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ROKU Beats, But the Story is Bigger

Date Published: 2018-06-08 Written by: Ophir Gottlieb This is a snippet from the original CML Pro dossier published on 5-11-2018. LEDE ROKU beat earnings estimates, but the earnings results were the smaller story. ROKU is on the verge of becoming the operating system to streaming video — and that is a massive opportunity. STORY ROKU is a Spotlight Top Pick and we cover the broad, far-reaching bullish thesis in the Top Pick dossier The Tech Gem Looking to Dominate Streaming Video. ROKU is building a business based on users and if we measured them as a cable provider, as of right now, they would be the third largest cable provider in the country behind just Comcast and AT&T -- that's how many people and how much content they serve, already. Further, the number of accounts for ROKU rose 47% while Comcast and AT&T are essentially flat. All of this is driven by the large secular shift by consumers to streaming video and away from linear TV. Check out this video consumption pattern forecast:

And then straight to SVOD revenue forecasts.

The penetration rate of streaming video is growing in the United States, but is still below 25%:

The various SVOD content providers are in a war — to buy content, to buy users, to keep users, to differentiate. Netflix, Amazon Prime Video and Hulu are at war with each other, as they are with other over the top (OTT) video services like those coming from Apple, Google (YouTube), Disney, and many others. That battle doesn’t interest us — what we are after is the operating system, the guts, that will house all of it. And this is where Roku exists. Each of these over the top (OTT) content providers are available with Roku hardware or software. The idea behind the business is to grow scale -- to grow active accounts, and to become the operating system of streaming TV. Yes, their goal, their future, is to be what Microsoft was to PCs and what Apple is to smartphones -- the platform, the operating system, for the booming industry that is Streaming Video on Demand (SVOD). Now, let's turn to the earnings results, and the information we gathered form the call that goes well beyond the numbers. EARNINGS AND MORE * Revenue: $136.6 million (up 36% in the year-ago period) vs. estimates of $127.5 million. * EPS: -$0.07 vs estimates of -$0.16. The real story, though, goes well beyond these headline numbers. Remember, the company is purposefully lowering prices on its hardware to grow its user base and platform reach. In fact, in the last quarter, player (hardware) revenue declined 3% as the company focused on positive unit growth. As for that "unit growth," try these facts: * Roku TV is the #1 licensed TV operating system in the U.S. * One in four smart TVs sold in the U.S. were Roku TVs up from one in five in 2017. Even further, the company is getting entrenched in the future of TV:

Today, Roku offers one of the broadest selections of direct-to-consumer services, including Sling TV, DirecTV Now, PlayStation Vue, Hulu Live, YouTube TV, fuboTV and Philo.

So, the business model then is based on platform revenue from accounts, of which about two-thirds is ad revenue. The only way for that to work is if (1) the user base balloons and (2) the user base is more engaged. Both are happening at staggering rates. ROKU noted:

We believe virtually every TV OEM will eventually need to license a TV OS, as consumers shift to smart TVs with 4K displays, and as OEMs focus on both cutting costs and boosting customer satisfaction.

This is the story and below we share the pieces of data that really moved us -- that is, the data that is our circumstantial evidence that ROKU can in fact accomplish its lofty goals: * Active accounts rose 47% year over year to 20.8 million at quarter end. * The company saw 2.8 hours of streaming hours per active account during the quarter. * Streaming Hours: Roku streamed 5.1 billion hours of content in the quarter, up 56% from the prior year. * Average Revenue Per User (ARPU) rose 50% year over year to $15.07. All of this led to platform revenue busting out: * Platform revenue rose 106% year over year to $75.1 million. Since platform and advertising revenue are much higher margin businesses than selling hardware, we then saw this: * Gross profit rose 62% year over year to $63.1 million. * Platform gross profit increased 90% year over year. But there is even more going on -- and it's gigantic. A BIGGER STORY The company said that nearly half of its roughly 21 million active users have cut the cord or have never had a traditional pay TV subscription. Stop for a moment and think about that. That means any kind of marketing that is supposed to come through TV ads simply cannot be reached through linear TV -- it must go through ROKU. The CEO went further to say that "according to Nielsen, 10% of 18 to 34-year-olds in the U.S. are only reachable on the Roku platform in the living room." And there's more. A television advertisement, as we all have seen, is broad and can be wildly unfocused. For example, perhaps we watch TV and see an ad for a new Ford truck -- what percentage of the viewing population has an interest in a truck? The answer is, we don't know. The ad companies use Nielson ratings and demographic data and then the stations try to sell their ads to the right "type" of advertiser. Now try this one sentence, which is true, that is, it is a fact, but it's also mind blowing: Every advertisement on ROKU to its users is custom for that individual user. That's right. Not only are tens of millions of people totally unreachable by traditional TV, even the ones that are, if they are on ROKU, they get personalized ads. That reminds me of two other companies that did this to create two of the six largest companies in the world: Google and Facebook. And the evidence that this is working, again from the CEO (our emphasis added):

"A recent study by IPG and MAGNA concluded that ads on the Roku platform are 67% more effective per exposure at driving purchase intent compared to traditional linear TV ads."

But the narrative gets even stronger. Based on data from 2017 we get this: * Facebook users spend 35 minutes on average on the platform, although the United States is higher, perhaps closer to 50 minutes. * YouTube users spend upwards of 40 minutes a day on the platform. And here is a simple copy and paste from above, that ROKU management shared: * ROKU saw 2.8 hours of streaming hours per active account during the quarter. Yes -- Facebook and YouTube combined have about half the total daily viewership per user as ROKU. And just to make sure that math really holds up, we did some back of the envelope calculations. - ROKU streamed 5,100,000,000 hours of content. - ROKU ended the quarter with 21,000,000 active users. That comes out to 243 hours per active user per quarter. - Now take that and divide it into 90 days per quarter and we get... 2.7 hours per day per user. The company reported 2.8 hours, but we have come close enough to verifying that the numbers play out. Of course, the hours spent on ROKU aren't exactly the same as hours spent on Facebook, or YouTube, but my goodness, this company is saying out loud, with actual data, it is becoming a behemoth. Even further, ROKU has its own channel -- where it controls everything (as opposed to streaming hours on Netflix on ROKU). And how is that plan for native content going? Here's an update from management:

The Roku Channel is now a top 15 channel on Roku devices based on hours streamed - and the #3 free ad-supported channel on the Roku platform. In Q1, we expanded the content syndicated from channel partners and added more movies and TV shows from Lionsgate, MGM, Sony Pictures Entertainment, Warner Bros. and other studios. Recently, we announced the addition of live news from ABC News, Cheddar, People TV and others.

OTHER THINGS TO CONSIDER Owning a stock for the sole purpose of a takeover possibility is, in our opinion, a terrible idea. Ownership in an asset that is "supposed" to appreciate must be based on a bullish narrative that stands on its own. But, we are also starting to see a narrative where this firm may become a takeover candidate. For example -- Netflix has no ecosystem at all -- in one fell swoop it could have one, with an advertising business. Facebook, which has no hedge against its own platform, could suddenly challenge YouTube with a powerful content and ad business and jump into living rooms, after being relegated to just the smartphone. There are other examples -- but if ROKU keeps growing at this pace, and the other metrics continue to support this idea of ROKU fulfilling its promise to become the leading operating system for streaming TVs (like Apple has become for smartphones, like Microsoft became for PCs), then it's quite possible it becomes a takeover target. SEEING THE FUTURE It's understanding technology that gets us an edge to find the "next Apple," or the "next Amazon." This is what CML Pro does. We are members of Thomson First Call -- our research sits side by side with Goldman Sachs, Morgan Stanley and the rest, but we are the anti-institution and break the information asymmetry. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at a 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. Thanks for reading, friends. The author is long shares of ROKU at the time of writing and publication. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories ("The Company") does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

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Surprise: Apple is Crushing It After All

Apple, iPhone, super, quarter, data,earnings

Surprise: Apple is Crushing It After All

Date Published: 2018-02-27 Written by Ophir Gottlieb This is a snippet from a CML Pro dossier published on 2-26-2018. LEDE Apple just reported the single largest quarterly after tax profits ever, and generally beat estimates for earnings, but the guidance for the current quarter was less than stellar and its booming Services business boomed, but did not KABOOM, and that was reason for some worry. New data surrounding the iPhone's dominance has been releases, and while the "super cycle" didn't come in volume, my goodness, it has come in terms of dollars. STORY We added Apple to Top Picks on 2-Jan-16 for $104.15. As of this writing it is trading at $175.50, or 68% higher. We did a thorough write up of the earnings release as it came out, and you can refer to that dossier here: Must Know: Apple Earnings Review. But it is the latest number crunching from two analytics firms that pushed Apple higher last week, and may see it test that all-time high yet again. Let's get to the data. SURPRISE: IT IS A SUPER CYCLE Apple did something very odd with its iPhone X super phone -- it held it back. The company first released the iPhone 8, and delayed its release of the $1,000 phone. That was hotly contested and it was a huge risk. Analysts still disagree about the outcome, even though the outcome is now an observable fact (we saw sales and earnings). The idea that consumers would pay up more than $1,000 for a phone was risky, and it was yet riskier to let people "opt out" by just going with iPhone 8. But, the real movement for Apple last quarter was the astonishing rise in its average selling price (ASP) per iPhone. Here is a chart:

I don't know why BI decided to use a line chart rather than a bar chart, but let's let the non math people do as they will -- the data is what we want and the broken trend is still easy to see. This cycle (quarter) saw a huge pop out of a pretty tight range. The big jump is because of the $999 super-premium iPhone X, which costs nearly $240 more than the iPhone 7 Plus, which was previously Apple's most expensive phone. CEO Tim Cook said:

Honestly speaking, there's no comparison in the revenue, it's hugely different. In a positive way, obviously.

SO WHAT? Counterpoint Research Director Neil Shah shared some new data and it reads pretty crazy.

The $1,000 smartphone—along with iPhone 8 and iPhone 8 Plus—helped propel Apple (AAPL) to a commanding 76% of smartphone revenue in North America and 57% in Europe.

Then Strategy Analytics came out with more data. According to the firm, Apple has taken more than half of the global smartphone revenues for Q4 of 2017. "Apple iPhone captured a record 51 percent share of all smartphone wholesale revenues." And then we got the real data (our emphasis added): * Apple’s smartphone revenue was seven times higher than its second competitor, Samsung, and seven times more than Huawei. * The iPhone's $800 ASP is three times the industry average. * Samsung’s ASP grew 21%, sitting at $254. And while reports have come out that Apple might ditch the iPhone X, the famed Ming-Chi Kuo of KGI Securities actually went the other way claiming that Apple was going to launch an iPhone X Plus. Yes, a larger, yet more expensive phone. For the record, KGI also carefully noted that Apple has not made a final decision and certainly has not made an official announcement. CONCLUSION Wall Street wanted an iPhone super cycle, and that meant volume. Well, volume beat expectations, but then was lowered for this quarter's guidance, but revenue, that is in a super cycle. And that super cycle has given Apple all kinds of absurd statistics relative to its competitors, from size to market share. For now, the arguments can stop -- Apple had a super cycle -- it was in revenue, and that led to the largest single quarter of earnings ever by a public company. Apple beat another mega cap's record... Apple. And it also dethroned the number three spot, which was... Apple. As for the weaker than expected guidance, we could also just listen to Tim Cook, you know, the CEO, when he said on the earnings call: "iPhone revenue will grow double-digits as compared to last year during the March quarter. And that iPhone sell-through growth on a year-over-year basis will be actually accelerating during the March quarter as compared to the December." We also note that the all-time high in ASP was also a poke in the eye of analysts that said people would not spring for the super expensive iPhone X — wrong. iPhone X was the bestselling iPhone every week it was out. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems that can turn into the 'next Apple,' or 'next Microsoft,' where we must get ahead of the curve. This is what CML Pro does. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgement, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares of Apple Inc at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

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Nvidia Crushes Earnings -- But Still Shows More Upside

Nvidia Crushes Earnings -- But Still Shows More Upside

Date Published: 2018-02-13 Written by Ophir Gottlieb This is a snippet from a CML Pro dossier. LEDE Spotlight Top Pick Nvidia Corporation (NASDAQ:NVDA) crushed earnings expectations, but even further, showed that one of its 'soon to be large businesses' is, right now, ready for the world to take notice. STORY We first added Nvidia to Top Picks on 2-Jan-16 for $32.25, and the stock is up 620% since then.

When we first introduced this company to CML Pro, we did name it as the single best technology opportunity that we had identified, in the world. The original Top Pick dossier is available here The Crown Jewel of Technology’s Future. In that dossier we dug pretty deep into the ideas of end-to-end machine learning, the segment of that called 'artificial intelligence' and 'deep learning,' and walked through where technology was likely headed, and how each piece, each segment, each little wrinkle, was in some way, great or small, dependent on Nvidia's technology.

