Weekly Insight

Longhorn Investment Team Weekly Insight: The Texas Two Step (Part One)

Howdy partners! It’s a big world, and a lot of stuff is happening all over the place! Covering global markets is great and all, but this week we’re reeling it in to exclusively discuss issues closer to home. This edition of the Weekly Insight will be a two-part hoe-down consisting of the juiciest business news in Texas.

Whataburger Haws its last Yee?

Last week, PE firm, BDT Capital Partners, bought the beloved Texas burger joint/4:00 AM oasis for an undisclosed amount, and Texans were not happy. Why would Texans be mad? You know why.

Whataburger is OUR restaurant! JJ knows it, the governor knows it, and so do you! Wait a minute, Whataburger is in ten states already… and they agreed to the buyout because they wanted to raise money to expand even more…

Nevertheless, the essence of Whataburger’s brand lies in its Texas roots, which is why some see their regional distribution of restaurants as a cheeky method of creating customer loyalty. And what’s more powerful than a loyal, Texan fanbase? Maybe lightsabers, but Texans love lightsabers so that’s not even a valid comparison.

Whataburger has 800 stores that do a combined $2 Billion in annual sales, but some fear the chain will lose brand loyalty and in turn revenue by expanding. Just look at what happened to In-N-Out when they came here. The consensus seems to be that as long as Whataburger doesn’t make any rapid or drastic changes to their menu or brand, fans should remain loyal.

We also recommend BDT keeps the doors open late so Whata can remain the number one destination for parking lot fights in Keller.

The Schlitterbahn Savior

On Thursday, amusement park giant, Cedar Fair ($FUN), purchased the beloved Schlitterbahn locations in New Braunsfels and Galveston for $261 Million. Ohio based Cedar Fair is financing these acquisitions with $500 Million in unsecured debt.

Schlitterbahn New Braunsfels has achieved the “Best Waterpark in the World” award (a big deal for waterparks) 21 years in a row. The two Texas properties combined for $68 Million in 2018 revenue.

Cedar Fair also plans to invest $10 to $15 Million in those parks over the next few years, which could be a boon to both the park and summer tourism in the Comal River area.

“They are the cornerstone of our summer tourism season, without a doubt […] The rivers are our brand, but Schlitterbahn is the catalyst for the industry’s success.”

Greater New Braunfels Chamber of Commerce President and CEO, Michael Meek

The backstory: In 2016, a ten-year-old boy was killed on Schlitterbahn Kansas City’s crazy attraction, Verruckt – which is German for “crazy” and also a Call of Duty zombies map. As a result of the tragedy, the ride was demolished, and Schlitterbahn paid out over $20 Million in lawsuits.

In short, the parks were in major financial distress. Hopefully the Cedar Fair buyout will help the park pay-off its $180 Million in debt and improve the guest experience.

Changes to the Law

Governor Abbot just signed and vetoed a lot of bills. Here are some of the highlights:

  • Brass knuckles and clubs are now legal and considered a valid method of self-defense. It’s about time we clear out the overcrowded prisons that were filled with wrongfully convicted brass knuckle-heads.
  • It is now legal to take home craft beers in Texas. If you’re wondering what this actually means…well it’s just as insignificant as it reads. So yeah, you’re allowed to take home beers from a craft brewery now.
  • Red light cameras are now banned. Vroom vroom haha.

Check out the other 474 laws that were passed here.

Buckle up for the Second Step

On Thursday, we’ll complete our Texas edition with an update on some of the major companies headquartered in The Lonestar State. Be sure to check in. Yee haw!

Longhorn Investment Team Weekly Insight: It’s June! Edition (6/10/2019)

Wow is this edition gonna be a hot one or what? It’s June, the fake meat is sizzling on the grill, and Jerome Powell is an old man. That’s just finance for ya. In this episode, we have some serious content to dive into so let’s get started.

This Week in Economic Uncertainty

Friday’s Jobs Report: Non-farm payrolls added 75,000 jobs in May, coming in far below the 180,000 number everyone expected (wage growth was also stagnant). Compare this to the ridiculous run of job and wage growth over the past decade, and some are calling Friday’s DOL report “the clearest evidence yet” of a slowdown.

Bond Yields: 10-year US Treasury yields are hitting new lows for the year around 2%. Lower bond yields can be a sign of economic uncertainty because it means there’s higher investor demand for low-risk debt.

The market reacted to this news by inking its best week since November. As we’re writing this, the S&P is continuing its push toward the 2,900 range. Markets have reacted positively to the improved chance the FED will cut rates and the seemingly quick resolution to the Mexico situation.

However, President Trump just threatened that he could reimpose tariffs on Mexico if he saw fit, even after Mexico agreed to increase migration control measures. He also threatened to impose another round of tariffs on China unless Xi Jinping agrees to meet with him in Japan later this month. It seems that G20 meeting didn’t go too well after all. Click here to find out more about the causes and effects of the trade war everyone is talking about.

“Tariffs are a beautiful thing when you are the piggy bank”

Economists Everywhere

Zucc on this, Big Tech

Monopoly Man attends Google’s congressional hearing

“Antitrust law now stands at its most fluid and negotiable moment in a generation,”

Daniel Crane, law professor at The University of Michigan

Antitrust laws are designed to prevent companies from becoming too powerful. As a result, the Department of Justice has the authority to block mergers and acquisitions, or in extreme cases force divestitures to prevent monopolies, which hurt society in a number of ways:

  • Higher prices for consumers
  • Less innovation in key industries
  • Fewer small businesses
  • Outsized corporate influence on democracy

For the past 40 years, Washington has remained pretty lax in regard to antitrust enforcement and would defer the fate of large companies to the free market unless “consumer welfare” was at stake. The last so-called monopoly to be broken up was AT&T in 1982.

That paradigm has been flipped on its head, as both conservative and liberal policy makers have become weary of four tech giants: Google, Apple, Amazon, and Facebook. Last Monday, the Federal Trade Commish (FTC) and the Department of Justice (DOJ) launched a series of investigations and suits against Silicon Valley’s biggest firms, causing the four stocks mentioned above to lose a combined $130 Billion in market cap in just one session.

Because tech antitrust is a hotly debated topic (it’s even the topic at the national high school debate tournament this month) with large ramifications over the stock market and our daily lives, we’re going to go a little more in depth on this subject. Before we dive into specifics, here are a few general notes to be aware of.

First, monopolies/oligopolies are ubiquitous. The top four airlines control 75% of the market. The top four US education companies control around 90% of the market. The top four railroad companies control 90% of the market. The airplane manufacturing industry is a duopoly. 90% of US media outlets are owned by six companies. There are plenty of other examples in important industries, but you get the point: massive tech companies are bringing the debate to the table, but their level of dominance isn’t unique – it’s just more controversial.

Second, in this renewed antitrust showdown, there are three factions:

  • Team Pocahontas: This squad wants Alphabet, Amazon, Facebook, and Apple to split up into a bunch of smaller companies. It’s widely considered to be more of a catchphrase than a realistic solution, but many Democratic Party leaders take that stance.
  • Team Whatever: Free market chillers don’t call for any additional regulation and believe the current system will keep tech companies in check.
  • Team It’s Complicated: Centrist policymakers are calling for heightened regulation but oppose complete breakups of the companies in question. Some level of government intervention is garnering bipartisan support, especially when it comes to digital platforms with media influence – as both parties believe the internet is fueling voter misinformation and political polarization while eroding everyone’s personal privacy. These issues could be mitigated with forward thinking legislation.

Third, speaking of forward looking legislation, Europe has been on the antitrust wave for a while. The EU has slapped Google with three antitrust fines in three years, and they’ve also passed forward looking tech governance policies such as GDPR and a set of AI Ethics Guidelines.

