Tremendous

An angel investor's take on life and business

  • Palantir Is Growing at a Snail’s Pace

    Despite its lofty valuation, Palantir Technologies Inc. is barely growing:

    In the fourth quarter, he points out, Palantir signed 21 deals worth more than $5 million, and 12 of more than $10 million. But he adds that it isn’t clear how many of those are actually new customers, as opposed to new projects with existing customers.

    He notes that given total customer count went to 139 at year end from 132 one quarter earlier, it would seem that most of the new work is from previous customers. “New customer growth is what will ultimately be required to show the commercial momentum the market wants to see longer term,” he writes. “In this regard, the data is still mixed.”

    Seven new customers, net, in 3 months? Not terribly impressive for a company with a market cap of $43 billion and a forward price/earnings ratio of 169. That ratio implies a company that is growing like crazy, not signing a couple of customers a quarter.

    Other reports have indicated growth in their core government contracting business has slowed to a crawl. On the commercial side, 20% of revenue comes from a single customer. The business in general is concentrated in a handful of large customers, any one of whose departure would sting, big time.

    Until Palantir grows at a rate to justify its buoyant stock price, I’ll be keeping my distance.

    For more on Palantir, check out these posts:

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    Photo: “PandoMonthly – April 2012 – Sarah Lacy Interviews Peter Thiel” by thekenyeung is licensed under CC BY-NC-ND 2.0

  • Jocko on Leadership: “Ownership Is the Most Valuable Compensation”

    What motivates subordinates? A fat paycheck, stock options, maybe a free trip to Hawaii?

    Perhaps. But on Monday’s Debrief podcast, Navy SEAL Commander and author Jocko Willink named another, more powerful inducement:

    “Ownership is the most powerful compensation you can give a human being.”

    People want control over their lives, including at work. So, rather than have subordinates execute your plan, Jocko favors giving them a goal and letting them figure out how they’ll get there on their own.

    When a person gets a chance to come up with a plan themselves, they’ll find increasingly efficient ways to do it. After all, most of us like to think we’re smarter than the boss and should really be running things. This is our chance to prove it, and we’re unlikely to blow that chance.

    What’s more, whether in the military or civilian world, subordinates are a lot more familiar with the nitty gritty of a certain job than the boss is. Leaving the details of a plan to them, with the boss just setting overall goals and then approving the plan to reach them, gives them more latitude to bring that experience to bear.

    Finally, running things is fun! When it’s your little idea, you’re a lot more invested in it. So give your subordinates a chance to come up with plans themselves, rather than just waiting for instructions. You may be surprised how well they do.

    For more on business and leadership, check out these posts:

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  • In GameStop, An Unlikely Community

    I spent some time browsing the GME sub* on Reddit yesterday, curious what some of the stock’s most fervent supporters are saying. What I found surprised me.

    The most striking discussions were intensely personal. One poster described saving up his GameStop winnings for sex reassignment surgery, a lifelong dream (usernames redacted):

    Other posters, who call themselves “apes” in a reference to the movie Planet of the Apes, were extraordinarily supportive. Some even expressed a determination to hold the stock to help the original poster, even though one person selling or holding won’t have a material impact on the price. There were a few salty words for hedge funder Ken Griffin though:

    It struck me that, in a time when people are forced to be apart, humans have managed to create community in the most unlikely of places. It says something about the human spirit than even in a disembodied online world, where the topic is an intangible financial instrument, brotherhood (and sisterhood) flourishes. I find it rather beautiful.

    That said, I encourage the posters to simply support each other as people, rather than tying that to a stock. Take it from a professional investor: a stock doesn’t know you own it and doesn’t care about you. It’s a legal construct that gives you ownership rights in a company. And truth be told, it’s a shaky business. I’d hate to see such nice people get hurt.

    For more on GameStop and the Reddit trade, check out these posts:

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    *A sub, or subreddit, is a thematic category on the discussion website Reddit

    Photo: “Gorilla ‘Kibo’” by to.wi is licensed under CC BY-NC-SA 2.0

  • “Everybody Thought I Was Crazy”: How Brian Armstrong Built Coinbase

    “Everybody thought I was crazy.”

    That’s Brian Armstrong, CEO of Coinbase. When he started the company in 2012, it was a small and quirky startup. Bitcoin had only been in use for three years and remained relatively obscure.

    But now, it’s safe to say not many people think Armstrong is crazy. His company just went public yesterday and its valuation currently sits at $66 billion. Coinbase holds $200 billion in cryptocurrencies, around 11% of all crypto in existence. So how did Armstrong go from lunatic to visionary?

    Armstrong had to build interest in his new product. He settled on a cost effective and attention getting marketing tool: send people free money. But not just any money; bitcoin, of course! He sent tiny amounts of the cryptocurrency to countless people. One of them was angel investor Garry Tan, who became one of Coinbase’s first backers. His $300,000 bet turned into $2.4 billion yesterday.

