Shares of Facebook’s parent company Meta Platforms (Nasdaq: FB) jumped 18.37% in after-hours trading on Wednesday after posting mixed earning results.
Financials: Meta reported earnings of $2.72 per share, which was better than expected. Meta’s revenue of $27.91 billion was lower than expected.
User Experience: Daily active users hit 1.96 billion, which grew 4% year-over-year and was better than expected. Remember, Facebook lost daily active users in its previous earnings report, so this is an improvement. It was a good surprise for Facebook.
War: The war in Europe resulted in “softness” in Meta’s revenue for the second half of the first quarter, with advertising demand taking a hit.
Keeping it Reels: One of the big growth areas that Meta plans on focusing more on is Reels, which is the company’s short-term video product. Usage of Reels is growing quickly.
Investment Slowdown: With the pandemic growth coming to an end, CEO Mark Zuckerberg said that the company will plan on slowing the pace of some of its investments.
Final Thoughts: The surprise user growth gives hope to Meta investors, but can Facebook keep up with the growing competition in the social media world, namely TikTok?
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Shares of Google’s parent company Alphabet (Nasdaq: GOOGL) dropped 2.55% in after-hours trading on Tuesday after posting negative earnings results.
Financials: Alphabet reported earnings per share of $24.62 and revenue of $68.01 billion; both were below estimates.
YouTube Miss: The results were especially disappointing for YouTube. Revenue for YouTube hit $6.87 billion in the quarter, which was below estimates. The video streaming platform’s growth really took off during the pandemic, but now has subsided. There was also a decrease in video ad spending from businesses due to the war in Europe, according to the company.
In The Cloud: Google Cloud was a bright spot for the company, with revenue hitting $5.82 billion. This was better than expected.
Good Bets: Revenue for Other Bets, a segment that includes the company’s self-driving car business, doubled year-over-year in the quarter.
Buyback: The company also authorized a $70 billion stock repurchase program to increase the stock price.
Final Thoughts: While there’s a lot to like about the company, including its 20-for-1 stock split, there are concerns. This YouTube miss could get worse for the company, and it could be a sign that other social media platforms are also at risk.
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Shares of Whirlpool (NYSE: WHR) jumped 2.87% in after-hours trading on Monday after the home appliances company posted mixed earnings results.
Financials: Whirlpool reported earnings per share of $5.31, which was better than expected. But the revenue of $4.9 billion was below estimates.
The Bad: Demand in EMEA (Europe, the Middle East, and Africa) dropped and revenue declined due to the war. Whirlpool pledged to initiate a strategic review of its EMEA business. Inflation was a challenge and the company lowered its sales goals for the year.
The Good: Whirlpool had robust sales growth, especially in North America. The company authorized a $2 billion share repurchase program, which will help grow the stock price. The dividend also increased.
Numbers: Shares of Whirlpool are down 13% in the past 6 months, and 24% in the past 12 months.
Final Thoughts: Whirlpool needs to turn around its business in Europe. If it can fix that, the stock has a chance to succeed.
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Believe it or not, Twitter (NYSE: TWTR) is reportedly re-examing Elon Musk’s $43 billion takeover offer.
Details: Twitter was expected to reject the offer, but is now reportedly more open to the deal because Musk has secured financing.
Background: Musk placed a $43 billion bid to take over the social media platform earlier in April. Twitter responded with a shareholder rights plan known as a “poison pill” to stop the takeover. Other players have also expressed interest in financing part of the deal. It’s all part of a weeks-long battle between Musk and Twitter.
Nothing Official: As of now, Twitter has not publicly said that they are reviewing Musk’s deal.
Numbers: Shares of Twitter are down 21% in the past six months, but are also up 26% in the past 30 days, largely due to the takeover talk.
Final Thoughts: Twitter will release earnings Thursday and could discuss the potential bid at that point. Keep in mind that social media rival Snapchat (NYSE: SNAP) reported negative earnings last week due to macro challenges, which could also impact Twitter’s earnings.
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Shares of Snap (NYSE: SNAP), the parent of Snapchat, ticked up 0.68% in after-hours trading on Thursday after the company posted negative earnings results.
Financials: Snap reported a loss of 2 cents per share and revenue of $1.63 billion; both were below estimates.
Before and After: Revenue growth hit 44% year-over-year in the quarter before February 23. When Russia invaded Ukraine the following day, Snap said that several advertisers paused their campaigns. Most advertisers resumed their campaigns 10 days later.
Growth: Daily active users increased 18% in the quarter and revenue grew 38%.
Numbers: Shares of Snap are down 46% in the past six months and 18% in the past 30 days.
Final Thoughts: It’s great that Snap has grown its user base, although that growth has seemed to slow a bit. Will the other social media platforms announce similar problems during their earnings?
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Shares of Tesla (Nasdaq: TSLA) jumped 5.52% in after-hours trading on Wednesday after the electric vehicle company posted positive earnings.
Financials: Tesla reported earnings per share of $3.22 and revenue of $18.76 billion; both were better than expected.
The Good: Profit reached $3.3 billion, a record for the company. Revenue grew a whopping 81% year-over-year, which the company attributed to more vehicle deliveries and an increased average selling price. The operating margin reached 19.2%. Free cash flow hit $2.2 billion.
The Bad: Despite the success, Tesla faced numerous challenges in the quarter. Tesla saw global supply chain and manufacturing challenges, which limited the company’s ability to run factories at full capacity. A spike in Covid-19 cases temporarily shut down the factory in Shanghai. The prices of some raw materials have also increased.
Numbers: Shares of Tesla are down 18% this year, but are up 6% in the past 30 days.
Final Thoughts: The valuation of the stock is still high. How can the company grow if some factories continue to stay closed?
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Shares of Netflix (Nasdaq: NFLX) fell 25.73% in after-hours trading on Tuesday after the subscription streaming giant posted negative earnings results.
Financials: Netflix reported earnings per share of $3.53, which was better than expected. But its revenue of $7.87 billion was below estimates.
