BigTech: A New Definition

BigTech has been a big driver of the stock market for the past decade. The names are familiar – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta, Oracle, Cisco, Salesforce, AMD.

Others, past and present, have included Netflix, Uber, Lyft, Peleton, Shopify, Spotify, Airbnb, WeWork, Workday, Bookings, PayPal, and Adyen.

I have two questions: (1) are some of these companies really “tech” companies and (2) why would it matter if the answer is “No”.

Through the convergence of the internet and smart phones, many companies have arisen that use this convergence to develop new services to the public. How we hail cabs, rent videos, buy used cars and shop for food and booze, just to name a few, have been radically altered. With this technology, we can book a flight to Dublin as well as the place to stay, grab a table for dinner in the Temple Bar district, split the check with our traveling companions and summon a ride home after one too many pints. This technology has truly changed the way we live our lives.

Yet, are the companies using these technologies themselves technology companies? I say “No”. Just because your public interface is a mobile device, that does not make you a tech company. Uber is a cab company. Netflix rents videos. Peleton is a stationary bike with an iPad attached. Airbnb is a vacation rental agency and WeWork rents office space. I can go on and on, but you get the point. Using technology to provide a new service doesn’t grant you a visa into BigTech country.

Okay, so who cares? Why are you being pedantic, Bill? Well, because if one is looking at what sectors are driving the market, it behooves one to know which companies are in those sectors. Currently, 2023’s rally in the S&P 500 is being driven by seven tech companies, Alphabet, Apple, Meta, Nvidia, Amazon, Microsoft and Tesla.  The narrowness of the rally might be of concern to some investors. However, we are told by many analysts that this is actually good news, as it’s the start of a “tech rally” and thus, there is plenty of upside once the other tech companies take part.

Hence, my point. If you are counting on tech companies who are not really tech companies to broaden a rally, you are going to be counting a long time. WeWork is driven by the demand for office space, which is collapsing. Airbnb is driven by consumer spending for vacations at a time when many are predicting a recession. The same for Shopify, Uber, Lyft and Bookings. Netflix is facing backlash from their password sharing decision, sketchy new content and a hangover from the excesses of COVID. Ditto for Peleton. None of these so-called tech companies are being driven by the boom in tech. They are being driven by forces that having nothing to do with tech.

True tech companies will continue to prosper due to AI mania (I’ll have an upcoming post on that) and the very nature of the industry. But so-called BigTech will get no help from the tech wannabes who are nothing but service companies. If you are buying tech, buy the actual tech companies, not the ETFs littered with “me too’s”.

I Told Ya So

If you’ve been following my posts about Peloton (PTON) and taken my advice, you’ve done quite well for yourself. Just to recap, back in December 2020, I explained why, at $161 per share, Peloton was grossly overvalued and, therefore, recommended shorting the stock.

Then, in May 2021, I followed up with another post detailing how correct the prior advice had been. At the time of that post, Peloton had lost about half its value, falling from $161 per share to $83 per share. I said, however, that there was still time to profit from selling this stock short, as I thought the proper valuation for Peloton was about $28 per share.

Well, here we are. Peloton right now has broken through my $28 valuation, falling to $24 per share. My advice now is to close out your short position and take your profit. While the stock may continue to drop a bit more, that’s simply investor panic and/or price momentum.

In summary, had you purchased $1,000 of June 2022 deep out-of-the-money puts back in December 2020, you’re sitting on a tidy profit, upwards of $200,000. If you listened to me and are cashing in, well done! And if not, shame on you.

Peloton Follow-Up

Back on December 22, 2020, I detailed why Peloton Interactive (PTON), with a market capitalization of $42.2 billion was ridiculously overpriced at $161 per share. I recommended selling your shares if you were an owner or shorting Peloton if you weren’t.

Today, Peloton closed at around $83 per share, with a market cap of $24.3 billion. So had you taken my advice and shorted 100 shares, you’d be sitting with a $7,800 profit representing a whopping 145% annualized return.

While some of Peloton’s price decline is attributable to recent issues with defective equipment requiring a product recall, the decline in price began much earlier, as savvy investors began selling their positions to less sophisticated investors who were jumping on the Peloton bandwagon.