    In an interview with Jason Calacanis on This Week in Startups, Armstrong emphasized the importance of entrepreneurs being scrappy and doing whatever it takes to get the job done. His original approach to investors, repeated countless times, paid off in a major way and Coinbase was accepted to Y Combinator, the most prestigious startup accelerator in Silicon Valley. Armstrong’s resourcefulness and persistence definitely inspire me.

    To build a major business, Armstrong had to make sure not to run afoul of regulators. Unlike, for example, a social media app, finance is heavily regulated. Armstrong ditched the anonymity most people expect from cryptocurrencies, abiding by “know your customer laws.” In turn, he offered users a much more secure way to store their cryptocurrencies:

    The selling proposition here is security—security conspicuously lacking at some of the exchanges with which Coinbase has competed. The Mt. Gox exchange in Japan went bust in 2014 after hackers spirited away coins worth $480 million. Customers of QuadrigaCX, which was one of Canada’s largest exchanges, have been unable to retrieve $150 million in crypto since the founder supposedly died suddenly in December 2018, holding the only set of keys to unlock their money. They now want the body exhumed.

    Armstrong wasn’t afraid to reimagine the crypto business in a way that could grow big, and he doggedly pursued anyone who he thought could help him do it. I find his extraordinary career quite instructive.

    For more on Coinbase and crytocurrencies, check out these posts:

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  • The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase

    In 2012, investor Garry Tan got an e-mail. A young Airbnb engineer named Brian Armstrong had sent him a tiny fraction of a bitcoin, worth just a few cents. But this message piqued his curiosity. How many people send you money for nothing?

    Tan happened to be one of the few people other than Armstrong paying attention to bitcoin at the time. The digital currency had only been in use since 2009. Tan had actually bought some before, using a janky website called Mount Gox. The process was frustrating. He knew there had to be a better way.

    So Tan tried Armstrong’s new system. He found buying and selling bitcoin a breeze, and happily wrote a $300,000 check to Armstrong’s nascent company, Bitbank. That company became Coinbase, which went public today on the Nasdaq. Its current market cap is nearly $100 billion.

    Tan’s initial investment is now worth $2.4 billion, making him one of the wealthiest men in America. But why did he spot Coinbase when other investors turned them down?

    Tan’s familiarity with cryptocurrencies and the problems in buying and selling them was a major factor. He could see Coinbase’s technology was better than what he and other users had had to put up with, so using it would be a no brainer for others. He had also studied the removal of the gold standard in 1971 and was convinced fiat money was risky.

    What do I take from this experience, as an investor? It tells me to look for products in sectors I’m familiar with, and use the product myself if possible. And if a product solves a problem for me, it’s likely to solve it for others as well.

    It also makes me want to read widely and keep up with current technologies as much as possible. The more familiar I am with the new technologies businesses are using, the more good shots at a great investment I will have.

    I hope to have my own 6,000x bet some day!

    For more on startups, venture capital and crypto, check out these posts:

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  • NBA Top Shot: An Overnight Succcess 8 Years in the Making

    NBA Top Shot’s popularity is exploding. Users pay to own an iconic basketball image or video clip, such as Lebron James dunking on someone (plenty of those choose from!). Their ownership is recorded on the blockchain in what’s called a Non-Fungible Token (NFT).

    NBA Top Shot is a creation of Dapper Labs, a Canadian blockchain company. It started selling NFTs of cats called CryptoKitties. From these humble beginnings, Dapper Labs has grown to a million users on NBA Top Shot alone and recently raised $300 million in venture capital at a $2.4 billion valuation.

    In an interview with CEO Roham Gharegozlou, angel investor Jason Calacanis marveled at how far this company has come:

    Another 8 year overnight success in the making. It’s so funny how, as a founder, you can go from being like a punchline of a joke to the absolute belle of the ball.

    Calacanis noted that video games have already sold digital items for real money for years, so the NFT business model is really not that much of a stretch. What’s more, for the young, owning a digital asset feels much more natural than owning a baseball card.

    Dapper Labs plans to branch out to other sports leagues, and ultimately to recording ownership of items beyond video clips and images. If Dapper controlled the ownership records of, for example, cargo, this could be a truly massive company.

    I was impressed with Gharegozlou’s perseverance over nearly a decade, going from obscurity to a partnership with a top sports league and a unicorn valuation. I was also impressed by how forward thinking the NBA is. If the creator of CryptoKitties came up to most major businesses with a proposition, they wouldn’t even get a reply. In its work in the crypto industry, as well as its highly successful COVID protocols, the NBA is clearly doing something right.

    Give this intriguing interview a listen!