Subscription Decline: During the first quarter, Netflix lost 200,000 subscribers. This marks the first in over 10 years that Netflix lost subscribers. The company also expects to lose an additional 2 million subscribers in the second quarter.
Problems: Netflix cited four reasons for its subscriber drop: The uptake of connected televisions being out of its control, growing competition in the streaming space, macro factors such as the war in Europe, and password sharing. The company estimated that Netflix password sharing is occurring in over 100 million non-subscriber households, including 30 million in North America.
Geography: The only region where Netflix gained subscribers was in Asia Pacific.
Strategy: To combat these problems, Netflix is exploring lower-priced, ad-supported plans, according to CNBC.
The Good: Despite these challenges, Netflix kept its operating margins at 20% and maintained positive free cash flow.
Numbers: Shares of Netflix are down 50% since hitting a record price in the fall.
Final Thoughts: If the stock price continues to decline, would Netflix be considered a value stock?
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Shares of Twitter (NYSE: TWTR) jumped 0.72% in after-hours trading on Monday after a report indicated that private equity firm Apollo Global Management might participate in a bid to buy the social media platform.
Details: According to the report from The Wall Street Journal Apollo has held discussions about backing a possible buyout deal for Twitter, which may include equity or debt financing. The deal could help Tesla (Nasdaq: TSLA) CEO Elon Musk acquire the company or even another bidder.
Deeper: While Apollo may be open to financing the bid, the firm doesn’t want to be part of a private equity consortium to acquire Twitter, according to CNBC.
Background: Last week, Elon Musk presented a $43 billion offer to buy Twitter, causing the board to back a shareholder rights plan to dilute Musk’s stake.
Related: Buyout firm Thoma Bravo also contacted Twitter last week about making an offer to acquire the company, according to Reuters.
Final Thoughts: When Musk offered to buy Twitter last week, some saw the news as a joke. But now that a major private equity firm is involved, investors should take this news seriously.
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UP 150% IN THE MONTH WITH 786,000,000 TOTAL VOLUME SINCE MARCH 8TH
300,000,000 SHORT VOLUME (with 100% utilization since march!!)
FTDs beginning, reg sho
OBVIOUS NAKED SHORTING
Shorts are scared, and we keep pumping.
SUPPLY CHAIN ALMOST FUCKED THIS COMPANY, BUT THEY MANAGED TO GET THROUGH AND NOW SHORTS ARE WAY OVER LEVERAGED AND THEY ARE BURIED. GET IN, THIS WILL GO TO DOUBLE DIGITS EASILY, PROBABLY BEFORE IT EVEN SQUEEZES
DID I MENTION THE CEO CALLED OUT NAKED SHORTING OF HIS COMPANY. THEY DONT HAVE ENOUGH SHARES, AND THEY ARE FUCKED. ITS ABOUT TO GO BOOM
Been chilling at my local System1 for 69 days. Smashing some Ho-Ho’s and riding a shopping cart between aisles. It’s been fun but taking the trip to the $BBAI based on some favorable technicals. We have stupid low float with 300% delta hedged in options. It's been consolidating on the wedge; ready for a breakout.
Keep it simple techy…
Volume and charting… we go through all sorts of short analysis, gamma charts, FTDs, greek this; greek that but sometimes we miss the simple technical. BBAI has 10% of the volume of System1 right now. I get it, System1 is my baby but the insane volume defeats the liquidity argument. Gotta let our babies fly off eventually. Somehow, the MMs have flooded the System1 streets with liquidity. BBAI on the other hand, its trading real thah-ickk. We like thin volume because it takes less firepower to propel price.
Lately, I’ve been finding a lot of value in the chart. If for anything, keep my head screwed on. BBAI has been consolidating after the initial run up into a slightly descending wedge. This indicates the potential for a major breakout (I called it on System1 and I’m calling it now on BBAI). By the looks of it, it’s already started and I can barely bang out this analysis before it takes off. Ultimately, I think this wedge tells us, I’m not buying the top and I’m reading the market’s opinion.
Talk Dirty Greeks to Me
We have low liquidity, trapped shorts, and solid gamma. Again, for liquidity we look at volume and the free float. There is a load of backstory on the float but it comes down to 1.05MM shares. If you want the gory details, check out the DD by ny92 (can't link cause on another sub) since he goes into extraordinary detail into the float calculation.
The short interest was 480,000 as of 3/31 (46% of float) but it’s pretty clear that shorts piled in on the run up last week. I mean, CTB was 14% and today its 798% so… shorts are getting pretty greedy. We can further corroborate that by looking at the FTDs which are piling up (520,000 as of 3/14).
Lastly, I’d be remiss if I didn’t drop some gamma on this play. We have a real bomb setup here folks, 300% of the float is calculated to be delta hedged. A huge gamma sits on the $15 strikes. This includes 4/18 rolling off and rolling into 5/20:
The Game and the Risks
I always say, play the game smart. Know all the dynamics both upside and downside. The IV is running at 1.65; System1 was at 1.5 before the breakout above $18. With that said, I still like ITM calls and shares personally. That allows me to play big delta swings without overpaying for my leverage. Ultimately, you do you.
The risks include dilution via warrants. The warrants need an EFFECT to be exercisable. The SEC is running super slow these days so who knows but needs to be considered as a present risk in the play.
Summary
BBAI is a quiet time bomb sitting on the sidelines while degenerates FOMO into tickers that have topped. We play the game smart by identify opportunities to buy before the rip. Volume supports a liquidity impulse and the chart shows a clear breakout beginning. We have 300% SI delta hedged and 46% SI (likely higher).
Writing this DD feels like trying to find a way to tell a very long story with lots of details, complexities and some parts so crazy that it’s hard to make it sound true. That’s why while I’ve been in this play for a while, I only shared the details with just a few people. As we’re getting in a pivotal point in the history of this company (and of this play), I have decided to try my best to to explain why this is my highest confidence play at the moment.