With that, we’ll dive into each of the four tech companies’ legal controversies, beginning with Apple.

Apple: We’ll be quick here because Apple doesn’t hold monopoly status in any of their business units with the possible exception of their App Store. Basically, when an app developer wants to put their app on the App Store, they have to give Apple a 30% cut of the revenue, which is debatably too high and debatably squanders innovation. Even if Apple is forced to slash this commission, the App Store only makes up 5% of Apples business so it wouldn’t translate to a major loss for shareholders.

Apple’s counterargument: we should be able to charge 30% because the app store is awesome and we know developers will have to use it to reach a wide audience in a secure manner. Google has the same response when their Play Store is called into question.

Google: While Google has clear dominance in search and mobile OS, Google only accounts for 41% of the digital advertising business, and they seem to be losing ground to Facebook and Amazon (the other companies on this list). The Federal Trade Commission (FTC) investigated Google’s search platform in 2013 without imposing any penalties.

One common criticism of Google’s parent company, Alphabet, is their tendency to acquire both competitors and players in other tech-related businesses. By simply buying innovators, some argue that this practice stifles competition in important future markets. However, the biggest point of contention lies in Google’s search business, which has been accused of biasing results toward Google’s products and subsidiaries.

One issue with calling Google a monopoly that harms consumers is the fact that most of their key services are free and easy to access. In fact, there are very valid arguments that each of the companies in question have provided far more benefits to the general public than harms, and of course none of the major tech CEO’s see their firms as monopolies.

Google just acquired Looker, a data-analytics firm for $2.6 Billion to boost their cloud offerings. They didn’t have any trouble getting that approved, so perhaps antitrust concerns are overblown by the media (at least in the US).

Amazon: Bezos is far from creating a monopoly in the retail sector, but they do account for almost half of online sales. The claim here is that Amazon should not be allowed to advertise its own private label products on its marketplace because it undermines other retailers (Amazon’s private label brands account for 1% of sales).

Most regulators believe making any moves here would open a big can of worms that would harm small to mid-size retailers with private labels in the process.

Facebook: They’ve already set aside $3 Billion to pay the FTC’s fine over failing to protect user data and prevent false information in the Cambridge Analytica debacle. Antitrust is a separate issue, though.

Again, it’s hard to call Facebook a harmful monopoly when their service is free. Officials are more concerned with the ridiculous amount of data Facebook has on us. Have you ever been like “OMG I was just thinking about popcorn and then got an Instagram ad for popcorn!”? It’s horrific, isn’t it?

Well, that’s exactly why some lawmakers want Facebook to sell-off What’s App and Instagram. Zucc’s rebuttal: it’s easier to monitor and control data on all of these sites when they’re under one umbrella, and monitoring social media is necessary to prevent another Cambridge Analytica.

Other News:

Big Acquisitions: Raytheon and United Technologies announced an all-stock deal to become a massive aerospace and defense giant worth over $100 Billion. United Technologies is spinning off its Otis Elevators and Carrier AC business units in the process. Salesforce acquired data-analytics software, Tableau for $15.3 Billion in an all-stock deal, a move that could be “transformative” for the CRM leader.

Beyond Ridiculous: We’ve already discussed how overvalued Beyond Meat, the fool’s meat producer, has become since its May 2nd IPO. After their first earnings report last Thursday, they’ve soared to over $170 at the time we are writing this. That means a fake meat company has increased 580% since their IPO. We’ll update you with reasons for this historic rally as well as buy/sell recommendations in our 2019 IPO report, which we update frequently to give you the scoop on recent stock market debuts.

Other IPO News: Slack filed for a direct listing today. It will be interesting to see how they perform; they already warned investors of slowing revenue growth – indicating they might fall to the same Robinhood fate as Uber and Lyft.

How much money did you make/lose on Beyond Meat? If the answer is $0, you are smart with your money. See you next week when we blast you with more info just in time for father’s day!

Longhorn Investment Team Weekly Insight: NBA Finals Edition (6/3/2019)

We know, we’re a little late with this week’s edition, but so was the Raptor’s comeback last night so it’s fitting. The stock market hasn’t had a May this bad since 2010 – the last year Lebron James wasn’t in the finals. In this edition of the Weekly Insight, we’ll be discussing drivers of the recent slump in the markets.

DJIA: $24,815.04 (-1.41%)

S&P 500: $2,752.06 (-1.32%)

NASDAQ: $7,453.15 (-1.51%)

BITCOIN (BTC): $8,735.17 (+1.67%)

The Bitcoin Comeback

Throwback to 2017 when you were trading bitcoin and bumping Bodak Yellow all day long. What a time to be alive! Since Bitcoin’s peak at $19,783 in December of 2017, it crashed to as low as $3000 in December of 2018, and has rallied over 122% to $8,500 over the past three months. This begs the question: why did bitcoin bounce back harder than the Warriors in the 3rd quarter while the stock market has incurred 6 straight weeks of losses?

What sparked the rally?

  • An April Fool’s joke: On April 1st (the generally accepted date in April in which pranks are permitted), some jokester tweeted that BTC was approved by the Securities and Exchange Commission, which could have triggered bitcoin’s surge. I guess people are still running with the joke?
  • Bitcoin as a Haven Currency: Because bitcoin doesn’t correlate with the stock market or other foreign exchange rates, some speculate that bitcoin has rallied because the market has done so poorly. In other words, people are comparing a digital currency to a traditional “safe asset” like gold or silver. Regardless of whether or not this sort of investor sentiment is a driving force, bitcoin is not intrinsically similar to gold or silver because bitcoin has no intrinsic value and it doesn’t have significant recognition from major governments.

While some people use Bitcoin for actual transactions, merchant services only accounted for 1.3% of total bitcoin activity last year, meaning most people are just using it to trade speculatively or buy illegal stuff. Because bitcoin is so volatile, many analysts argue that bitcoin fundamentally does not serve as a reliable source of currency – it doesn’t offer a reliable store of value and it is hardly used to buy and sell things (that are legal anyway).

Why is Bitcoin so volatile?

  • Scarcity: Because there are only so many Bitcoins available, they’re very scarce, meaning higher demand can easily outpace supply. In other words, the less of something there is, the more people will pay for it – especially if they believe said “thing” has value all of a sudden.
  • Computers: Since a large percentage of bitcoin traders rely on algorithms with preset stops and limits, sometimes cascades of buy or sell algorithms are triggered at once when BTC hits a certain price, which ultimately means the market reacts faster to certain trading metrics.

As we were writing this, BTC fell over 5% in just one hour – that’s why nobody will use bitcoin for normal transactions. Imagine driving to the grocery store to buy groceries with your bitcoin, but by the time you’re checking out you can’t afford them!

Trade War Updates: Things go South

We decided to move trade war discussions to the bottom because they’re getting old, but we can’t talk about the recent downturn without mentioning worsening trade talks with China and the announcement of tariffs on Mexico. Let’s start with this whole Mexico situation, because that’s where we got the pun in our headline from.

Last Thursday, Donald DRUMPF President Trump announced a 5% tariff on all goods from Mexico. That tariff will rise by 5% every month (capping at 25%) until the country “substantially stops the illegal inflow of aliens coming through its territory.”

Big Losers

Detroit: Who else would it be? Almost every US car manufacturer depends on auto parts from Mexico, which is why if the new tariffs hit 25%, vehicles prices would increase by $1,300 on average and production could dip by as much as 18%. How inconvenient! Just as car manufacturers are trying to pivot to the next generation of electric and autonomous vehicles, they get slapped with billions in extra annual costs.

NAFTA’s replacement: Renewed border tensions came about just as congress was beginning to pass the new free trade agreement for North America: USCMA. Nothing derails a trade agreement like instigating a trade war.

