TMTB Weekly
Happy Sunday! Hope everyone is enjoying their first post-fed cut weekend. It feels like all our lives are completely changed now that the Fed is cutting! Not sure what all the spiritual sages mean when they talk about the “always already happy state” prior to any and all experience including Fed action — post a Powell rate cute, I’ve been feeling especially groovy.
We’ll start off with the macro as usual, then do an around the horn positioning/sentiment round-up as we head into Oct and the beginning of preview season. Let’s get to it…
Bigger Picture - where do we stand
Both the QQQs and SPX were up 2% this week after the Fed cut 50bps, but not much changed for us on the bigger picture. Last week we wrote: “we continue to expect a choppy, but upwards trending market, and continue to gain confidence that good longs can work well in this market, which means we now feel more comfortable continuing to let our gross climb selectively.” We stick to that view and our confidence in being able to gross up longs has continued to grow.
Again, as we have been writing about the last several months, the path forward will depend a lot on macro data. We fall into the soft-landing camp but remain open minded about where the data is coming out. Clean and better data = a clearer path up and less chop. Mixed data = more choppy, but a still upwards trending market. A version of the chart I’ve been pointing out the last couple of months from GS:
Yup that looks like a 2 year 50% rally if we continue in a non-recessionary environment.
Bottoms up: After going through all TMT charts this weekend, things are looking very good. As we have been writing about, plenty of stocks are hitting 52wk highs this week and that’s without semis participating. What happens if and when semi stocks start hitting new highs? We got some large cap highs in internet this week with META breaking out + NFLX crossing $700 ATHs. AMZN is acting better. Smaller names like ROKU, CHWY TTD, SHOP, DASH, CART, Z are all breaking out. Plenty of names to make $ in. In software, not as strong but plenty of pockets of strength. Some of our favorite names like ORCL NOW PLTR and SAP are all breaking out to new highs. APP is going vertical. MSFT is acting better. Even CRWD got some mojo back this week. In semis, not a lot of 52wk highs but price action remains constructive in certain names (as we’ve written previously, we expect AI trade to be more selective going fwd): Check out how quickly AVGO bounced back after being down 10% on earnings and getting close to flirting with new highs…MRVL getting close to new highs as well. Even AMD started acting better this week. NVDA has been choppy, which is in line with what we expected, but we have a feeling as we start to head into Nov, investors will need to get involved again here heading into what is biggest product tech cycle in a long time + a Jan Q that should get layering of both Hopper and Blackwell revs.
History points to a good Q4:
TMT Positioning/Sentiment Roundup
(Last Update Aug. 11th)
Last update in early Aug, we wrote that META was our favored large cap and stock broke out to new highs this week on the back of positive checks from sell-side and 3p. DB called out strength in reels calling out AI as a key differentiator. Yipit said revenue was tracking at 18% vs VA consensus at 16% (although BB shows street at 18%). Edgewater/Clev have been positive as well. This week brings META Connect on Wednesday where Investors will be looking for updates on different Gen AI products and dicussion around ROI. Reminder that last year’s even was a bit of a disappointment as Zuck talked about continuing investment cycle, but we are one year ahead and META is clearly seeing ROI on their ad products from AI investment. Here’s what we wrote post earnings in late July, which we think, which we think still holds:
Overall, since META has consistently hit high end of their guide, we think bulls will like the Q3 guide which implies no decel (one of main gripes the funding shorts held against META). The comp has gone from -4% —> 23% over the last 4 quarters and now begin to flatten out and get slightly easier as we head into next year, while META’s top line has barely decelerated over that time frame. Buyside #s likely move up slightly and prob now closer to $27 than $26 for 2025. After last q’s print, we thought META might be choppy near-term, but have stuck with our view that stock would be higher 9-12 months from now — with decel fears alleviated somewhat, we focus more on the latter now instead of choppy. We continue to like META as one of our favorite compounders and see no reason why not to like it here as $27 x 22x = $600+, and we think as comps get easier/harder China comps move to rearview as we head into 2025, whatsapp/biz monetization begins to ramp, AI investments beg to show ROI and investment cycle potentially slows as compute build outs bears fruition, we think 22x might be conservative for best in class company with AI tailwinds. Add to this that META’s ad revenues look relatively better to everyone else’s: SNAP guided below, AMZN decel’d 4 pts on their ad biz, GOOGL Youtube missed, PINS missed)
We think previews will be positive as we head through Oct. Could META trade at 25x $27 = $675. We don’t think that’s unreasonable. With stock at $560, that’s $110 up /$80 dn so r/r still skewed to the upside (although not as exciting as $500) with a much higher probability of upside case vs. down.