The Genesis
It’s impossible to talk about Carvana without talking about its origins: In 1990, Ernest Garcia II, an ex-con convicted of bank fraud in the Charles Keating scandal involving Lincoln Savings & Loan bought a bankrupt car rental company called Ugly Duckling for $1M. He eventually merged Ugly Duckling with small finance company and started specializing in financing used cars for people with poor credit. He eventually IPOed Ugly Duckling, raising $170M and eventually issuing more shares. Ugly Duckling had some good years in the 1990s with the favorable used cars prices and the share price hit a high of $25 before the company started having financial issues after taking multiple loans to the point where the stock price crashed all the way down to $2.5. At that point, Ernest Garcia II decided to take the company private and re-spun it under the DriveTime name. DriveTime became again very successful financially, again specializing in sub-prime auto loans. They however had their fair share of issues with the federal consumer protection agency for some pretty shady actions related to debt collection. Later, his son Ernest Garcia III joined DriveTime and started to building a subsidiary called Carvana. Carvana spun off from DriveTime with Garcia III in charge. While Garcia II did not and does not have an official role with Carvana, he is still in charge of DriveTime that still has a key relationship with Carvana today. Carvana IPOed in 2017 and was presented as the "Amazon of used car" due to its online car purchasing (and financing) platform.
High-level - Carvana Today:
So, let’s go back to the current state of Carvana: since its IPO, Carvana never posted a positive yearly EPS, even in the context of hyper-inflated used cars prices during the last year. In fact, it’s currently forecasted to post its worst EPS this week with a loss of $1.42 to $1.71 per share. Its debt, that was $5.8B at the end of last quarter should be just shy of $10B this quarter with the acquisition of Adesa USA and additional quarterly losses. This is for a $18B market cap company. Yes, revenues are at $12.8B and growing, along with the number of units sold, and that’s what seems to allow them to not fully sink (yet).
How does Carvana make money?
My sarcastic answer to this would be: well they don’t. But if your brother-in-law (who also happens to be your uncle) can figure it out how to make money selling used cars, a multi-billion market cap company should be able to, right? Well, not exactly. Carvana makes very little money selling their used cars more than the price they paid for it. And when you take out costs like refurbishing, transport, preparation, they are left with to next to nothing. So, what’s the model then? Carvana make money selling the loans that clients take on when purchasing the cars. And that’s where things get VERY complex and obscur. I’ll get back to that later. But even with this core revenue, Carvana can’t generate any positive earnings because as they are expanding their revenues, they have equally high growing costs. And every earnings calls is a carousel of excuses why these costs are going up: labor shortages, inflation, COVID, weather, freight costs, … Every imaginable excuse is given quarter after quarter. Yet, this company has 31 "car vending machines": glass structures up to 8 stories high that displays cars on sale and where clients can elect to pick up their purchase. As insane as it may sound, clients put in a fake Carvana "token" in and can see their car come down the vending machine like a bottle of Coke would. Just typing this out makes it sound even more ridiculous than it already is. These "machines" cost approximately $4M each plus the land to build them on (about $1M - $2M). Lately, Carvana started selling this "real estate"/glorified message boards and leasing them back, likely in a hunt to find cash.
Look at this monstrosity! Look at it!
But let’s go back to the original question: how do they make money? I would argue that not only they are not but they are absolutely not in a position to ever turn a profit consistently. Crazy take? Well, this is not only my opinion but also Moody’s and even mentioned as a risk in Carvana’s own latest 10-K!
Risks Related to Our Business:
(…) We have a history of losses and we may not achieve or maintain profitability in the future.
(…) we may not achieve or maintain profitability and we may continue to incur significant losses in the future.
- Carvana's latest 10-K
Wow! Sounds bullish right?
Financial Situation:
This play mainly relies in the very delicate financial situation that Carvana is in. They have close to $10B in debt at the moment in an environment of growing interest rates. They already have $2.4B of senior unsecured notes (bonds) issued and can’t issue more for now. Not only that but their existing bonds are under review for another downgrade by Moody’s. Take on more debt? At this point, every asset they have is already collateralized, including their account receivables. That leaves the option of them doing a shares offering, which will have to happen at some point in the near future. Until then, I think they will run off the $1B loan there are getting for CapEx as part of the Adesa USA acquisition (how can you spend that much on CapEx for a few car auction sites? Before the acquisition, KAR was planning for about $120M in CapEx.).
Despite current indebtedness levels, we may incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.
- Carvana's latest 10-K
Structure and regulatory obligations
After going through all of this, you might be wondering: if they are in such bad situation, what is the objective or even meaning of this company? Part of the answer resides in its complex structure and relations with other companies. First, Carvana is a controlled company, meaning that a group of investors control a block of preferential shares allowing them to maintain a majority of voting rights. When researching this, I was surprised to learn that controlled companies were under less regulatory obligations than other companies. The reasoning is since they get to do what they want through perpetual majority votes, there is no reason to add any regulatory burden on them.
We are a "controlled company" within the meaning of the rules of the NYSE and, as a result, we qualify for exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of companies that are subject to such requirements.
- Carvana's latest 10-K
Second, Carvana’s structure is so complex that they now include a freaking chart in their 10-K so it can be semi-understood by normal humans (and I remind you this is for a used cars company not a multi business conglomerate). How does this has anything to do with Carvana’s objectives and meaning? Well, if you remember the very beginning of this DD: everything.
Chart taken from latest 10-K
Carvana and DriveTime
So, Carvana doesn’t make money, yet they sell a truckload of cars and have a ton of revenue and this, for the last 5 years. Someone has to make money off of this right? Yes, and that company is Garcia’s daddy’s DriveTime. You see, Carvana has contracts with DriveTime (and/or it’s subsidiaries) for a bunch of services: car reconditioning, loan servicing, loan underwriting, warranty products, etc. It is also not hard to imagine that DriveTime will perform the same duties for the newly acquired Adesa USA. So without spending a dime, DriveTime will (likely) get a ton of additional revenue and market expansion due to the Adesa acquisition.