Consumers: The FED Bank in New York estimates that total tariffs could cost the average American household over $800 this year.

Unsurprisingly, Mexican President, Andres Manuel Lopez Obrador, warned that if a deal isn’t reached within 10 days, they will retaliate with tariffs of their own.

China Drama Continues

Orange Man’s President Trump’s new wave of China tariffs went into effect last week, and Xi Jinping as retaliated with tariffs of his own. The Chinese government also announced that they would retaliate against the government’s Huawei shutout. The bleak picture for trade negotiations has prompted some hefty selloffs, although the S&P isn’t nearly as low as it was last Christmas.

Mark your calendars for June 8th and 9th, there won’t be any finals games, but the G-20 summit will be on like Donkey Kong (he’s a Nintendo monkey). At the G-20, Trump and Xi Jinping will meet for the first time since talks froze. A recent policy paper signaled that China would be willing to negotiate still as long as policy makers could reach “a fair deal,” so things are still up in the air.

Coming Soon:

We heard the news today; we’ll be giving our takes next week. Stay tuned for big tech’s great reckoning and whatever else happens this week.

The Longhorn Investment Team IPO Report (2019)

Welcome to the Longhorn Investment Team IPO report! We continuously update this page, so you always have the latest info on the IPO class of 2019. Strap in because we’ve got a lot of ground to cover from deadly e-bikes to total cow disruption to publicly traded pyramid schemes (and we could mean that non-ironically)!

General Trends

We’ve had a big second quarter. Q1 of 2019 was unusually quiet for IPOs, with an 44% decline by deal number year over year. This was primarily due to geopolitical uncertainties like the trade war and the government shutdown. As trade talks supposedly started to improve over Q1, we saw the lion’s share of IPOs occurring in Q2 (or right now). Now that trade talks have gone south again, it’s reasonable to expect lot fewer in H2 of 2019.

Tech companies are less likely to IPO, and the ones that do are taking longer. In 2013, a venture capital (VC) backed startup would typically IPO 6 years after its founding. Now, it takes over 10 on average. There are a few reasons for this.

Namely, tech companies are getting massive rounds of funding from VC firms at a faster and faster pace, so why rush to go public? This phenomenon is referred to as the SoftBank effect. The SoftBank Vision Fund is a massive VC fund that threw Billions at companies like Uber and WeWork (now “The We Company”), which delayed their need to IPO.

Another contributor is that fewer tech companies are going public in the first place because they get acquired by bigger tech companies (Instagram, Qualtrics, etc.)  Private Equity buyouts of VC backed tech companies are also on the rise.

The implication here is that most of the growth in these established businesses was already captured by private investors, meaning the average stock trader is missing out on lots of the capital gains. This could particularly explain why ride-hailing giants with billions in private capital have performed so poorly (Uber and Lyft both saw slowing growth rates in the year before going public).

For example: Amazon went public at a $400 Million valuation and now it is worth roughly $900 Billion. Uber IPOd at around $100 billion, meaning they’d have to hit a valuation of over $200 TRILLION for public investors to see similar upside (WSJ).

The Bright-Side: more established startups have a much lower risk of failing. That’s a big reason why this wave of IPOs is distinct from the IPOs of the dot-com bubble. Back in the early 2000’s, undeveloped tech startups were turning to public markets with very little revenue – it was all hype. While many companies IPOing today are far from profitability, at least they are established companies with attractive top lines.

Who’s Gone Public?

Slack Technologies (WORK)

DPO Date: June 20th, 2019

DPO Price: $26

Category: Software Service

Operating at a Loss? Yes

Description: Slack is like Kik for nerds. It’s a business communication app with a GUI that is really confusing to me personally. Why would this app be worth $15 Billion on $400 Million in annual revenue? Now that I’m writing this… I don’t know for sure.

10 million daily active users is a good place to start. Slack’s ubiquity in the workplace definitely added to the IPO hype, but that hype vanished when Microsoft Teams – Slack’s direct competitor – took the crown for most daily active users (13 million).

Microsoft Teams has such a high usage rate because it is bundled with Microsoft Office 365. Want Excel and Word? Looks like you also get Microsoft Teams. This makes it really easy for companies to own and adopt Slack’s competitor, and it’s not like messaging apps have super high switching costs.

Slack’s CEO, the charming Stewart Butterfield, wasn’t concerned. His argument: Microsoft can force their Teams down peoples throats all day long – if they don’t nail user experience then they ultimately won’t keep much market share. Consumers were given Bing and Google+ by bundles and look how those products turned out.

Competition will only heat up. Investors need to keep an eye on the success of Teams as well as Slack’s ability to turn more of their 500,000 users into paying clients.

CrowdStrike (CRWD)

IPO Date: June 12th, 2019

IPO Price: $34

Category: Cybersecurity

Operating at Loss? Yes

Description: Founded in 2011, CrowdStrike is a cloud-based, cybersecurity SAAS provider that offers AI and machine learning based products to identify cyberattacks with unprecedented speed. In their first day of public trading, they soared 97% (probably because of how many buzzwords their business description contains). Last year, they a net loss of $140 Million on $250 Million in revenue (+100% yoy). Trading at roughly 50 times sales, it’s safe to say CrowdStrike is overvalued given financials metrics, but investors and customers alike are willing to pay top dollar for AI based cybersecurity. In fact, Blackberry just purchased CrowdStrike’s direct competitor, Cylance, for $1.4 Billion last November.

We could write a completely separate article about the bitter rivalry between CrowdStrike and Cylance. Basically, the founder of CrowdStrike and the founder of Cylance used to be BFFs, but things went South when one of them started CrowdStrike without giving the other guy enough equity, so the other guy founded Cylance. Both of them have goatees, both of them run almost identical businesses, and both of them hate each other. It’s absolutely riveting.

CrowdStrike’s Q1 fell in line with analyst’s expectations with earnings of -.47 per share and $96 Million in revenue. Their market cap has surpassed $17 Billion despite trade war noise, indicating that investors are treating the AI cybersecurity space as a winner-take-all market.

Chewy (CHWY)

IPO Date: June 14th, 2019

IPO Price: $22

Category: Software as a Service

Operating at Loss? Yes

Description: Chewy is an online pet food delivery service that was purchase by PetSmart for $3.4 Billion in 2017. While PetSmart still owns 70% of the company, they issued shares on the public market and raised about $1 Billion on their IPO date (80% price appreciation). Several big-dog competitors exist in the pet SAAS market from Amazon to General Mills, but Chewy hopes to differentiate themselves via strong customer service and a wide product selection.

Good News: Pet care is a pretty recession proof market. If a family stopped feeding Chester the chinchilla when times got tough, that’d be pretty messed up.

Ominous News: Chewy’s business model is strikingly similar to Pets.com, the poster-child of the dot-com bubble that went bankrupt within 9 months of its IPO. Fortunately, the internet has evolved a lot over the past 20 years and Chewy’s strong revenue growth can keep it afloat.

Fiverr International (FVRR)

IPO Date: June 13th, 2019

IPO Price: $21

Category: Gig Economy

Operating at Loss? Yes

Description: Founded in 2010 straight outta Tel Aviv, Fiverr is an online marketplace with buyers and seller. Sellers offer freelance services from writing to video production to digital marketing – basically anything a businesses would want that doesn’t require in-person meetings. Buyers are businesses that want one of these services done for cheap. Fiverr gets its name from the starting fee they allow sellers to charge, which is $5. Get it?

They lost $36 Million on $75 Million in revenue last year. Fiver makes money by taking a 20% cut from each “gig” performed. User stats show 2.1 million buyers and 255,000 sellers.

One key issue with the service is the potential for low-quality submissions from sellers, who aren’t vetted by the site (even our writers are on it lmao). For instance, paying $15 for a plagiarized article isn’t adding value to the customer, and that can happen pretty frequently.