In that dossier we showed forecasts for each of these segments, but still then, it took some faith. It took faith not just that Nvidia would be the leader, but that these ideas, these possibilities, would in fact materialize into actual businesses. That faith has paid off, and we can now quite comfortably say that one of those 'ideas' is a full-fledged, knockdown-drag out booming success. In our opinion, there will be more, many more in fact. But today we will focus on both the earnings call and the reality that one new segment is absolutely for real, right now. As an aside, Nvidia's revenue, net income and cash from operations are all smashing records while gross margins are also smashing records. We detail these phenomena near the end of the dossier with charts and comments from the company. THE CLOUD -- DATA CENTERS When we first spoke about Nvidia, Intel owned 99% of CPU business in the cloud and personal computers, pushing AMD to the side and dominating in a way we have seen very few times in technology when real competition was actually allowed (unlike Microsoft in 1998 (eh, hem)). Intel still stands tall as the overwhelmingly dominant leader in CPUs, but Nvidia has GPUs -- in fact it invented them. And while this is not the story to review that technology, we do so in the original Top Pick dossier. What very (very) few people recognized in late 2015, was that the GPU would actually hold a place in the cloud as well. Not as a competitor to Intel's CPUs, but as a new usage, and in some cases, a far more valuable one. It's this reality -- that end-to-end machine learning, artificial intelligence and general deep learning is going to be one of the tent poles for the cloud -- that has now turned into a sizable business for Nvidia, and one that has simply staggering upside for all parties involved. Here is the chart we always start with for the cloud:

We're looking at a segment, for all players, that will reach half a trillion dollars by 2026, if forecasts hold. In the United States, there are three dominant players:

Facebook, too, has a massive cloud platform; it just isn't public, and Nvidia powers that cloud as well. Nvidia is included (available) in each of those platforms. But let us not be so obtuse to forget about the rest of the world, which is larger than United States. On September 27th we penned Nvidia Sign Massive Deal with China’s Kingpins. In that article we noted that Nvidia had struck a deal where it will provide AI graphic processing chips to the three Chinese tech titans; Alibaba, Baidu, and Tencent. Here's a nice little snippet:

Alibaba Group Holding Ltd., Baidu Inc., and Tencent Holdings Ltd are upgrading their data centers with Nvidia’s Volta-based platforms, which revolve around the V100 data center GPU, the company said in a statement. The chip has 21 billion transistors and offers five times the performance over the Pascal-based chips the Chinese firms currently have deployed, and the deal is similar to partnerships Nvidia has with U.S. cloud-computing providers.

The takeaway here is worldwide opportunity and, and to date, worldwide dominance in the area of GPUs. LARGER THAN WE THINK On January 24th, 2018 we penned Nvidia’s Future is Aimed at Magnificence. In that article, we show Nvidia's view of the total addressable market (TAM) in data centers, and the numbers are a little bit... oxygen thieving.

For context, Nvidia did about $10 billion in total company wide revenue in the last twelve-months. Just so we don't somehow forget the other businesses Nvidia is powering, or hope to power, here a few other forecasts from the firm, in other areas: Gaming, of course, is still the main stay of Nvidia's core business, and that too, per the company is in the early phases of radical growth:

In fact, gaming is the world's largest entertainment industry with 200 million gamers. Nvidia's GeForce Now, which is a brilliant cloud based subscription service for gamers who cannot afford the expense of setting up their own at home rig, has been called a "Netflix for games" by the company. We can also turn to automotive, and while the self-driving featured portion is one piece, there is an entire ecosystem of smart cars, beyond the driving, that is booming.

And, quietly, Nvidia has named the manufacturing industry, at large, an industry it will revolutionize. That industry's TAM is... $5 trillion dollars.

With only 10% of manufacturing tasks automated, AI will power a new wave of automation. Source: Nvidia

And as if we needed more, Nvidia has its sights set on the global transportation segment, a $10 trillion industry. Now, let's take a closer look at Nvidia's cloud business and get to the earnings call, because going through these other businesses is just too fantastical to touch until we see actual results. NVIDIA'S DATA CENTER BUSINESS The push here has come from Nvidia's newest chip, 'Volta.'

Equipped with 640 Tensor Cores, Volta delivers over 100 Teraflops per second (TFLOPS) of deep learning performance, over a 5X increase compared to prior generation NVIDIA Pascal™ architecture. With over 21 billion transistors, Volta is the most powerful GPU architecture the world has ever seen.

Nvidia just reported that its data center business, that is, the usage of its GPUs in data centers grew to $606 million in the last 3-months. Analysts were expecting a lofty $541 million. In order to put some sort of trend on this business -- we're talking about actual realized revenue, we created our own chart from the company's public data:

We find it easier to look at trends lumped together as trailing-twelve-months (TTM). Here are those same numbers rolled up into annual tallies:

As of right now, not the future, not a forecast, not a goal -- right now, Nvidia's data center business is just under $2 billion a year, growing at 76% year-over-year. This is a business; right now. EARNINGS CALL AND RESULTS Let's take a peek at the earnings call and the highlights we bring forward. We will also intersperse financial charts to draw some context. * Revenue: $2.91 billion, topping estimates of $2.69 billion. * EPS: $1.72, excluding the tax benefit, beating estimates of $1.17. * Net income: $1.12 billion, up from $655 million, a year earlier. * Guidance: Revenue of $2.90 billion, plus or minus 2 percent, well above the analysts' average estimate of $2.47 billion. And now the earnings call: * Q4 revenue reached $2.91 billion, up 34% year-on-year. * Fiscal 2018 revenue was $9.71 billion, up 41% or $2.8 billion above the previous year.

* Quarterly cash from operations reached record levels at $1.36 billion, bringing our fiscal year total to a record $3.5 billion.

* For the first time, gross margins strongly exceeded 60% (61.9%).

* Outlook for the first quarter, GAAP gross margins are expected to be 62.7%. * Gaming business revenue was $1.74 billion, up 29% year-on-year [CMl Note: This was more than half of total revenue. Analysts projected $1.59 billion]. * Data center revenue [was] of $606 million was up 105% year-on-year. * Hyperscale and cloud customers adopting the V100 include Alibaba, Amazon Web Services, Baidu, Google, IBM, Microsoft Azure, Oracle and Samsung. * We continue to support the build out of major next generation supercomputers among them that the U.S. Department of Energy's Summit System expected to be the world’s most powerful supercomputer when it comes online later this year. * We are also seeing traction for AI in a growing number of vertical industries such as transportation, energy, manufacturing, smart cities, and healthcare. * There are now more than 320 companies and research institutions using the NVIDIA Drive platform that’s up 50% from a year ago and encompasses virtually every car marker, truck maker, robo-taxi company, mapping company, center manufacture and self-starter in the autonomous vehicle ecosystem. * We returned $1.25 billion to shareholders in the fiscal year through a combination of quarterly dividends and share repurchases. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems like Nvidia that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgement, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares Nvidia at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

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The Astonishing Story Behind What Really Happened to XIV

The Astonishing Story Behind What Really Happened to XIV

Date Published: 2018-02-6 LEDE Hello, all. This is Ophir writing. During the market's closing hour on Monday, February 5th, some sort of "flash crash," likely triggered by margin calls, attacked the CBOE Volatility Index (INDEXCBOE:VIX), also known as the "fear index." What was a bad day, turned into a never before seen move. Here is it:

Whatever it was, the VIX went from 17% to 37% in a matter of two-hours, or up 115%. That is the largest percentage gain in the VIX in one day ever recorded. Even then, while that is a huge move, it wasn't really market disruptive in any great way other than, the market had a bad day. But then the after hours margin calls came in -- and that was an unmitigated disaster for one particular instrument of interest to us: Credit Suisse AG - VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV). DON'T LISTEN TO TV The reporters on television have no understanding what XIV is -- it is not a naked short bet on VIX. No, it is an investment in the core underlying principle of market structures, driven by positive interest rates, known as Contango. Remember, the XIV is the opposite of VXX, and the expected value of VXX is zero. Here it is, from the actual VXX prospectus:

This instrument is not a radical short trade, it is fundamentally an investment in an ETN that reverses the value of an investment that is ultimately expected to be zero, which made it so good, for so long, and would have for several more decades. WHEN A LINE BECOMES THE FOCUS A little detail in the prospectus of XIV is that, hypothetically, should it lose 80% of its value from the close, it would cause an "acceleration event." That means that if the XIV sunk to 20% of its value, it would go to zero and the ETN would go away (and start over later). Now, obviously, this had never happened to XIV before, but it's only a decade old. When scientists back-tested XIV all the way back to the 1987 crash and including the 9/11 terror attacks, they noted that even then, XIV would not have suffered an 80% decline in a day. But we have never seen such a market with so many naked short vol sellers as we have today. As a barometer, even as crazed as Monday was, here is how XIV closed:

Down 14.32% is ugly, but, it's just a day -- a bad one, but nothing really all that crazed. Then the after hours session happened, and the best anyone can tell, as of this writing, is that some firm (or fund) had to unwind a short volatility position due to a margin call. That meant they had to buy the front month expiration of the VIX futures, leaving the second month unchanged. That little detail is everything, because the XIV is an investment on contango -- when the second month is priced higher than the first month. This is a market structure apparatus -- we could call it "normal market structure." But, with a flood of buying to cover short front month futures, the XIV started tumbling after hours. At first, social media saw it as a buying opportunity. Then it started dropping faster. Then disaster struck. The XIV dropped more then 80%:

The financial press did its best to cover it, but after a 2 minute segment on CNBC, there was nothing left to say because of one major rule inside the XIV prospectus. Here it is:

In that fine print, it reads that if the value of XIV dips to 20% of the closing value (if it is down 80%), the fund stops. That is, since this trade, if done with actual futures contracts, can actually go negative, the ETN stops itself out at an 80% one day loss. This is why we investors use the ETN, knowing that a 100% loss is the worst that can happen, as opposed to the futures, where much worse than 100% loss can occur. And the greatest burn of it all As of Tuesday morning the VIX is down huge (of course it is), the market structure has held (of course it did), and XIV would be having a very good day (of course it would). But, worse --- it turns out, as far as we know (still speculation), while it's hard to swallow, that the unwinding was done by none other than Credit Suisse itself. Yes, the creators of the ETN had another concern, beyond the assets under management -- and here it is -- -- look at the largest shareholder.

Credit Suisse quietly became the single largest holder of the very instrument it created, and by a huge amount. So, as 4pm EST came around, a bad day in XIV, but survivable, became the death knell, because the largest holder, the XIV's custodian, panicked, and covered. But, Credit Suisse could not very well just sell millions of shares of XIV in a thinly traded after hours session, so it turned to the VIX futures market. It appears, as of this writing, that this has actually occurred. While Credit Suisse (the issuer of the ETN) has yet to comment, it appears that whatever this "flash crash" did, whatever margin calls were triggered after hours, the short vol trader was in fact the firm -- it unwound positions in a size that the market has never seen before, and that means that it looks like XIV is possibly going to some very, very low number -- like $0, low. It's with great regret that as of right now, we do believe XIV is, for all intents and purposes, gone, from a little rule hidden deep in the prospectus that no one gave much concern and that got blasted away when the top holder in the note was the custodian itself. It's a reminder that the real danger to a portfolio is not a bear market -- we recover from those quite nicely as a nation -- it's the delirium that happens when a bull market gets totally out of control and margin is used excessively in a spurt of just a few days. And by margin, we don't mean normal, everyday investors, we mean the institutions -- even the ones we entrust to be custodians of our investments. So that's it. XIV,likely would have done just fine after this moment in time in the market, will not be given that opportunity to recover. It has been blown out on the heels of yet another Wall Street debacle, which no one seems to even understand, yet. The author is long shares of XIV in a family trust. Please read the legal disclaimers below and as always, remember, we are not making a recommendation or soliciting a sale or purchase of any security ever. We are not licensed to do so, and we wouldn’t do it even if we were. We’re sharing my opinions, and provide you the power to be knowledgeable to make your own decisions. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company makes no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

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Even Now, The Bullish Thesis for Nvidia's Future is Breathtaking

nvidia, billion, market, company, world, driving

Even Now, The Bullish Thesis for Nvidia's Future is Breathtaking

Date Published: 1-28-2018 Written by: Ophir Gottlieb This is a snippet from a CML Pro dossier. LEDE It's time for an update, yet again, on the tech gem that has its sights set on powering all of technology, and in this review we discuss several segments, with total addressable markets topping $1 trillion. It is this forward looking view of the world that justifies Nvidia's market cap -- and a potential for serious growth. CES Nvidia was added to Top Picks on 2-Jan-16 for $32.25. As of this writing it is trading at $236.66, up 591.6%. While the key note at CES was a full 90 minutes, just the first 2 minutes and 30 seconds does the trick for a primer. Here is that video, below:

BREAKOUT SESSION Even yet more revealing was CEO Jensen Huang's breakout session which can be seen through this article posted by Venture Beat. STORY But, apart from all the videos and all the forecasts, there is more news -- real news, that powers the bullish thesis for Nvidia forward. Let's talk about some details. CARS We can star with self-driving featured cars which is a nascent industry in terms of revenue, it is booming with respect to research and planned infrastructure. Here is a forecast for the self-driving featured market:

That's 134% compounded annual growth for the six years from 2015-2020 and deep learning is the secret weapon for self-driving car algorithms. And, while dozens of manufacturers of personal cars and trucks and commercial trucks are readying themselves for a fierce battle, Nvidia has a different approach. The company's strategy in this segment is to become a part of the internal workings on which all manufacturers depend. And while that sounded a little bold when we first covered Nvidia back in 2015, today it isn't bold, it's simply a matter of fact. First, the established players in this manufacturing world are already relying on Nvidia -- companies like Audi, Toyota, Mercedes-Benz, Volvo and Tesla in automotive, and companies like PACCAR, a leading global truck manufacturer with over $17 billion in sales and 23,000 employees. Here is a wonderful video that hits the high points of the commercial trucking world, and even has some cool musical scoring:

Further yet, Nvidia has a partnership with Bosch, the world's largest automotive supplier with total global sales of $73.1 billion in 2016. We also now know that 145 automotive startups around the world have chosen NVIDIA DRIVE. In total, 225 companies are currently developing with DRIVE PX. But all of this is still, unbelievably, just the tip of the iceberg. When people think of AI in the car, they tend to imagine level 4 and level 5 driving capabilities. At these levels -- 5 being the highest -- the vehicle would be capable of most driving scenarios it encounters. Level 5 would be a fully autonomous drive. But the AI advances inside the car shouldn't go unnoticed. Here is a snippet from TheStreet.com:

Mercedes-Benz unveiled its new (Mercedes Benz User Experience) MBUX infotainment system. The AI-powered system will be available in the A-Class starting next month. Nvidia has already announced a new partnership with Volkswagen (VLKAY) for its Drive IX, Nvidia's intelligence experience toolkit. In a nutshell, Nvidia's hardware gives its customers the tools necessary to build their own AI-based applications.

The point here is that it's not just hardware, but also software. Danny Shapiro, senior director of automotive at Nvidia recently said at CES:

Software is going to define so much of the user experience, the driving experience and it will continue to evolve and get better and better. New applications and new features [will be] added to your car even after it's in your driveway.

The expansiveness of AI as it pertains to the automobile, beyond self-driving, is breathtaking. Another final word for Shapiro:

AI is really at the heart of everything that's happening in the transportation space.

WHY THIS IS IMPORTANT We could go on and on with links to product announcement on Nvidia's site that are just breathtaking, but it is in fact a 40,000 foot view that we are after. While all of this sounds like a massive opportunity, and it is, the realization of this boom has barely hit Nvidia's business. Here is the revenue from the automotive sector for Nvidia:

That's just $487 million, for a company with over $9 billion in sales. But, the total addressable market (TAM), at least in Nvidia's eyes, is quite substantial:

That is $8 billion by 2025 heading to $100 billion in the future. So, you see, while the self-driving featured car world and the various other aspects of a smart car are making headlines, they are yet to hit Nvidia's bottom line. So while we can marvel at the revenue and earnings growth, which has been staggering, just this one area is in such early stages, that it is, practically speaking, rounding error as of today. STEPPING EVEN FURTHER BACK We focused on the automotive segment to make a point -- not just about Nvidia's proliferation in one segment and the potential TAM, but also the very idea of what the company is centered on. It's not about being the face of a product, it's about being the guts of every product. Wall Street was slow to pick up on Nvidia's potential early on, but that is no longer the case. Recently Bank of America Merrill Lynch raised its price target to $275. But it's the recognition that Nvidia has several business lines, that in and of themselves are substantial companies, that is starting to resonate. We covered automotive, but the data center business is also explosive. A misguide article written August 11th, 2017, by MarketWatch read Nvidia stock could pause as server growth slows down. Here is a quick snippet from that article:

While [the graphics chips designed for data centers] segment soared 175% from the same quarter a year ago, it grew only 2% on a sequential basis to $416 million.

Of course, in the earnings report that followed, Wall Street was in fact surprised, and the data center business is large enough, right now, to see substantial impact on revenue. Here is what CNBC reported:

The company reported $501 million in datacenter revenue, which includes sales of GPUs to cloud providers like Amazon Web Services, beating analyst estimates of $461 million and marking a 20 percent increase from last quarter.

And, for a chart, we turned to some cool graphics from TechCrunch, with our added emphasis on top of it:

Taking a step back, autonomous anything (cars, trucks, drones, robots) and many other trends are still small, but here is what we can expect for the pubic cloud computing platform world:

The worldwide public cloud market is forecast to rise from $154 billion this year (2017) to nearly half a trillion dollars by 2026. That market has three dominant providers:

Amazon, Microsoft, and Google purchase from Nvidia, at scale, and this business line is a winner, right now. Tencent, Alibaba, Baidu, Facebook and Oracle also rely on Nvidia chips for their clouds. In fact, on 9-27-2017 we penned Nvidia Sign Massive Deal with China's Kingpins, relating to the cloud, specifically. So, what changed? It turns out that Nvidia's newest chip, 'Volta,' has done what it claimed it will do. This is from Nvidia:

NVIDIA Volta™ is the new driving force behind artificial intelligence. Volta will fuel breakthroughs in every industry. Humanity's moonshots like eradicating cancer, intelligent customer experiences, and self-driving vehicles are within reach of this next era of AI.

And then a comment from Goldman Sachs right after the earnings call:

The ramp of Volta seems to be tracking well, and more importantly, has significant runway ahead, in our view, as a broader set of customers adopt the new architecture in the coming quarters.

But still, if you read with a careful eye, data center revenue came in at $501 million, which more than doubled from a year ago on the strong adoption of the Volta platform, but that is still 'just' $1.62 billion over the trailing twelve-months. Nvidia projects that the TAM for the data center segment to hit $30 billion by 2020 on its way to $75 billion.

Again, this is a company with just $9 billion in sales as of the last year. ARTIFICIAL INTELLIGENCE, BROADLY While all of this sounds bullish, it really, at least in Nvidia's eyes, is still barely scratching the surface. Here is a quick take from the company on its fundamental underlying technology, the GPU, and then yet more market opportunity in the broadly defined 'Artificial Intelligence' segment.

GPU computing powers the computation required for deep neural networks to learn to recognize patterns from massive amounts of data. GPU programmability gives developers flexibility in this rapidly evolving, nascent industry. We've built an end-to-end platform to advance AI, from purpose-built processors to software to fully integrated systems. We advance fundamental AI research and fuel the AI ecosystem by working closely with developers, researchers, and startups. We aim to democratize AI, so that every company in every industry can benefit from its power.

With only 10% of manufacturing tasks automated, AI will power a new wave of automation. * NVIDIA is the #1 AV platform — revolutionizing the $10T global transportation industry. * AI Cities: 1B smart cameras worldwide by 2020 will make cities safer, smarter. * AI Healthcare: AI is transforming the spectrum of care, from detection to diagnosis to treatment. GAMING All of these segments, this world that will progress, still hasn't even touched on Nvidia's largest segment which is gaming. And even that core business, is seeing truly remarkable growth. In the latest earnings report we learned that gaming revenue in the quarter was $1.56 billion, up 25% year-on-year and up 32% sequentially and the company claimed that it saw robust demand across all regions and form factors. We also learned that more than 1,200 companies are already using Nvidia's inference platform, including Amazon, Microsoft, Facebook, Google, Alibaba, Baidu, JD.com, Hi Vision and Tencent. DRONES As if all of this wasn't enough, Nvidia appears to have, a stand-alone business for drones. Accounting and auditing giant, PWC, noted that the world drone market will near $127 billion by 2020, according to Bloomberg. The drone market in general has so many charts that look like fantasy growth forecasts that it does feel a little "too good to be true," but the PWC note adds credence to those forecasts. Here are a few charts, just for some perspective, before we get the role the Nvidia hopes to play. Let's start with a chart of projections for consumer drone shipments from our friends at Statista.

There are two incredible phenomena surrounding consumer drone shipments. The first is this chart, which shows shipments growing 570% from 2016 to 2021, ultimately hitting nearly 68 million in that year alone totaling over $5 billion in sales. The second incredible phenomenon is that consumer drones are the smallest segment when compared to commercial and military. Let's turn to the commercial market -- there is where companies like Amazon would fit in.

Much like the consumer segment, this market is set to lift-off (no pun intended) right now. We're looking at a $587 million market growing to over $12 billion, or a 20-fold increase. Yes, while consumer is set to grow nearly 6x to $5 billion, this commercial market is set to grow by 20x and to $12 billion. As enormous as those growth figures are, and easily make room for several competitors to do quite well, friends, that's literally rounding error when compared to the military. Check out the size of military compared to everything else, labeled as 'civil' in the chart below:

Even further we get these projections from "Commercial and Military Drone Market Assessment and Forecasts 2016 - 2025" (note: UAV is short for "unmanned aerial vehicle"). * By 2018, UAVs will be used by nearly for every major manufacturing company to control logistics. * By 2021, UAVs will be used nearly every automobile manufacturer in metropolitan areas and along major highways to provide ubiquitous wireless coverage based on a combination of LTE, 5G, and satellite communications. Suffice it to say, the drone market is set to become a gigantic part of technology across all customer types and the demand is expected to keep growing significantly through 2027. Nvidia writes that "there's a new generation of smarter, more advanced drones and unmanned aerial vehicles (UAVs) that uses the power of deep learning algorithms to understand and react to the world around them. NVIDIA® Jetson™ is the platform that makes it possible." Here is a video from an Nvidia partner:

On September of 25th of 2017, news broke that Chinese e-commerce giant JD had selected Nvidia for drone deliveries, rescue and agricultural use. JD.com is the second-largest online retailer behind Alibaba. RISK Nvidia's market cap, as of this writing, is over $140 billion, and the company has 'just' $9 billion in sales. It is quite profitable, pays a dividend, and is growing by leaps and bounds, but still, with that valuation it better at least be 'sort of right,' about several of the markets it is pursuing for the stock to rise. CONCLUSION It's head spinning -- all of it. Each segment seems too good to be true, and who knows, maybe it is, or at least, maybe some of them will not pan out. But, the idea that Nvidia is hitting a wall, or that growth is finally tapering, is likely false -- if you believe the company, at least. There is so much room for growth that all we can do is listen to earnings calls, and watch the world as we know it evolve. If Nvidia is right, or even if it is 'partially' right, this entity may well become the most important and powerful technology company in the world. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems like Nvidia, when they are small and under appreciated, that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgment, aside from anyone else's subjective views, including my own. Thanks for reading, friends. The author is long shares Nvidia at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

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Invitae: Now Is The Time To Recognize A Massive Disruptor

Invitae, information, network, genetic, patient, health

Date Published: 2018-01-20 Written by: Ophir Gottlieb Hello, all. This is Ophir writing. I had a great talk with Sean George, CEO of Invitae, which I share below. It does require a fair amount of context, so sit back, grab cup of Joe, and relax into the comfort of a detailed research dossier on one of the most exciting companies in the genomics world, as we see it. After this read, you should understand the company better than most Wall Street banks -- I mean that literally. They don't get it, but now, we do. We have said it many times, with an extremely elevated risk like this also comes potential upside. We do believe that Invitae has a legitimate chance at becoming one of those small companies that in 5-10 years turns into a household name. A company that, in its field, turns into "the next Apple," or "the next Amazon." In fact, that the company has said it out loud -- it aims to become the "Amazon Of Medical Genetics." LEDE Spotlight Top Pick Invitae Corp (NYSE:NVTA) took a tumble after announcing full year results and then speaking at the JP Morgan health conference. While the results seemed good to us, we have reached out to the CEO, Sean George, had a full conversation, and below are the details. FIRST THE RESULTS First, we turn to the results for 2017. This comes straight from the company's press release Invitae more than doubles annual volume, exceeds full-year 2017 guidance, and projects momentum to continue in 2018 -- 127% year-over-year growth in volume for the base business, excluding acquisitions, to more than 134,000 samples accessioned compared to approximately 59,000 in 2016. The results exceeded the high end of the company's previously increased projected range of 120,000-130,000 samples.

-- 136% growth in revenue in the base business to approximately $59 million, excluding acquisitions. Results were within the company's $55-$65 million revenue guidance.