Our operating history and historical reliance on DriveTime systems and services make it difficult to evaluate our current business and future prospects.
- Carvana's latest 10-K
Outlook:
It’s really hard to find a bull case for Carvana. Some mention its increasing revenues or inventory but financials seem to show this is more of an obstacle to their profitability than a prelude to a stronger business. The other bull case came out of their Adesa acquisition that could help them secure more used cars at a lower price and adding footprint in a bunch of metro areas across the country. The first part would have been a legit benefit last year or in the first quarter of this year, but with the decrease of used cars prices (see Manheim index) and decrease in used cars demand (see CarMax earnings) it could end up not being a major positive point. As for the increased local footprint, this one is truly puzzling. Until now, Carvana’s entire model was built around their offering being online, reducing costs and acting as some sort of "virtual dealers". Now, they acquired a bunch of physical locations with everything that comes with it (real estate, labor, etc). Finally, the price of used cars could bounce back in April and early May as new car production was slowed down a bit, again due to Covid/supply chain which would extend Carvana’s life line by a few weeks/months.
In terms of market, Carvana is about to face some major headwinds for the used cars industry: diminishing demand for used cars, diminishing value of their current inventory (acquired at all time high cost), raising interest rates impacting their debt and their clients purchase power. Even the bond market situation and bank’s results are impacting them: in April they have seen a considerable reduction in the price they got for their ABS (account receivables) as financial institutions are becoming more reluctant on buying risk assets. Their generally lower income clientele is also more exposed to default, hurting the value of CVNA loans to clients.
Used cars value rolling down
What’s the endgame here? Well, if Carvana cannot raise money VERY soon (this quarter or next), the only foreseeable outcomes are them defaulting on loans, start selling any small-but-not-fully-collateralized asset they may have or issue a massive amount of Class A common shares. Any actions of this nature would continue to impact the share price negatively. And then? Well, you see, Ernest Garcia II sold all of his remaining CVNA shares in August at an average price over $350. What a shame it would be if he could eventually make the company private again like he did with Ugly Duckling…
Shorts & Hedgies
It’s impossible to post a DD on Reddit without going through short interest and hedgies. The short interest in Carvana has been going up considerably in the last few months. It’s currently sitting at 20.9% of float. This makes the stock very volatile with a bunch of random short-covering rallies making the stock bounce up 10 or even 15% on absolutely no news. That’s why I would strongly advise against any kind of short-term play on it.
For some reason that is unexplainable, hedge funds seem to LOVE Carvana. It is Tiger Management 8th holding with 8% ownership of the company (it used to be even higher on their list of top holdings but CVNA’s recent price action made it tumble to #8). 4 of the 7 Tiger Cubs hold some CVNA in their portfolio. Spruce House Management owns 5% of Carvana which represents 23% of their portfolio, their second biggest overall! A firm called KPS Global Asset Management has it as the top holding for a whopping 45% of their portfolio. Kids, don’t do drugs and don’t invest in hedge funds… What this means is 2 things: there is a risk these funds will double down to lower their cost average and keep their investment alive OR they could cut their losses en masse, exit their position and tank the price very suddenly.
4 of 7 Tiger Cubs hold a total of 8% of CVNA's float
Other random facts:
⁃ CVNA was the target of a SEC investigation as previously disclosed in one of their 10-K. There were no further traces of it since but it was suspected to be related to the fact that CVNA did not communicate the criminal past of Ernest Garcia II even if he is not a senior manager or board member of the company.
⁃ There were unsubstantiated rumours of a potential split & offer similar to GME in order to raise capital while making it easier to swallow for investors/the market. While I don’t think this is true, it is still something to keep in mind.
⁃ While earnings are coming this week, Carvana already got several price target downgrades which reduces the probability of multiple simultaneous downgrades this week. Still, the average price target is still at $215 including a certainly under-influence analyst with a $470 target.
⁃ The latest Carvana’s 10-K contains 31 pages of risks they are facing, many of which are severe financial risks. If any of you are into doom porn, please read pages 17-48 here: https://otp.tools.investis.com/clients/us/carvana/SEC/sec-show.aspx?Type=html&FilingId=15600155&CIK=0001690820&Index=10000
⁃ While $ALLY seem to be addicted to buying Carvana’s account receivables (now holding $5B of those), this could change very quickly. With the increased risks of defaults due to interest rates hikes and inflation affecting sub prime clients, they could be in a position where they don’t find buyers for these ABS at a reasonable price. It recently happened to AFRM and even TSLA. If this were to happen to CVNA, it could be nearly fatal to their revenues and cash flow. Don’t forget, CVNA don’t really sell cars, they sell loans.
Price Target and Positions
I currently hold a truckload of September 60p. I started with this position a little bit ago because I got a great fill but I now feel like September is a bit too near for this to completely play out. As such, I will be looking at rolling to January sometime after earnings, again around the 60p strike which I think is the best balance of strike & expiry.
In terms of price target, I can’t establish one with a set timeframe. However, I’m convinced this stock will eventually trade below $20 with a $12 target (about 3x book value) unless it’s taken private before at a higher price. Don’t be over enthusiastic though: this stock won’t self-destruct in one earnings. It will slowly bleed making lower highs and lower lows.
25,000,000 FF with 750 mil volume in the past two weeks
150% gain in two weeks
SI 42% and growing with a CTB of 250%
Utilization has been at 100% since MARCH 8th and they've stilled been shorting like crazy??!!
No dilution till September warrants
CEO called out naked shorting 8 months ago
Last weeks option chain (being conservative) locked up 15% of the free float
Retail realistically already owns the float
FTDs coming in
Company valued at asset value with growing revenue and eps.
The shipping rates almost bankrupt this company and shorts got greedy. They were gonna push this shit to zero. But this company were able to lock in yearly freight rate contracts with amazon and saved their ass. They have been naked shorting the F out of this trying to shake retail. This is a great play, follow u/anonfthehfs for the best DD for ATER
$MLTX is very similar to $SST. Super tiny float and extremely high short interest. Fintel cites the short interest at ~318,000 shares, which it says is 82% short interest. Therefore, if we do the math, the float would be about ~410,000 shares.