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Peloton Interactive (PTON), the innovative company that pioneered gluing an iPad to the handlebars of a stationary bike, this week was added to the NASDAQ 100 stock index. Based on a market cap of $42.2 billion, Peloton became one of the 100 largest non-financial companies traded on NASDAQ.

With only a market cap of $5 billion prior to the pandemic, in the past nine months Peloton’s market cap has soared past much better-known companies, such as Marriott, Mitsubishi Electric, General Mills, Fiat-Chrysler, eBay and the Ford Motor Company.

With the size of the home fitness market currently at $11.5 billion and Peloton yet to generate a profit on $1.8 billion in revenue, one wonders about the company’s valuation. I always view things from the perspective of a buyer or seller. So, if a buyer purchased Peloton for $42.2 billion, what would their return look like? A simple, “back-of-the-envelope” analysis would look something like this:

If the buyer instead bought 10-year Treasury bonds, they’d get a 0.9% return. Pretty poor, but very safe. If the buyer bought a high-yield junk bond fund, the return is about 4.5% and high-dividend ETF returns are in the 5% to 8% range. Thus, an investor writing a $42.2 billion dollar check to buy Peloton, a high-flying company who’s growth has been driven by a “once every century” pandemic, would want a return in excess of 10% as compensation for assuming such huge risk.

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Matrix Multiplication Using Excel

Using Excel’s formula for matrix multiplication (MMULT) is not as straight-forward as using the other built-in formulas provided by Excel. By simply following the MMULT formula wizard, you will get a head-scratching result if you are not aware of the two additional steps necessary in using this formula (or any Excel formula that uses an array as input, such as TRANSPOSE).

Before beginning, we’ll do a quick review of matrices. A matrix is an m x n array of real or complex numbers, where m is the number of rows and n is the number of columns. The matrix is square if m = n and rectangular otherwise. A vector is a matrix of one row or column: a m x 1 matrix is a column vector and a 1 x n matrix is a row vector.1

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Getting Started With PhoneGap

In this post, I’ll describe how to install both PhoneGap and the Ripple extension for Chrome and then fire up a “Hello, World” app.  As mentioned in an earlier post, there are two versions of PhoneGap, PhoneGap Desktop (GUI) and PhoneGap CLI (command line).  Here, I’ll be installing Desktop.  First, it’s easier to use and second, from reading the documentation, I get the sense it’s where Adobe will be putting its future efforts.

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The Sieve of Eratosthenes

Yesterday, I reviewed The Music of the Primes: Searching to Solve the Greatest Mystery in Mathematics, a book by Marcus du Sautoy.

In the book, du Sautoy explains the Sieve of Eratosthenes, an algorithm for finding all the prime numbers under a given limit.  The concept is surprisingly simple – for a set of numbers less than N, begin with the first prime number (2) and throw out all of its multiples (4, 6, 8, etc) up to N.  Then start over with the next number remaining (3) and throw out all of its multiples up to N.  Some multiples of 3, such as 6 and 12, will have been thrown out in the prior step.  Keep repeating the process until there are no numbers less than N left to be thrown out.

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Book Review: The Music of the Primes

I just finished reading Marcus du Sautoy’s “The Music of the Primes: Searching To Solve the Greatest Mystery in Mathematics”.  If a book about a subject as dense as the Riemann Hypothesis can be described as a page-turner, this is the one.  Using analogies and metaphors, du Sautoy enables the reader to appreciate the difficulties, as well as the successes, mathematicians have experienced in trying to prove a conjecture that has defied proof for almost 200 years.  The book’s audience is the lay reader and thus, does not delve too deeply into zeta functions, imaginary numbers and quantum chaos theory.  In other words, after reading, you still won’t be equipped to find a proof of the Hypothesis and claim the $1 million Clay Millennium Prize.

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Evaluating Adobe PhoneGap

In evaluating multi-platform development tools for mobile, I came across PhoneGap, Adobe’s entry into the marketplace.  What makes PhoneGap unique is that apps can be developed using standard web development technologies, such as HTML, CSS and javascript.  What surprised me was the access PhoneGap provides to device-level features, such as the accelerometer, camera and GPS.  I thought that level of access required Xcode, or at least a multi-platform tool like Xamarin, with its reliance on C# and Mono .NET.  PhoneGap apps will even handle push notifications.

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