I wonder if Facebook founder Mark Zuckerburg has any c about changing the name of his company to Meta Platforms (NASDAQ: META) and plunging the whole hog into the metaverse.
Now, I understand the potential for the metaverse. I’m old, and I’ll probably never have a digital-me roaming around an online land- or cityscape. But the appeal is obvious and is already largely proven. Plus, the company formerly known as Facebook isn’t the only company to start investing heavily to build out a vision of the metaverse.
That’s So Meta
Heck, Walmart is using the Roblox (NASDAQ: RBLX) gaming platform to build metaverse games that feature Walmart (NYSE: WMT) products. But I doubt we will see a sudden name change to Walverse or Metamart. (Though I have to say, Metamart is quite catchy…)
There is a very important lesson about the difference between Walmart’s toe stuck in the metaverse pool and Zuckerburg diving right on in. It has to do with trends, opportunities, and patience.
One of the most important things I’ve learned in my 24 years in the investment biz is that trends always take longer than many think. Especially people who haven’t been around to see many different trends play out over a couple of decades.
This goes for stock market trends, business cycles, economic cycles, social trends, you name it.
The internet, cloud computing, electric vehicles, social media, renewable energy, cryptocurrency – anytime some new tech hits the market, there is a tendency for people to go bananas. “OMG, this is the biggest revolution ever! I better mortgage the house and buy stocks, and I’ll be riiiiich!!!”
This is how stock market manias get going.
And I’m not telling you not to jump. People make a lot of money being fast and aggressive with new trends… But there’s always a backdraft that burns a lot more people. New trends are always bumpy, and they always take longer to develop than they might seem.
By definition, the future usually isn’t now.
The Ghost of Steve Jobs
It’s been studied, and the conclusion is that visionary founders typically make terrible CEOs. Because visionaries are stubborn egomaniacs. Steve Jobs never walked into any meeting ever and said, “You’re right; let’s talk about this.”
It is well-documented that Jobs was a dictator. It was his way or the highway. And it’s mostly inevitable that if you can’t fathom the possibility that you might be wrong about something, it will eventually lead to the highway.
I think it’s because there’s always an element of luck when a new product or tech innovation really hits it big. The iPhone, Facebook, Uber, Peloton bikes, Crocs, bitcoin, Red Bull, and Tesla Model S – there are sweet spots in time where a new product perfectly captures the mood of consumers. But then what? How do you follow up on a smashing success?
Very often, you don’t.
The iPhone debuted in 2007. And there really have only been two new Apple products in the last 15 years: the iPad and the iWatch. Since then, Apple’s success is based on an intense focus on managing costs and supply chains, building out an ecosystem of services and marketing. I’d wager that Jobs' need to stay in the “next new thing” spotlight would’ve made that intense management focus impossible.
Of course, despite the cautionary tales of founders like Steve Jobs, Larry Ellison (Oracle), Travis Kalanick (Uber), or Jack Dorsey (Twitter) that no longer run the companies they started, there are the likes of Elon Musk or Jeff Bezos, who continue to be highly effective leaders.
After this week’s disastrous earnings report that tanked Meta shares by 25%, I’d put my money on Zuckerburg joining the list of founders who no longer run their companies sometime in the next 12 months.
A Quick Note on Chips
We heard from a few semiconductor companies this week, memory chip company Hynix, silicon carbide chip maker Wolfspeed (NASDAQ: WOLF) and everything-chip maker Texas Instruments (NYSE: TXN).
These reports were not good. Hynix is in the same market as Micron (NYSE: MU) – DRAM and NAND memory.
(Editor’s Note: DRAM and NAND are types of computer memory. They consist of dynamic random-access memory (DRAM), which is used for temporary storage in personal computers, servers, and mobile devices, and NAND flash, which is used for permanent storage in mobile devices.
Hynix says it’s cutting CAPEX by 50% for 2023. Micron announced a 30% cut last month. There’s a glut of these chips, and prices fell 20% last quarter.
The CAPEX cuts are bad news for semiconductor equipment companies.
For its part, Texas Instruments said that spending is down for both personal and industrial electronics.
Wolfspeed had the worst report of all if you judge simply by market reaction. It was crushed by 30% after earnings. While I would stay away from a memory company like Micron, Wolfspeed is a different animal. Silicon carbide chips are the go-to chip for the EV market. And WOLF is one of the leaders, if not the leader. Buying the shares for around $85 looks like a pretty good idea.
Did Somebody Say Secondary?
Last week, I published a report on drone stocks. In that report, I offered up an under-the-radar (pun intended) drone stock called Ondas (NASDAQ: ONDS). And I quote:
Ondas has $30 million in cash. Not bad, but to ramp up production, the company is going to need more cash. It’s a terrible time for any company to sell bonds to raise cash. I suspect there will be a secondary offering of shares sometime in the next 6 months.
Well, surprise, surprise. It didn’t take anywhere near 6 months for Ondas to announce a secondary offering of stock. It happened just a couple of days ago…
Ondas announced that it will raise $30 million by selling convertible bonds (bonds that can be converted into stock).
I also wrote:
As you might guess, Ondas’ publicly traded shares will likely fall in price to match the levels at which the secondary shares are offered. A sudden 20% drop can be a nasty surprise for shareholders. But – the stock of a company involved in a secondary offering tends to recover quickly after the offering is complete. So if you’re looking for a good entry point, the announcement of a secondary offering is often a good spot to get in.
Ondas shares closed at $4.45 the day before the secondary was announced. Today, Ondas shares hit a low of $3.57. Let’s see….$4.45….minus $3.57……carry the one…..today’s lows make for a 19.7% drop since the convertible offering was announced. Not bad.
It is important to be aware that Ondas has NOT announced the price at which these convertible bonds can be traded for stock. The conversion price could be $3.57 a share – it could also be higher, it could be lower. We can’t be sure yet.
But one thing’s for sure, the price of the stock will almost certainly move to match the conversion price once the price is announced.
My take: I suspect the timing of this convertible offering right after it announces a new acquisition indicates that Ondas believes it has an imminent opportunity to ramp its sales numbers. That would be bullish for the business, for sure. But it would also be bullish for the conversion price of these bonds.
In other words, the investment bank clients that sign up for this convertible deal will demand certain guarantees of the “wink, wink, nudge, nudge” variety. If they indicate that a big order is in the works, that would do the trick.
I won’t be surprised if the conversion price for this offering is $3.50 or higher. And if a sales agreement is announced after the deal closes, I’d expect to see the stock move quickly back over $4.
Have a great weekend, I’ll talk to you Monday.
Brit Ryle
The Profit Sector