-- Including results from acquisitions, the company expects to report full-year 2017 accessioned volume totaling approximately 150,000 samples generating approximately $67 million in total revenue. -- Anticipates continued, robust test volume and revenue growth in 2018 on strength of newly expanded business. BAD NEWS If Invitae hits its worst case scenario for 2018, which is $120 million in combined revenue for the core business and the acquired ones, the company will not reach a cash flow positive Q4 in 2018, which was the prior stated goal. Sean noted this, but also noted that the company could be cash flow positive right now if they wanted to be, but they will incur greater expenses to capture greater growth as the opportunity ahead is large and the inflection point is, for all intents and purposes, right now. If you're looking for the 'why' with respect to the recent stock drop -- this is it. The company may have to raise cash again -- the two most likely facilities would be debt or equity (selling stock) financing. We will cover this more in depth when we go through the interview. But, before we get to our discussion with Sean, we have reviewed the JP Morgan presentation. All of the facts must be out on the table before getting context from Sean. JPM CONFERENCE REVIEW You can download the .pdf of the presentation here. Here is our summary, with relevant slides included as images. Sean George, the CEO, made the full presentation, so anything that looks reads like a first person narrative comes from him, and no one else. When the dossier reads "CML," those are our comments. • Unqualifiedly the most unprecedented change in the history of our space. CML: He means that the old version of the test by test approach, or the "lab test," version of a business model, paid to answer specific questions at a specific time is over. • Genetic diagnostic industry, as we know it, is dead. The future is a network, in which there will be essentially one winner, where information is used by the entire network and patients are treated throughout their lifetimes, likely, for some, from birth to death. Not to address just a one-time fear or event, but an entire life cycle. • Human Genome product 1990, hasn't played out yet (the promise)        o Single successes        o Sea change has not happened • In course of 4.5 years, gone from $0 revenue, to dominant force in inherited genetic testing today.        o Invested more than $400 million in the business        o Made genetic information more accessible        o Transforming the field from testing to information management        o Fueled by technology hitting the industry               * We all suspect the cost will come down and will disrupt the industry               * Harnessing this technology in a technology business model • When technologies disrupt, it happens way faster than anyone thinks, and the stable denizens are the last to know. • Best way to build the future, is a network of information managed on a patient in order to improve health care at a lower cost. The more patients we can get with more novel information with more industry partners to improve their outcomes. • Like all new network business, the value of the network increases with each new patient, entry, data point.        o Must work to the benefit every participant in it.        o All patients, partners • Amount of content for Invitae tests has exploded.

• Network has boomed: Health Systems, Partners, Patient Networks • Full year 2014: 3,600 people • Full year 2017: 134,000 people, over 220,000 with family history on, etc. • All the information is owned by the patients and only used at the behest of the patients. • In a very short period of time, say 12-18 months, if genetics is the question, Invitae will be the answer. • Progress

       o The entire population of people where there is no reason to think genetics plays a role in their health is to ask is there something in my genetics that can impact my life and family as I go through it.        o How big is this market?               * People in modernized health care systems – that’s 1-2 billion people.               * "That is genuinely the size of the market we think could benefit from the network we are building." • More specific

              * Just in inherited diseases, alone. Just in cancer, > 2 million people per year.               * Then add cardiovascular, neuro, pediatric • Example > 90 million Americans living with cardiovascular or after-effects of stroke • Family Health: Entering an era where anyone who is considering starting a family is generally aware that genetic information can be useful for them. 4 million births in US alone and 6 million pregnancies.        o Are there potential problems with fertility?        o Are there potential problems with the delivery process?        o What are the diseases we could screen for?        o Are there other risks?        o Within time everyone will use it. • Proactive        o 1 in 20 people carry a serious health related genetic risk        o ~330 million US population        o Been piloting the most comprehensive screen.               * Learning from the pilot: We know, there is a lot of information to be dumping on an otherwise unsuspecting public.               * Good news: A far higher proportion of the population is at higher risk of a genetic disease than anyone thought prior.               * Most importantly: When you deliver this information to an unsuspecting individual in the content of a primary care physician, nothing bad happens relative to getting an MRI, and X-Ray or any other test that shows something is wrong with that individual. • So, with that TAM, Invitae is continually investing in the breadth and depth of that content • Recipe for success:

       o Build it        o Identify partners        o Select acquisition • The goal: to get that basic information out there. Personalized medicine.        o Nothing more personal than your genome.        o That genetic information is the major driver of your health care cost.        o Health care outcomes        o Health care decision making               * to get this information out there, to create an industry where that information can follow that individual, beyond just a single test, a single “yes/no.”               * Improve care --> better lives --> this is the network • So how do we know if this business is succeeding?        o Look for sign posts

       o Volume: The number one leading indicator for success of the business is volume:

• Look at the business this way. That’s how we know we are being successful. • A trailing indicator is revenue        o Expected to double in 2018 to $120M, at a minimum.

       o VOLUME is the driver • Then there is the financial stuff to follow        o COGS

       o Reimbursement        o Etc        o "These things will bounce around in the near-term and have no basis on the success of the company in the long-term" • Building an incredibly powerful business that will eventually create immense amounts of free cash flow on an annual basis.        o But for now: IT’S ALL ABOUT VOLUME – everything else follows • Value of the network can best be described as        o # ppl served x data per person x connections per person per data point

• This is the value. • Most frustrating thing is that the guidelines they are taking people through are 15 years old. And we are not getting quality care. "It’s borderline criminal given what we in this room know, but they, the individuals trying to give us the best care possible…[]" COMMENTARY Summing it up nice and neat -- Invitae more than doubled revenue last year (+136%), volume is booming and Sean believes is the proper way to measure success (or failure) right now. Cost of Goods sold is dropping (that's good) which has turned the company to positive gross margins. One line I want to repeat was this: In a very short period of time, say 12-18 months, if genetics is the question, Invitae will be the answer. But most importantly, from everything that was presented above, was the single underlying proposition that Invitae is making: The world of genetic testing, like a lab testing company, which is one-off tests at times of crisis, is over. Invitae is building a network information and management business. Sean believes them to be the clear runaway leader and there is no close second. This will be a winner takes most industry. The value is in the network. And now, the interview. INTERVIEW Our talk was lengthy, as Sean is always generous with his time to explain in great detail the Invitae story to Wall Street. I have selected snippets from the call that go into greater detail than the bullet points from above. We will designate context with []. Sometimes I posed a question and sometimes statement -- that will always be designated as 'CML'. We have added our own emphasis to some of Sean's responses. CML: What is the low end of revenue guidance for 2018? A: We're calling for minimal revenue for [20]18 at $120 million [combined company]. CML: The goal for 2017 was to double revenue in 2017. A: Doubling volume and doubling revenue. CML: Then in 2018 it was supposed to be roughly a double again. It sounds like if 2017 was $59M for core business, then a doubling would be closer to $120M than $100M. A: We think we are going to double this business every year for the foreseeable future. We feel we could even do more than that given what we have experienced ... and what the world in front of us looks like. There is room to go further, faster, and it would behoove us to do so. We have called revenue at 120 and there are really two reasons for this. One is ... that is the revenue for our business accounting for all manner of nuance. Let's assume nothing improves in our business, in trying to get paid from the acquired business, and CMS pulls more shenanigans ... imagine all the stuff that has been coming up over the last 3-4 years that can, let's put a number out there that we guarantee we can hit and in no way is it going to be below that. There have been so many moving parts that even we have underestimated how difficult it has been from third party payors to get paid. Even though historically we are absolutely crushing the industry ... we think there is a ton of potential in this business, if nothing else improves 120 is what we know we can hit. The other more important part of it is, what become crystal clear to me as we got toward the end of last year is that ... we have been talking about our business model which is to totally collapse and consolidate and lead a new era in genetic testing business but use that as a stepping stool to build out a much more interesting and much more valuable network information management business. That will basically move the entire world from a one-test, one-sample, one-person, type of business which is known today as genetic testing, to a feature which is where everybody in modernized care, roughly a billion plus people, at some point and time in their life get into our sphere of influence and we get information on them and we manage information on them on behalf of and in context of their care ... and that is an incredibly valuable business that we think we can build. And in building that new business, building that new industry, the nice thing about going through the pain of all of this is once we build it and once we hit a certain scale, there is a network effect that will be put in place, where there will be no catching us. In fact right now we suspect we are already there on our infrastructure because of our cost advantage of providing genetic testing and managing it, we don't see anybody gearing up to do so, and we're absolutely confident that at some scale, and the ability to demonstrate the value of that network beyond just the initial genetic testing. It will be apparent and obvious to everybody that we have created this new industry, are a clear runaway leader in it, and by the way, there will be no close second. This is going to be a winner take most industry. That is what the true value potential of this business is. The faster we get there, the faster that we believe we will see that value inflection point happens. From an investor perspective, we see that as the value of the company and that's we are building it and the sooner it will show up for investors the sooner people realize that is the case. Earlier in 2017, I was allowing us to get sucked into this lab, genetic testing business conversation ... the P and L discussion of a lab testing industry which at best ... you are going to get a 3x multiple on that [revenue]. So, not only is that not the business we are building, it's not good for investors for us to build that business. We found ourselves in public dialogue stuck in that discussion ... and we kept re-iterating ... [we are attempting] to move this business from a test by test, sample by sample, reporting industry into true information management. That is not the business we are building and it is not the way we view the world and generally not the way we are developing our architecture. I'm not convinced over the last six-months ... that everybody involved even was listening to what company we are building, and frankly, what industry we are building. They were asking everything in the context of the current diagnostic incumbent testing companies. To put revenue guidance in context, volume is most important, we will continue to double this every year for the foreseeable future, because the value of this company is the number of people in this network, the amount of information we have on them and the number of connections with various players that can use it to improve their life. That network provides value for everybody involved. Every patient that enters that network increases the value of that network for everybody involved. That's what we're gunning for. If we had to make a trade-off between price and volume, as we have in the past, we will make [it]. We know we can get under the cost, that we have demonstrated handily over the last 8 years. We know we can generate volume. That we have demonstrated handily over the last 5 years, generating more volume is even more important and we wanted to make sure people understood that if we got a hole lot more patients in our network this year, whether our revenue is 120 million or 220 million, that number is [] irrelevant to the value of the business we are building. Now, granted that number is important in terms of funding the business. That number is important [with respect to] how much cash we are burning. That number is important in how much faster we can go. But we really need people to understand that the value of the company is not in the traditional lab model ... nor by the way is there any value in it for them. The lab industry and lab testing companies are shuttering their doors and selling off for 2.5 or 3 times revenue. Nobody is interested in that business for good reason. It doesn't work. The business we are building, the industry we are building, actually delivers the promise of personalized medicine via genetic information. Conveniently for us ... we already believe we have a wide and deep moat in terms of [defending our business against] people trying to copy what we are doing. Let's recall over the last five-years the type of company we have been communicating we are building. We are not coming off of that vision, that vision has massive value creation. Yes it's unusual. There are no [examples] I can point to in the diagnostic space ... but from day one we said we were building a new thing here. Indeed the day has come that a lot more of our efforts are going to move into the information management field away from the traditional testing path. The [old] space is dead and we are building a new model of it. You can map out the fundamentals of our business. You can map out the volume, map the revenue, map the operating expenses, and you can see that the leverage is there. [We re-insert the relevant images below]

Straight line everything out into the future, not only does this business become profitable, we are going to suck up the entire space in a way no single testing company in the past could have been able to do, even without having to believe anything about a network. And then if you can appreciate and understand that the network business can do, this is a powerful model. CML: I want to understand the network effect better. Can you explain it me like I was a 6-year old child? A: Here's how genetic testing works today. Somebody gets sick, or a loved one gets sick, or dies and the doctor asks the question, given how young these people are or how particular these diseases are, I think that understanding the people's genetics could really help how the disease is going to play out, how to treat the patient and how we can best monitor it and best understand the progression. What measures could this person do to delay or possibly even prevent the onset of this disease. Today that is done in a very one-off way. Not until somebody is sick is the genetic information ever used. That information is only used in a small fraction of the individuals who could use it. We view a world where instead what happens is where if you were born into any modernized health care system, at some pint in your life, which could be when you're born, we you first visit a pediatrician, when you decide to have kids, or when you have a disease or are worried about it, we capture this information, and in the future everyone will have this information acquired at some point in time. That information will be used to answer a lot of the same questions that were asked in the old world, but the difference is that in the future it's going to be far more people, i.e. everybody in modernized health care systems, and that information will be captured before really serious stuff begins. Before people die, before symptoms occur, before loved ones become affected. That information will be available and provided in a very obvious context of your care. The company that is going to deliver that information to you and to your care providers is also going to be able to point you to a variety of players, some in the tech space, some in the health care space, some in the consumer products space. That company is going to be able to point you to other people around the world, especially in the very rare disease, that had a very similar type of disease and you can connect with them and learn what did they do about it, whether it be monitoring, therapies, prevention. In that future world, that information, that network of individuals, that is the way that personalized medicine is going to get delivered because we're going to look at that information before any of that bad stuff happens and we're going to have a lot of partners that can help you do something about it. From a business perspective, that network becomes more valuable for everybody involved the more patients that come into it. So, naturally at some point in time, Invitae becomes the choice of partner whether it be for the hospital, the OB, the pharma company, the integrated systems. And frankly we have ambitions, whether that be the minister of health of Norway, or Health Canada, or the Ministry of Health Singapore because that infrastructure and to deliver that exquisitely complex information at that sale for that many people ... we've already begun developing that. That's the shift that is going to happen. In the future it's to get answers for everybody and flag the appropriate people to figure out what to do about it. That information will only be used on behalf of that patient and only with the express consent of the patient. There are some specific examples we can give and will give in the next 1-2 years to show that this is in fact taking place. END NOTES Sean did go into specific proof points, in particular with their partnership with pharma giant Bio Marin, which we have covered in prior dossiers and is also a very exciting area of growth for Invitae. Here is a snippet from our prior work: Invitae’s relationship with BioMarin will be a part of the model for the company going forward. It’s literally in the small print on Invitae’s website, but we get this from their epilepsy page:

