- Nick Burgess
Zoom Falters, Peloton Plummets, the Start of the Theranos Trial and the Roger Federer IPO
Welcome to "This Week In The Market" where I break down the market's biggest news into easy-to-read chunks, and analyze how they can make you money. This week's jam packed, so let's go!
Is The Stay-At-Home Trade Finished?
The Headline: Two of 2020's highest profile stocks, Zoom Video and Peloton, both reported earnings this week which indicated huge slowdowns in user growth. Both shares plummeted on the news.
The BFD: Despite reports of increasing COVID hospitalizations around the world due to the delta variant, people just aren't staying at home as much as they were last year. 2020 presented a unique opportunity for companies that specialize in home or remote-based applications, and Zoom and Peloton were at the forefront. Peloton increased their year over year subscriber count from 511,000 to over 2.3 million, and shares skyrocketed 434% in 2020. However, slowing quarter-over-quarter growth due to people leaving their homes and going back to real life, along with shrinking margins and wide losses, has taken a bite out of the company's share price to the tune of over 30%.
Zoom is a similar story. The work-from-home darling with charming CEO Eric Yuan saw a 2020 share price high of $588.84. However, due to slowing user growth, security issues and the general work-from-home trend beginning to subside, the stock is now down at around $290 at time of writing.
How Can This Make Me Rich?: Both of these companies are rock solid. Led by competent management teams, they are both leaders in their own categories that are now 40%-50% off of their all time highs. Yes, the pandemic and full 2020 lockdown presented a likely unsustainable scenario for both of these companies, but they have likely found their level. Think of this as a flash sale for two pretty important, sticky companies with staying power. I'd buy, especially since the pandemic isn't going away anytime soon.
Silicon Valley of the Damned
One time billionaire and former Silicon Valley darling Elizabeth Holmes is set to stand trial this week for her involvement in her now defunct and fraudulent business, Theranos. For those who missed the story, here's the short version:
In 2003, 19 year old Stanford dropout Holmes and her boyfriend Ramesh "Sunny" Balwani set out to change the way blood tests were done. Envisioning that they could run "hundreds" of tests with one prick, Holmes started the company, Theranos, with key partnerships with Walgreens, Safeway and $700 million in investor cash, including from the likes of: Patriots owner Robert Kraft, top ten richest person in the world Carlos Slim, the Walton family of Walmart fame and former Education Secretary Betsy DeVos. She even got former Secretary of State Henry Kissinger and Sec Def James Mattis on her board of directors. Fast forward to 2015 and the company is riding high. The company is privately valued at $9 billion, Holmes herself is a billionaire and investors are throwing money at this company like it's on the main stage and they just finished bottle service. The Wall Street Journal publishes a report stating that the technology Theranos claims to have pioneered in order to execute these blood tests doesn't actually work properly, and the company is not delivering on its promise. This, the report claimed, led to inaccurate diagnoses for all sorts of medical conditions in real patients. The SEC investigated and subsequently shut the company down for fraud.
Holmes legal defense? Throwing her ex-boyfriend and business partner Balwani under the bus and claiming abuse. CNBC pulled the details out of documents submitted to the court prior to jury selection, and they're...troubling:
The documents reveal she plans to claim he psychologically, emotionally and sexually abused her. According to one filing, Holmes accused Balwani of throwing sharp objects at her, controlling what she ate, when she slept, how she dressed and monitoring her calls and text messages. Balwani denied the claims. - CNBC
Prosecutors will look to move quickly in the trial as it was already delayed from its intended March time-frame due to a shock pregnancy announcement from Holmes literal days before her trial was set to start. This will be appointment TV as it's basically the Valley equivalent of the OJ trial.
Stock of the Week
We had two popular lifestyle brands file their IPO paperwork this week, so let's break them both down here. The first is west-coast sustainability darling Allbirds, the creators of one of the strangest shoes this side of Kanye's Adidas collaboration.
The shoes tech bros can match with their Patagonia vests is officially going public. After nabbing $100 million in their latest funding round and officially becoming a unicorn, they then generated about $117 million in sales for the last six months of last year. Their losses are...tough. They lost about $21 million in that same span, up from $9 million the year before. They are spending big on customer acquisition, new products by branching into the apparel space and are opening brick-and-mortar stores across the country. Their customer retention is pretty good at 53%, but the store opening strategy is curious considering their 89% sales rate from online DTC channels. I personally love the brand, but I'm not sure this is high on my list to invest in. What is, then? Glad you asked.
The other company to file plans to go public this week is running shoe company On Running. The little Swiss shoemaker began to make waves in the underground running community in the early 2010's due to the innovative cushioning system used in their shoes, nicknamed "Cloudtec." Since then, they've made aggressive partnerships with retail locations around the world, now numbering about 7,800 locations in addition to their digital DTC model. They shot to prominence in the mainstream when tennis legend Roger Federer, himself Swiss, partnered with the company and took an equity stake in 2019 after his high-profile split from Nike. He then created his own signature shoe, which debuted at Wimbledon the following year and retails for $200.
The company is expecting to go public at a $5 billion valuation, a lofty number based on its six month sales of $344 million in 2020. However, it's gaining market share rapidly from the likes of Saucony and Hoka.
This is one that should be on your radar.
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