On AMZN, a couple weeks ago we pointed out how improving 3p data for AWS and US retail would likely drive improving stock performance and we’ve seen that over the last couple weeks as sentiment has also moved up. Yip is now tracking to 21% for AWS vs street at 19% (M-sci a little under 20%). The recent data has been better with last week’s at 22-23% y/y, seeing the highest growth rate since late 2022. Retail is now tracking roughly inline as well and the Prime Day catalyst looms on the horizon in early oct. ISI had a good note out on Friday detailing how Prime Video likely drives upside to revs and OPM in 2025, which would help alleviate concerns after NA retail/ad miss last q. There are still some headwinds to overcome: 1) An AWS accel over 20% on the print would alleviate concerns over first sequential backlog decline from last q 2) int’ revs missed last q 3) how expenses look going fwd with increase Kuiper + wage increases. Jassy’s memo this past week definitely made it sound like he is focused on efficiency and monetization, not unlike what Zuck talked about a couple years back with META. A nice roll-out for Alexa AI would help investors feel better about increased capex spend from last q.
GOOGL sentiment has moved down after their mixed q — search, cloud and OI beat but YT missed and Ruth called out tough ad rev comps in the 2H from lapping China cross-border spend in 2023, tough YT TV comps from price hike, Q3 devices revs from pull fwd pixel launch. She also talked up increase in q3 headcount, said higher levels of D&A from infra build out and increasing COGS from pixel pull-fwd will be headwind to margins. Given all this the $9-10 in EPS buyside had for 2025 feels a bit harder to come by. We also have the regulatory overhang, which is hard for investors to handicap. Oct 8th brings the next catalyst there as DOJ will propose remedies to the court, which are likely to be very punitive and as bad a headline as we’ll probably get. However, Friday brought some good news as Yipit took up their search + ad estimates and now they’re tracking ahead while DB also had some positive checks earlier this week (better search / YT CPM’s still pressured by AMZN). We think stock is likely to begin acting better given 1) sentiment is as bad as it gets 2) OpenAI Strawberry release and META Connect, two headline risks investors have been focused on will be behind them after this week and 3) Oct 8th headlines will be as bad as it gets from a regulatory headline perspective and then it’s a waiting game until some time in 2025 before real remedies get announced and 4) previews are likely to be positive with search and GCP tracking inline to ahead. Our view on GOOGL over the last 2 years has boiled down to this: When search data tracking above, the onus is on the bears to prove search risks are real. That path of least resistance is up with the narrative a tailwind. When search data is tracking below, then every piece of Gen AI news flow (OpenAI search, Perplexity, etc.) gets magnified 5x. With search tracking ahead now, we think path of least resistance is up. However, its not super exciting for us as the regulatory muddies stuff a bit for us so it’s not as clear cut as we would like.
NFLX broke out to new highs this week and we have been writing about how investors want to be long for what is a catalyst rich slate through Jan 25: Tyson/Jake Paul fight on Nov 15th which will be their largest high profile live streaming event, Squid Games 2 on Dec 26th (Squid Games 1 was most streamed show ever), NFL Live on Christmas Day, WWE Raw beginning in January, potential price increase (NFLX hasn’t raised prices for their standard plan in 2 years while SPOT, YT, DIS, etc. have all raised prices. ) , CPMs potentially bottoming as we head into 2025.
TTD remains a favored long as bulls will continue like the political tailwinds the next month, GOOGL FTC case being a narrative tailwind, and partnership with NFLX becoming material in 2025 while DIS, FOX, ROKU partnerships also ramping. We continue to like this as one of our fav medium term compounders. Stock close to 52wk highs.