For those of us that don’t have X-ray vision, here’s how that reads: "Upfront patient pay price is $475 for orders placed online in the US and Canada only, in which the order is connected to a patient account." As an aside, the company has been pretty openly discussing a planned launch of a $250 patient pay price. BRILLIANCE Bio Marin makes a ton of money on its rare disease medications, but, many people don’t know that they have these diseases. It’s in BioMarin’s best interest to identify these people as early as possible so they can, with all due respect, make a profit. But this is one of those rare cases where capitalism and the desire for profits actually works in the healthcare world. Patients need to know if they have these rare diseases so they can be treated. The biotechs that offer the medication need to know so they can give them their medicine. And, the more people that test themselves, the cheaper the genetic tests become. That means, it’s more profitable for Invitae. It actually is a win-win-win. Invitae needs more of these, but more importantly, patients and other biotechs do too. CLOSING THOUGHTS When we first added Invitae the company was generating single digit revenue and losing money on every test it produced. Now revenue is forecast to be $120 million for 2018 on the low end and the company is turning a gross profit. Volume is also rising rapidly. It has done a remarkable job working with insurers and now has over 200 million lives covered in the United States:

The CEO is saying out loud that there is going to be a dividing line between those genetic testing companies that have their tests covered by insurance and those that do not. And Invitae is in the first group. But even further, Invitae sees the future -- a world where pre-emptive care saves lives before diseases take shape. A world where risks are identified early and treatments are pinpointed, down to the individual person. Where people no longer suffer through years of agonizingly imperfect diagnoses, where doctors are finally empowered with the information they need to heal and prevent, rather than to react and to guess. Where a network of people and therefore a network of information, collected globally, with a total addressable market in the billions of people, serves the common good, while also creating a large scale profit center in an industry that does appear to be a winner take all (or most) and Invitae, for now, is running away with it. Invitae has a simple goal: to bring genetics into mainstream medicine. So far, it’s working. CONCLUSION We maintain our Spotlight status on Invitae, and while we continue to issue a special and elevated risk alert here, we do see the potential for this to become a multibillion dollar company (in market cap), and it stands at just $350 million, right now. The industry is growing rapidly, winners and losers are already getting determined, and Invitae, as of right now, is winning. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems like Invitae that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgment, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares Invitae at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

[ophirgottlieb]

Google Earnings: Short-term Momentum Trading in Alphabet

Earnings: Short-term Momentum Trading in Alphabet Inc

Date Published: 2018-01-20 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. PREFACE Alphabet Inc (NASDAQ:GOOGL) follows the overwhelming pattern of this bull market's personality -- bullish momentum in a stock just days before earnings. Let's take a look at how just a two trading day period has been influenced so heavily by optimism. According to our data provider, Wall Street Horizon, Alphabet Inc reports earnings on 2-1-2018, after the market closes. Which is also the same day that Apple and Amazon report. Two trading days before 2-1-2018 would be Tuesday, January 30th. IDEA The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings, and then getting out of the way so no actual earnings risk is taken, looking at just the 2 trading days before earnings. The Short-term Option Swing Trade Ahead of Earnings in Alphabet Inc We will examine the outcome of going long a weekly out of the money call option in Alphabet Inc just two trading days before earnings and selling the call the day of the actual news. But, since Alphabet reports earnings after the market closes, this back-test does not take a position on the earnings result -- it closes before the report.

Often times we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk. RISK MANAGEMENT We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting:

In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. RESULTS Below we present the back-test stats over the last two-years in Alphabet Inc:

GOOGL: Long 40 Delta Call % Wins: 87.5% Wins: 7 Losses: 1 % Return:  136% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 136% return, testing this over the last 8 earnings dates in Alphabet Inc. That's a total of just 16 days (2-day holding period for each earnings date, over 8 earnings dates). Setting Expectations While this strategy has an overall return of 136%, the trade details keep us in bounds with expectations:       ➡ The average percent return per trade was 21% over two-days.       ➡ The average percent return per winning trade was 28.4% over two-days.       ➡ The percent return for the losing trade was -31% over two-days. Looking at More Recent History We did a multi-year back-test above, now we can look at just the last year:

GOOGL: Long 40 Delta Call % Wins: 100% Wins: 4 Losses: 0 % Return:  102% 

Tap Here to See the Back-test

We're now looking at102% returns, on 4 winning trades and 0 losing trades.       ➡ The average percent return over the last year per trade was 22%. WHAT HAPPENED Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical analysis or non-directional trades for any stock using empirical results rather than guesses, we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

The One-Day Pre-earnings Momentum Trade in Boeing (NYSE:BA)

Boeing Co (NYSE:BA)

Date Published: 2018-01-17 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. PREFACE Boeing Co (NYSE:BA) may be an industrial company, but its price has behaved like a momentum technology stock. Check out this two-year chart:

With that ride has come the same pre-earnings bullish sentiment that so many of the tech darlings have seen as well, like Nvidia, Microsoft and many others.. In fact, on 12-October-2017, we wrote Swing Trading Earnings Bullish Momentum With Options in Boeing Company. That looked at a 3-day pre-earnings momentum trade, which based on the timing of BA earnings ended up essentially being a one day trade. But true to its pattern, it worked quite well:

So, with BA earnings due out 1-31-2018, before the market opens, it's time to revisit the back-test. We do note that we are now sending out directional and non-directional back-tests of interest in alternating sequences. Note the importance of diversification. This back-test, however, is a straight down the middle bullish review. IDEA We will examine the outcome of going long a slightly out of the money (40 delta) weekly call option in Boeing Co (NYSE:BA) just three trading days before earnings and selling the call one day before the actual news. This is construct of the trade, noting that the short-term trade closes before earnings and therefore does not take a position on the earnings result.

This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk. With earnings due out on 1-31-2018, which is a Wednesday, this turns into, again, a day back-test. That is, opening the trade on Monday 1-29-2018 near the end of the day and closing it, for better or worse, at the end of trading on Tuesday 1-30-2018. Since BA reports before the market opens on the 1-31-2018, holding beyond 1-30-2018 is a totally different strategy -- that is, it is an earnings bet, not a momentum bet, and that is not what we are reviewing here. RISK MANAGEMENT We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting:

In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. DISCOVERY We found this patterned momentum from the Trade Machine Pro scanner, looking at the S&P500 and the "3-days Pre-earnings Long Call" scan.

And here are the scan results:

BACK-TEST RESULTS Below we present the back-test stats over the last two-years in Boeing Co (NYSE:BA):

BA: Long 40 Delta Call % Wins: 100% Wins: 8 Losses: 0 % Return:  519% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). The trade will lose sometimes, and since it is such a short-term position, it can lose from news that moves the whole market that has nothing to do with Boeing Co (NYSE:BA), but over the recent history, this bullish option trade has won ahead of earnings. Setting Expectations While this strategy has an overall return of 519%, the trade details keep us in bounds with expectations:       ➡ The average percent return per trade was 61.6% over just two-days. Looking at More Recent History We did a multi-year back-test above, now we can look at just the last year:

BA: Long 40 Delta Call % Wins: 100% Wins: 4 Losses: 0 % Return:  205% 

Tap Here to See the Back-test

We're now looking at 205% returns, on 4 winning trades and 0 losing trades.       ➡ The average percent return over the last year per trade was 40.7%. WHAT HAPPENED Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical analysis or non-directional trades for any stock using empirical results rather than guesses, we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

Shopify - The Bullish Thesis Grows

Shopify — The Bullish Thesis Grows

Date Published: 2018-01-11 This is a snippet from a full CML Pro dossier published on January 2nd, 2018. LEDE Spotlight Top Pick Shopify had a big run but was up ended at the end of the year by short-seller Andrew Left (Citron Research). While there may be more stock shaking news to come soon from the FTC, the Holiday shopping season proves yet again that e-commerce is gigantic, it's growing by leaps and bounds, it is still a tiny portion of total commerce in the United States and Shopify has a growing moat. STORY - BACKGROUND We added Shopify to Top Picks on 6-Feb-16 for $66.50 and as of this writing the stock is trading at $104.22, up 58%. In our Top Pick dossier, we refer to Shopify as The Pick-Axe to the E-commerce Gold Rush. Unlike Amazon, which holds inventory, runs a logistics operation, and tries to scrape out 1% margins after shipping, Shopify is a platform for business to enter the e-commerce world, and that business has high margins and a lot of growth. Retail e-commerce sales worldwide from 2014 to 2020 are pegged to grow from $2.3 trillion in 2017 to over $4 trillion by 2020. Here’s the first chart from our friends at Statista:

But, the real gem here is that even in today’s world, the share of commerce that is done online is still tiny, even in the United States.

That chart comes to us from the Federal Reserve Bank of St. Louis (FRED). You’re reading that right — even in the US, we’re still at less than 9% of retail sales done online. eMarketer projects that number rising from 8.7% today, to 14.6% in four years. THE PICK-AXE Shopify isn’t just an investment in e-commerce — that would never make our Top Picks list — it’s an investment in the guts of the online shopping trend — the part that’s actually growing. Shopify is the leading cloud-based commerce software for small- and medium-sized businesses. But the company makes money from more than e-commerce sales, it makes money from businesses coming online. Here are some quick facts about the company from the latest earnings call, before we turn to the news over the Holiday season. Nearly 500,000 businesses now rely on Shopify for their sales and back-office software needs. That’s up from 375,000 in the third quarter and 243,000 in the fourth quarter of 2015. Here is the revenue trend:

But even that chart doesn't fully encapsulate the growth and adoption. Here is what the company had to say a couple of months ago: * Every 90 seconds an entrepreneur makes their first sale on our platform. * We’ve added shopping in Instagram as a channel to tens of thousands of merchants and the channel SDK we made available last year continuously leverage by new channels. * Subscription solutions revenue grew 65% to $82.4 million; the underlying monthly recurring revenue also grew 65% and ended the quarter at $26.8 million. * Merchant solutions revenue grew 79% to $89 million. * GMV [Gross Merchandise Volume] grew to $6.4 billion, up $2.6 billion or 69% from last year’s third quarter. * We added Facebook Messenger as a channel. * We added Apple Pay as an option for merchants. * Lyst, the global fashion search engine is now integrated to Shopify allowing our merchants to access their 60 million shoppers from 200 countries. We remind everyone of the moat. The biggest threat was once Amazon'sWebStore, a similar platform which was launched in 2010. But WebStore eventually failed, and Amazon shut the service down in 2015 and integrated its marketplace with Shopify's platform. So, yes, Shopify is integrated into Amazon, and Amazon already failed here. After all of that news, bears turned to the lack of profitability but Shopify reported an operating profit of $1.7 million last quarter. But even that is not the needle moving news for 2018. This is where we are focused: NEWS First, we start with Cyber Monday, which is the Monday after Thanksgiving. In the quarter last reported, Shopify noted $6.4 billion in GMV -- a fancy acronym for the amount (in dollars) that its customers sold. Black Friday through Cyber Monday (BFCM), that is -- a long weekend -- saw over $1 billion in GMV alone. First, to put that number into perspective to last year we get this from the company (our emphasis is added):

[Shopify] announced more than $1,000,000 in sales went through the platform per minute at the peak, beating last year’s high of $555,716.

BFCM saw worldwide reach, too. Here is a great graphic that shows comparisons of GMV to the average for both Black Friday (BF) and Cyber Monday (CM) across the globe.

