiming for at least 2m units a year of Cybercab. That will be in more than one factory, but I think it’s at least 2m units a year, maybe 4m ultimately.

The cell 4680 lines, the team is actually doing great work there. The 4680 is rapidly approaching the point where it is the most competitive cell. So, when you consider the cost of a battery pack fully landed in the U.S., net of incentives and duties, 4680 is tracking to be the most competitive, maybe lower cost per kilowatt hour, than any other alternative. We’re not quite there yet but we’re close to being there, which is extremely exciting. And we’ve got many ideas to go well beyond that. If we execute well, the 4680 will be the most cost competitive cell in North America.

Elon Musk, CEO, Tesla, Q3 2024, 23 October 2024

Share Recommendations (19 November 2024)

Bitcoin. BTC

Microstrategy. MSTR

Tesla. TSLA

Netflix. NFLX

Stryker. SYK

Spotify. SPOT

Intuitive Surgical. ISRG

Affirm Holdings. AFRM

Victoria’s Secret. VSCO

Robinhood Markets. HOOD

Lemonade. LMND

Robinhood Markets floated with great fanfare in 2021, almost at the stock market’s peak, and went downhill. It is recovering strongly in the V-shaped reversal that is so prominent a feature in the current US stock market.

Another V-Shaped Reversal Classic For Robinhood

The current recovery looks well deserved.

Let me start by reiterating Robinhood’s three areas of focus. Number one, winning the active trader market.

Number two, increasing wallet share with our customers. And number three, expanding internationally. In Q3, we continue to make progress on all of these fronts. In fact, our results after the first three quarters of the year have already broken through a number of full-year records.

And we have another quarter in front of us to take these results even higher. Just to share a few examples. First, Q3 net deposits were $10bn or more for the third straight quarter as we continue to increase wallet share. This brings us to $34bn year to date, above our 2020 record of $31bn, and also takes our customer assets under custody to a record high of $152bn.

Second, Q3 options contracts were up 47pc year over year to a new record as we keep winning with active traders. This brings our year-to-date total to $1.2bn contracts, edging out our full-year high from 2021. And third, Q3 was another strong financial quarter with our second highest revenues ever. Revenues grew 36pc year over year, adjusted EBITDA increased 96pc from a year ago.

Looking year to date, revenues of nearly $2bn have already broken last year’s record of $1.9bn, and GAAP diluted EPS of $0.55 is multiples of any prior year. It’s energising to see our business performing well like this, but we’re even more excited about our product roadmap. 

Vlad Tenev, CEO and co-founder, Robinhood Markets, Q3 2024, 30 October 2024

A Big ‘Something New’

In June of last year, Robinhood announced it was acquiring the credit card startup X1.

Today, we learned about the fruits of that transaction: a new Gold Card from Robinhood.

This new card is a premium credit card that costs $5 per month or $50 per year and is only available to Robinhood Gold members. 

The card comes with a list of valuable benefits. The main attraction is 3pc cash back on every transaction and there is also 5pc cash back when booking travel through the Robinhood portal. The cashback can be transferred to brokerage accounts for stock purchases.

The big question, as Simon Taylor pointed out on X today, is can Robinhood make money with this card? He argues this looks more like a loss leader but Robinhood will use the card to cross-sell its other products.

There is an important ‘something new’ happening at Robinhood.

A key part of increasing wallet share with customers is growing Robinhood Gold subscriptions, which hit an all-time high of 2.2m in Q3. And one of the most exciting new parts of the Gold program is our Robinhood Gold card.

When I’ve talked to Robinhood customers in recent months, the Gold card almost always comes up. If someone has it, they love it. If they don’t have it, they want to know when they’re going to get it. And I hear you.

We’re working hard to increase the rollout, but we’re also being patient and carefully studying customer behavior as we grow so that we manage credit risk to profitably scale over time. While it’s still early, I wanted to share some emerging data from our 100,000 Gold card customers. First, customers love the Gold card. App store ratings continue to be five out of five with over 10,000 five-star reviews.

Customers tell us they love the metal card, the digital app, and of course, the 3pc rewards. Second, the early customer behavior is in line with our expectations. It looks like the Gold card is top of wallet for most customers, and early data shows that we’re retaining approximately 95pc of Gold card customers following their first transaction. We’re also starting to see customer spending grow and loan balances revolve as expected.

Third, Gold card customers are also contributing meaningfully higher net deposits versus similar customers. It’s great to see the early additional benefits to the platform. All in all, while it’s still quite early, we’re further increasing confidence that we can scale the Gold card significantly over time.

Vlad Tenev, CEO and co-founder, Robinhood Markets, Q3 2024, 30 October 2024

How Sexy Is This Stock

Victoria’s Secret, the lingerie company, is a play on an important ‘something new’, the appointment of Hillary Super as the CEO.