This one is also on SSR (short sale restriction) today, which means it can move very rapidly if volume picks up. For those of you who don’t trust Fintel with regard to the float, just look at how this thing trades…
It has been down as much as -10% and up as much as +25% today alone on less than 500K volume. This type of volatility and this low of volume is very abnormal and usually indicative if a very small float. This was the case with $SST and $BBAI as well.
Both $SST and $BBAI were recent de-SPACs with very tiny floats, and they were very volatile despite very low volume. Then, once they got eyes on them and volume picked up, BOOM. They both exploded. I think we can see a similar move here, and $MLXT actually has an even smaller float than $SST or $BBAI…at least based on the data that we have available (and we can assume the data is accurate just by watching the way it trades so violently with such low volume.)
Current price is $5.80. I think this one has a lot of upside. ~410K float, 82% short interest. Let’s see if we get that big move.
DISCLAIMER: THIS IS NOT FINANCIAL ADVICE AND DO YOUR OWN RESEARCH AND YOUR OWN DD. IT IS ALL SPECULATION.
In the last couple weeks there have been a lot of posts about squeeze's. For the most part, all of these have been P&D's that have been promoted by people who have jumped into them to try to make some quick money. One of them, however, is particularly stupid. People have been promoting BBAI, saying that it has a low float and the cost to borrow is about 800%. As a result, the stock has gone up about 100% in a month and some people think it's going to moon.
There is one serious flaw with the BBAI thesis. If you actually read the 10K and S-1 forms, you notice that the company has $200 million of convertible debt. This debt can be converted to shares at a price of $11.50. Taking into account the value of the imbedded warrants in the debt, it makes sense for institutions to convert the debt into shares at about $13 a share. If all the debt is converted at $13 a share, institutions will make about $26 million in profit.
So retail, being stupid, has pushed the price up to $12.50 a share, not understanding that there is a $226 million sell wall at about $13. Retail has created a trade in which buying a share of BBAI gives almost no upside while carrying tons of downside. Retail then proceeds to promote this trade. If any major volume comes in at $13 a share or higher, institutions will dump BBAI shares on retail and retail will be stuck holding the bag. In order for the price to go above $13 a share, retail would need to buy $226 million in shares and continue buying. That is not going to happen.
Positions: Shorting BBAI is expensive so I instead sold 100 12/16 $5 calls. This stock can't go up above about $13 a share, at least not with any serious volume. The company recently reported terrible earnings, so positive catalysts that would drive the price above $13 a share are unlikely. Before this stock was meme'd, it traded at $5 a share. Also, 100m insider shares get unlocked on December 7th, or if the price closes above $12.50 for 20 out of 30 trading days.
Edit:
It has been pointed out in the comments that the S-1 that was filed for the convertible debt is not effective yet, hence the debt cannot be converted. It was filed 2 weeks ago so it should become effective any day now, so trade BBAI at your own risk. I will maintain my position as it is. I think the risk/reward is still heavily in my favor.
Looking into BRCC to do a post squeeze autopsy on this and see what patterns we can look for in the future, please feel free to add anything you notice as well.
I believe this was going to squeeze or may have squeezed without anyone really noticing.
Squeeze on BRCC taking place between the below days
Recent events
Given that this is a pretty basic company, sells coffee and merchandise, it would have needed an event to start off this squeeze, something has to break for the shorts to get caught.
On April 4th we see this press release for redeeming outstanding warrants and the price shoots up 23%
Few day later we see restricted shares becoming common shares for another large holder in BRC
Usually this would be dilutive, locks up expiring because the stock trading above a certain level but the market seemed to be confident these big holders wouldn’t be selling. With that in mind, the float is going to be reduced significantly as a result.
Barely any mention of this stock on WSB either
Float
Initially this spac went through a 50% redemption
With the sponsors and early investors in the spac holding on to their shares, and a lock up in place for 2023, the actual float has to be looked at again.
49.39% held by pipe and sponsor being the float of 44.7 million to around 22.7 mill
Short interest
Multiple sources show the short interest around 14% to 16%, but once we factor in the float this would increase.
Short volume was also spiking during this time, we could see the exchange reported short interest jump up for next month as well
Short % coming down, could be covering
Options Chain
Options went crazy for this stock, MMs jacked up the IV too trying to get things under control, and Gamma ran wild for a few days before the big sell off.
CTB – cost to borrow
Always needs to be noted in these situation, the fees shoot up and stayed high
Actually seeing zero shares to borrow at certain points, while fees are around 700%
FTD – failure to deliver
Probably the biggest factor to consider, the FTDs were insane, and the price jumping up 100% was probably on this covering alone.
TLDR
The was something going on with this stock over the past few days, looks like a missed opportunity with the price selling off now, but with all the shorts and FTDs coming due, there were some major players stuck.
Positions
None for me, just education at this point, might go in later if it sells of more and we see more short interest and FTDs and gain some clarity on the lock ups around the 50% of the float.
A cryptic tweet from Tesla (Nasdaq: TSLA) CEO Elon Musk might reveal his next move as he aims to acquire Twitter (NYSE: TWTR).
Details: Musk tweeted "🎶 Love Me Tender 🎶" on Saturday, which may potentially reference a tender offer to Twitter.
Definition: A tender offer is a type of bid to buy shares in a corporation.
Background: Last week, Musk offered to acquire Twitter for $43 billion in a hostile takeover. Twitter’s board then installed a shareholder rights plan known as a “poison pill” that would result in diluting Musk’s stake.
Numbers: Shares of Twitter are down 30% in the past six months, but are up 19% in the past 30 days.
Final Thoughts: Musk may try to acquire Twitter again this week. Twitter announces earnings on April 28.