Note that while the growth is fantastical, that is international sales -- it excludes the United States. Shopify notes that since its inception in 1959, Black Friday has been largely regarded as an American holiday. But in the past few years, and due in large part to the ever-increasing popularity of online shopping, the frenzy has started to catch on worldwide. But that's not the needle mover either. With the integration into Instagram, Shopify must turn to mobile, and that is exactly what we found (data from Shopify regarding Black Friday):

Mobile continued to grow with 66% of orders being made with a phone or tablet, up from 58% in 2016.

But there's more data. AMAZON AS PROXY There is no company like Amazon in the e-commerce world. While the company can't make money selling things online, it can drive volume, and from that we can see the appetite of worldwide consumers for any holiday period. GBH Insights head of technology research Daniel Ives estimated online sales were up 18% overall in November and December. He also noted that he expects Amazon to continue to aggressively expand into key international markets. The National Retail Federation, the industry's trade group, anticipated that holiday retail sales rose 4%, so that e-commerce number coming in at 18% growth is more than 4x the total retail space. It seems like the Internet has been around 'forever,' but the truth is, e-commerce is still, even now, just at the start. And remember, as Amazon expands, so does Shopify. RISK While there is certainly a risk that the FTC slaps Shopify on the wrist if there is any 'hype' surrounding its blog posts or a failure to disclose a paid relationship with the firm, that news is not a short thesis, not from what we can see. We see e-commerce in general still, even now, in the early stages of growth, and we see Shopify's moat growing in the part of the business that actually makes money -- the platform. CONCLUSION We maintain our Spotlight Top Pick status on Shopify -- even though we allow for the possibility of an FTC warning. We see Shopify turning a profit this year, expanding through partnerships with eBay and Instagram, and riding the high tide of e-commerce in general. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems like Shopify that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2018, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgment, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares Shopify at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

[ophirgottlieb]

State of the Market and Tax Law for 2018 in 14 Charts

S&P 500(INDEXSP:.INX), market, true, recession, rates, debt

12-26-2017 Written by Ophir Gottlieb This is a snippet from a CMl Pro dossier published on 12-26-2017. PREFACE Hello, all. This is Ophir writing. The time has come for our "State of the Market" bi-annual report as we head into 2018. Let's look at what's true, what's not true, what people think is true but is not, and what people think is not true but is. Finally, we must discuss the new tax law that will go into effect in 2018 and how it could effectthe S&P 500 (INDEXSP:.INX). CONTENT A quick note here on some great Twitter follows from where some of these charts come: @Callum_Thomas @ukarlewitz THINGS THAT ARE TRUE We will discuss what is not true in the following section (which may be the most fascinating part), but for now, let's start with what is true. These things are true: 1. Valuations are stretched, now at levels not seen since the dot com era.

The black line is the S&P 500 P/E ratio using expectations for next year's earnings. 2. While valuations are stretched, they are nowhere near the dot com bubble. In fact, valuations today as measured by various calculations of the price to earnings ratio (P/E), are further from the dot com bubble highs than they are from the historical norms. Same chart, the blue line was the P/E ratio for technology. We can see that there was nothing like dot com bubble in our history, and there still has not been. -- Psychology has changed 3. In 2017, the S&P 500 essentially skipped its seasonality bump in fall -- we usually see a dip, and this year, we basically didn't.

The gray line is our baseline, which is the S&P 500 seasonality trends excluding the Great Recession in 2007-2008. By the end of the year, the seasonality trends lay right on top of each other, but there was no dip in the October period. This has created a change in psychology. Let's look at that. 4. The VIX, which measures the price people are paying for downside protection, has been so remarkably depressed, that it takes charts to even describe it.

The VIX has only been above the 12% level for 43 days in 2017, no other year over the last 27 years has even seen that number below 125. This is totally unprecedented with respect to the risk malaise the market is in. There is simply no "fear" in this market and that has created another phenomenon. 5. Buying of intraday dips has not been this aggressive and frequent since 1995.

With "fear" at record lows, dips are seen as buying opportunities -- more so than we have seen in more than three-decades. This is a stunning chart, if we just take a second to digest it. 6. No recession over the last 50 years has ever started with the federal Funds interest rate below 4%. The current federal funds rate is 1.5%. The Federal Reserve signaled it will raise rates to 2% in 2018, 2.5% in 2019 and 3% in 2020. Here is a chart of the effective Fed Funds rate -- the gray shaded areas represent periods of recession.

Source: FRED

We can also plot the S&P 500 (orange) on the same chart as the Fed Funds rate (blue):

We can see the last two massive downturns coincided with the recessions, which were forward indicated by interest rates. Finally, we can look at interest rates over the last several years to get a cleaner picture of where we are now.

We can see that rates are certainly rising. But, we can also see that with a fed funds rate hovering around 1.5%, we are still in an historically low interest rate environment. 7. The flow of money into U.S. equity funds has been choppy -- and the last time it was this choppy was the Great Recession.

THINGS THAT ARE NOT TRUE While we can see many phenomena that are true, the "headline frenzy" that is designed to get web clicks has created a wave of garbage information that is totally, empirically, and inarguably, false. 1. Not true: Debt levels are at catastrophic levels On August 12th, 2017, the Washington Post wrote: Consumer debt is at a record high. Haven't we learned? This is a snippet from that article: Outstanding consumer revolving debt — mostly credit card debt — hit an all-time peak of $1.021 trillion in June, according to the Federal Reserve. This should be a scary statistic. The last time the debt level was nearly this high was in 2008, when the U.S. economy was mired in a recession. While credit card debt is at all-time highs, the narrative surrounding it is false. And when we say false, we mean that empirically, not as in an argument over an opinion. Here are three charts, but, before we show you these three charts, just for a second, pause, and talk to yourself -- that voice in your head that always answers back. Based on what you have read, heard, or just learned above, what is your opinion of debt levels for consumers in the United States? This is one of the most important practices as an investor -- to note a bias, to test that bias with data that counters it, and then to re-test your opinion. If we can eliminate (or alleviate) cognitive dissonance from our investing, at the very least we will have less stress, and at the very most, we will be more knowledgeable and profitable. Here is a chart of household financial obligations relative to disposable income.

This is also called "debt service." The data here shows, empirically, that while household debt may be at highs, the amount of debt we hold relative to our personal income is not only low, it has been consistently low for several years, and is at levels not seen since the early 1980s. But, while the narrative of growing debt has been bungled, note that back in 1983, even with household financial obligations relative to disposable income at low levels, we did hit a recession. Yet more evidence that personal debt has not become an issue can be seen in delinquencies. Here is a chart of installment loan delinquency over the last 15-years.

Source: American Bankers Association (ABA)

The ABA report defines a delinquency as a late payment that is 30 days or more overdue. 3. Not true: Auto loans are a disaster: And while we're at it, no, there is no auto loan disaster looming. This is from the ABA (our emphasis is added):

Delinquencies in indirect auto loans (those arranged through a third party such as an auto dealer) rose 8 basis points to 1.83 percent of all accounts, but remain well below their 15-year average of 2.20 percent. Delinquencies in direct auto loans (those arranged directly through a bank) rose 9 basis points to 1.03 percent of all accounts, remaining well under their 15-year average of 1.57 percent.

4. Not true: Mortgage debt is exploding again. Oh, here we go again. Let's just look at a chart and be done with this one.

Mortgage debt service payments as a Percent of Disposable Income

Mortgage debt is rising nominally, but is at four decade lows to personal income. So, while debt is very high in nominal terms, because interest rates are so low, it is not having a great impact on our personal wealth. But, heed the warning, if interest rates rise, all of a sudden all of those charts could swing in a different direction. 5. Not true: There is no job growth

4-week Moving Average of Initial Jobless Claims

But, even though jobless claims are at 40-year lows, it’s actually lower than it appears. While jobless claims are at their lowest level since 1973, the US population has grown from 210 million to 326 million. Here’s a chart of jobless claims (blue) together with US population (red):

Suffice it so say, joblessness is not the issue. And while we’re at it, neither are real wages. 6. Not true: real wages aren't rising.

Real Wages

Wages, adjusted for inflation, are in fact at all-time historic highs for American workers. The bullish argument is that the economy is healthy, the American worker is healthy, and so a recession is nowhere to be found. The bearish argument is that unemployment is at a cyclical low, it will go higher, and the current rising wages with tightened labor market will make it more difficult for companies to earning outsized profits, and that will cut corporate profits and the market will drop. Now it's time to talk about the new tax law. NEW TAX LAW - WHAT DOES IT MEAN OR WHY DOES IT MATTER? We don't debate politics here, we look at facts and in that vein we must address the reality that one of the largest tax reformations (cuts) becomes a new law in 2018 and the impact on the market in the immediate-term could be bullish. The tax bill contains a 8% one-time tax on illiquid assets and a 15.5% tax on cash and cash equivalents held overseas. While the government had previously waited until a company repatriated cash to levy a 35% tax, it will now impose a 15.5% tax on cash earnings. Meanwhile, the corporate tax rate cut could push companies to invest in new data centers, cloud services and other technology. That narrative is also backed by the increased deductions for capital spending in the new tax law. Starting next year companies will pay 10.5% or 13.125% on half of the income from subsidiaries outside the U.S. They will pay taxes of 10.5% or 13.125% -- a discount to the new 21% corporate tax rate. While the focus has been on mega tech and all that overseas cash -- the reality is that will likely be spent on stock buybacks or dividends and could have a one-time effect. Apple, for example, had more than $250 billion in overseas cash at the end of last quarter. Instead of paying the old 35% corporate rate to bring that back to the U.S., Apple would now pay just 15.5%. That's the difference between $87.5 billion and $38.8 billion. Here comes Apple's new mega stock buyback plan. But, Silicon Valley generally pays lower taxes than energy companies, telecoms and industrials, and will benefit less from the reduction in the corporate tax rate from 35% to 21%. Or, said differently, the media can stop focusing on tech and turn to the rest of our economy. Here is a snippet from a Wall Street Journal article:

Companies could bring back as much as $400 billion, according to one estimate, as they take advantage of a one-time cut for repatriation of earnings and cash held overseas written into the GOP tax overhaul. That typically requires them to sell foreign holdings and buy assets denominated in dollars, which could boost the U.S. currency.

WHAT NOW? At Capital Market Laboratories we focus on the future -- not as in the next year, or even 3-years, but as in the next decade, or even two decades. We focus on the world changing trends that will occur, irrespective of recessions, booms and busts, interest rates, even wars. It's the companies that power these trends, that are the pick-axes to the gold rush, that we have identified as our Top Picks. Let volatility happen, and markets crash. Let recessions happen, and economies spasm. That's natural -- and it will happen. We are focused on how the world is changing, and in that space, we have confidence that nothing can stop these trends. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2017, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology’s future. Thanks for reading, friends. Please read the legal disclaimers below and as always, remember, CML Pro does not make recommendations or solicitations for the sale or purchase of any security ever. We are not licensed to do so, and wouldn’t do it even if we were. We share research and provide you the power to be knowledgeable to make your own decisions. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company makes no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

[ophirgottlieb]

How to Trade Tax Reform and Pre-earnings Momentum in Netflix

Netflix Inc (NASDAQ:NFLX) : The One-Week Pre-earnings Momentum Trade With Options

Date Published: 2017-12-24 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. LEDE We don't debate politics here, we look at trading, and in that vein we must address the fact that one of the largest tax reformations (cuts) becomes a new law in 2018 and the impact on the market in the immediate-term could be quite bullish. The tax bill contains an 8% one-time tax on illiquid assets and a 15.5% tax on cash and cash equivalents held overseas. Meanwhile, the corporate tax rate cut will likely push companies to invest in new data centers, cloud services and other technology. That narrative is also backed by the increased deductions for capital spending. So -- if that is the case, in the near-term, then looking at the bullish momentum in the star studded tech companies is well worth the continued focus. PREFACE There is a bullish momentum pattern in Netflix Inc (NASDAQ:NFLX) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market. LOGIC The logic behind the test is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date. Now we can see it in Netflix Inc, which is due to release earnings in mid January. We will examine the outcome of getting long a weekly call option in Netflix Inc 7-days before earnings (using calendar days) and selling the call before the earnings announcement -- that is, on the day of earnings, but before the market closes, since NFLX reports earnings after the market closes. Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result.

RISK MANAGEMENT We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting:

In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. DISCOVERY We discovered NFLX by using the CML Trade Machine Pro scanner, looking at the NASDAQ 100 and the "7-days Pre-earnings long call."