ROKU sentiment has bounced with a few upgrades + FOX comments and Clev’s better checks last week: They called out improving Q3 momentum and tailwinds from programmatic efforts (TTD partnership driving gains). Most importantly for me they called out M&E spend directionally improving and expected to see further uptick with sports/content launches in Q4. This has been a big headwind for ROKU so when we read that, that perked us up and got us digging into the long pitch more as the chart looked juicy as well. Bulls will point to better pricing (see comments above), improving rate of change and platform spend will drive accelerating platform growth in q3, q4 and 2025. The ROKU channel is under-monetizing as Tubi sell-out/fill rates are higher and that gap likely closes in 2H24 as sellout fill rates increase by +100bps due to recent 3p DSP partnerships. This will drive improving margins and significant upside to EBITDA.
SPOT continues to be one of the cleaner/favorite compounders in internet as better/improving GMs drove a stronger Q3 guide + ARPU remained strong due to pricing. Better cap allocation is likely in the future with new CFO joining in late Q3 and SPOT > $5B cash balance. Bulls think there is more to go on margins and think FCF/EBITDA can grow 40% in ‘25/’26.
UBER 3p data remains mixed with Yip saying US GB tracking a few ppts below street while M-sci is more line. Investors also very focused on 10/10 TSLA robotaxi event. An announcement with Waymo was a pleasant surprise, but investors still remain skeptical about UBER’s LT place in the ride-share ecosystem with AV ramping up.
DASH 3p data continues to point to an-line better print. Last q, they had one of the cleanest prints. The EBITDA numbers have bulls potentially dreaming about a $2B in 2024, which was seemingly off the table after previous q. Despite all the weak consumer datapts, mgmt continues to sound confident at conferences, reiiterating what they said on the call;: “Seeing really strong demand on the consumer side so we're not actually seeing, some of the challenges that you may be hearing about or reading about in other headlines.”
PINS remains in the doghouse after last print and checks have been mixed on 3p partnerships, but other 3p checks have been ok with Edge saying DR continues to show strength with strong CTRs and PINS overtaking TikTok in some accounts as #2 Paid social platform. Key here is if mgmt can convince investors 20% growth + re-accel is back on the table. I wonder if investors new interest in RDDT has taken some flows away from PINS. Stock now trading at mid teens FY25 EBITDA. We’ve had success playing PINS over the past year: long with sentiment is horrible and short when it’s at its peak. We continue to like the medium-term story here and so lean positive into earnings, but aren’t convinced yet and story post-earnings will still be a bit rough as comps continue to get tougher through early 2025.
Speaking of dog house, SNAP EBITDA guide was weaker last q and fueled bear concerns that EBITDA ramp will be elusive as mgmt continues to lack credibility given cadence of beat, miss, beat miss. Stock is down at $9-10, where it has typically bottomed, but even here we struggle with valuation support with stock trading at 20x ‘25 EBITDA for a low-quality asset such as this.
MTCH rallied after saying Tinder payer add guide came in better than expected, which was first positive datapt in a while. 3p data is pointing to a slight incrase in payer adds, but investors wait for a Tinder beat given mgmt lacks credibility .
CHWY: Investors continue to warm up to the story as potentially improving rev growth, continued margin expansion, and buybacks are a nice trifecta tech investors like. Mgmt has continue to sound good on the road as pet household trends are showing early signs of normalization and a lot of levers within CHWY’s control are driving revenue. 3p data also showing a slight beat. We like the story and narrative here and think small long makes sense.
W sentiment has improved after rate cut narrative taken hold (better macro housing data + RH earnings has helped) and investors came out of GS feeling more positive as mgmt said they would be EBITDA positive in 2025 regardless of how revs looked. We have continued to hold a small starter here and have wanted to gross up if/when data improves. The data is pointing to inline right now, but with WayDay moved up to early Oct from late oct last year, we think 3p data will show some nice #s in early Oct so we have increased our exposure slightly here.
Travel sentiment has improved from August when investors were worried about ravel trends deteriorating in 2H - so far they have remained fairly stable. ABNB sentiment improved this past week as AirDNA and Yipit came out with better data — a friend mentioned it reminds him of SHOP in 50s when a best in class asset had been beaten down. We don’t disagree and 2025 gets better as new products ramp. As long as data continues to point to a beat on room nights, we think stock can continue to work. EXPE is breaking out — investors liked that after last q, it looked comparatively better for the first time in a while as bulls pointed to stock trading <10 while printing 10% nights, which is better than ABNB/BKNG while downtick sounded more like Air side vs more important lodging side of the biz (VRBO sounded better).