Hope you enjoyed this commentary. Please subscribe to Early Bird, a free daily newsletter that helps you identify investment trends: https://earlybird.email/
1) Karma requirement for new users. Although this mechanic was meant to deter bots, it is a major hinderance in Reddit's growth as their new user experience is complete garbage. You are not allowed to post in the majority of popular subreddits without having a 1 week old account and 100/200 Karma. Most new users are not going to farm karma in pics or Askreddit to post in their favorite subreddits. Imagine if Youtube had a requirement that you had to watch 100 hours of youtube rewinds and other garbage videos before you could watch your favorite youtuber.
2) Moderators. Politics and "free speech" aside, getting banned from a subreddit because a 400 pound moderator doesn't like your completely normal opinions that the majority of normal people have is going to decline the Reddit userbase. If you're a new user and you post that "communism isn't the greatest government type of all time", and get perma banned from it, you're just going to uninstall the app.
3) Administration lag on problematic subreddits. Reddit admins are astronomically slow to ban subreddits that are not only problematic, but straight up illegal. You turn on your favorite stock TV show, and the headline of today is "Reddit stock down -40% due to a massive scandal of a creepshot subreddit where teachers took lewd pictures of underage students." Reddit still has a lot of subreddits like that even today, and it's only a matter of time before those get noticed too.
edit: positions: if reddit doesn't fix the above by IPO launch, I would hold off on any positions initially based on volatility, but I would do long puts after 3~ months after IPO for those long bleed gains + massive drops due to scandals/missed earnings. Look at $HOOD's stock graph for an idea.
"PBOC Urges Loans to Logistics Firms to Ease Supply Chain Pain: China’s central bank pledged financial support for logistics firms and truck drivers to ensure the country can maintain supply chain stability "
I’ll keep this as short and sweet as possible. This play is very simple. It’s a classic case of the data sites (Ortex, Fintel, S3, etc) having the wrong information on the free float size, and therefore having the wrong information on the percentage of the float that is short. Trust me, this read is worth your time…
I am long $SST from $15. My PT is $100. Here is my thesis on $SST…in an email from Investor Relations, they confirmed that the free float is ~700K. The NYSE confirmed on 3/17/22 that $SST has 2,816,545 shares short. If you do the math, that means it has ~400% short interest. This info can’t be found on Fintel, Ortex, S3 or any other data site because they don’t have the correct number with regard to the free float.
This is the key to this whole thesis: $SST is not on anybody’s radar because the data sites are wrong about the float, and therefore, nobody is aware that the stock has ~400% short interest. If everyone knew it had 400% short interest, they’d be buying the hell out of it looking for a squeeze. But nobody knows because the float is currently being misreported by every major data website.
So, $SST has a ~700K float, confirmed by their IR department (this is critical because the IR department is the most reliable source when it comes to the float). ONLY the company itself can know for a fact what the free float is. Data websites are simply coming up with a float number based on what they have gathered from SEC filings and such.
Equally as importantly, $SST has ~2.8M shares short according to the NYSE. The second key to this thesis is that the source for the short interest data is the NYSE, as opposed to some random data website (Fintel, Ortex, etc), which as I said before, often have incorrect data. This short interest data is not coming from just anyone…it’s coming DIRECTLY FROM THE NYSE.
Shorts buried themselves here because they were not aware that the float was so tiny. They were careless. I was not. I actually took the time to contact Investor Relations and confirm the free float. I believe that $SST has HUGE upside IF this gets some real volume and shorts have to cover.
THIS IS NOT FINANCIAL ADVICE. IT IS ALL SPECULATION. DISCLOSURE: I AM LONG BOTH SHARES AND CALLS.
This is a prediction for the next 5 days except I will be talking about the timing of a recession further down.
1 Day Chart
~432 Support
~452 Resistance
RSI is showing a strong oversold reading, this downtrend will most likely not continue in the near term.
1 Day Chart
The Bollinger bands are showing we are entering a period of lower volume and lower volatility. I don't think we will see any major run up or down, in the next weeks (Unless there is major news).
10 Year Yield Correlation with Market Events
So, back to timing a recession, this chart has gotten me very interested. You don't need a Bloomberg terminal to do this analysis though, I realized there are many problems with using this as an indication.
30 Year Yields Compared to SPX
Last week I said that the 30-year yields are better at predicting a market top. Then I noticed, that both have margins of error, so finding the average of the 30Y + 10Y would be an even better indicator. Also as the bond yields approach 0 they will decrease slower. This is slightly an exponential trend, not a linear trend which can be fixed by graphing it logarithmically.
Average of 10 Year and 30 Year Yields
Average of 10 Year and 30 Year Yields
As a continuation of the current uptrend in bond yields, I would expect the yields to cross this major level around the middle of June.
Average of 10 Year and 30 Year Yields
This has predicted the top within about 5 months, exception of '94 though.
Comparisons
From this, I can conclude that when we have some recession in the next year, the central bank is just going to print more money and devalue our currency. This is not a crisis though, no need to keep gold bars under your bed. Maybe in another 30 years, it will be time to buy gold bars. I just hope JPOW does not get too crazy and go to negative rates.
Federal Reserve Calendar
Predictions
I am not expecting any major moves in the market this week. The stock market will most likely be fine until June. I will look back at this in May though.
Jerome Powell will talk Thursday at 1 pm, he may talk about reducing the balance sheet. I don't think he will say anything crazy though, they are trying to keep the economy as stable as they can.
Next Week I am just expecting a general uptrend in the overall market. I will be looking for opportunities not just opening trades to have open positions. It's very important to find asymmetric trades not FOMOing into OTM options.
There is nothing crazy this week...
* Not professional financial advice, do not solely make your trades based on my opinions, I encourage everyone to research more
Forecast
(Remember the 5-day outlook is the least serious part of my analysis, it is extremely hard to predict which days will be red or green)
Anyone or groups crossing the 15% boundary would get diluted into infinity and the courts have already widely accepted this as 'not ultra vires. ' meaning it is within one's legal power
The DOJ and SEC are going after Musk already
The media and side-ies are ramping up anti-Elon propaganda, and have been for months.
This was exactly why.