Of course, there are a few gems there that we will be addressing in the next couple of weeks. RESULTS Here are the results over the last three-years in Netflix Inc:

NFLX: Long 40 Delta Call % Wins: 83% Wins: 10 Losses: 2 % Return:  303% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 296% return, testing this over the last 12 earnings dates in Netflix Inc. That's a total of just 96 days (8-days for each earnings date, over 12 earnings dates). We can also see that this strategy hasn't been a winner all the time, rather it has won 10 times and lost 2 times, for a 83% win-rate and again, that 303% return in six-months of trading. Setting Expectations While this strategy had an overall return of 303%, the trade details keep us in bounds with expectations:       ➡ The average percent return per trade was 29.7% in 8 days.       ➡ The average percent return per winning trade was 44.3% in 8 days.       ➡ The average percent return per losing trade was -43.3% in 8 days. Back-testing More Time Periods in Netflix Inc Now we can look at just the last year as well:

NFLX: Long 40 Delta Call % Wins: 100.00% Wins: 4 Losses: 0 % Return:  149% 

Tap Here to See the Back-test

We're now looking at 149% returns, on 4 winning trades and 0 losing trades. It's worth noting again that we are only talking about one-week of trading for each earnings release, so this is 149% in just 4-weeks of total trading which annualizes to over 1,500%.       ➡ The average percent return over the last year per trade was 32.6%. WHAT HAPPENED Bull markets tend to create optimism, whether it's deserved or not. To see how to find the best performing historical momentum, technical or non-directional trades for any stock, we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

Apple Downgrade Lacks Rigor, Empirical Evidence for Bulls Grows

Apple, iPhone, evidence

Written by Ophir Gottlieb LEDE Spotlight Top Pick Apple Inc (NASDAQ:AAPL) was downgraded today by Nomura Instinet to neutral, citing valuation concerns versus prior iPhone cycles. On the other hand, new data is out from Hon Hai (aka Foxconn), Apple's largest manufacturing partner, and it shows record growth month over month. BACKDROP We added Apple to Top Picks on January 2nd, 2016 for $104.15. As of this writing the stock is trading at $174.62, up 67.7%. On December 4th, we published the dossier iPhone Demand and Manufacturing Hit Highs. In that story, we noted that high profile Apple analyst Ming-Chi Kuo, of KGI Securities, had changed his view of the iPhone X cycle. The first report of a supply shortage had Kuo dropping estimates for initial fourth quarter shipments from 30-35 million to 25-30 million units. But, the tide has turned, and so have projections. The analyst says that Hon Hai’s (Foxconn) shipments of iPhone X units have climbed to 440,000 to 550,000 units per day. That’s up dramatically from the 50,000 to 100,000 being shipped per day just 1-2 months ago. He’s now saying that Q4 2017 shipments could be “10-20 percent higher than previously estimated.” And now to the story... STORY Nomura Instinet lowered its rating for Apple to neutral from buy, and here was the rationale:

We argue that the stock's gains for the iPhone X supercycle are in the late innings. We believe unit growth, if not quite ASP growth, is well anticipated by consensus and a historically full multiple.

This downgrade came one-day after had just set a new all-time in stock price. Nomura wasn't so much bearish as it was noting that the valuation for this iPhone cycle had reached the peak of prior cycles:

Apple is trading at a valuation of 15 times estimated 2018 earnings. He said during the iPhone 6 cycle, the company's earnings multiple peaked at 15 times earnings and then declined to 9 times earnings. The analyst also noted that the smartphone maker's stock went from 13 times earnings to 8 times earnings during the iPhone 5 cycle.

But there is other data -- some empirical, some heuristic -- that may point to higher growth than expected. Let's turn to that data. EMPIRICAL DATA Foxconn reports revenue numbers every month. It's one of the great windows into Apple's trajectory and oddly, still, somewhat under reported. If you follow news for the ticker AAPL, it's a good idea to follow news for the ticker HNHPF, which is the ticker for Han Hai on the US exchanges. Bloomberg just noted that "Hon Hai sales jumped 18.5 percent for November, a record high and the fastest growth in two years." That's the empirical evidence that iPhone sales are in fact booming. But there's more -- this time less scientific, but nonetheless noteworthy. SURVEY DATA RBC Capital’s Amit Daryanani did a survey and it was reported by the great Tiernan Ray of Barron's. Daryanani noted that demand for the iPhone X and the most expensive version of the iPhone 8 Plus were significantly better in China than even the United States. Here are his takeaways, with our emphasis added:

62% of respondents interested in buying an iPhone preferred iPhone X, which compares to 28% of respondents in our US iPhone survey. This likely means tailwinds strong mix and higher ASPs should be particularly strong in the Chinese market. 66% of prospective iPhone X buyers opted for the higher storage (256GB) model, while 64% of prospective iPhone 8/ iPhone 8 plus buyers expressed interest in buying the 256 GB model. This is slightly higher vs. our US survey in which 57% of iPhone X prospective buyers preferred to buy the 256GB model. Both replacement demand and switching trends appear healthy. ~28% of prospective iPhone purchasers indicated that they were switching to iOS from another OS.

Much like Ming-Chi Kuo, Daryanani believes the reduced wait times for iPhone X are not a function of demand, but rather a function of increasing supply. Recall above that Kuo saw production from Foxconn increasing 5-10 fold from his initial channel checks. Further, Business Insider shared a chart that shows iPhone X adoption outpacing the iPhone 8 and the iPhone 8 Plus.

Source: Business Insider

The data for that chart comes from analytics firm Mixpanel. ANOTHER STORY - MORE DEMAND Another story that we have been tracking is the demand for and supply of Apple's Air Pods. A quick visit to the Apple Store shows that AirPod orders placed on Monday won't be delivered until January. In August CEO Tim Cook said "we have increased production capacity for AirPods and are working very hard to get them to customers as quickly as we can, but we are still not able to meet the strong level of demand." The Air Pods story is nice, but a little 'nichey,' unless you take a bit of a leap forward, which we have. We believe that the Air Pods combined with the new cellular enabled Apple Watch 3, together make an entire ecosystem for wearables. While Apple Watch series 3 order on apple.com appear to ship same day, there is an argument to be made that the demand for Air Pods is in part a reflection of demand for the new cellular enabled Watch. On November 14th we penned, Apple Watch is Winning, and we noted that according to Canalys research:

Apple retook the lead in the wearable band market in Q3 2017, with shipments of 3.9 million. It posted its strongest quarter so far in 2017, thanks to the release of the Apple Watch Series 3.

Canalys Analyst Jason Low goes onto write that "strong demand for the LTE-enabled Apple Watch Series 3 has dispelled service providers’ doubts about the cellular smartwatch not appealing to customers." And then the analysis gets yet more bullish for the product (our emphasis is added):

Apple Watch Series 3 did not reach its full potential in Q3. It suffered limited availability as demand outstripped supply in major markets. Service providers had underestimated demand for the new Apple Watch.

Now, when we take the sales numbers from Foxconn, which are empirical, then the survey data from RBC and analytics from Mixpanel, we see that the iPhone 8/X cycle may be nowhere near at its peak. Going further with the empirical evidence that Air Pods are sold out and delivery is weeks away with data surrounding the Apple Watch, we have further evidence that this quarter for Apple could be a massive win. SEEING THE FUTURE It's understanding technology that gets us an edge on finding the gems that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. We are Capital Market Laboratories. Our research sits next to Goldman Sachs, JP Morgan, Barclays, Morgan Stanley and every other multi billion dollar institution as a member of the famed Thomson Reuters First Call. But while those people pay upwards of $2,000 a month on their live terminals, we are the anti-institution and are breaking the information asymmetry. The precious few thematic top picks for 2017, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgment, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares Shopify at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

[ophirgottlieb]

Nvidia's New Chip is a Marvel; Catastrophe Headlines are Overblown

This is a snippet from a CML Pro dossier published on 12-14-2017. Written by Ophir Gottlieb LEDE A Spotlight Top Pick is making news -- and it re-iterates the bullish thesis while pouring cold water on overblown headlines. NVIDIA Nvidia was added to Top Picks on Jan 2, 2016 for $32.25. As of this writing it is trading at $187.17, up 480%. Nvidia recently announced its Volta chips. First, here is what the company said:

NVIDIA Volta is the new driving force behind artificial intelligence. Volta will fuel breakthroughs in every industry. Humanity’s moonshots like eradicating cancer, intelligent customer experiences, and self-driving vehicles are within reach of this next era of AI.

When we look at the technical specs we see that Volta has over 21 billion transistors and 5,120 CUDS cores, making it the most powerful GPU architecture ever (according to the company). AMD's Vega 10 houses 12.5 Billion transistors on 4096 cores. Comparing Volta to prior Nvidia cards, today’s Pascal GPU flagship, the 14nm Tesla P100, offers 3,840 CUDA cores and 15 billion transistors. The GeForce GTX 1060 has a quarter as many CUDA cores as the Tesla V100, at 1,280. Here is a nice image with side-by-side comparisons:

Source: WCCFTECH

Nvidia's data center business is booming, which we discussed in detail in the dossier The Real Reason Nvidia is Hitting New Highs, published on 11-10-2017. Of all the businesses that Nvidia is in that are the future of technology, the data center (aka cloud) is present — it is today, not 5-years from today. It is the only business outside of gaming that can have a real impact on revenue and earnings in the immediate-term, as well as the next decade. While Wall Street got spooked two quarters ago, last quarter Nvidia surprised everyone, and quelled fears with its data center business. In this case, one image says it all:

Amazon, Microsoft, and Google purchase from Nvidia, at scale, and this business line is a winner, right now. Tencent, Alibaba, Baidu, Facebook and Oracle also rely on Nvidia chips for their clouds. And then a comment from Goldman Sachs right after the last earnings call: "The ramp of Volta seems to be tracking well, and more importantly, has significant runway ahead, in our view, as a broader set of customers adopt the new architecture in the coming quarters." THE REAL NEWS There has been an article floating around from MarketWatch entitled "A warning to Nvidia and AMD: GPUs may not hold AI chip crown forever." Even further, Forbes notes that there has been speculation that fixed function application-specific circuits (ASICs) might one day eclipse NVIDIA’s GPU-centric approach. This argument has been fueled in part by noting Google's investment in its own custom ASIC for Deep Learning inference, the TensorFlow Processor Unit (TPU). Nvidia responded by its own ASIC technology and also announced that it will open source this technology to enable others to build chips using this technology. It's called the TensorFlow Processor Unit (TPU). We get this from the company, now (our emphasis added):

Equipped with 640 Tensor Cores, Volta delivers over 100 Teraflops per second (TFLOPS) of deep learning performance, over a 5X increase compared to prior generation NVIDIA Pascal™ architecture.

Mark Lipacis, an analyst at Jefferies, noted: A key differentiator for Volta is its Tensor cores, which enable it to process matrix multiplication operations in a highly efficient manner - key for neural network training. Nvidia's Tensor cores are specifically designed for AI systems, and are 12 times faster than the company's previous series of chips, according to the company. In an article from Quartz entitled "Despite the hype, nobody is beating Nvidia in AI", we can take a step even further back which reveals the rest of this narrative. Nvidia Founder and CEO Jen-Hsun Huang said "a GPU is basically a TPU that does a lot more." As a note -- TPUs are custom-built for AI only, which means they’re inefficient at tasks like transcoding video into different qualities or formats. It's that reality which prompted Jen-Hsun Huang to make his comments. So, while Google explicitly mentioned performance improvements in its TPU over Nvidia’s GPU technology, which were, of course, based on Nvidia's older technology, Nvidia is still the leader and (obviously) has its eye on the future. Nvidia is increasing the efficiency of its GPU architecture, improving the efficiency of its GPU chips about 10x over the past four years. That Quartz article goes onto read (our emphasis added):

Nvidia has also been investing since the mid-aughts in research to optimize how machine-learning frameworks, the software used to build AI programs, interact with the hardware, critical to ensuring efficiency. It currently supports every major machine-learning framework; Intel supports four, AMD supports two, Qualcomm supports two, and Google supports only Google’s.