In Q2, Fiverr reported revenue of $25 Million (+14% yoy) thanks to a 14% increase in buyers and a 16% increase in spend per buyer.

Lyft (LYFT)

IPO Date: March 29th, 2019

IPO Price: $72

Category: Ride-Sharing

Operating at Loss? Big Time

Description: “Remember when Lyft went public despite losing about $911 million last year, an S-1 filing with a “Risk Factors” section the length of a novella and no clear plan to turn a profit in the foreseeable future? And then remember how people bought the stock anyway?” – Dealbreaker

April’s IPO put the L in Lyft. They’ve performed so poorly that investors nationwide recently sued Lyft for misleading shareholders in their S-1 over market share estimates. If that’s not bad enough, Lyft had to recall 3,000 of their e-bikes because “stronger-than-expected brakes” were flipping riders over the handlebars. Ouch. Oh yeah, in their Q1 of 2019 they lost $1.14 Billion on $776 Million in revenue ($894 Million in expenses were stock-based compensation and didn’t affect cash).

You may remember the awkward short-selling/lockup agreement suit from the week after Lyft’s IPO. That stuff is clarified here, but the situation is still muddier than a Future concert.

Uber (UBER)

IPO Date: May 10th, 2019

IPO Price: $45

Category: Ride-Sharing

Operating at Loss? Big Time

Description: Uber fell to the same “early-investors-ate-up-all-the-growth” trap that Lyft faced (they also had similar bike recalls to deal with). While they entered in the midst of a turbulent market, their IPO has certainly been disappointing given that they went public at a lower valuation than expected.

Uber was founded in 2009, and it has dominated the ride-hailing market since. Uber’s $11 Billion in revenue makes Lyft $2 Billion look silly! Moreover, Uber operates in more than twice the cities with three times the users (and drivers). Uber does lose more money than Lyft, but not on a margin basis.

That said, Uber has faced their share of blunders over the years from former CEO, Travis Kalanick’s slew of controversies to reports of drivers being underpaid (although Lyft is subject to the same criticism).

In Q1 of 2019, Uber reported $1.01 Billion in losses on $3.1 Billion in revenue. Skeptics have doubted whether or not Uber could ever generate positive cash flow for years now, and the fact that Uber’s ride-sharing business still has a negative contribution margin definitely casts doubt on Uber’s “grow at all costs” strategy. Despite Billions in public and private capital, Uber only has top-line growth to show for it. Make no mistake, Uber is at the center of the growth vs profitability debate – the elephant in the room for this year’s IPO class.

One key difference between Uber and Lyft lies in their long-term visions. While Lyft wants to continue to facilitate ride-sharing, Uber is ambitiously aiming to become the company that does all things transportation. This explains why Uber is expanding into other businesses like trucking and food delivery, and those are growing quicker than the core ride-sharing business. While becoming transportation’s Amazon would be great for investors, keep in mind Uber will have to throw a lot of money at such endeavors, which could prolong their route to profitability.

Beyond Meat (BYND)

IPO Date: May 2nd, 2019

IPO Price: $24

Category: Textured Vegetable Protein

Operating at Loss? Big Time

Description: Beyond Meat has been the hottest stock right out of the gate since 2000. That’s beyond crazy haha. Sorry I can hardly type right now I’m crying from laughing at my silly pun.

Anyway, Beyond Meat is going to serve you up some meat that doesn’t come from an animal because animals are a lot of work and their farts might be destroying our atmosphere.

Their CEO explains this better than I did:

“The animal serves as a bioreactor, consuming vegetation and water and using their digestive and muscular system to organize these inputs into what has traditionally been called meat,” he writes.

“At Beyond Meat, we take these constituent parts directly from plants, and together with water, organize them following the basic architecture of animal-based meat. We bypass the animal, agriculture’s greatest bottleneck.”

Beyond Meat is the first textured vegetable protein (TVP = fake meat) stock of its kind, and investors reacted by sending it to the $90 range in a matter of weeks. Reasons to be skeptical? First of all, there’s other TVP companies that exist, and they’ll probably be IPOing soon. One similarly-named firm, Impossible Foods, is among a squad of competitors who have more resources and operating margins than the crew down at Beyond. Combine that omen with Beyond’s substantial losses (that are expected to increase) and you have a pretty good case for bears.

BYND soared to over $170 before bouncing back to $130 as a reaction to JPM’s price target downgrade. That all happened in a matter of three sessions.

Despite beating EPS expectations by $0.01, it was clear the fake meat stuff was just getting out of control. The compound average growth rate for the TVP market is a disappointing 6.9% through 2021, so why did the stock shoot up so much?

What’s crazy is that so many investors shorted the stock, it actually helped to push the stock price up. 25% of the outstanding BYND shares were owned by short sellers, or people who were essentially borrowing the stock to bet on it decreasing. When BYND went up a little on good earnings, short sellers had to buy shares to cover or close out of their short positions, sending the stock even higher in an upward cycle. This is a classic example what traders call a short squeeze.

Analysts are growing weary of BYND’s competition and are reminiscing about FIZZ, the parent company of LaCroix. LaCroix was the first sparkling water to get really popular, and their stock surged 550% as a result. It didn’t take long for FIZZ to pare those gains when competitors like Topochico entered the market. Despite a significantly larger sparkling water market today, nobody buys LaCroix anymore, and FIZZ stock sucks. Similar omens are coming for BYND, as Tyson foods and Impossible foods kick it into high gear to take market share.

Yunji (YJ)

IPO Date: May 3rd, 2019

IPO Price: $13.42

Category: E-Commerce

Operating at Loss? Yes

Description: Founded in 2014, Yunji is a fast-growing social e-commerce platform in China. The company leverages the messaging app, WeChat, to allow paying members to buy and sell goods at discounts. Their direct competitor, Pinduoduo, has more than 10 times the users of Yunji, but Yunji isn’t far behind in revenue and is much closer to achieving profitability.

Are they a pyramid scheme? Xi Jinping thought so when he fined Yunji $1.4 Million and ordered them to change their marketing strategy. Yunji would essentially give members discounts for recruiting other members onto their site, which China constituted as pyramid selling. This could prevent an extra regulatory risk for investors because China’s definition of a pyramid scheme is a little wishy-washy.

In its most recent earnings, Yunji increased its transacting user base by 153% and its revenue by 53% year over year. While operating costs increased substantially across the board, the firm inked a profit a $2.5 Million (USD) for the quarter and the stock jumped 9% on the news before settling down a few days later.

Pinterest (PINS)

IPO Date: April 18th, 2019

IPO Price: $26.70

Category: Social Media

Operating at Loss? Yes

Description: Founded in 2010, Pinterest is a social media platform where you can share “pins” to show all your friends’ stuff you think is rad while Pinterest harvests those interests and turns them into advertising revenue. With over 250 million users, two-thirds of them female, Pinterest has a great audience for listening in on retail trends. Finally, signs of profitability are present, EBITDA margins improved from -35% to -19%, and revenue grew 43% yoy to $202 million in 2019 Q1.

Zoom (ZM)

IPO Date: April 18th, 2019

IPO Price: $36

Category: Software Service

Operating at Loss? Yes

Description: Zoom was founded by Eric Yuan, the former head of Cisco Webex, in 2011. Driven by ease-of-use and high interoperability, the videoconferencing company doubled sales in 2018 without losing money, which was good since investors needed a break from valuations that made no mathematical sense. This year, Zoom surpassed the milestone of hosting over 5 billion meeting minutes every month.

Zoom’s most recent earnings call reported yoy revenue growth of 103% thanks to a massive increase in customers with ten or more employees. While Zoom isn’t pulling in as many big fish clients as PagerDuty, their results were still impressive enough to send their stock price over $100. Hey, that’s pretty good!