    For more on NFTs and crypto, check out these posts:

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    Photo: “LeBron James New York City More Than a Game 3 by David Shankbone” by david_shankbone is licensed under CC BY 2.0

  • Restaurants’ Newest Struggle: Finding Workers

    Reopened restaurants are finding it increasingly difficult to find workers:

    Capacity restrictions and distancing requirements have drastically cut wages for workers like servers, who rely on tips to make up for an hourly wage at or near the federal tipped minimum of $2.13 in many parts of the country, prompting them to find better-paying work. Others shifted to better-paying jobs in fields that boomed while dining imploded, such as retail fulfillment, especially as companies like Amazon and Target pay or have raised hourly wages to $15.

    The problem doesn’t just affect independent or higher-end establishments. Fast-food mega-chains like McDonald’s and Taco Bell are pushing to hire thousands of workers in an effort to reopen dining rooms, even holding drive-up spot interviews in parking lots.

    More here.

    If restaurants are beset by capacity restrictions and closures, impacting your tips, you may be reluctant to return. Especially if you’ve left for a job at, for example, an Amazon fulfillment center, which is never subject to those restrictions and pays a predictable wage. You’re also far more likely to get benefits working for a major company than a small restaurant, which is particularly relevant in the middle of a health crisis.

    With e-commerce growing rapidly, I see little incentive for restaurant workers to return. Perhaps the industry will wind up permanently smaller, more automated, or both.

    For more on business and the economy, check out these posts:

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    Photo: “waiter” by zoetnet is licensed under CC BY 2.0

  • Bullish Investors Pile Into Palantir Options

    Investors are piling into call options on Palantir Technologies, Inc. this week, expecting the stock to head upward:

    “Palantir saw above-average call activity [Monday], about 90,000 contracts more than it trades on average, and the most action was seen in the 24-, 25- and 26-strike calls that expire this coming Friday. The 24-strike calls, for example, traded about 45,000 contracts. Those were trading for just under 70 cents,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”

    Those 24-strike calls break even at an underlying stock price of $24.70, or about 6% higher from where Palantir closed Monday’s session. More bullish traders who took a chance on the 26-strike calls would need to see a jump of more than 12% by Friday’s close to break even.

    Some may be reacting to a recent push from Palantir into the life sciences, diversifying from its bread-and-butter of government clients:

    In a continued push to expand its business beyond the sometimes-controversial federal defense and intelligence contracts it’s best-known for, $42 billion big data company Palantir is making a new push into industries including life sciences and manufacturing.

    That push comes in the form of new capabilities for Palantir Foundry, its product for the private sector, which will be showcased at a company event it calls Double Click on Wednesday.

    However, the stock is richly valued and its core government contracting business is growing slowly. Commercial sales growth is also weak, at a mere 4% in Q4 2020. And 20% of that slow growing commercial business is a single customer. Indeed, a small number of clients drive Palantir’s revenue, exposing the company to a big risk if several were to leave at once. The concentrated and slow growing customer base, along with a hefty price, will keep me away from this stock.

    For more on Palantir, check out these posts:

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    Photo: Palantir co-founder Peter Thiel. “Peter Thiel” by jdlasica is licensed under CC BY 2.0

  • Hedge Fund Loses Half Its Value on GameStop Trades

    Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

    The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

    More here.

    The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

    To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

    According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

    Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

    …a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

    I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

    For more on GameStop, check out these posts:

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    Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

  • GameStop To Dump CEO

    GameStop plans to fire its CEO, Reuters reports:

    GameStop Corp is looking for a new chief executive to replace George Sherman as it pivots from a brick-and-mortar video game retailer to an e-commerce firm, three people familiar with the matter said on Monday.

    It would be the biggest shakeup at GameStop since Ryan Cohen, the co-founder and former chief executive of online pet food company Chewy Inc, joined its board in January and began laying the groundwork for a shift in culture and strategy, people familiar with his work at GameStop said.

    Numerous top executives have already left, likely under pressure from Cohen:

    The CEO replacement is the latest in a string of changes pursued by Cohen since he joined GameStop’s board.

    Former Chief Financial Officer Jim Bell and Chief Customer Officer Frank Hamlin are among the senior executives who have left the company in recent weeks.

    Cohen has brought in executives from Chewy and Amazon. But Chewy and Amazon still sell physical goods, albeit online. Video games are becoming increasingly digital, leaving GameStop with no item to ship to you. Perhaps GameStop could process those digital transactions, but I don’t see why the game publishers wouldn’t just do that themselves and keep 100% of the revenue.

    This leaves them with consoles, primarily. But new consoles only come out every 5-7 years, not enough to sustain a brick and mortar business with 5,000 stores.

    No matter who he brings in, Cohen faces an uphill battle. The video game industry has simply changed in ways that make it difficult for a company like GameStop to survive.

    For more on GameStop, check out these post:

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    Photo: “Ryan-Cohen” by bill.jerome is licensed under CC BY-SA 2.0