And while TPUs have an inarguable lead over GPUs in small independent tests, Nvidia is breaking the barriers with its GPUs and, now, its TPU technology. IN SUMMARY Google created a custom ASIC that beats general-purpose hardware for a very narrow application -- as in, it can only run Google's machine learning. Having said that, let us never underestimate Google, its deep pockets and history for innovation. Still, there is no reason, in our opinion, to believe the catastrophe headlines. Nvidia has a large lead in main stream 'everything AI,' and will quite possibly take the lead in application specific technologies as well. As a further reminder of Nvidia's incredible success in cloud hardware, have a read of the last four CML Pro dossiers: We maintain our Spotlight Top Pick status on Nvidia, see competition as a natural evolution and evidence of a booming market. Nvidia has market share, better technology and we have every reason to believe this lead will be maintained (if not grow). As for the data center business in and of itself, we have this trend as a tailwind:

The worldwide public cloud market is forecast to rise from $154 billion this year to nearly half a trillion dollars by 2026. SEEING THE FUTURE It's understanding technology that gets us an edge on finding companies like Nvidia early, finding the gems that can turn into the 'next Apple,' or 'next Amazon,' where we must get ahead of the curve. This is what CML Pro does. Each company in our 'Top Picks' has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty. The precious few thematic top picks for 2017, research dossiers, and alerts are available for a limited time at an 80% discount for $19/mo. Join Us: Discover the undiscovered companies that will power technology's future. As always, control risk, size appropriately and use your own judgment, aside from anyone else’s subjective views, including my own. Thanks for reading, friends. The author is long shares of Nvidia at the time of this writing. Legal The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website. The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses. The Company make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

[ophirgottlieb]

How to Make Technical Trading Actually Work in Wynn Resorts

Wynn Resorts, Limited (NASDAQ:WYNN) : How to Make Technical Trading Actually Work

Date Published: 2017-12-13 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. LEDE Even though we can see that Wynn Resorts, Limited (NASDAQ:WYNN) stock is up 66.05% over the last 5 years, in that same time frame, using a technical signal with an infrequent trigger, has created larger returns of 131.9%. At some point, after all the social media craze and pundits on financial television drawing lines on stock charts, we need to stop the noise and just answer, once and for all, has technical trading actually worked in the past?

Answers, empirical and explicit, not just some guy drawing lines on a chart -- that's what we're after. ANSWERS This is a technical analysis triggered momentum trade that bets on a bullish move in the underlying stock for a period that starts the day Wynn Resorts, Limited (NASDAQ:WYNN) triggers a breakout from the TTM Squeeze signal and lasts until two-days in a row show reversed (bearish) momentum. It has been a winner for the last 5 years. Wynn Resorts, Limited (NASDAQ:WYNN) IDEA: TTM Squeeze Technical Trigger The idea is simple -- stocks tend to move in tight ranges for the majority of the time, and then they move in bursts for the remaining periods. The breakout from the TTM Squeeze attempts to find these bursts. Here is a simple graphic, where the gray line is the daily stock price, the blue bars comprise the tight squeeze zone, and then we see the break out into a bearish move. Roughly speaking, this is the pattern that this technical indicator is attempting to identify and back-test.

The goal, of course, is to find these breakouts before they occur. Rules * Open the long 90/40 delta call spread on the day the TTM Squeeze has been broken with upside momentum. * Close the call after that signal has seen a consecutive two-day reversal. * Use the options closest to 15 days from expiration. * Never trade earnings -- irrespective of the technical indicator, this trade will close 2-days before a scheduled earnings announcement. This is a straight down the middle bullish bet -- this trade wins if the stock rises and will lose if the stock does not. DISCOVERY We found this back-test results by going to the Trade Machine Pro Scanner, looking at the NASDAQ 100 and then the "Bull Squeeze" scan.

RESULTS Owning the 90/40 delta call spread in Wynn Resorts, Limited (NASDAQ:WYNN) over the last five-years but only held it after a TTM Squeeze was triggered we get these results:

WYNN: Long 90/40 Delta Call Spread Signal: TTM Technical Squeeze % Wins: 89% Wins: 8 Losses: 1 % Return:  131.9% 

Check it out Yourself: Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 131.9% back-test return, which is based on 9 trades in Wynn Resorts, Limited. A bullish breakout from the TTM Squeeze is a technical signal that doesn't happen often, but rather is designed to mechanically identify the times when a stock is in a low volatility period and may be about to thrust higher. It's a signal based on probabilities, not absolutes, so it won't work all the time. Looking at Averages The overall return was 131.9%; but the trade statistics tell us more with average trade results:       ➡ The average return per trade was 24.41%.       ➡ The average return per winning trade was 37.97%.       ➡ The average return per losing trade was -84.11%. Advanced Option Analysis The choice of deltas, in this case the 90/40 call spread, was not an accident. We empirically and explicitly checked various combinations for a call spread using the bull squeeze breakout and found this one to be the best. The returns over the last five-years over the 270 most liquid option names showed a return that was higher than simply buying a call spread with statistical significance of nearly 99%. WHAT HAPPENED There's a lot less luck to successful trading than many people realize. To see how to test this, and any strategy, for any stock we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

Exactly the Technical Indicator that Has Worked in NetEase

NetEase Inc, NTES, technical, bullish, options, 40 delta call, TTM Technical Squeeze

NetEase Inc (NASDAQ:NTES) : The Technical Indicator That Works

Date Published: 2017-12-13 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. LEDE At some point, after all the social media craze and pundits on financial television drawing lines on stock charts, we need to stop the noise and just answer, once and for all, has technical trading actually worked in the past?

Answers, empirical and explicit, not just some lines on a chart -- that's what we're after. ANSWERS The idea is simple -- stocks tend to move in tight ranges for the majority of the time, and then they move in bursts for the remaining periods. The breakout from the TTM Squeeze technical indicator attempts to find these bursts. Here is a simple graphic, where the gray line is the daily stock price, the blue bars comprise the tight squeeze zone, and then we see the break out into a bearish move. Roughly speaking, this is the pattern that this technical indicator is attempting to identify and back-test.

The goal, of course, is to find these breakouts before they occur and to scan the market for the best historical performers. Rules * Open the long 40 delta call (out of the money call) on the day the TTM Squeeze has been broken with upside momentum. * Close the call after that signal has seen a consecutive two-day reversal. * Use a 50% stop and a 50% limit on the back-test. * Use the options closest to 15 days from expiration. * Never trade earnings -- irrespective of the technical indicator, this trade will close 2-days before a scheduled earnings announcement. This is a straight down the middle bullish bet -- this trade wins if the stock rises and will lose if the stock does not. RISK CONTROL Since simply owning out of the money options is an aggressive directional bet, we test this approach with added risk limiting parameters, namely, the back-test uses a 50% stop loss and a 50% limit gain.

This also has the benefit of taking profits early, before the bullish signal ends -- that is, before two consecutive reversal days appear. RESULTS Owning the 40 delta call in NetEase Inc (NASDAQ:NTES) over the last 3-years but only held it after a TTM Squeeze was triggered we get these results:

NTES Long 40 Delta Call Signal: TTM Technical Squeeze % Wins: 85.7% Wins: 6 Losses: 1 % Return:  1037% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 1037% back-test return, which is based on 7 trades in NetEase Inc. A bullish breakout from the TTM Squeeze is a technical signal that doesn't happen often, but rather is designed to mechanically identify the times when a stock is in a low volatility period and may be about to thrust higher. It's a signal based on probabilities, not absolutes, so it won't work all the time. Looking at Averages The overall return was 1037%; but the trade statistics tell us more with average trade results:       ➡ The average return per trade was 82%.       ➡ The average return per winning trade was 106.7%.       ➡ The return for the losing trade was -65.8%. Technical Details For the details about the TTM Squeeze, how it works, when it's triggered, why it's relevant and what it means, you can discover scientific option trading from the link (which leads to a short video). WHAT HAPPENED This is one way people profit from the option market -- whether it's technical analysis, momentum trading or non-directional option trading. Take a reasonable idea or hypothesis, test it, and apply lessons learned. Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

United Continental Holdings Hits a Bullish Technical Trigger

Date Published: 2017-12-4 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. LEDE Even though we can see that United Continental Holdings Inc (NYSE:UAL) stock is up 215% over the last 5 years, in that same time frame, using a technical signal with a very infrequent trigger, has created larger returns of 442%. This is a technical analysis triggered momentum trade that bets on a bullish move in the underlying stock for a period that starts the day United Continental Holdings Inc (NYSE:UAL) triggers a breakout from the TTM Squeeze signal and lasts until two-days in a row show reversed (bearish) momentum. It has been a winner for the last 5 years. United Continental Holdings Inc (NYSE:UAL) IDEA: TTM Squeeze Technical Trigger The idea is simple -- stocks tend to move in tight ranges for the majority of the time, and then they move in bursts for the remaining periods. The breakout from the TTM Squeeze attempts to find these bursts. Here is a simple graphic, where the gray line is the daily stock price, the blue bars comprise the tight squeeze zone, and then we see the break out into a bearish move. Roughly speaking, this is the pattern that this technical indicator is attempting to identify and back-test. The squeeze period must last at least 6-trading days for it to register as a squeeze.

Rules * Open the long 80/30 delta call spread on the day the TTM Squeeze has been broken with upside momentum. * Close the call after that signal has seen a consecutive two-day reversal. * Use the options closest to 15 days from expiration. * Never trade earnings -- irrespective of the technical indicator, this trade will close 2-days before a scheduled earnings announcement. This is a straight down the middle bullish bet -- this trade wins if the stock rises and will lose if the stock does not. DISCOVERY We found this back-test results by going to the Trade Machine Pro Scanner, looking at the S&P 500 and then the "Bull Squeeze" scan.

UAL broke out of the squeeze two-trading days ago, saw one down day, but is still live as long as the stock does not dip for two consecutive days. As of this writing, UAL is is trading at $63.12, up + $0.55 or 0.88%. Here is a 3-month chart of UAL, where the red line is the 50-day simple moving average, and the blue line is the 200-day simple moving average.

RESULTS Owning the 90/40 delta call spread in United Continental Holdings Inc (NYSE:UAL) over the last five-years but only held it after a TTM Squeeze was triggered we get these results:

UAL: Long 80/30 Delta Call Spread Signal: TTM Technical Squeeze % Wins: 79% Wins: 11 Losses: 3 % Return:  442% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 442% back-test return, which is based on 14 trades in United Continental Holdings Inc. A bullish breakout from the TTM Squeeze is a signal based on probabilities, not absolutes, so it won't work all the time. Looking at Averages The overall return was 442%; but the trade statistics tell us more with average trade results:       ➡ The average return per trade was 32.1% over two-weeks.       ➡ The average return per winning trade was 49.2% over two-weeks.       ➡ The average return per losing trade was -30.4% over two-weeks. Technical Details For the details about the TTM Squeeze, how it works, when it's triggered and what it means, you can read our dossier The details behind the TTM Squeeze Technical Indicator . WHAT HAPPENED To see how to test this for any stock we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.

[ophirgottlieb]

The Bullish Pattern in Costco Before Earnings

Costco Wholesale Corporation (NASDAQ:COST) : Short-term Option Swing Trading Ahead of Earnings

Date Published: 2017-11-27 Disclaimer The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. PREFACE Costco Wholesale Corporation (NASDAQ:COST) is one of the few retailers that, for now, appears to be "Amazon proof." A business well entrenched in bulk purchases that may not be easily e-commerced away. Whether that analysis holds any veracity is debatable, but what we see objectively, and empirically, is that there is a pattern of bullish momentum just days before earnings, and we can track that by looking at swing returns in the option market. According to our data provider, Wall Street Horizon, Costco's next earnings date is 12-14-2017 after the market closes. 3-trading days before that would be 12-11-2017, so about 2-weeks from the date of this publication. IDEA The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings, and then getting out of the way so no actual earnings risk is taken. Now we can see it in Costco Wholesale Corporation. The Short-term Option Swing Trade Ahead of Earnings in Costco Wholesale Corporation We will examine the outcome of going long a weekly at the money call option in Costco Wholesale Corporation just three calendar days before earnings and selling the call on the day of the actual news. Since Costco reports after the market closes, this back-test does not take earnings risk. This is construct of the trade, noting that the short-term trade closes before earnings and therefore does not take a position on the earnings result.

Often times we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk. RISK MANAGEMENT We can add another layer of risk management to the back-test by instituting and 50% stop loss and a 50% limit gain. Here is that setting:

In English, at the close of each trading day we check to see if the long option is either up or down 50% relative to the open price. If it was, the trade was closed. DISCOVERY We found COST and this repeating pattern by using the Trade Machine® Pro scanner, looking at the NASDAQ 100 and the 3-day pre-earnings long call.

RESULTS Below we present the back-test stats over the last two-years in Costco Wholesale Corporation:

COST: Long 50 Delta Call % Wins: 87.% Wins: 7 Losses: 1 % Return:  246% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger). We see a 246% return, testing this over the last 8 earnings dates in Costco Wholesale Corporation. That's a total of just 32 days (4-day holding period for each earnings date, over 8 earnings dates). This short-term trade hasn't won every time, and it won't, but it has been a winner 7 times and lost once over the last two-years. Setting Expectations While this strategy has an overall return of 49.9%, the trade details keep us in bounds with expectations:       ➡ The average percent return per trade was 22.7% over four days.       ➡ The average percent return per winning trade was 35.6% over four days.       ➡ The percent return for the losing trade was -67.1% over four days. Note that if this trade goes poorly, that is, if the stock does not rise ahead of earnings, this can be a substantial loser. WHAT HAPPENED Bull markets tend to create optimism, whether it's deserved or not. To see how to test this for any stock we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.