Zoom’s earnings drop Thursday.

PagerDuty (PD)

IPO Date: April 11th, 2019

IPO Price: $24

Category: Software Service

Operating at Loss? Yes

Description: That’s right, pagers are back. Just kidding, PagerDuty is in the business of DevOp’s software, an emerging enterprise buzzword that entails improving communication between software developers and IT operators. This allows potential software crashes or bugs to be fixed before they become a serious problem. PagerDuty stock has popped off in the month following its IPO date, but they face larger competitors like Splunk and Atlassian, and their valuation is around 30 times sales. Morgan Stanley, one of PD’s lead underwriters, estimates PD an addressable market of $25 Billion, but is currently bearish on the stock.

Pagerduty is an elephant hunter. Instead of attracting a high number of small-business customers (like Zoom), PD goes after big players – think Fortune 100. This means that Pagerduty has the chance of hitting home-run contracts with tech giants, but would really suffer from customer churn – the loss of repeat clients.

PagerDuty’s first earnings report displayed a strong 49% year-over-year revenue growth (GAAP loss of $12 Million).

PD’s next earnings report drops tomorrow! In Q2, analysts are expecting the Silicon Valley Special: wider losses along with robust revenue growth.

Super League Gaming (SLGG)

IPO Date: February 26th, 2019

IPO Price: $11

Category: E-Sports

Operating at Loss? Yes

Description: Founded in 2014, Super League Gaming offers exposure to E-Sports by providing a cloud-based online community for Minecraft, LoL, Fortnite, and Clash Royale gamers. They focus on amateur e-sports and host physical tournaments as well. So far, their financials are terrible, but their market cap is currently just below $70 Million.

UPCOMING – we’ll update this page with new IPOs as well as any updates for the equities mentioned above, stay tuned! Here’s a preview of potential IPOs for 2019 H2.









WeWork/The We Company


Longhorn Investment Team Weekly Insight: Mother’s Day Edition (5/12/19)

Happy Mother’s Day to all of the mothers out there and welcome back to the Weekly Insight! Sorry for the hiatus; finals really got to our writing staff. We’ll be back to business as usual all summer. Let’s dive into the news so you can give your mom the gifts of market analysis and bad jokes!

Trade War Beef

Since last March, Trump declared war on unfair trade practices by unleashing waves of tariffs on key intermediate goods like aluminum and steel. Because tariffs are effectively a tax on imports, analysts estimate a direct additional cost of $66 Billion on US imports.

When retaliatory tariffs from other nations are factored in, they estimate an additional cost on US exports worth over $130 Billion (that’s not the increase in cost, but the total value of exports affected).

Markets got (metaphorically) pooped on at the end of the week when Trump raised rates from 10% to 25% for tariffs on Chinese goods. Of course, this delayed talks and will likely lead to retaliation from Xi Jinping.

How did we get here?

The administration cited unfair prices as a justification for global tariffs on metals, which are required to build military stuff like tanks and battleships. But when it comes to China, the business-beef is a lot juicier. American policymakers have accused Chinese companies of corporate espionage for years. From cyberattacks such as Operation Aurora and GhostNet to IP theft by the Chinese government, businesses and the Committee on Foreign Investment in the United States (CFIUS) have grown weary of allowing Chinese investment in the US and vice versa.

A look at CFIUS’ discretion over the past few years illustrates these fears. CFIUS used to block international transactions and investments in industries clearly relevant to national security like aerospace and defense. For instance, Chinese companies acquiring Lockheed Martin would be a no-no because then the Chinese government could access the same missile technology as the US military.

Now, the fear of malicious technology transfer extends to everything from 5G to consumer data, as CFIUS even forced the Chinese firm, Kunlun Technologies, to divest in Grindr last month. Meanwhile, Chinese phone giant, Huawei has been shutout from the US telecom industry.

In fact, the WSJ pointed out that investment flows between the two countries have unraveled more than trade. China invested $29 Billion in US firms in 2017. They only invested $5 Billion last year (although this decline was also affected by China’s 2018 slowdown). For more context, here’s a chart from the WSJ.

Declining investments matter, especially in the tech space.

You know how PS4 and Xbox have exclusive networks with their own games and separate players and it just sucks because you want to play COD with your friends? That can happen at an international scale when Chinese and American businesses fail to integrate their technologies through M&A or join ventures that everyone is scared to initiate. Not only does this mean fragmented networks, but it will undermine efficiency in emerging technologies like AI and the internet of things (it always comes back to the IOT).

How are companies reacting?

Either raising prices, moving production (although not necessarily to the US), or praying to the soybean gods.

Iran Beef

Some Context:

In 2015, Obama went in big on the JCPOA, which stands for The Iran Nuclear Deal somehow.

Last May, Trump pulled out of the deal, claiming that it enriched bad guys in the middle east (the bad guys = Iran). Since then, the US has reinstated heavy sanctions on the country.

Last month, the US announced that other countries who bought oil from Iran would also face sanctions (with some exceptions). This cut into Iran’s exports further and pushed up Brent prices.

Now, Iran faces a recession, currency devaluation, and slashed oil exports. They’re pissed about it too. Iranian President, Hassan Rouhani just partially withdrew from JCPOA by refusing to sell its excess uranium, threatened to shut off the Strait of Hormuz (it’s important!), and made robust military threats against US troops in the region. US military presence is continuing to increase near Iran.

What this means:

Lots of articles are pointing to a looming military conflict, but that’s old news.

Higher tensions in this flashpoint increase oil prices. In 2012, estimates found that if Iran actually acquired nuclear weapons, oil prices would double. Even preliminary signs of conflict or a total breakdown of JCPOA could have a similar effect.

Vegan Beef

Listed on May 2nd, Beyond Meat is the hottest meat stock that doesn’t produce meat. That’s right, synthetic vegetable proteins are the next big thing for those vegans who still want to enjoy a nice burger every now and then.

Why textured vegetable protein matters: it can give people tasty proteins without having to go through cows – nature’s worst nightmare. Methane emissions from cow farts are actually said to contribute more to climate change than car emissions.

Beyond Meat soared 225% in their first week, and since have fallen with the broader markets.

Short sellers’ rationale: Beyond Meat is very overvalued by any fundamental metric (currently over 8x sales), and larger food companies could easily enter the market for TVP.

Fun Fact:

122 million phone calls are made to moms in America on Mother’s Day. That’s sweeter than fake teriyaki!

Longhorn Investment Team Autonomous Vehicle Snapshot (and more!) (4/28/19)

Howdy! We got a little carried away with ourselves when we discussed some key updates in the connected car and electric vehicle spaces. Today, we’re wrapping up with a look at autonomous vehicles. What is an autonomous vehicle (AV)? Well… there’s levels to them.

The 6 Levels of Autonomous Driving

Level 0, Dumb Cars: These cars have no autonomous features, meaning you actually have to drive the car completely by yourself. 😦

Level 1, Driver Assistance: Only some features are automated – and only to a small degree. For instance, your car will brake extra for you when it recognizes you’re about to run over Oprah. If only Drake and Josh lived in today’s time.

Level 2, Partial Automation: This level is already standard amongst most manufacturers, it assists the driver with tasks like steering and accelerating, but the driver still has to pay attention to the road and is responsible for all safety-critical driving functions.

Level 3, Conditional Automation: At this point, the car is now completely aware of its surrounding environment. The driver doesn’t have to pay attention at speeds under 35 mph.

Wired explains level 3 better than we ever could:

“If you’re on the highway and stuck in slow traffic, activate the system and feel free to look at your phone or even read a book. Just don’t fall asleep, get drunk, or cut off your hands.”