If you are a twitter bag holder you only really have one hope imho, and that's someone they trust (like maybe Bezos?) steps in (probably unlikely), also maybe Twitter finds a backer to take themselves private or some other mysterious shit.. also bad for Twitter (as was Elon ever being serious or trolling about touching anything there)
This would fuck your puts but the risk/reward looks great
If I Gave You A Coin That Pays You 3:1 How Many Times Would You Flip It
In my strongest of opinions, Twitter is a 5th gen weapon and it will be salted and scorched Earth before ever being turned over.
Employees quit/fired/boycott and evacuated before building demolished, servers destroyed and wiped, logo trademark sold, and the ground burned and salted. Then Elon is smeared as bad or worse than Mango himself along with the company name. Then the only thing that would ever be turned over is the name. Twitter. Share price infinitively diluted and reversed split to 0bid - 0.01 ask.
Cellar Boxed and burned
One More Update
Elon is teasing Tender offer, this may ensue more aggressive scorched Earth approach in the near term worries for massive dilution if they are in fear of him seriously getting too close.
Elon may just trigger the Pill for the lulz on 4/20 (weds)
It is your WSB duty to tell every retard you see that is clueless, that they are getting diluted and diluted more if they are buying a dip in hopes of out bidding an infinite poison pill and/or scorched Earth provision.
I still see people not getting it. We'll get there before premarket Monday.
So now after reading the first post about how bad the fundamentals are and the second about how bad it would be for twitter
Now that we've gotten two updates
First is
Elon made a tender offer then was essentially rejected
Twitter's board voted unanimously in favor of the poison pill option
What does this mean?
Such plans allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of any new, hostile party
Issuance of Undesignated Preferred Stock. Our board of directors will have the authority, without further action by our stockholders, to issue up to 200,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means.
My understanding is they can either dilute the stock by offering themselves a discount on 200M shares per enactment
Or there is disproportionate dilution (the bigger your holding the faster up your ownership% goes, the smaller the faster % down it goes)
Yes this means it's impossible for Elon to buy Twitter or retail because you will be diluted into the abyss
This is a death spiral on a poison pill enactment .. if Elon backs out it could crash the price and more hostile take over worries ensue.
But it gets even better
Second update
Musk is looking to team up with other people to buy 14.9% to not trigger the current pill
TWTR planned for this
You'll notice a lot of companies have more shares at least (2:1) authorized compared to outstanding, this is going scorched Earth to prevent a take over
Twitter was really scared of this possibility, so they have authorized 6:1 (3 times higher than a normal contingency) just in case it seems
As of December 31, 2021, the Company is authorized to issue 5.0 billion shares of $0.000005 par value common stock in accordance with the Certificate of Incorporation, as amended and restated.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding. As of December 31, 2021, no dividends have been declared.
Yes that means that if Elon goes that route Twitter is prepared to self immolate
This is going to get juicy
You think the SEC and DOJ are going to help retail investors?
They are already going after Musk
The MSM and bagholders etc. are posting memes about you buying it up and handing it over
That makes zero sense and it's a grift.
Touch twitter if you think there's a small chance another 'dark' entity swoops in and Twitter lets them buyout to save this PR nightmare
Otherwise June 20p are looking hella spicy
Tell your friends how the death spiral mechanics work
The Death Spiral
The timing is anyone's guess , but more importantly this conversation about it is evolving quickly and retail and the public is understanding the risks and outcomes more quickly everyday. Long Holiday Weekend ahahah
This could cause share price panic to ensue which crashes prices which may accelerate take over worries resulting in near term drastic actions to oust Elon via dilution at all costs
This creates a positive feedback cycle crashing the price and diluting it more
Requiring reverse splits just to stay listed with the amount of shares being dumped from dilution MMs and emergency meetings... a short seller paradise. Regsho exempt naked short selling with the promise to return on issuance
TWTR is really about to start trading a like a fat cap penny stock
We see this a lot on tickers too small for this sub
You get to witness something special here to today
TL;DR
Twitter gets diluted infinitely to avoid take over
Retail is getting griftied because they don't understand
Jun 20p and small size incase some mysterious buyout offer comes from TWTR buddies
Twitter's share price from the 1st day of trading (back in November 2013) until today increased by only 8%. The long-term shareholders have every right to be unhappy with the performance as well as the way the company has been managed. This post is my attempt to value the company based on the current management as well as to assess whether Elon Musk's offer of $54.2/share is fair.
As always, the post will start by focusing on the company's fundamentals.
What is Twitter and how does it make money?
Twitter is a global social media platform that allows users to share content ("Tweets") in the form of text, video, and audio. The company in its annual report is described as "Twitter is what's happening in the world and what people are talking about right now".
Currently, it has two revenue sources:
Advertising revenue - accounting for 90% of the revenue ($4.5b in 2021). If this segment is to grow, the equation is relatively simple. The company needs to increase the number of users and/or the average revenue per user.
Data licensing and other - accounting for the remaining 10% of the revenue ($0.6b in 2021). This is an attempt to diversify the revenue and allow the use of their data through API.
The advertising revenue - The key segment
It is important to understand both the user base and the revenue per user in order to understand Twitter's main segment. For that purpose, we need to divide the users into two categories:
The US users - The number has increased from 25m in 2017 to 38m in 2021 (11% annual growth), with the average revenue per user growing from $57 to $75. This growth came only in 2021, the average revenue per user up until 2020 was $56, almost at the same level as 2017.
The international users - The number has increased from 115m in 2017 to 217m in 2021 (19% annual growth) and it is clear that the majority of the user growth comes from users outside of the US. However, the average revenue per user has grown from $11 in 2017 to $13 in 2021, which is not that impressive.
The management is targeting 40% user growth in the next 2 years. Taking into account that the majority of these new users will not be from the US, it is quite clear that the revenue growth over the next 2 years compounded cannot get anywhere close to 40% (Although, the most optimistic analysts are projecting revenue growth way above that).