Chair of the Board Donna James said, “VS&Co welcomes Hillary as our new CEO to power the business’ next chapter and deliver the foremost tenet of our transformation strategy: accelerating growth in our core business in North America. We are particularly impressed with her merchant leadership capabilities paired with an operator’s discipline and bias for driving value creation. She understands vertically integrated retail brands and has an intuitive understanding of the consumer landscape, informed by customer insights which are critical for consistently delivering in this industry and its ever-accelerating fashion and economic cycles. We are confident that Hillary can leverage VS&Co’s industry-leading brands with significant category and international expansion opportunities to accelerate growth and create shareholder value.”

Web site, Victoria’s Secret.

The brand recognition is terrific so if she can seize the opportunity the business should do well.

Think Of A Number And Multiply By A Million

The numbers companies toss around these days are incredible. I can remember a time (long, long ago) when $1,000 would have been a considerable sum of money and $100,000 would have been a fortune. Now Robinhood, basically a stockbroker, has customer assets of $152,000,000,000.

Spotify which is primarily a music streaming service (the tunes on my liked list are fast approaching 6,500; imagine that as a record collection) has a value fast approaching $100bn. It is not so long ago that would have been more than the value of the entire UK stock market. A millionaire is nothing in this age of billionaires although it might still be a handy sum if you live in the Highlands of Scotland.

Spotify’s Year Of Monetisation

The big thing happening at Spotify is that they are starting to make money.

Q3 is another standout in what you’ve heard me refer to as the year of monetisation, and we’re on track for our first full year of profitability. We outperformed on both subs and MAU. Revenues were in line and we had significant beats on gross margin and operating income. We also had another sequential and all-time record quarter of free cash flow. Back at our 2022 Investor Day, we set clear goals for Spotify’s growth and this quarter marks a key point where we successfully achieved and even surpassed those targets, doing so slightly ahead of schedule. And I think this demonstrates what we’ve been saying over the past year, Spotify is not just a great product, but well on its way to become a great business. A big thanks to our team for their hard work and dedication in making this vision a reality.

Daniel Ek, CEO and co-founder, Spotify Technologies, Q3 2024, 12 November 2024

Spotify is starting to show us where we are heading in this brave new world of artificial intelligence. I can’t believe that I am starting this journey when I am so f*****g old!

We will close out Q4 just as we started the year, laser-focused on monetisation and the underlying fundamentals of our business. Looking at our forecast, we expect to make further progress across all of our key metrics, which sets us up with plenty of runway for growth and profitability expansion in the years to come. But make no mistake, we’re not here to merely optimise for today. I am as energised as I’ve ever been about the current landscape of technology. What’s unfolding in AI with all of its knock-on effects is both thrilling and humbling. Moments like this don’t come often. They’re inflection points where you can either let the opportunity slip by or you can seize it and press forward with conviction. We’re choosing the latter, fully committed, heads down and building for a future full of possibility.

So as you think about Spotify in 2025 and beyond, picture a company that operates with the same disciplined management you’ve seen this year, but one that also has the ambition to seize the opportunities presented by what’s happening in technology. In the near term, I see potential for transformative shifts in music discovery and new innovative ways to connect artists and fans like never before. All great stuff for the music industry, which will drive further growth across our core business. And just as we successfully entered the audiobook space, we’re committed to making the targeted investment that also expands Spotify into new areas, enhance the platform and deepen the value we bring to users. And this relentless focus on consistently delivering exceptional value well beyond the price a user pays for Spotify is how we drive sustainable growth for all stakeholders across our entire ecosystem.

Daniel Ek, CEO and co-founder, Spotify Technologies, Q3 2024, 12 November 2024

Spotify has been a game-changer for me. I listen to amazing music on my home sound system, in my car and on my Airpods and go months without hearing the same song twice. I attend two concerts a month, helped by living in London but mainly because I am alerted whenever a performer I might like is in town. And if I liked audiobooks (I do but only when I am the storyteller) and podcasts I could access those too with my subscription.

Netflix is a similar business to Spotify, video streaming rather than audio streaming. The move to ad-supported streaming is having a dramatic effect on Netflix just as I expected. It is an important ‘something new’.

Netflix’s ad-supported tier has seen a meteoric rise, reaching 70m global monthly active users. This is a significant jump from 40m in May and 22m just two years ago when the plan first launched.

Over 50pc of new Netflix signups in eligible countries are opting for the ad-supported offering, helping the streaming giant accelerate its advertising revenue goals.

Emarketer, 12 November 2024

Netflix is also using its massive reach, with over 238m subscribers to its services, to flex its muscles in new directions like the Tyson Fight (a farce but streamed by 60m households) and coming up is a Christmas concert with Beyonce. Imagine if Stanley’s search for Livingstone in the 19th century had been sponsored by Netflix and you can see where this could be going.

Affirm is a similar business to Sezzle {see recent alerts) so it is no surprise the shares are doing well.