Audi’s new A8 is the first commercially available vehicle to hit level 3 – but it isn’t available in the US because of concerns that state laws could create regulatory burdens. This has heightened pressure on lawmakers to be more proactive in creating framework for governing AVs.

Level 4, High Automation: The car no-longer needs a human to get where it’s going, but only on certain road types (highway mergers and other complicated tasks get tricky). Ford claims to be investing in level 4, citing they don’t think level 3 vehicles offer enough value to consumers. Meanwhile, Waymo has already arrived at level 4 tech, but they still lack the car manufacturing component (the self-driving tech is more expensive than the car itself).

Level 5, Complete Automation: You just plug in your destination and your new whip does the rest! Ka-Chow!

So, who are the major players in the AV space?

First, we’ll look at traditional auto makers. Ford, GM, Audi, Nissan, Tesla and others are either already releasing various levels of AV or throwing billions at the tech. GM’s self-driving unit has already received billion-dollar investments from Honda and Softbank. It also leads the industry in fewest fender-benders.

Just before their depressing earnings report, Elon Musk promised to put one million self-driving cars on the streets next year. Nobody believes him. Read more about Tesla’s Q1 and Musk’s tom-foolery here.

Then there’s the tech giants. While Apple has been very wishy-washy on their path to AV, it recently showed interest in acquiring LIGMA LiDAR technology, which is basically a light sensor that allows cars to see their environment. Waymo, an autonomous vehicle maker owned by Alphabet, is widely considered the leader in the AV space.

Other tech companies are simply developing hardware and software to facilitate AV functions. For instance, NVIDIA recently developed a chip to enable level 5 AV, and Blackberry’s QNX platform is designed to prevent self-driving cars from being hacked. Intel also joined the race with their acquisition of sensor company, Mobileye.

Wait a minute, there’s another industry targeting the AV space: ride-sharing services. That’s right, Lyft and Uber are aggressively working on their own fleet of AVs because it’s cheaper to give people rides when you don’t have to pay drivers. Ride-sharing firms have the same vision as Waymo: driverless cars will make widespread vehicle ownership obsolete. People will just hitch rides with robots to get where they’re going!

What will the Future of Driving Look Like?

While some industry leaders view future vehicles as completely driverless, others think that a human element will always be necessary given the countless “edge scenarios” such as complicated lane mergers or anything associated with Austin traffic. However, machine learning could plausibly enable vehicles to learn from all of the different edge cases over time.

What the AV market will actually look like is still very speculative, so we won’t make any bets on who is going to lead the industry. What we can tell you; however, is that certain metrics for AV effectiveness already exist. One is known as a “disengagement rate,” which measures how often per mile the person in a driverless car must disengage autopilot and take the wheel. So far, Waymo leads in this respect (although data is self-reported and could be distorted by confounding variables).

Some scholars believe that AVs will either incur slow adoption rates or have a negative impact on society for a laundry list of reasons:

  • “Self-driving taxis will just be slower Ubers.”
  • “Self-driving cars will encourage suburbanization and urban sprawl, which is bad for the environment.”
  • “Self-driving cars will get hacked, and the threat of cyberattacks at least slows adoption.”
  • “We can’t prove AVs are safe because their code continuously changes due to machine learning algorithms.”

We didn’t put those in quotes because we don’t take those concerns seriously. They’re just things that other people said.

Generic Stock Update:

It’s been a while since we’ve discussed anything other than cars or kush, which is a bad habit. Here’s that wholesome market news you’ve been waiting for.

The S&P 500 is up 17% this year. Indexes propelled to record highs this week thanks to GDP data and outstanding Q1 earnings from tech companies and other industry leaders.

Some big winners: Microsoft, Twitter, Facebook, SAP, Amazon, Lockheed Martin

Some big losers: Tesla, Intel, UPS, AT&T

GDP Data boosted stocks on Friday, as the US economy grew 3.2% yoy compared to an expected 2.5%. GDP increases were driven by higher military spending and private sector investments in inventory. Some economists see this inventory investment as a short-term boost to GDP with consequences down the road. If companies are building up their inventories now, they’ll spend less on building up inventories later, which could slow GDP growth in Q2.

At the very least, we can take a sigh of relief because people were getting pretty nervous about an impeding recession. Now investors are much more confident in the stock market relative to last Thursday. Inflation data from February and March will be released this Monday, which should refresh people’s takes on future interest rate raises that always seem to drag down bull runs.

Other News:

Disney announced their new streaming service, Disney+ at $6.99 per month. Their stock popped as a result. We were going to expound on this event but a) this was two weeks ago and b) Ben Thompson from Stratechery already wrote a great piece about the strategic implications of this service. Check it out here.

More good news for Bob Iger: Avengers Endgame grossed a record breaking $1 Billion in its box-office debut.

Boeing keeps getting exposed. Investigators found over the weekend that Boeing did not inform major airliners or the FAA that their 737 MAX planes (the model that crashed) had a deactivated safety feature. The safety feature would let pilots know if the auto-pilot sensors malfunctioned (which is what happened in the crash). Nobody knows why Boeing deactivated the feature. In their Q1 earnings, Boeing posted a $1 billion loss to represent business disruptions from the groundings. For context, that’s 1/13 of their 2018 cash flow.

LIT Speaker Series Recap: Alex Gabbi (4/17/19)

Last night, we kicked off our first LIT Speaker Series. Through this recurring series, we are excited to host distinguished speakers from many different areas of the business world. Our events are open to all UT students looking to gain wisdom about finance, marketing, entrepreneurship, and life in general. Our first LIT speaker, Alex Gabbi, gave us just that.

“I was told I could speak about whatever I wanted, so I’m just going to talk about what I think is interesting.”

Gabbi joked as he pulled up his presentation. He would keep this lighthearted attitude for the whole lecture.

Gabbi is a Lecturer in the Marketing department here at UT whose extensive management career spans from the level of start-up to Fortune 200. He is also a professional public speaker and a world traveler who stays curious about topics and places that are foreign to him. All of this makes him a riveting orator, so all eyes in the room stayed trained on him for the entirety of his fifty minute lecture entitled “15 Life Lessons in 50.”

Gabbi began with a simple slide entitled “Passion > What ____ Tells You To Do.” He looked around the room at undergraduates concerned with finding internships, interviewing for positions, building resumes, and planning for a career. As we look to the future, he encouraged us to remember that “only you know what you love,” and to prioritize our passion accordingly.

He illustrated his message with an anecdote from his own life. He told us that his dad wanted him to become an investment banker. At this, many IB hopefuls in the audience sat up a little straighter. Gabbi recalled being on a plane, headed to begin a banking career, when he realized that he was doing it because his dad thought it was the right thing for him to do, not because of his own desires. He landed, called his dad, and announced that he was going to be an entrepreneur.

“And it took him 10 years to forgive me.”

Gabbi chuckled. Standing before us with a successful career in entrepreneurship, Gabbi held no regrets about his decision. He emphasized that if you’re not passionate about something, people will see that. On the other hand, if you follow your passions, you will find success.

For the remainder of the lecture, Gabbi enumerated 14 other things he’s learned about how to get the most out of life. He spoke to an interdisciplinary room of business, communications, and engineering majors, but was able to connect to everyone in attendance as he related his life lessons to common goals: landing job opportunities, effectively working with different types of people, inciting change, and improving oneself.

To be a master of building relationships in the workplace, Gabbi emphasized becoming “a student of human nature.” Gabbi has spent a lot of time researching personality types, human motivators, and non-verbal linguistics. He encouraged us to do the same if we want to succeed in the workplace, because the best way to influence people is to first be able to understand them.