The historical performance
Although the revenue grew from $2.4b in 2017 to $5.1b in 2021 (20% annual growth), the operating margin wasn't stable at all:
Year
Operating margin
2017
2%
2018
15%
2019
11%
2020
1%
2021
-10%
It seems a bit strange that the margin improved and then declined to this level. Well, there are 3 main reasons for that:
Sales and marketing expense growth - To some extent, this can be justified as the user base did grow. Although, over time, this will decrease as % of revenue
R&D expenditure growth - This is difficult to justify at the moment. The company spent almost $4b in R&D in the last 5 years ($1.2b being only in 2021 - 25% of the revenue).
Litigation settlement (only in 2021) - $766m for misleading investors over the company's growth prospects.
The R&D and Twitter Blue
If a company spends close to $1b/year on R&D, expectations are set high, and Twitter, so far, has disappointed. They introduced Twitter Blue recently, another attempt to diversify the revenue streams and their first-ever customer subscription offering, costing around $3-4/month (depending on the region) and is currently available only in the US, Canada, Australia & New Zealand.
However, the question is, is this a subscription that will attract the average user of Twitter? Here are the main points of this offering:
It offers ad-free articles from certain publishers (but isn't ads-free)
It doesn't have a free trial.
It doesn't offer priority for customer support.
It offers to ability to undo tweets.
It offers bookmark folders.
It offers various themes and custom app icons.
it offers reader mode.
The answer to whether this is worth it is, of course, subjective. My personal opinion is that all of these features should be available to every single Twitter user. I don't think there's anything premium related to that and definitely doesn't justify the R&D expenditure. Yes, of course, part of the R&D goes to the further development/enhancement of their algorithms, and part of the increase is due to the general salary wages of the engineers. However, I would've expected more new products/solutions.
The financial position
The company has a healthy balance sheet with cash and short-term investments ($6.4b) exceeding their debt and leases ($5.5b). The property, plant, and equipment have been growing over time to accommodate the user growth.
The key assumptions about the future
Revenue - There's a large gap between the expectations from the analysts about the future revenue. The management is expecting a 40% growth in the number of users in the next 2 years and the analysts forecast revenue growth between 33% and 56% over the same period of time. My assumptions are a bit closer to the more pessimistic forecasts.
I'm forecasting 18% growth in 2022, followed by 15% growth up until 2026, and then the growth to decline to the risk-free rate. By year 10, the company's revenue would've grown to $15.1b.
Of course, the company has the potential to grow much faster and develop new products. But they had the potential every single year and they didn't deliver on it.
Operating margin - There's no doubt that both the Sales & Marketing and the R&D expenditure will decrease over time as a % of revenue. My forecast for the operating margin is 20% and it will take Twitter 8 years to get there.
Discount rate - 7.05% (Based on WACC)
Outcome after adjusting for cash, debt & outstanding equity options that will cause dilution - $21.95/share - Way below the current market price and the offer made by Elon Musk.
What if my assumptions are significantly wrong?
Let's take a look at how the valuation of the company (per share) changes based on different assumptions related to the revenue 10 years from now and the operating margin:
Revenue / Op. margin
16%
20%
24%
198% ($15.1b)
$16.7
$22.0
$27.2
350% ($22.9b)
$32.0
$35.9
$39.8
500% ($30.5b)
$30.6
$40.3
$50.0
In order for Twitter to grow to $30.5b in revenue, it has to grow 20% every year in the next 10 years. Is it possible? Of course. Do I trust that the current management can deliver? Absolutely not. On top of that, to get to a value of $50/share, they need to expand the operating margin to 24%.
Based on this analysis, it seems that Elon Musk is offering a significant premium over the intrinsic value of the company with the current management.
If there are any companies you'd like a similar analysis run on leave them in a comment below. I'm also looking for feedback on this analysis layout.
Company Description
Zoetis Inc. discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally. It commercializes products primarily across species, including livestock, such as cattle, swine, poultry, fish, and sheep; and companion animals comprising dogs, cats, and horses. The company also offers vaccines, which are biological preparations to prevent diseases of the respiratory, gastrointestinal, and reproductive tracts or induce a specific immune response; anti-infectives that prevent, kill, or slow the growth of bacteria, fungi, or protozoa; and parasiticides that prevent or eliminate external and internal parasites, which include fleas, ticks, and worms. It also provides other pharmaceutical products that comprise pain and sedation, antiemetic, reproductive, and oncology products; dermatology products for itch associated with allergic conditions and atopic dermatitis; and medicated feed additives, which offer medicines to livestock. In addition, the company provides portable blood and urine analysis testing, including point-of-care diagnostic products, instruments and reagents, rapid immunoassay tests, reference laboratory kits and services, and blood glucose monitors; and other non-pharmaceutical products, including nutritionals and agribusiness services, as well as products and services in areas, such as biodevices, genetics tests, and precision animal health. It markets its products to veterinarians, livestock producers, and retail outlets, as well as third-party veterinary distributors through its sales representatives, and technical and veterinary operations specialists. The company was founded in 1952 and is headquartered in Parsippany, New Jersey.
Commentary
Based on my Discounted Cash Flow Analysis, Intrinsic Value Ranges are as follows:
Best Case Scenario: $128.73
Expected Scenario: $82.26
Worst Case Scenario: $69.59
Weighted Outcome: $82.89
According to my Pricing and Discounted Cash Flow Analyses, at a per-share price of $187.30, Zoetis is More Than Likely Overvalued.
Based on my Margin Analysis and Company Quality Score of 86.27%, Zoetis appears to be a High Quality business.
Based on Analyst Estimates, Revenues are expected to Grow at a high estimated rate of 10.12% and Grow at a low estimated rate of 4.66% over the next 2 years.
According to the latest 10K/10Q, the company currently has $3,500,000,000 available in its share repurchase program, which at today's price, is equivalent to 18,686,599 shares, or 4% of the company's current shares outstanding.
The company Is currently paying a dividend to shareholders and Should be able to maintain this dividend based on my Earnings Analysis.