There is an important ‘something new’ at Affirm reminiscent of what is happening at Robinhood.

Although we’ve been highlighting Affirm Card progress in the last couple of these letters, the Card is proving to be a gift that keeps on giving, so a brief update is warranted. In fiscal Q1, Card growth accelerated on both the top and bottom line, each more than doubling year over year. We had over 1.4m active cardholders at quarter end. As cohorts mature, we are observing all the right signs and signals: annualized GMV per user grew from $2,500 to over $3,000, and in-store usage grew from approximately 25pc in early FY’24 to 40pc in FQ4’24 and 45pc in FQ1’25. Card credit outcomes and unit economics remain in-line with (or better than) the rest of the Affirm ecosystem, and we are excited about a few upcoming launches, including the rollout of Visa Flexible Credential to our current cardholders over the next few months, which should improve the economics further. Our Revenue team has been working hard to harmonise our many 0pc and reduced-APR programs across the channels where Affirm is offered: point of sale, platforms, our app, digital wallets, and the Card. These offerings boost consumer uptake with deals truly unique to Affirm, and we are excited to see them offered to our most loyal and active consumers on the Affirm Card. We expect to continue expanding both card eligibility and individual purchasing power for cardholders.

Shareholder letter, Affirm Holdings, Q1 2025, 7 November 2024

Lemonade’s chart is a classic example of what chartists call a base pattern. Floated in a wave of excitement it has been all downhill for Lemonade until recently. For the last nine quarters, the shares have been trading broadly sideways building a powerful from which they have recently exploded higher.

Lemonade is an insurance company so hard to understand even for me who once worked for an insurance company, albeit as a fund manager.

In the latest shareholders’ letter for Q3 2024 they had this to say.

In the fourth quarter and beyond, our strategy remains consistent. We will continue to acquire profitable new business, with acceleration unlocked via our synthetic agents program, and increasingly leaning in on car. Simultaneously, powered by technology’s unique ability to drive operating efficiency, we will
continue to deliver stability in operating expenses. The outcome: accelerating growth, positive net cash flow exiting this year, and Adjusted EBITDA profitability on track during 2026.

Lemonade, Shareholders’ Letter, Q3 2024, 30 October 2024

The company has big plans.

At Investor Day, management will provide detailed updates on how the company expects to 10x, going from an estimated $1bn next quarter to $10bn in force premium in the coming years. The sessions will cover Lemonade’s strategic expansion plans, a behind the scenes look at Lemonade’s AI, and a walkthrough of the model and mechanics that delivered cashflow positivity in the third quarter, and are expected to deliver Adjusted EBITDA profitability during 2026.

Lemonade website news, 12 November 2024

Strategy – Don’t Underestimate The Power Of The AI Boom

It is incredible what is happening. Humankind has unleashed the beast in the machine. If there is a God even he must be astounded at the results of Eve eating that apple. And, as so many of America’s great generation of entrepreneurs keep saying, this whole thing is just getting started.

A recent analysis pointed out that by many metrics US shares have rarely been more highly valued. I expect that is true but I have never known a more exciting time to be an investor (in US stocks).

I know I have had a long lifetime because at a market recently a singer who was performing there asked her audience to shout for a Whitney Houston song or one by Bonnie Tyler. I shouted for Bonnie Tyler. She looked at me (the cheeky bitch) and said that for me maybe it should be Vera Lynn.

When I look at US shares I find I am becoming almost blase about growth. There are so many companies growing so fast. It is incredible. America is incredible. This will go down in history as the age of entrepreneurs. Who would have thought that the US, which has already been such a spectacularly performing country, was only just now entering its golden age? I see America as where Great Britain was in 1820. There are staggering marvels to come and unless other big changes are coming most of them will be made in America.

I love living in England and London remains a contender as the world’s greatest city but increasingly it is America where it is all happening. And that may even apply to politics. Britain is being crushed by an overmighty state. Let us see if Elon Musk can show us the way by taking cost out of the US government machine.

I used to think we needed to cut costs by closing down some government departments. I am starting to wonder do we need any of them. They are like an unnecessary layer of middle management which we could do without. Let’s really slash costs and taxes and unleash Adam Smith in Britain. Let him reign again as he did in the 19th century when Britain led the world in economic progress and made its citizens richer at an exponential rate while governments stuck to making foreign policy and even in that field private enterprise made most of the running.

Hong Kong was an incredible success story for decades with zero unemployment when it had almost no central government. China is doing well but imagine how successful it would be if the government there had a light hand, not a dead hand.

I am intrigued to see what may happen in India and even in Argentina where the new president, Milei, is apparently making some progress in reigning back the bloated state machine.

Inflation is still high in Argentina, 4.2pc in August 2024, which is for the month, not annualised, so there is much to do but at least he is trying and the stock market seems to be going up in real terms, not just because of rising prices.