Gabbi explained that there are four main social styles: driver (likes to get the point), amiable (likes to build rapport), analytical (likes to lay out all facts and figures), and expressive (a “hugger”). He encouraged us to peg people as the different styles and adjust our behavior accordingly. People like people that are similar to them. If you communicate with people according to how they wish to communicate with others, you will communicate more successfully.

Another equally important facet to successful communication is understanding non-verbal cues. From reading up on FBI interrogation tactics, Gabbi has learned that people tell the truth from the bottom up: “the window to the soul is their feet.” If someone’s feet are pointed away from you, they are unconsciously signalling that they are ready to leave the conversation. People can easily fake a smile (which curves outward rather than upward), but the feet don’t lie. Knowing cues like this will help you analyze your business dealings and improve upon them.

Just like his advice to learn psychology to improve one’s corporate career, many of his lessons shared a baseline message to diversify one’s knowledge to improve oneself. A world traveler, Gabbi lit up as he told us that gaining exposure to different cultures, religions, and experiences is “the key to everything.” He challenged us to see the world from a different set of eyes and see what those eyes teach us.

“Be curious!” Gabbi enthused. Ask questions. Take an interest in something new and philosophize about it. Then grow by finding someone to challenge your beliefs. The people with a drive to learn are the people with a zest for life. The people willing to “push [themselves] to a discomfort zone” are the people with the ideas, with the creativity, with the ability to make a lasting change on the world.

After he engaged the audience in Q&A – which featured internship advice, book recommendations, and artificial intelligence – students formed a line wrapping around the side of the room to speak to him personally. We thank Alex Gabbi for such a captivating lecture and look forward to the many promising presentations to come in our Series.

Longhorn Investment Team 4/20 Report

Yooooo what’s up ahahahahahhahahahah. It’s 4/20 so we’re delivering a special report all about the cannabis industry. We know it’s kinda unoriginal, but c’mon, everybody’s doing it!

Some Industry Facts

  • Weed Sales go up on 4/20. We still don’t know why, but dispensary visits jump about 59% on this holiday, while purchases in legal states increase by about 60%.
  • Growth Trends. We’ll make this list quick:

CBD: Customers usually pay 50% more for these products than THC products because of supposed medical benefits.

Edibles: These are growing quicker than regular bud sales (50% in six months) because why smoke weed when you can eat it I guess.

Omnichannel: Think of dispensaries as brick and mortal retail for weed (because they are). Couldn’t these outlets get crushed by a weed delivery service? Ecommerce for weed already exists on sites like BudTrader.com (must be 21 or older, kids!), so keep an eye on whether or not the retail apocalypse will engulf dispensaries.

Women: That’s right, females. Some weed companies in California suggest that women account for 75% of sales. Why? Because moms buy the vitamins and health stuff for the family, and they’re on that CBD wave big time. Other surprising target markets include pets (with anxiety, of course) and Baby Boomers.

  • A Resilient Industry. Marijuana is something that people are just gonna buy, man. Cannabis is considered a “vice industry” (not because of all the Vice weed documentaries). Similar to tobacco and alcohol, people are always going to spend money on weed­ – especially the 30% of users who are dependent on the drug and the moms who buy CBD for medical reasons. When you’re looking for weed stocks that can weather a recession, look for high-quality weed producers and healthcare focused firms.
  • Types of Weed Stocks. There are 3, and each classification faces its own set of risks.

Weed Producers (the farmers) include Aurora Cannabis, Cronos Group, and Canopy Growth Corporation. Many of these companies are widely known as pure-play cannabis stocks and are worth billions. However, none of these major gas growers are remotely profitable, as they are locked in a race to either produce the most kush or develop the dankest strain known to man.

A major concern for these players is a coming supply crunch. As more and more producers flood the market with cannabis, weed prices should only decrease, which could pressure these white-hot stocks, which are undoubtedly overvalued based on traditional metrics.

Weed Doctors (weed+biotech) include firms like GW Pharmaceuticals and 22nd Century Group. These companies develop medical applications for cannabis. They are subject to the same risks as any biotech or pharmaceutical stock, namely the fact that they pour millions into therapies that may or may not get approved…or even work.

Weed Services (packaging to greenhouses – anything that grows with the weed industry) include KushCo Holdings and Scott’s Miracle Grow, the owner of Hawthorne Gardening. KushCo is a market leader in packaging weed products, while Hawthorne is a leading provider of hydroponics used in cultivation. These companies are less exposed to risks associated with the weed market itself, but their other lines of business could add additional idiosyncratic risks investors should consider.  

Should I Invest in the Devil’s Lettuce?

A good question, indeed. While the broader market for cannabis will undoubtedly balloon with changing political tides in the United States and its growing popularity amongst multiple demographics, it’s tough to bet on these notoriously volatile companies that may or may not fully capitalize on the green rush. Moreover, established cannabis stocks already have weed’s growth prospects priced in to their valuations. In other words, it’s not like Aurora Cannabis is worth $8 billion because of its negative earnings; it’s all because investors are high on the company’s future growth prospects.

Safer ways to invest in weed include ETFs like MJ, a fund that tracks an aggregate of several weed-related equities. Picking the right weed company can feel like picking a needle in a haystack, so why not buy the haystack with an ETF? Additionally, larger US companies own stakes in certain Canadian weed companies. Namely, Altria Group, the makers of Marlboro, own a stake in Cronos Group, while Constellation Brands, a conglomerate of alcohol labels, bought a stake in Canopy Growth to explore cannabis-infused beverages.

Other News:

Citi joins the list of banks that no longer drug test for marijuana. This was in response to a New York City law that will ban marijuana drug testing for potential employees.

Interview Advice: The first question you should always ask a recruiter is “Do you drug test?”

Coming Soon:

You really thought we were gonna leave you hanging on the Autonomous Vehicle news? Just stay tuned, it will come in our next weekly insight. Until then, enjoy your holiday, and remember that the government is watching you through your laptop camera!

Longhorn Investment Team Weekly Insight: Game of Thrones Edition (4/14/2019)

Welcome back ladies and gentlemen. We know it was windy yesterday, but this content is sure to blow you away haha. It took us hours to think of these GoT puns so be sure to tell all your friends about us. In this episode, we’re beginning with the latest gossip on transportation because we love transportation and so should you.

Game of Cars

The automobile industry is on the brink of game-changing innovations: electric vehicles (EVs), autonomous vehicles (AVs), and connected cars (CCs?).

The question remains: who will win and lose in the war to control these new and exciting markets? Let’s take a look at the major battlegrounds.

Connected Cars: The average 5-year-old car uses over 100 million lines of code with the processing power of over 20 PCs – and that was mostly dedicated to improved GPS and safety functions. Now, the money is being spent on internet connectivity, specifically to enhance the in-car experience beyond DVD players.

House Big Tech vs House OEMs: Software and Telecom companies like Alphabet and Apple have plenty of reasons to join the car dashboard revolution. Because people in the car are a literal captive audience, whoever owns the software in your car has plenty of monetization opportunities (ie advertisements that correspond to your driving route, integrations with other apps, and in-car payments for gas and other stuff).

As Apple and Google try to maximize their stakes in the dashboard, some Original Equipment Manufacturers – in this case, automobile producers like Ford – are aggressively developing in-house software to preserve their share of the new market (and the consumer data that comes with it). In other words, who is going to run the app-store in your car, Toyota or Apple? Nobody wants to be the dump pipe.

Key Trends: The main “drivers” (lol) of the connected car include new features and with them, new monetization avenues mentioned above. Roughly 90% of vehicles on the road should be connected to the internet by 2020. However, these innovations don’t come without barriers to adoption – namely privacy concerns on the tech side and design concerns on the automotive manufacturer end. A McKinsey survey found that 35% of consumers would never buy a car with internet connectivity because of concerns over data privacy and hacking. Additionally, many OEM’s aren’t good at making dashboards with a good user interface and struggle to integrate outside technologies. Ever been in a car with a dashboard that looks like airplane controls?

Ford is recalling about 13,500 2015 Lincoln MKCs after moving cars stopped suddenly when drivers confused the push-to-start button with other dials.


And no, that was not a Boeing joke, but we just can’t have this stuff going on!

Electric Vehicles:

Too many Houses to count. Here are some companies investing heavily in electric vehicles:

Ford Motor Co. recently announced an $11 Billion restructuring effort and shifted upper level management with EV, AV, and dashboard software ambitions. That’s a bold strategy, Cotton; we’ll see how it pays off for ‘em.

General Motors announced layoffs and increased EV investments earlier this year.

Tesla is shifting away from EVs to focus on innovative gasoline powered vehicles. Just kidding, but Tesla does face new competition in China and potentially in other regions from Geely, a Chinese auto company that owns a 50% stake in Smart (the Smart Car people). Geely’s new “Geometry A” model will cost about $31,000, already making them a low-cost competitor with similar features to Tesla’s Model 3.

China’s Red Wedding: Due to subsidy cuts and stagnating demand for new vehicles, experts forecast difficult times for the 500 plus Chinese EV startups, which have raised over $18 billion in capital in 8 years. While larger players like NIO should whether the storm, smaller startups betting on breakthrough technologies face serious shutdown risks. Importantly, the US is introducing legislation to raise EV credits while China is phasing them out.

Key Trends: Most people don’t know enough about EVs to buy them. According to an Engine International survey, 75% of consumers don’t know where to find charging stations, and a majority aren’t aware of 30-minute charging times or the $7,500 available in tax credits for EV purchasers. To be fair, I have reason to believe the survey results could be biased to a degree, but it’s no secret that EV’s aren’t far off from becoming mainstream among consumers and auto-makers alike.

Autonomous Vehicles: We just realized this is running long, so we’ll pull a George R. Martin and leave everyone in suspense. Stay tuned for our follow up on key trends in the AV space plus insight on Disney’s big announcement and the future of your digital life from privacy to memes.

Fun Facts:

Tiger Woods won The Masters, but you already knew that. Smash that like button.

We didn’t include any GoT spoilers because this AI algorithm can do it for you. Students at technical University of Munich have assessed the survival chances of every major character using web data, only time will tell if it actually works… dun dun duna dun dun duna dun dun duna dun!

Longhorn Investment Team Weekly Insight: Final Four Edition (4/6/19)

What’s up gang! We know March Madness is coming to an end, and we had each of our members create an algorithm to predict the correct outcome of the NCAA tournament. It didn’t work. Anyway, lets dive into the news.

Trade War is Down to the Wire

Trade cannot play its full role in driving growth when we see such high levels of uncertainty.

Roberto Azevêdo, WTO Director General

In the World Trade Organization’s press release last week:

  • Global GDP growth expected to slow from 2.9% in 2018 to 2.6% in 2019 and 2020
  • Estimate of 2018 trade growth is lowered to 3.0% from early September estimate of 3.9% (WTO’s lowest forecast in 3 years)

““The U.S. has a point when it comes to IP theft concerns” – China

Larry Kurdlow, White House Economic Advisor

A possible concession from China in the realm of IP theft – a key point of contention in the current trade dispute – was all investors needed to hear. The S&P posted its second straight week of gains.

Is this information really actionable? Not really, while its good for the two countries to have an open dialogue, many questions such as the Huawei investigations remain unanswered. Moreover, actions speak louder than words, and Kurdlow’s statement came the day after a Chinese official was charged for trying to bring a thumb-drive loaded with malware onto Trump’s Mar-a-Logo resort.

March Job Report Comes in Clutch

The US added 196,000 jobs in March. Wages increased 3.2% year-over-year.

People expected 170,000 new jobs and 3.4% yoy wage growth.

Compare the March data to February (only 33,000 new jobs) and things are looking up as investors can still cling to employment data as a sign of a healthy US economy despite lower consumer confidence, retail data, and that yield curve situation…

Oh yeah, the yield curve! Remember how if long-term bonds have higher yields than short term bonds, investors pee themselves? Well that ominous cloud has subsided to a degree, as the yield curve returned to a relatively flat, but positive slope.

The Middle Market Has More Bandwagoners Than Duke Did

“Investment bankers across Wall Street are tripping over themselves, and sometimes each other, to win business advising smaller companies on deals – assignments they would’ve scoffed at two years ago” – The Wall

What do investment banks do?

A lot of stuff, but it’s common for them to facilitate mergers and acquisitions, or the buying and selling of businesses. For the purpose of simplicity, let’s assume all investment banks are primarily focused on M&A to make money (usually through a % fee based on the size of the transaction).

Big banks are shifting from fewer big marlin deals to lots of small tuna deals.

Yes, M&A in the fisheries market is booming. Just kidding, that was really an analogy. Let me explain. After 2008, there was a big recession so lots of companies consolidated, causing a boom in big time deals. Follow the recession with a decade of low interest rates and then a tax cut, and you see another wave of big time deals (CVS+Aetna, Disney+Fox, Amazon+Wholefoods).

What changed?

  • M&A activity for transactions over $2 billion has slowed down recently as tax cut savings have worn off.
  • Banks are turning to the middle market (companies that make between around $10 million to $500 million a year in revenue) for more and more business. M&A are extremely common among middle market companies, which presents the perfect opportunity for big banks that already lend to these businesses to cross-sell their M&A advice to middle market clients.

Why is that?

  • Middle market companies are frequently purchased by private equity shops. Private equity firms are companies that just buy other companies and flip them; it’s not complicated or anything. Right?
  • Middle market companies are commonly family-owned. Sometimes founders can’t get their kids to act as successors to the business, and acquiring talented employees is generally difficult as a family-owned business. This creates situations where owners are more likely to just sell their business.
  • Smaller companies are way more likely to create truly disruptive innovations. Big companies are bad at innovating, but they have the money to just buy the innovators when they’re small.

Anyway, big mergers are like the marlins and middle market deals are the tuna…

…and its tuna season, baby!

Why it matters for banks: Big investment banks like Goldman Sachs and JP Morgan are moving into a space crowded with regional banks that already specialize in the middle market. With middle market companies accounting for roughly a quarter of total revenue generated in the US, it’s no wonder banks are turning more and more to mid-size clients.

Why it matters for the middle market: A TD Bank survey found that 68% of middle market banks expect to undergo M&A in the next 2 years. The National Center for The Middle Market furthers 60% of middle market businesses are relying on inorganic growth as part of their strategy.

Because M&A can make or break a company, it’s crucial that they receive top notch advice from getting the right price on the deal to ensuring that the companies integrate properly to create synergies.

Other News:

Upcoming IPOs we forgot to mention last week: SpaceX, WeWork, Palantir, and iHeartMedia. iHeartMedia just announced their IPO which they are using to exit the bankruptcy they filed for last year. iHeartMedia’s bread and butter is podcasts. They claim to have 275 million US listeners per month on their platform. For context, Spotify claims to have 207 million global monthly users.

Lyft stock shorts were the most expensive bearish bet in the US stock market on Wednesday. In other words, investors clearly think it’s overvalued, driving up the price of put options contracts. It gets juicy – Lyft just accused one of their underwriters, Morgan Stanley, of marketing investment vehicles to short their shares. This could be a violation of lock-up agreements, contracts that prevent early investors from selling shares immediately after the IPO.

Verizon introduced 5G networks in parts of Chicago and Minneapolis, making them the world’s first commercial 5G provider. 5G will enable download speeds 10x faster than LTE. South Korea will be unveiling their 5G networks shortly, and you may have it in the top right of your screen as early as 2020.